trust fund doctrine

trust fund doctrine
The principle, commonly known as the American doctrine, that the property of a corporation must be appropriated to the payment of debts before any assets are distributed among stockholders. Wood v Dummer (CC Me) 3 Mason 308, F Cas No 17944; Hospes v Northwestern Mfg. & Car Co. 48 Minn 174, 50 NW 1117. Sometimes stated broadly as meaning that the assets of a corporation constitute a trust fund for the benefit of its creditors. 19 Am J2d Corp § 1021. The equitable principle that the assets of an insolvent corporation become, from the date of its assured insolvency, a trust fund for equal distribution among its creditors, so that thereafter none of them can obtain priority by levy of or by recovering a judgment and levying an execution against the corporation. 19 Am J2d Corp § 1579. The principle that the capital stock of a corporation, at least of an insolvent corporation, is m equity a trust fund for the payment of its creditors, regardless of whether it has been paid into the company or exists in the form of unpaid instalments upon stock subscriptions. 19 Am J2d Corp § 722. The doctrine under which subscribers to stock in a corporation are liable for a balance due on their unpaid subscriptions after the dissolution of the corporation, although the subscriptions were obtained fraudulently and although the charter of the corporation was annulled, revoked, and cancelled for fraud practiced on the state in securing the articles of incorporation. State ex rel. Havner v Associated Packing Co. 216 Iowa 1053, 90 ALR 1339, 249 NW 761. As to whether the insolvency of the corporation precludes the rescission of a subscription contract on the ground of fraud practiced upon the subscriber, see 18 Am J2d Corp § 336.

Ballentine's law dictionary. . 1998.

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