a court of equity is the proper tribunal in which to institute the action."' 90 Mandamus will not lie for that purpose.91 The corporation is a proper party to such a suit.92 If the suit is brought by a single stockholder for the benefit of himself and all other stockholders in his class, he must allege either that an application has been made to the directors to declare the dividend sought for, or some reason why such an application would be ineffectual if there were any funds to divide.93 A mere allegation that he has demanded payment of the amount claimed to be due him individually under his own contract is insufficient.94 But no demand 90 Cratty v. Peoria Law Library Ass'n, 219 Ill. 516, 76 N. E. 707, rev'g 120 Ill. App. 596. See also In re Goetz's Estate, 236 Pa. 630, 85 Atl. 65, 236 Pa. 638, 85 Atl. 67. "For neglect or refusal by the officers of the corporation to perform a corporate function, as to the declaration of the dividend, or as to the distribution of funds asserted to be legally or equitably applicable to dividends, relief must be sought by an appropriate suit in equity, in which the chancellor may, while avoiding interference with the exercise of a due discretion by corporate officers, yet enforce the performance of a legal corporate duty." American Steel Foundries v. Lazear, 204 Fed. 204. "The right of preferred and common stockholders to a declaration of dividend is one of purely equitable cognizance." Lee v. Fisk, 222 Mass. 418, 109 N. E. 833. An agreement to declare and pay dividends monthly can only be enforced in a court of equity. Corgan v. George F. Lee Coal Co., 218 Pa. 386, 120 Am. St. Rep. 891, 11 Ann. Cas. 838, 67 Atl. 655. 91 Rex v. Bank of England, 2 B. & Ald. 620. 92 The corporation is a proper party to such a suit, and should be made a defendant rather than a plaintiff. Stevens v. United States Steel Corporation, 68 N. J. Eq. 373, 59 Atl. 905. In this case the necessity for joining directors was not determined on demurrer because their nonjoinder was not assigned as cause of demur rer. In Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq. 756, 26 Atl. 886, which was a suit by a stockholder, it is said: "Generally suits to compel the declaration of dividends must be in the name of the corporation, but where the corporation is a defendant and the majority of directors are parties charged with fraud in this very respect, the suit will proceed to a decree upon the complainant's rights." This statement was quoted with approval in Lawton v. Bedell (N. J. Ch.), 71 Atl. 490, and in Maeder v. Buffalo Bill's Wild West Co., 132 Fed. 280, which were also suits by stockholders. 93 Wilson v. American Ice Co., 206 Fed. 736; Maeder v. Buffalo Bill's Wild West Co., 132 Fed. 280; Winstead v. Hearne Bros. & Co., N. C. 92 S. E. 613; Baillie v. Columbia Gold Min. Co., Ore. 166 Pac. 965. One or the other allegation is essential. Spear v. Rockland-Rockport Lime Co., 113 Me. 285, 93 Atl. 754. 94 Spear v. Rockland-Rockport Lime Co., 113 Me. 285, 93 Atl. 754. A mere allegation that the complainant has frequently demanded of the directors that such dividends be declared and that such demands have been refused, though meetings of is necessary where it appears that it would not have been granted had it been made.95 Since the trustee in bankruptcy of a stockholder succeeds to the latter's title to the stock, he may maintain a proceeding to compel the declaration of a dividend where the stockholder could have done So. The bankrupt cannot object to the matter being determined summarily in the bankruptcy court, and the corporation waives any objection to that mode of procedure by failing to raise it in the trial court.96 It is sometimes provided by statute that the holders of a certain percentage of the stock of a corporation which has not paid any dividends for a specified number of years may apply for the dissolution of the corporation and the appointment of a receiver on that ground.97 It has been held that the purpose of such a provision is to prevent the freezing out of minority stockholders by the suspension of dividends, and that it does not operate to take away from the stockholders the right, by unanimous consent, to manage the business. in any legitimate manner most conducive to its consent; and that a stockholder who has never demanded that a dividend be declared or endeavored to have one declared, but who, on the contrary, in his capacity as a director, has consented to the use of the surplus earnings in the enlargement of the business, cannot take advantage of the act.98 § 3658. Dividends payable out of profits only-General rule. It is a well-settled principle that, as between the stockholders of a corporation and its creditors, the assets of the corporation are, in a sense, a trust fund for the payment of its debts, and they cannot lawfully be distributed among the stockholders, even in part, to the prejudice of creditors. Furthermore, the amount of the capital stock of corporations is very generally fixed by their charters or by a general law, and both the state and each stockholder of the corporation, as well as its creditors, have the right to insist that it shall not be reduced or impaired by any distribution among the stockholders. It is a settled rule, therefore, even in the absence of any statutory provision, that a corporation cannot lawfully declare dividends out of its capital stock, and thereby reduce the same, or out of assets which are needed to pay the corporate debts. They can be declared only out of surplus. profits.99 And this is equally true of dividends on ordinary preferred 99 United States. Mobile & O. R. Co. v. Tennessee, 153 U. S. 486, 496, 38 L. Ed. 793, 797; Warren v. King, 108 U. S. 389, 27 L. Ed. 769; In re Brantman, 244 Fed. 101; Spencer v. Lowe, 198 Fed. 961; In re Haas Co., 131 Fed. 232; Leary v. Columbia River & P. S. Nav. Co., 82 Fed. 775; Main v. Mills, 6 Biss. 98, Fed. Cas. No. 8,974; Wood v. Dummer, 3 Mason 308, Fed. Cas. No. 17,944. Arkansas. Corn v. Skillern, 75 Ark. 148, 87 S. W. 142. California. Martin v. Zellerbach, 38 Cal. 300, 99 Am. Dec. 365. Connecticut. Union & N. H. Trust Co. v. Taintor, 85 Conn. 452, 83 Atl. 697; Bishop v. Bishop, 81 Conn. 509, 71 Atl. 583; Smith v. Dana, 77 Conn. 543, 69 L. R. A. 76, 107 Am. St. Rep. 51, 60 Atl. 117. Delaware. Kingston v. Home Life Ins. Co., Del. Ch., 101 Atl. 898; Bryan v. Aiken, - Del. Ch. -, 82 Atl. 817. Georgia. Crawford v. Roney, 130 Ga. 515, 61 S. E. 117; Reid v. Eatonton Mfg. Co., 40 Ga. 98, 2 Am. Rep. 563. Illinois. Cratty v. Peoria Law Library Ass'n, 219 Ill. 516, 76 N. E. 707, rev'g on other grounds 120 Ill. App. 596; Pease v. Chicago Crayon Co., 170 Ill. App. 234; Hamblock v. Clipper Lawn Mower Co., 148 Ill. App. 618. Indiana. Fricke v. Angemeier, 53 Ind. A p. 140, 101 N. E. 329; Bingham v. Marion Trust Co., 27 Ind. App. 247, 61 N. E. 29. Iowa. Hubbard v. Weare, 79 Iowa 678, 44 N. W. 915. Kansas. Inscho v. Mid-Continent Development Co., 94 Kan. 370, Ann. Cas. 1917 B 546, 146 Pac. 1014; Salina Mercantile Co. v. Stiefel, 82 Kan. 7, 107 Pac. 774; Hogsett v. Etna Building & Loan Ass'n, 78 Kan. 71, 96 Pac. 52. Co. Kentucky. Westerfield-Bonte v. Burnett, 176 Ky. 188, 195 S. W. 477; Smith v. Southern Foundry Co., 166 Ky. 208, 179 S. W. 205; Franklin v. Caldwell, 123 Ky. 528, 29 Ky. L. Rep. 935, 96 S. W. 605; Taylor v. Com., 119 Ky. 731, 75 S. W. 244; Sumrall v. Commercial Bldg. Trust's Assignee, 106 Ky. 260, 44 L. R. A. 659, 90 Am. St. Rep. 223, 50 S. W. 69; Grant v. Southern Contract Co., 104 Ky. 781, 47 S. W. 1091; American Wire Nail Co. v. Gedge, 96 Ky. 513, 29 S. W. 353; Citizens' Nat. Bank v. Dronillard, 6 Ky. L. Rep. 588 (abstract). Louisiana. Van Vleet v. Evangeline Oil Co., 129 La. 406, 56 So. 343. Massachusetts. Field v. Lamson & Goodnow Mfg. Co., 162 Mass. 388, 27 L. R. A. 136, 38 N. E. 1126. Michigan. Knight v. Alamo Mfg. Co., 190 Mich. 223, 157 N. W. 24; Detroit Trust Co. v. Goodrich, 175 Mich. 168, Ann. Cas. 1915 A 821, 141 N. W. 882; American Steel & Wire Co. v. Eddy, 130 Mich. 266, 89 N. W. 952; Lockhart V. Van Alstyne, 31 Mich. 76, 18 Am. Rep. 156. Minnesota. Booth v. Union Fibre Co., 162 N. W. 677. Mississippi. Adams V. Delta & Pine Land Co., 89 Miss. 817, 42 So. 170. stock. In many jurisdictions this rule has, in somewhat varying language, been expressly declared by statute.2 529, 72 S. W. 669; Kidd v. Puritana Cereal Food Co., 145 Mo. App. 502, 122 S. W. 784; Lapsley v. Merchants' Bank of Jefferson City, 105 Mo. App. 98, 78 S. W. 1095; Slayden v. H. J. Seip Coal Co., 25 Mo. App. 439. New Hampshire. Walker v. Walker, 68 N. H. 407, 39 Atl. 432. New Jersey. Williams v. Boice, 38 N. J. Eq. 364. New York. Roberts V. RobertsWicks Co., 184 N. Y. 257, 3 L. R. A. (N. S.) 1034, 112 Am. St. Rep. 607, 6 Ann Cas. 213, 77 N. E. 13, rev'g 102 App. Div. 118, 92 N. Y. Supp. 387; Hughes v. Vermont Copper Min. Co., 72 N. Y. 207; Cottrell v. Albany Card & Paper Mfg. Co., 142 App. Div. 148, 126 N. Y. Supp. 1070; Berryman v. Bankers' Life Ins. Co., 117 App. Div. 730, 102 N. Y. Supp. 695; People v. Knight, 96 App. Div. 120, 89 N. Y. Supp. 72; Columbus Trust Co. v. Moshier, 51 Misc. 270, 100 N. Y. Supp. 1066, aff'd 121 App. Div. 906, 106 N. Y. Supp. 1121, aff'd 193 N. Y. 660, 87 N. E. 1117. Ohio. Thomas v. Matthews, 94 Ohio St. 32, L. R. A. 1917 A 1068, 113 N. E. 669; Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 496. Pennsylvania. Loan Society of Philadelphia v. Eavenson, 248 Pa. 407, 94 Atl. 121; Warren v. Queen & Co., 240 Pa. 154, 87 Atl. 595; Cornell v. Seddinger, 237 Pa. 389, 85 Atl. 446. Rhode Island. Taft v. Hartford, P. & F. R. Co., 8 R. I. 310, 5 Am. Rep. 575. South Carolina. See O'Shields v. Union Iron Foundry, 93 S. C. 393, 76 S. E. 1098. Vermont. Chaffee v. Rutland R. Co., 55 Vt. 110. Virginia. Drewry, Hughes Co. v. Throckmorton, 92 S. E. 818. England. Birch v. Cropper, 14 App. VI Priv. Corp.-7 Cas. 525; In re National Funds Assur. Co., 10 Ch. Div. 118. "Under the name of dividends there can be no lawful division of assets and capital that would impair the rights of creditors."' In re Haas Co., 131 Fed. 232. The mere fact that the assets still remain equal to the liabilities will not justify a dividend paid out of capital. Cottrell v. Albany Card & Paper Mfg. Co., 142 N. Y. App. Div. 148, 126 N. Y. Supp. 1070. In an action to recover dividends. the resolutions directing the payment of the dividends out of profits with proof that such dividends were paid to all the other stockholders, makes a prima facie case for plaintiff that there were profits out of which such dividends could be paid. Pease v. Chicago Crayon Co., 170 Ill. App. 234. Judgment had been rendered that dividends had been regularly declared by a corporation. For such dividend the corporation had given a note, and upon suit on such note the corporation entered the defense that the dividends had not been earned in fact, but through fictitious inventories the appearance of such earnings had been accomplished. The court held, however, that the corporation could not be permitted to maintain such defense until the judgment referred to had been either modified or reversed. Camden Nat. Bank v. Fries-Breslin Co., 214 Pa. 395, 63 ▲H. 1022. 1 See § 3752, infra. 2 California. Tapscott v. Mexican Colorado River Land Co., 153 Cal. 664, 96 Pac. 271; Baldwin v. Miller & Lux, 152 Cal. 454, 92 Pac. 1030; Schaake v. Eagle Automatic Can Co., 135 Cal. 472, 67 Pac. 759, 63 Pac. 1025; Excelsior Water & Mining Co. v. Pierce, 90 Cal. 131, 27 Pac. 44; While it is a function of the board of directors to determine whether net earnings or surplus exist applicable to the payment of dividends, they cannot by an erroneous determination of this point confer either upon themselves or upon the corporation the power to make dividends out of capital where the statute expressly prohibits the corporation from so making them. Nor, under such circumstances, will the approval of a majority of the stockholders validate the declaration of dividends out of capital. But a stockholder may People v. San Francisco Sav. Union, 72 Cal. 199, 13 Pac. 498. Delaware. Butler v. New Keystone Copper Co., Del. Ch. 93 Atl. 380. Georgia. Crawford v. Roney, 130 Ga. 515, 61 S. E. 117; Albany Fertilizer & Farm Improvement Co. v. Arnold, 103 Ga. 145, 29 S. E. 695; Mangham v. State, 11 Ga. App. 440, 75 S. E. 508; Cabaniss v. State, 8 Ga. App. 129, 68 S. E. 849. Idaho. Stoltz v. Scott, 23 Idaho 104, 129 Pac. 340. Kentucky. Cox v. Gaulbert's Trustee, 148 Ky. 407, 147 S. W. 25. Louisiana. Van Vleet v. Evangeline Oil Co., 129 La. 406, 56 So. 343. New Jersey. Hyams v. Old Dominion Copper Mining & Smelting Co., 82 N. J. Eq. 507, 89 Atl. 37, aff'd 83 N. J. Eq. 705, 92 Atl. 588; Strickland v. National Salt Co., 79 N. J. Eq. 182, 81 Atl. 828, aff'g 77 N. J. Eq. 328, 76 Atl. 1048; Goodnow V. American Writing Paper Co., 73 N. J. Eq. 692, 69 Atl. 1014, aff'g 72 N. J. Eq. 645, 66 Atl. 607; Siegman v. Electric Vehicle Co., 72 N. J. Eq. 403, 65 Atl. 910, aff'g 71 N. J. Eq. 123, 62 Atl. 941; Schoenfeld v. American Can Co. (N. J. Eq.), 55 Atl. 1044; Appleton v. American Malting Co., 65 N. J. Eq. 375, 54 Atl. 454, rev 'g 63 N. J. Eq. 422, 51 Atl. 1003; Siegman v. Electric Vehicle Co., 140 Fed. 117, construing the New Jersey statute; Hutchinson v. Stadler, 85 N. Y. App. Div. 424, 83 N. Y. Supp. 509; Hutchinson v. Curtiss, 45 N. Y. Misc. 484, 92 N. Y. Supp. 70, construing the New Jersey statute. New York. Excelsior Petroleum Co. v. Lacey, 63 N. Y. 422; Rorke v. Thomas, 56 N. Y. 559; Cottrell v. Albany Card & Paper Mfg. Co., 142 App. Div. 148, 126 N. Y. Supp. 1070; Wesp v. Muckle, 136 App. Div. 241, 120 N. Y. Supp. 976, aff'd 201 N. Y. 527, 94 N. E. 1100 (mem. dec.); Berryman v. Bankers' Life Ins. Co., 117 App. Div. 730, 102 N. Y. Supp. 695; People v. Knight, 96 App. Div. 120, 89 N. Y. Supp. 72; Hutchinson v. Stadler, 85 App. Div. 424, 83 N. Y. Supp. 509; Hutchinson v. Curtiss, 45 Misc. 484, 92 N. Y. Supp. 70. Washington. Brenaman v. Whitehouse, 85 Wash. 355, 148 Pac. 24; Northern Bank & Trust Co. v. Day, 83 Wash. 296, 145 Pac. 182; Jorguson v. Apex Gold Mines Co., 74 Wash. 243, 46 L. R. A. (N. S.) 637, 133 Pac. 465. There is such a statute in Ohio. McVity v. E. D. Albro Co., 90 N. Y. App. Div. 109, 86 N. Y. Supp. 144, aff'd 180 N. Y. 554, 73 N. E. 1126. The National Banking Act forbids the withdrawal of capital in the form of dividends or the declaration of dividends where there are no net profits with which to pay them. United States v. Britton, 108 U. S. 199, 27 L. Ed. 698; Witters v. Sowles, 31 Fed. 1; Cogswell v. Second Nat. Bank, 78 Conn. 75, 60 Atl. 1059, aff'd 204 U. S. 1, 51 L. Ed. 343. 3 See § 3656, supra, § 3660, infra. 4 Siegman v. Electric Vehicle Co., 72 N. J. Eq. 403, 65 Atl. 910, aff'g 71 N. J. Eq. 123, 62 Atl. 941. 5 Siegman v. Electric Vehicle Co., |