d. Liability of trustees.

There is authority for the doctrine that an action for an accounting may be maintained by a stockholder or creditor against the trustees at any time before the termination of the prolonged period of corporate existence, as specified in § 98, infra, 3 but not afterwards. *

The second of the cases referred to, however, seems to be scarcely consistent with a somewhat earlier one, in which the right of a trustee to maintain an action of law after the end of the statutory period was taken for granted."

it down that, "upon a dissolution of the bank, its control of its assets ceased, and the legislature had no power to direct their appropriation," because "by express legislation its assets became trust property, and whoever had them in charge became trustee for the statutory beneficiaries," proceeded thus: "Samuel Watson, upon the dissolution of the bank, came into possession of its assets under an assignment made by the bank under the direction of the general assembly, while the assignment was valid to convey the legal title to the property; yet, as far as the act of the legislature and the terms of the assignment, which sought to give preference as against the statutory beneficiaries, the same was invalid and a nullity, and has been so held by this court in this case. We are of the opinion that Watson, the trustee, held the funds charged with the same trusts as they were in the hands of the officers of the bank before or at the time they were assigned to him, and that he held not adversely to those whom the court may declare to be the statutory beneficiaries." For further information concerning this case, see next section, note 4.

Lafayette Co. v. Neely (1884) 21 Fed. 738.

* In Rogersville & J. R. Co. v. Kyle (1882) 9 Lea, 691, where the action was brought in the name of a railroad company against its president to enforce his liability for various sums of money which had been paid to him as president and as receiver, it was held that as the bill was filed more

$ 98. Tennessee (continued). Provision prolonging corporate existence.

a. Contents.

Code 1884, § 1720. "All corporations whose charters expire by their own limitation, or are annulled by forfeiture, or dissolved for any other cause, exist as bodies corporate for the term of five years after such dissolution, for the purpose of prosecuting and defending suits by or against them, settling their business, disposing of their property, and dividing their capital stock, but not for the purpose of continuing the corporate business."

than five years after the sale of the road and its franchises, and its consequent dissolution, and it was not alleged that the powers of the persons who, under the statute, became trustees, were extended beyond that period, it resulted that they were not authorized to sue in the corporate name, and that the remedy, if any, would be in the name of a creditor or stockholder.

5 Kyle v. Ewing (1880) 5 Lea, 580. The conclusions of the court were thus stated: "The action was brought in the name of 'the Bank of Tennessee, for the use of Robert Ewing, acting trustee and receiver of said bank.'

. This, however, is an action upon a contract with Watson, trustee, of date 6th of May, 1870, and it is difficult to see why an action could not have been maintained in his name alone in his lifetime, or in the name of his representative or successor after his death, without the use of the corporate name of the bank. The note was not payable to the bank, or to the president and directors of the bank, nor was the corporation à party to the contract. . . . So, then, as the plaintiff has unnecessarily used as nominal plaintiff the name of the corporation, shall the fact that the corporation had then ceased to exist abate the act? Ewing was real plaintiff, he alone was liable for costs, and the action could well be maintained in his name alone. The unnecessary use of the name of the bank might have been stricken out upon motion, without affecting the case. We think the error, if one, is too much of a mere form to authorize a reversal."

Code 1896, § 2074; Code 1917, § 2074. "All corporations whose charters expire or have expired by their own limitation, and which exist by virtue of the two preceding sections for the term of five years after said expiration, for the purpose of prosecuting or defending suits by or against them, settling their business, disposing of their property, and dividing their capital stock, shall be allowed to continue the corporate business for which they were created during the said term of five years, but no longer."

Code 1896, § 2075; Code 1917, § 2075. "All such corporations shall, during the term of five years mentioned in the last section, but no longer, possess all powers, rights, and privileges conferred upon them, and shall, during said period, be subject to all penalties and restrictions of their original charters." (Laws 1887, chap. 197, § 2.)

b. Scope.

This provision, being one of a general tenor, was held to apply to the Bank of Tennessee, as well as to corporations of a strictly private description.1

c. Effect, generally.

The provision constitutes a part of

2

1 Kyle v. Ewing (1880) 5 Lea, 580. Ferguson v. Miners' & Mfrs. Bank (1856) 3 Sneed, 609.

3 Ferguson v. Miners' & Mfrs. Bank (1856) 3 Sneed, 609.

4 State v. Bank of Tennessee (1875) 5 Baxt. 101. In the principal opinion, delivered by Lea, Ch. J., the following remarks were made: "The most that can be claimed for this section [1493] of the Code is that for five years after the dissolution of the corporation the power is given in the corporate name to sue and be sued. Prior to this act no such power existed. No suit could be maintained by or against a dissolved corporation in its corporate name, but, if the corporate assets had been assigned in trust for the benefit of others, the beneficiaries could, notwithstanding the death of the corporation, come into a court of equity and enforce the collection of the assets in their own name. Ingraham v. Terry (1850) 11 Humph. 576. And this right in equity existed long prior

the charter of every corporation created under the statute in which it is included.2

d. Procedural capacity of corporation during prolonged period of existence.

A dissolved corporation is entitled to maintain an action on a contract such as a bill of exchange.3

e. Effect of termination of prolonged period of corporate existence.

In the case cited below, it was held that, after the termination of the prolonged period specified in the statute, an action at law could not be maintained by or against the dissolved corporation (here, the Bank of Tennessee), unless that period were further extended in pursuance of an application made to the chancellor, in accordance with the Code provision relating to such an extension. But the position was also taken that the Code provision had not abrogated the equitable jurisdiction founded upon the general doctrine that the assets of an extinct corporation are a trust fund (see 14, supra), and that the petitioning creditors were consequently entitled to avail themselves of that doctrine for the purpose of enforcing their claims.1

to the adoption of the act of the legislature granting power to a dissolved corporation to sue and be sued in its corporate name for five years. It is now well settled that upon the dissolution of a corporation, that the assets become a trust fund for the benefit of creditors and stockholders; and, while in a court of law no suit could be maintained by or against such dissolved corporation without special authority from the legislature, yet a court of chancery has ever had the right to take charge of the funds and apply them to the benefit of those entitled. Now the assets being trust funds, and the chancery court having jurisdiction thereof, does the act of the legislature, giving such dissolved corporations five years to sue and be sued in the corporate name, interfere with, impair, or take away the jurisdiction which the chancery court had, prior to the passage of such an act? Clearly not. The Code, §§ 1495 and 1496, authorized the trus

In another case it was held that the representatives of deceased stockholders of a defunct bank, debts of which had been fully discharged, were entitled to claim the proceeds of an insurance policy on which the liability

tees to sue for the assets in the corporate name (giving them a remedy at law which before they did not have), and this power was continued for five years, and, if necessary, a chancellor, upon a proper application, might extend the power for a longer time. If no such application was made, the power to sue and be sued at law expired, but the right to go into a chancery court for the collection of the assets remained unaffected. . . . This act of our legislature is not, and does not purport to be, a statute of limitation, but simply to continue the corporate existence, and is an additional remedy to the equitable one, which, however, is unimpaired, for the principle is too familiar to require reasoning or citation of authorities, and that the jurisdiction of a court of equity is not taken away by supplying the defects in the legal remedy, on account of which equity originally assumed jurisdiction. And this act itself does not purport to interfere with the chancery jurisdiction. When the additional remedy expires, resort must be had to equity, just as they must have done originally in such a case, before the more convenient legal remedy was given." In his concurring opinion McFarland, J., said: "It is argued, in the first place, that it was a well-settled common-law rule that, upon the dissolution of a corporation, all debts due to and from it were extinguished, and all suits abated, and of course no new suits could be brought; and the effect of this section was to modify the common law only to the extent of continuing the corporate existence five years, but at the end of that time all the consequences follow that otherwise would have ensued upon the dissolution of the corporation by the expiration of the charter, or from other cause. It is certainly true that the effect of this section is that, for certain purposes, the corporate life is extended for five years, but, if not still further extended under § 1496, the corporation then ceases to exist; and from this it does certainly result that after that time no new suit could be brought by or

of the insurance company had accrued after the bank had become entirely extinct by the expiration of the prolonged period of existence accorded by the statute.5

against the corporation, and all existing suits would abate. At the time these petitions were filed the Bank of Tennessee as a corporation was extinct, and no suit could be brought by or against it. But it does not follow that a creditor might not, in equity, seek satisfaction of a just debt out of the assets of the bank still remaining either in the hands of its officers and managers, or of its assignees, even conceding the bank entirely out of existence. The assets of a bank are a trust fund, first, for the payment of its creditors, even after dissolution. The existence of the corporation is not essential to enable the creditors to reach this fund in equity, if there be no other question. The common-law rule, if it ever properly applied to a modern moneyed corporation, has cer tainly been modified to this extent. Marr v. Bank of West Tennessee (1867) 4 Coldw. 471."

In Kyle v. Ewing (1880) 5 Lea, 580, it was conceded that an action at law could not be maintained by the corporation in question after the end of the prolonged period. See § 97, note 5, supra.

In State ex rel. Fisher v. U. S. Grant University (1905) 115 Tenn. 238, 90 S. W. 294, this doctrine was affirmed with regard to a corporation voluntarily dissolved.

5 Prudential Mut. L. Ins. Co. v. Dunscomb (1902) 108 Tenn. 724, 58 L.R.A. 694, 91 Am. St. Rep. 769, 69 S. W. 345. The court referred to § 5187 of Shannon's Compilation, which provides as follows: "A corporation is not dissolved by nonuse or assignment to others in whole or in part of its powers, franchises, and privileges, unless all the corporate property has been appropriated to the payment of the debts, and any credi tor, for himself and any other creditors, whether he has recovered judgment or not, or any stockholder, for himself and other stockholders, may file a bill under the provisions of this chapter to attach the corporate property and have such property ap plied to the payment of the debts of the corporation, and any surplus

$99. Texas. General provision designating directors as trustees.

a. Contents.

Vernon's Stat. 1911, art. 1206 (Rev. Stat. art. 682 (606)). "Upon the dissolution of any corporation, unless a receiver is appointed by some court of competent jurisdiction, the president and directors or managers of the affairs of the corporation at the time of its dissolution, by whatever name they may be known in law, shall be trustees of the creditors and stockholders of such corporation, with full power to settle the affairs, collect the outstanding debts, and divide the moneys and other property among the stockholders, after paying the debts due and owing by such corporation at the time of its dissolution, as far as such money and property will enable them after paying all just and reasonable expenses; and to this end, and for this purpose they may, in the name of such corporation, sell, convey and transfer all real and personal property belong. ing to such company, collect all debts, compromise controversies, maintain or defend judicial proceedings and to exercise the full power and authority of said company over such assets and properties." The effect of the following clauses, and of the amendment added in 1919, is stated in § 101, infra.

divided among the stockholders." It was observed that "this section recognizes the rights of stockholders to realize the assets that formerly belonged to the corporation, even though the corporation cannot sue. And this is the rule generally recognized. Am. & Eng. Enc. Law, 2d ed. 608. And the assets must be prorated and paid out in proportion as the subscriptions of stock have been paid. Cook, Stockholders, § 641."

9

State

1 San Antonio Gas Co. v. (1899) 22 Tex. Civ. App. 118, 54 S. W. 289. The consideration mainly relied upon by the court was that the intention of the legislature to draw a distinction between a dissolution and the forfeiture of a charter was shown by the language of § 3 of article 1465, Revised Statutes, where provision is made for a receiver in case of dissolution, insolvency, or forfeiture. But such an argument seems to press

Art. 1207 (Rev. Stat. art. 683). "The trustees mentioned in the preceding article shall be severally responsible to the creditors and stockholders of such corporation to the extent of its property and effects that shall have come into their hands."

b. Scope.

In one case the court of appeals expressed the opinion that the above provision is not applicable to cases in which the charter of a corporation has been forfeited.1 But the preferable view, it is submitted, is that the term "dissolution" comprehends all the various ways in which the existence of a corporation may be terminated.

The exceptive clause in the provision, "unless a receiver is appointed," has no application to a case in which a receiver was appointed during the life of the corporation in question, but his administration of its affairs was terminated before its dissolution.

c. Devolution of property rights.

In one case it was laid down that the effect of the forfeiture of a charter of a road company was to vest the roadbed in the statutory trustees.3

In another case where a corporation was dissolved by a foreclosure sale of its franchises, etc., it was held that "the title to all the property not transferred by the foreclosure sale vested

the notion of an implied intention to an undue extreme.

2 Lakeside Irrig. Co. v. Buffington (1914) Tex. Civ. App. - 168 S. W. 21. There the dissolution was voluntary; but the ruling would presumably be treated as a precedent in respect of cases involving the expiration of a corporate charter. The question whether it would, in Texas, be deemed relevant in respect of cases involving a forfeiture of the charter, depends upon the view which will be taken by the supreme court with regard to the correctness of the theory propounded in the case cited in the preceding note.

3 Sulphur Springs & Mt. P. R. Co. v. St. Louis, A. & T. R. Co. (1893) 2 Tex. Civ. App. 650, 22 S. W. 107, 23 S. W. 1012-following People v. O'Brien (1888) 111 N. Y. 1, 2 L.R.A. 255, 7 Am. St. Rep. 684, 18 N. E. 692, reviewed in § 79, note 3, supra.

in the directors, as trustees, for the benefit of the corporation creditors;" and that the surviving trustees were authorized to deal with the property, as they deemed proper for the best interest of the company. The fact that the creditors had consented to such action was adverted to as a special ground for applying this doctrine. 4

d. Powers of trustees.

The authority of the president of a dissolved corporation to sign a promissory note was presumed in the case cited below."

In another case it was held that the president and secretary of a dissolved corporation were competent to execute a written waiver, consenting to the determination of an assessment and the collection of the amount of taxes under returns made six years previously, 5a

e. Trustees as parties to actions.

An action for the enforcement of a claim which accrued to a dissolved corporation before it became extinct is properly prosecuted by the statutory trustees.

As a general rule the director trustees must be sued collectively." In one case the court seems to have been prepared to concede that this rule is subject to an exception, where all the directors but one have left the state, and they have authorized him to act for them. But the actual ratio decidendi was that the default of the corporation in question with respect to the payment of its taxes had not produced an absolute forfeiture of its charter, but merely subjected it to a liability to such forfeiture.

4 Aldridge v. Pardee (1900) 24 Tex. Civ. App. 254, 60 S. W. 789, affirming the validity of a sale of land made by a trustee with the consent of creditors.

5 Oil Well Supply Co. v. Burk Waggoner Oil Co. (1924) Tex. Civ. App.

261 S. W. 830.

1. Continuance of actions pending at time of dissolution.

See § 101, subsec. b, infra.

$ 100. Texas (continued). Provisions of similar tenor with regard to railroads.

a. Contents.

By Rev. Stat. art. 6630 (4555), it is provided: "Whenever a sale of the roadbed, track, franchise and chartered powers and privileges is made as hereinbefore provided (unless other persons shall be appointed by the legislature or by some court of competent authority), the directors or managers of the sold-out company at the time of the sale, by whatever name they may be known in law, shall be the trustees of the creditors and stockholders of the sold-out company, and shall have full powers to settle the affairs of the soldout company, collect and pay the outstanding debts, and divide among the stockholders the money and other property that shall remain after the payment of the debts and other necessary expenses; and the persons so constituted trustees shall have authority to sue by the name of the trustees of such sold-out company, and may be sued as such, and shall be jointly and severally responsible to the creditors and stockholders of such company, to the extent of its property and effects that shall come to their hands."

b. Powers of trustees.

The effect of this provision (which, it may be pointed out, was originally enacted before the general one specified in § 99, supra) has been thus explained in one point of view: "The language of the statute indicates that

tived was that the action should have been brought by a corporation to which the extinct one had assigned most of its assets, but not the claim in question.

-

7 Leyhe v. Leyhe (1920) Tex. Civ. App., 220 S. W. 377. Compare also Witherspoon v. Texas P. R. Co. (1877) 48 Tex. 309, decided with reference to the special statute mentioned in § 100, infra.

8 Bunn v. Laredo (1919) Tex. Civ. App., 213 S. W. 320.