of the time fixed by ordinance for its payment, and not at the time the lien attaches.

Gordon, J., dissenting.

Appeal from superior court, King county; J. W. Langley, Judge.

Action by the city of Seattle against Catherine O'Connell and another to foreclose an assessment lien. From a judgment sustaining a demurrer to her answer, defendant O'Connell appeals. Affirmed.

Dore & Cross and Bausman, Kelleher & Emory, for appellant. John W. Pratt, C. A. Riddle, and John K. Brown, for respondent.

The

DUNBAR, J. This suit was brought by the city of Seattle against the appellant to foreclose an assessment lien. Action was commenced by filing a complaint on the 25th day of January, 1893. No summons was then issued. On December 16, 1893, attorneys for respondent had served upon appellant a summons which they personally issued. complaint of the respondent set forth, among other things, that between the 18th day of April, 1890, and the 20th day of January, 1891, by virtue of Ordinance No. 1339, passed by said city of Seattle, it did improve, grade, and construct a sidewalk described; that, by virtue of the provisions of the said ordinance, appellant's property was assessed for said improvements in the sum of $156. To this cause of action the appellant pleaded the statute of limitatiors, by way of affirmative defense, in the following words: "That said improvements mentioned in said complaint were completed and accepted by said city of Seattle prior to the 16th day of December, 1890; that, by virtue and in pursuance of the provisions of the said ordinances mentioned in the complaint, the above lot was duly assessed prior to the 16th day of December, 1890; the amount charged on its proportion of said improvements was found to be, and was prior to said December 16th assessed in, the sum of one hundred and fifty-six ($156) dollars; and prior to said December 16, 1890, by ordinance dated and enacted by said city of Seattle prior to said date, said assessment was made and levied on said lot in the sum of one hundred and fifty-six dollars ($156), as appears by the assessment roll duly approved and filed in the office of the city treasurer of said city; and that said assessment was completed prior to said December 16, 1890." The answer also alleged, in substance, that said assessment became payable on December 16, 1890, and became delinquent on January 25, 1891. The notice under publication of which the tax levied became payable was as follows: "Terrace Street Tax Notice. The tax levied by the city council in the district created by Ordinance No. 1339, to provide for the grading of Terrace street from Yesler avenue to Broadway street, and constructing sidewalks thereon, is now due and payable at

the office of the city treasurer. All taxes not paid within forty days of the first publication of this notice will be declared delinquent, a penalty of five per cent. added, and interest at the rate of ten per cent. charged. H. W. Miller, City Clerk. First publication of this notice, December 16th, 1890." Thus, it was claimed by the answer that the action was not commenced within the period of two years after the cause of action set forth in the complaint had accrued, and that the cause of action was thereby barred by the statute of limitations. To this answer respondent interposed a demurrer, which was sustained by the trial court, and appellant, electing to stand upon her answer, has appealed to this court.

It is conceded that the action was properly commenced by filing the complaint on January 25, 1893. It is also conceded that no summons was issued until December 16, 1893, when summons was issued by the plaintiff's attorney in the manner and form prescribed by the law now in force. On March 15, 1893, however, an act of the legislature was approved by the governor, entitled "An act to provide for the manner of commencing civil actions in the superior courts and bringing the same to trial." Laws 1893, p. 407. This law provides that "civil actions in the several superior courts of this state shall be commenced by the service of a summons, as hereinafter provided." This act took effect June 7, 1893, more than four months after the filing of the complaint herein; and it is the contention of the appellant that the passage of the act of 1893 and the repeal of the prior act thereby, both being in their nature remedial, not only took away the right to proceed further under the prior law, but rendered the filing of the complaint thereunder null and inoperative, inasmuch as no jurisdiction had been or could be acquired over the persons of the defendants by compliance with its provisions. There is some conflict of authority in relation to this question, some courts holding that the repeal of the statute prescribing the particular mode of trial will not operate to annul proceedings had under the statute in cases pending at the time of the repeal, while other courts have construed the statutes more strictly, holding that the subsequent act, if it was remedial in its nature, took away the right to proceed further under the prior law, and in some cases, it was held, rendered the filing of the complaint inoperative, especially where no jurisdiction had been or could be acquired over the persons of the defendants by compliance with the provisions of the new statute. After discussing this proposition somewhat at length, Mr. Endlich, in his work on the Interpretation of Statutes (section 482), says: "The doctrine, indeed, of the destruction of imperfect rights and actions depending on statutes, by their repeal, must not be carried beyond its proper scope. It has been said that an act repeal

ing or in any wise modifying the remedy of a party by action or suit should not be construed to affect actions or suits brought before the repeal or modification. [Citing Newsom v. Greenwood, 4 Or. 119.] Whilst this statement is probably too broad, it is nevertheless true that where the effect of the new legislation is not to take away the jurisdiction or right previously existing, nor to deny a remedy for its enforcement substantially like the one previously allowed, but merely to change the remedy, the right and the jurisdiction continue under the form directed by the new act, where it applies, or else under the old law." It seems to us that a liberal and sensible construction of this statute will lead to the conclusion that it was not the intention of the legislature to interfere with or destroy actions which had already been commenced, to the extent, at least, of depriving the court of the jurisdiction of the subject-matter of the action. In this case, the, the court having jurisdiction of the subject-matter, the jurisdiction of the person of the appellant was obtained by her appearance in the case; and, while it is true that the defense of the statute of limitations was properly pleaded by answer, yet the question of service should have been determined prior to the filing of the answer and the raising of the issue of the statute of limitations, by a motion challenging the jurisdiction of the court over the person of the appellant. Section 15 of the Laws of 1893 (page 412) provides that, "from the time of the service of the summons in a civil action, the court is deemed to have acquired jurisdiction, and to have control of all the subsequent proceedings. A voluntary appearance of a defendant is equivalent to a personal service of the summons upon him." And section 16 provides that "a defendant appears in an action when he answers, demurs, makes any application for an order therein, or gives the plaintiff written notice of his appearance." The court, then, having jurisdiction by the filing of the complaint of the subject-matter of the action, and having jurisdiction of the parties by their voluntary appearance in the case, it would seem that the first contention of appellant is untenable.

A more troublesome question, to our mind, is the second contention, namely, that the statute of limitations had expired prior to the commencement of the action. If the statute commenced to run from the date that the lien attached, as shown by the ordinance, then the plaintiff is barred, for the action was not commenced until 2 years and 40 days after such publication; but it is conceded that, if the statute did not commence to run until the time the assessment became delinquent, the action was brought in time. Then the pertinent question is, did the ordinance extend the statute of limitations beyond the two years provided by the statute? As a general rule, the time during which a plaintiff is legally incapacitated

from commencing an action is added to the time expressed by the statute, or, in other words, the statute does not run during such time. It is true that these provisions are ordinarily specific provisions of the statute, but the rule is based on reason and fair dealing, and, if any other rule obtained, statutes of limitations would become statutes in aid of the prevention of justice, and we are inclined to give the same construction to this ordinance. It is evident that under this ordinance suit could not have been instituted for the collection of this assessment, and the fact that the lien attached upon the land at the time of the issuance of the notice is no proof or indication that the right of action to foreclose the lien had accrued to the city, because liens under the law attach in many instances before the right of action accrues to foreclose. It was urged by the learned counsel for the appellant in his oral argument that it was not within the power of the city to extend the statute of limitations, for the reason that a lien was a cloud upon the title, and that a defendant had a right to have the cloud removed within the statutory period of limitations. As a matter of justice, the cloud could only be removed by the payment of the assessment if the assessment was legally made; and, if the assessment was not legally made, the defendant would not be without remedy to have the assessment annulled and the cloud removed, and under no circumstances does the fact that a debt may be paid at a certain time imply that a right of action has accrued to sue on that debt. The instance that is given by the respondent is in point, namely, that a promissory note may be made payable on or before 40 days, and that, while it is payable at any time after its execution, yet it does not mature, so that the right of action against it accrues, until after the period of 40 days has expired. There seems to be very little authority cited on this particular point, although there is some that is directly in point. The following rule is laid down by Wood on Limitations (section 164): "Where an assessment or tax is laid, and, by ordinance or statute, a certain time is fixed within which it may be paid, the person against whom it is laid has the whole of such period within which to pay it, and the statute does not begin to run thereon until such time has expired." And in Reynolds v. Green, 27 Ohio St. 416, this identical question was decided. There, by ordinance of the city council, the assessment for an improvement was made November 20, 1861; and it was provided in the ordinance that the owners of the lots on which the assessments were made should pay the amounts severally due within 20 days from the date of the ordinance, or be subject to the interest and penalty allowed thereon by law; and it was held that defendants could not be regarded as in default until the expiration of 20 days thereafter, and that the right of action there

for to enforce the assessment did not accrue until December 10, 1861, which was 20 days after the notice. We think the contention of the appellant that she can be in any way injured by the adoption of this rule is more fanciful that real; that the right of action did not accrue until the 40 days expressed by the ordinance had expired; and that the statute of limitations did not commence to run until that time. The demurrer was properly sustained. The judgment will be affirmed.

SCOTT, C. J., and ANDERS and REAVIS, JJ., concur. GORDON, J., dissents.

(16 Wash. 614)

ADAMANT MANUF'G CO. OF AMERICA v. WALLACE et al. Supreme Court of Washington. March 18, 1897.). CORPORATIONS-STOCKHOLDERS-ENFORCEMENT OF LIABILITY-PLEADING-STOCK-TRUST FUND ESTOPPEL.

1. In a suit by a judgment creditor against a corporation and certain stockholders, on the ground that the stock subscribed by them has not been fully paid, it need not be alleged that its capital stock has been fully subscribed, when it is alleged that defendant has been a duly-organized and existing corporation during all the time referred to in the complaint.

2. Nor need the complaint allege à demand by the corporation upon its stockholders for the *ums respectively subscribed by them, and alleged by the complaint not to have been paid.

3. Where the capital stock of a corporation is issued as fully paid up, but has in fact been paid in property below the par value of the stock, equity will compel a payment by the stockholder, to the face value of the stock, for the benefit of a creditor who dealt with the corporation relying upon the asserted value of its assets, but not for the benefit of one who dealt with the corporation knowing that the stock had been paid for in property of less value than the face value of the stock.

4. It is no defense to the creditor's claim that the stock was not in fact worth more than the property accepted in payment of it.

Appeal from superior court, Pierce county; John C. Stallcup, Judge.

Suit by the Adamant Manufacturing Company of America against Thomas B. Wallace and others and the Adamant Plaster Manufacturing Company. From a judgment in favor of defendants, plaintiff appeals. firmed.

Af

Bausman, Kelleher & Emory, for appellant. Campbell & Powell, for respondents.

DUNBAR, J. This is a suit in equity brought by a judgment creditor of an insolvent corporation to obtain payment for its debt from certain of the stockholders, upon the ground that the stock subscribed by them had not been fully paid. We say an "insolvent" corporation, although this is one of the questions in controversy; but we are satisfied from an investigation of the record that the corporation was insolvent, so that it will not be necessary to discuss that ques

tion further on. The defendant corporation, the Adamant Plaster Manufacturing Company, was organized in April, 1889, with a capital stock of $100,000, divided into 1,009 shares of $100 each. $45,000 of stock was subscribed by one Holbrook, and was paid for by him by turning over to the company a certain contract for patent rights for the manufacture of adamant. The defendants in this action, the other stockholders, subscribed for the other $55,000 worth of shares, and an agreement was entered into between themselves that this stock should be issued to them as paid-up stock, upon their building a factory and equipping it for the manufacture of adamant, upon their paying in to the corporation $5,000 as a working capital, and upon the purchase of certain real estate in Tacoma as a site for the factory, and the stock was so issued. It is the contention of the appellant that the property turned over to the corporation in consideration of these shares was not worth the face value of the shares, and that a fraud was thereby perpetrated upon the creditors, one of whom is the plaintiff in this action. It might be well to state here that the plaintiff corporation had obtained judgment against the defendant corporation, execution had issued, and a writ of nulla bona returned, which return was the basis of this action against the stockholders to compel them to pay in to the corporation sufficient to liquidate its debt. The defendants demurred to the plaintiff's complaint on the ground that it did not state facts sufficient to constitute a cause of action, which demurrer, we think, was properly overruled.

The first ground of objection to the complaint is that it shows on its face that the capital stock of the defendant corporation consisted of 1,000 shares, but it nowhere appears in the complaint that all of said shares were subscribed. In support of the contention that this is a necessary averment, appellant cites Hotel Co. v. Schram, 6 Wash. 134, 32 Pac. 1002. This case is easily distinguished from that one. In that case the action was brought by the corporation itself, while in the case at bar the action is brought by a creditor, and another rule prevails. However, this question was squarely decided by this court in opposition to respondent's contention in McKay v. Elwood, 12 Wash. 579, 41 Pac. 919, where it was held that, in an action by a corporation upon an unpaid stock subscription, the complaint was not demurrable on the ground that it failed to allege that the capital stock of the corporation had been subscribed, when the complaint otherwise alleged that plaintiff was and had been a duly-organized and existing corporation during all the time referred to in the complaint.

The next objection was that there was no allegation in the complaint that any demand or call was ever made by the trustees of the

defendant corporation, or otherwise, or at all, upon the individual defendants, or upon any of them, for the sums respectively subscribed by them, and alleged by the complaint not to have been paid; citing Elderkin v. Peterson, 8 Wash. 674, 36 Pac. 1089, which case was also an action by a receiver against a stockholder, and is therefore not in point. The creditor has no control over the corporation or its business; is not supposed to know whether calls have been regularly made or made at all. So it will be readily seen that while this may be a duty of the corporation itself, in suing one of its members over whom it has control, the duty should not be imposed upon a creditor. That no calls are necessary before an action can be commenced by a creditor against the stockholder, see 2 Mor. Priv. Corp. § 821, where the distinctions above referred to are commented on at length. We think the complaint, in all respects, was sufficient.

It is not necessary, in discussing the merits of this case, to set out in full the answer of the defendants, for the real contention must be whether or not the stock subscribed for was paid for in cash or its equivalent. The doctrine that the stock of a corporation is a trust fund for the benefit of creditors is one which is founded in equity and fair dealing, and, in any event, has become so well established in this country that it can no longer be gainsaid. This doctrine was announced by Chancellor Kent, as early as 1824, in Wood v. Dummer, 3 Mason, 309, Fed. Cas. No. 17,944, and since that time has become the established law of this country, and is termed the "American doctrine," although, as shown in the case above referred to, the same doctrine had long been established in England; and so universally has this doctrine been accepted in America, especially, that the citation of authorities seems a work of supererogation. We will, however, quote from 2 Mor. Priv. Corp. § 820, the rule which is announced as follows: "Debts due a corporation are equitable assets, and may be reached by creditors through the aid of a court of chancery, if the legal assets which can be reached by execution prove insufficient. The liability of shareholders to contribute the amount of their shares as capital is treated in equity as assets, like other legal claims belonging to the corporation. This liability, together with the capital actually contributed, constitutes the trust fund, which in equity is deemed pledged for the payment of the corporate debts." This being true, then it must necessarily follow, for the protection of creditors who dealt with these corporations, that the stock subscribed for must be paid in cash, or in property of an equivalent value. In other words, the corporation must be in the actual condition which it represents itself to be in financially. If it were allowed to hold itself out as having a capital stock of $100,000, when in reality the capital stock,

which is and must be, under the theory of the law, assets in the hands of the corporation, is worth only one-half that amount, the corporation is to that extent doing business under false colors, and is obtaining credit upon the faith of an asserted estate which is purely fictitious. And where, by any arrangement between the shareholders and the corporation, the stock is issued as fully paid up, when in fact it has not been paid to the full amount of its face value, but has been paid in property of a fictitious or inflated value, a court of equity will compel a payment by the stockholder, for the benefit of the creditor who has dealt with the corporation relying upon the asserted value of its assets, to the full amount or face value of the stock. Such is almost the universal holding of the courts of the present day. See First Nat. Bank of Deadwood v. Gustin Minerva Con. Min. Co. (Minn.) 44 N. W. 198; Tayl. Priv. Corp. § 702. The latter authority lays down the rule as follows: "To issue shares, as fully paid up, for property known to the corporation and the shareholder receiving them to be materially below their par value, is a fraud on creditors, for whose benefit the shareholder to whom the shares are issued may be compelled to make up the difference." See, also, Wetherbee v. Baker, 35 N. J. Eq. 501; Cook, Stock & S. § 652; Redmond v. Dickerson, 9 N. J. Eq. 507; Higgins v. Lansingh (Ill. Sup.) 40 N. E. 362; Scovill v. Thayer, 105 U. S. 143; Boynton v. Andrews, 63 N. Y. 93; Gilkie & Anson Co. v. Dawson Town & Gas Co. (Neb.) 64 N. W. 978; Mor. Priv. Corp. § 842, and cases cited.

So the question to be determined, so far as this branch of the case is concerned, is, was the $55,000 worth of stock subscribed for by the defendants in this action, who were the shareholders, paid for in money or its equivalent? This question must be decisively decided in the negative. If the most that is contended for by the respondents (defendants) in regard to the payment of this stock be accepted as fact, the payments would amount to only $28,600, instead of $55,000, the face value of the stock subscribed for, and which was issued as paid-up stock; for it is only contended that the shareholders were to pay for this $55,000 worth of stock a certain site for the factory, of the estimated value of $14,000; the factory and its machinery, which were found by the court to be of the value of $9,100; and $5,000, to be paid in cash, as a working capital. The testimony, however, shows that there was really never anything paid but the factory, which was found by the court-and we think properly-to be of the value of $9,100. An option on the land which was sought to be purchased was obtained for $3,500. It seems, however, that, instead of the shareholders advancing the money for this option, a note was given by the corporation to the Pacific National Bank for the same. It does not appear that this note was ever paid by the shareholders,

or, in fact, that it was ever paid at all, although one of the defendants testified that he was satisfied that it had been paid; at all events, that the bank did not claim such an indebtedness. However that may be, there is nothing to show that it was ever paid by the shareholders, and, if paid at all, was evidently paid out of the funds of the corporation. The $5,000 which was to be advanced as a working capital was obtained in the same way, by giving a note of the corporation indorsed by the individual shareholders. This note, with the exception of the interest, has never been paid, and the corporation finally gave a mortgage on its corporate property for the satisfaction of this debt, which mortgage is still alive and is a lien upon the property pledged. The land itself, upon which the option was obtained, has reverted to the original owners. So that in fact, so far as the testimony shows,-and it was gone into at great length, the only thing of value which the corporation had ever received for the paid-up shares to the extent of $55,000 was the building, which, as we have before said, was correctly found to be worth $9,100. This case, then, falls squarely within the rule which we have announced above; and, if there were no estoppels, the creditor would undoubtedly have the right to pursue this trust fund into the hands of the stockholders. In fact, there is no contention on the part of the respondents who testified in the action that the property turned in by them was of the actual value of $55,000. Mr. Manning, one of the defendant stockholders, in testifying as to the value of the property, stated that they regarded the whole property as worth the amount of money represented by the stock; but, in answer to the following question by the attorney for the respondents, "That is to say, the patents and the building, and all those things, were estimated to be worth about $100,000?" said: "Well, I don't know as we figured it worth as much as that. We thought it was worth as much as the stock was." Now, this is altogether another proposition. It may have been worth as much as the stock, and doubtless that was the theory upon which these stockholders acted when they subscribed for the stock; and as between themselves, in buying or selling stock, they would have a right to place any value they saw fit upon it, and place any value they saw fit upon the property which they were trading for the stock. But under the trust doctrine, which we have announced above, it is not enough that the property which the corporation receives for the stock which it issues is worth as much as the stock; it must be worth the face value of the stock; and the fact, as testified to by the witness, that he thought it was worth as much as the stock, does not tend to sustain the assertion that the property received was worth the face value of the stock. The findings of the court are peculiar, and we think, in many instances, unwarranted, and the conclusions of the court are unwarranted by the testimony 48 P.-27

and by the findings. After the court found that the value of the building and machinery was only $9,100, it found, as a conclusion of law, that the subscriptions by the defendants were fully paid and satisfied before the commencement of this action, and that all of the capital stock of the defendant corporation had been fully paid for in cash and in property received and accepted by said corporation in payment for its said stock. The second finding might be true, and still would not justify the judgment that the plaintiff had no remedy against the defendants. There is no question, under the record, but that the stock was paid for in property received and accepted by the corporation in payment for the stock; but, as we have before intimated, while this would be a binding contract between the corporation and its shareholders, it does not meet the requirements of the law where creditors are concerned.

But there is another phase of this case which will compel the affirmance of the judgment, although it was not the ground upon which the court below acted. While the doctrine of trust fund is accepted in its broadest sense, it is well settled that a trust will not be impressed upon the stock of the corporation in the hands of the stockholders, for the benefit of creditors who dealt with the corporation with knowledge of the fact that the stock had been paid for in property the value of which was less than the face value of the stock. As was well said in First Nat. Bank of Deadwood v. Gustin Minerva Con. Min. Co., supra: "The whole doctrine that the capital stock of corporations is a trust fund for the payment of creditors rests upon the equitable consideration that the distribution of the capital among stockholders without making adequate provision for the payment of debts, or the issue of fictitiously paid up stock, is a fraud upon creditors who contract with the corporation in reliance upon its capital remaining intact, or in reliance upon the professed capital having been in fact paid up in fuil. But when the reason for the rule does not exist the rule itself ceases to apply. * It is only those creditors who can fairly allege that they have relied, or whom the law presumes to have relied, upon the amount of capital stock of the company, who have a right to make such inquiry, or in whose favor equity will impress a trust upon the subscription to the stock, and set aside a fictitious arrangement for its payment." In cases where parties have actual notice of the conditions existing in the corporation, it must be conceded that as to them no fraud, actual or constructive, has been committed by the shareholders and the corporation in receiving property at fictitious values in exchange for the stock of the corporation. This was the doctrine also announced by this court in Turner v. Bailey, 12 Wash. 634, 42 Pac. 115. It was further held in that case that the stockholders whose capital stock had been fully paid by transfer of certain properties, considered in good faith by