§ 71. 10 Cyc. 353-355; 12 Cent. Dig., cols. 255, 256, § 152. Construction and Operation. [a] A by-law authorizing a board of directors to call in unpaid stock subscriptions, on being assented to by stockholders, held to constitute a contract enforceable by the cor poration.-People's Home Sav. Bank v. Sadler, 1 Cal. App. 189, 81 Pac. 1029. [b] By-laws of a corporation construed, and held to authorize the vice-president to call special meetings of the directors, in the absence or inability of the president to act.Bell v. Standard Quicksilver Co., 146 Cal. 699, 81 Pac. 17. [a] Act of April 11, 1862, section 10 (Stats. 1862, p. 201), provides that the capital stock of savings banks shall be a security for nonstockholding depositors, and that the by-laws may extend the security to stockholding de positors also. Defendant's by-laws formerly extended the security. Thereafter a "com. mittee on revision of by-laws reported." The minutes recited that "the proposed new by-laws" were submitted; and subsequent minutes that "the same are hereby declared to be the by-laws." The by-laws were set out in full in the minutes, and contained no provision making the capital stock a security to depositors, whether stockholders or not. Held, that the by-laws as adopted in the later meetings were new by-laws, and not mere amendments of the former by-laws, and hence the provision of the old by-laws extending the security to stock-holding depositors was not continued in force.-Murphy v. Pacific Bank, 130 Cal. 542, 62 Pac. 1059. [a] Corporation cannot pass a retrospective by-law to prevent transfer of stock until indebtedness to company is paid.-People v. Crockett, 9 Cal. 112. [b] Where a by-law of a corporation expressly provides that it shall operate retrospectively, and its effect is to annul or impair an existing obligation of the corporation, it will be held unreasonable and in contravention of existing laws.-Bornstein v. District Grand Lodge No. 4, Independent Order B'nai B'rith (Cal. App.), 84 Pac. 271. IV. CAPITAL STOCK, AND DIVIDENDS. A. Capital Stock, §§ 78-83. B. Subscription to Stock, §§ 84-109. C. Assessment of Stock, §§ 110-128. G. Lien Corporation on Stock, §§ 176-183. A. CAPITAL STOCK. NATURE OF CAPITAL STOCK OR SHARES, § 78. NATURE OF PROPERTY IN SHARES, § 79. VALUATION OF STOCK, § 80. INCREASE, § 81. REDUCTION, § 82. DIVISION OF CAPITAL STOCK AMONG SHARE. HOLDERS, § 83. Amount of capital to be subscribed or paid. See ante, 10. Capital stock of state banks. See Banks and Banking, §§ 17-20. Evidence admissible to show value of corporate stock. See Evidence, § 109. $ 78. Nature of Capital Stock or Shares. [a] By capital stock the statute intends the capital of the corporation on which it transacts business, whether such capital consists of money, property, or other valuable commodities.-Martin v. Zellerbach, 38 Cal. 300, 99 Am. Dec. 365. [b] "Capital stock" and "shares of capital stock" distinguished.-Kohl v. Lilienthal, 81 Cal. 385, 22 Pac. 689. [c] Shares of stock merely represent portion to which holders are entitled out of profits of corporation and in final distribution of estate of corporation on dissolution.— Kohl v. Lilienthal, 81 Cal. 386, 22 Pac. 689. [d] Mining stock is personal property.Mattingly v. Roach, 84 Cal. 207, 23 Pac. 1117. [e] Restrictions as to capital stock of corporation may be created by contract mutually agreed to by stockholders.-Williams v. Ashurst, 144 Cal. 619, 98 Pac. 28. FOR AUTHORITIES FROM OTHER STATES: 10 Cyc. 364-366; 12 Cent. Dig., cols. 265, 266, § 162. § 79. Nature of Property in Shares. [a] Capital stock or property of company used to carry on its business is vested in corporation in trust for protection of its creditors. Kohl v. Lilienthal, 81 Cal. 385, 22 Pac. 689. [b] In absence of provision to contrary in stock certificates, or in resolutions, by-laws or charter authorizing their issue, or other writing, stockholders are regarded as equal in right.-Richey v. East Redlands Water Co., 141 Cal. 228, 74 Pac. 754. [b] Code, section 359, authorizing the increase of corporate stock on the written assent of the holders of three-fourths of the capital stock, being in contravention of Constitution, article 12, section 11, prohibiting a corporation from increasing its stock except on the assent of the holders of a majority of the stock at a meeting called for that purpose, on sixty days' notice, is unconstitutional and void, and hence an increase under such section was void.-Ewing v. Oroville Min. Co., 56 Cal. 649. [c] Constitution, article 1, section 22, article 12, section 11, and Civil Code, section 359, held to prohibit any increase in the capital stock of a corporation, unless sixty days' notice of the meeting at which the increase is voted is given.-Navajo Mining etc. Co. v. Curry, 147 Cal. 581, 82 Pac. 247. FOR AUTHORITIES FROM OTHER STATES: 38 L. R. A. 616, note. See, also, 10 Cyc. 538-545, 950; 12 Cent. Dig., cols. 270278, §§ 173-180. § 82. Reduction. [a] The fact that corporation becomes the owner of the shares converted, where a recov ery is had for the conversion, is not ground for refusing the remedy for such recovery, as the authorized capital is not reduced by such ownership, and the shares are not extinguished, and may be reissued by the corporation.Ralston v. Bank of California, 112 Cal. 208, 44 Pac. 476. [b] Purchase by a corporation of a part of its own stock, until it is reissued, in effect reduces its stock to that extent.-Tulare Irr. Dist. v. Kaweah Canal etc. Co., 44 Pac. 662. [a] Prohibition of the thirteenth section of the act concerning corporations is directed against the trustees, and is designed to protect creditors as such; and, also, to protect the stockholders against their mismanagement in distributing capital stock in the form of dividends.-Martin v. Zellerbach, 38 Cal. 300, 99 Am. Dec. 365. [b] Capital and all assets except surplus profits are to be retained intact and form a fund to secure corporate creditors.-People v. San Francisco Savings Union, 72 Cal. 204, 13 Pac. 498. [c] Money or property received by corporation in exchange for its capital stands in place of such capital, and cannot be divided or withdrawn.-Kohl v. Lilienthal, 81 Cal. 386, 390, 22 Pac. 689. [d] Capital of corporation must be kept intact until final dissolution.-Kohl v. Lilienthal, 81 Cal. 389, 22 Pac. 689. [e] There can be no division of capital stock among shareholders except on dissolution of corporation.-Kohl v. Lilienthal, 81 Cal. 388, 22 Pac. 689. [f] Unanimous agreement or consent of shareholders will not authorize distribution of any part of capital stock (Civ. Code, 309). Kohl v. Lilienthal, 81 Cal. 386, 22 Pac. 689. [g] "Capital stock" which directors are prohibited from withdrawing or dividing among stockholders means money and property with which corporation carries on its corporate business (Civ. Code, sec. 309).Kohl v. Lilienthal, 81 Cal. 384, 385, 22 Pac. 689. [h] Corporation not for profit cannot divide any part of its funds among its members.Ashton v. Dashaway, 84 Cal. 69, 24 Pac. 111. [i] Mining corporation may distribute its net earnings, although the value of its mine is thereby diminished; and it is not deemed to have divided its capital, within the meaning of section 309 of the Civil Code, merely because it has distributed the net proceeds of its mining operations.-Excelsior Water etc. Co. v. Pierce, 90 Cal. 131, 27 Pac. 44. FOR AUTHORITIES FROM OTHER STATES: 27 L. R. A. 136, note. See, also, 10 Cyc. 368-370; 12 Cent. Dig., col. 267, § 164. B. SUBSCRIPTION TO STOCK. CONTRACT OF SUBSCRIPTION, § 84. CONSIDERATION, § 85. CONSTRUCTION AND OPERATION, § 86. RESCISSION FOR MISREPRESENTATION, CONDITIONS PRECEDENT TO RESCISSION, $ 89. ESTOPPEL TO RESCIND, § 90. CONDITIONAL SUBSCRIPTION, § 91. CONDITIONS PRECEDENT TO LIABILITY, § 92. ESTOPPEL TO DENY LIABILITY, § 93. CANCELLATION, § 94. RELEASE OR DISCHARGE, § 95. CHANGES IN NATURE OF BUSINESS, § 96. PAYMENT, § 97. BY NOTES OR CHECKS, § 98. CUSTODY OF MONEY PAID, § 99. ACTIONS ON SUBSCRIPTIONS-CALL OR ASSESSMENT AS CONDITION PRECEDENT, § 100. RIGHT OF CORPORATION TO SUE, § 101. TIME TO SUE AND LIMITATIONS, § 103. FINDINGS CONSTRUED, § 105. ACTION TO SET ASIDE SUBSCRIPTION, § 107. FORFEITURE OF STOCK FOR NONPAYMENT, $ 108. SUBSCRIPTION BOOK, § 109. § 84. Contract of Subscription. [a] Rights in corporation under our laws can be fixed by contract. A man can as well make an agreement with another for certain stock in a corporation to be organized here after as an agreement for stock in a corporation already existing; and may contract that each shall have so many shares of stock on such and such terms.-Chater v. San Francisco etc. Co., 19 Cal. 219. [b] A, B, and C entered into an agreement to form a corporation for commercial purposes. Each was, by this agreement and by the corporate act, to have an equal share of the stock. Two contributed capital in money. The third gave his note, pledging his stock as security; the other two agreeing to raise the money for him on his stock. It was agreed that the stock due him should be issued on a given event, which occurred, but his note was not made, nor the stock issued; but the company, controlled by the other two corporators, went on in its business, recognizing the third as a corporator. No demand was made for his note or the stock. His share in the profits of the corporation amounted to enough to pay his contribution. Held, that the two must be held to have waived their formal rights, they having omitted to demand the note and stock, and having otherwise obtained the object of this security, and that the third might recover his stock in a suit for that purpose.Chater v. San Francisco Sugar Refining Co., 19 Cal. 219. [c] Defendant and others, for the purpose of forming a corporation, agreed to "subscribe for stock to the amount set opposite to our respective names; amounts to be due and payable on the formation of the company and the issuance of the stock." Held, that the corporation, when formed, could sue on such agreement as a contract made for its benefit.-Marysville Electric Light etc. Co. v. Johnson, 93 Cal. 538, 27 Am. St. Rep. 215, 29 Pac. 126. [d] In an action by an opera-house company to recover a subscription to its capital stock, it appeared that a "prospectus" recited in detail the objects of the intended corporation, the amount of stock, etc.; that the subscriptions were to be called in on installments; and that defendant signed the prospectus for a certain number of shares. Held, that the prospectus constituted a contract under which defendant was liable for the amount of his subscription.-Auburn Opera House etc. Assn. v. Hill, 113 Cal. 382, 45 Pac. 695, affirming (1893) 32 Pac. 587. [e] It is not necessary, for one to subscribe to a subscription agreement to become the owner of shares and the holder of original certificates of the first issue of a corporation's stock.-Walter v. Merced Academy Assn., 126 Cal. 582, 59 Pac. 136. [f] If acting in good faith, it is valid for all the stockholders to agree that shares of stock be issued to themselves in exchange for property conveyed by them to the corporation, and to acquire which, in part, the corporation is formed.-Garretson v. Pacific Crude Oil Co., 146 Cal. 184, 79 Pac. 838. [g] In a stock subscription, by which the subscribers agreed to take the number of shares set opposite our names respectively, and thereon to pay the amount in cash named, to wit, ten per cent of the amount of stock by us subscribed, to B., treasurer of said corporation," opposite the name of each subscriber, under the words "Stock Subscribed,'' was written "two thousand dollars," and under the words " Amount of Cash'' was written "two hundred dollars paid." Held, that the obligation on the subscription was not limited to the two hundred dollars, but this amount was to be paid contemporaneously with the subscription, and the balance on call.-Ventura etc. Ry. Co. v. Collins (Cal.), 46 Pac. 287. § 86. Construction and Operation. [a] Terms of statutes in force become part of contract of subscription.-Glenn v. Sexton, 68 Cal. 358, 9 Pac. 420. [b] Agreement to subscribe to stock in corporation to be formed does not make subscriber member of corporation. To become member corporate articles must be subscribed.-West v. Crawford, 80 Cal. 29, 21 Pac. 1136. [c] The subscribers present at the organization of the corporation are not the agents of absent subscribers for the formation of the corporation, except for the formation of such a corporation as has been agreed upon, and there is no implied authority from a nonconsenting subscriber to go beyond the bounds agreed upon for the formation of the corporation.-Marysville Electric Light etc. Co. v. Johnson, 109 Cal. 192, 50 Am. St. Rep. 34, 41 Pac. 1016. [d] In case of ambiguity, an agreement of one taking stock from a corporation to pay one dollar per month, for thirty-four months, will be held merely to be an arrangement to avoid necessity for calls and assessment, rather than a sale for less than par; the directors not being shown to have authority to so sell. Tulare Sav. Bank v. Talbot, 131 Cal. 45, 63 Pac. 172. amount of his subscription upon the formation of the company and the issuance of its stock, and not as the same might be called for under section 322 of the Civil Code, is valid, and the measure of his liability is not fixed by that section of the code, but by the terms of his subscription, which may be enforced, regardless of the inability of the corporation to meet its liabilities or to satisfy the claims of creditors.-Marysville Electric Light and Power Co. v. Johnson, 93 Cal. 538, 27 Am. St. Rep. 215, 29 Pac. 126. [b] Honest expressions of opinion as to the happening of future events affecting the business of a corporation, made by a stockholder and officer of the company, as an inducement to others to give a note for stock in the corporation, do not render the note voidable on the failure of the events to happen, when the happening of the events is not made a condition of payment.-Jefferson v. Hewitt, 95 Cal. 535, 30 Pac. 772. § 88. Rescission for Misrepresentation. [a] Where the purchaser is induced by the fraudulent representations of the seller to make a purchase of mining stock, he may, within a reasonable time, by restoring the seller to the situation he was in before the sale, rescind the contract, and resist the payment of the note given for the property.Gifford v. Carvill, 29 Cal. 589. [b] Offer to rescind a corporate stock subscription, claimed to have been induced by fraud, and to return all benefits received thereunder, as required by Civil Code, section 1691, subdivision 2, is vitiated by the purchaser's demand for the return of the amount of an assessment voluntarily paid after the discovery of the fraud alleged.-Marten v. Paul O. Burns Wine Co., 99 Cal. 355, 33 Pac. 1107. [c] The cancellation or rescission of a subscription for corporate stock may be proved by circumstantial evidence, but, where such rescission is a necessary part of the plaintiff's case, the burden devolves upon plaintiff to prove such rescission, and, where the plaintiff fails to sustain such burden, a finding of the court against the rescission will not be disturbed.-Pacific Fruit Co. v. Coon, 107 Cal. 447, 40 Pac. 542. that he was induced to take the stock by false and fraudulent representations, where it appears that on the day that he claimed to have discovered the fraud he attended a stockholders' meeting, and voted for an assessment on the stock, and that afterward, before attempting to rescind, he attended another stockholders' meeting, and voluntarily paid the assessment on the stock.-Marten v. Paul O. Burns Wine Co., 99 Cal. 355, 33 Pac. 1107. § 91. Conditional Subscriptions. [a] Subscription to railroad stock upon a prospectus for organization after a certain amount is subscribed, leaves subscriber at option, if organization is upon a less sum.— Santa Cruz R. Co. v. Schwartz, 53 Cal. 106, 110. FOR AUTHORITIES FROM OTHER STATES: 10 Cyc. 411-420; 12 Cent. Dig., cols. 365393, §§ 266-295. paper pur § 92. Conditions Precedent to Liability. [a] Several persons signed a porting to be an agreement to take stock in a corporation which, as the paper recited, was about to be formed. Afterward the paper was signed by the president and secretary, and the corporate seal affixed, and an action brought to recover from one of said subscribers the price named in the paper. The complaint did not state when the company was incorporated, and it was not shown that any of the subscribers joined in its formation or membership, or was authorized to sell any of the stock. Held, that the action could not be maintained.-California Sugar Mfg. Co. v. Schafer, 57 Cal. 396. [b] Where subscribers agree that certain amount of stock shall be subscribed before corporation is formed, subscriber is under no obligation to pay subscription until condition is complied with.-California So. Hotel Co. v. Russell, 88 Cal. 280, 26 Pac. 105. [c] Defendant agreed, in a contract of subscription to corporation stock, that he would pay his subscription upon the call of the board of directors. Held, in an action to recover a balance alleged to be due on the subscription, that it was unnecessary to defendant's ownership that a stock certificate should have been issued to him, it not being due till his subscription is fully paid, nor that the directors should have levied assessments on the stock.-California So. Hotel Co. v. Callender, 94 Cal. 120, 28 Am. St. Rep. 99, 29 Pac. 859. [d] When the capital stock and the number of shares in a private corporation are fixed in the articles of association by general law or act of incorporation, no valid assessments can be made against a subscriber until all the shares are taken, unless there is a provision to that effect in the articles, or in the general law under which the corporation is formed, or unless there is a waiver.-(Cal. 1895) San Bernardino Inv. Co. v. Merrill, 108 Cal. 490, 41 Pac. 487. [e] An opera house company sued defendant to recover a subscription to its capital stock. Defendant had signed a prospectus which stated that the building was to be built by a corporation with a capital stock of twenty thousand dollars, consisting of one thousand shares at twenty dollars per share." Held, that it was not a condition precedent to defendant's liability that twenty thousand dollars of plaintiff's stock should be first subscribed for.-Auburn Opera House etc. Assn. v. Hill, 32 Pac. 587. § 93. Estoppel to Deny Liability. [a] Where a subscriber for corporate stock sought to enforce subscriptions made under the same circumstances as his own, he could not repudiate his liability thereon under Civil Code, section 359, providing that no corporation shall issue stock except for money paid, labor done, or property received.-Richardson v. Chicago Packing etc. Co., 131 Cal. xviii, 63 Pac. 74. [b] In an action by an opera house company to recover a subscription to its capital stock, it appeared that defendant was one of plaintiff's directors for two months, during which time he signed the articles of incorporation, was present at meetings of the board when the calls for the first two installments were ordered, and voted in favor of accepting the building lot, and that he served as a member of the building committee, prepared several plans for building, and consulted various architects and contractors about the same. Held that, though the subscription for the full amount of stock mentioned in such contract was a condition precedent to defendant's liability, he had waived any objection on the ground that such amount not subscribed.-Auburn Opera House etc. Assn. v. Hill, 32 Pac. 587. was § 94. Cancellation. [a] A subscription for capital stock of a corporation cannot be canceled, except for fraud or mistake, without the consent of all the stockholders.-Pacific Fruit Co. v. Coon, 107 Cal. 447, 40 Pac. 542. [b] Though the cancellation of a subscription for corporate stock may be shown by circumstantial evidence, the mere recitals in the minutes of the stockholders' meetings that so many shares of stock were represented out of five thousand issued" is insufficient, when ten thousand shares were originally subscribed, and not enough was represented to constitute a lawful meeting, unless that alleged to have been canceled, or a large amount of other stock, had in fact been canceled.-Pacific Fruit Co. v. Coon, 107 Cal. 447, 40 Pac. 542. FOR AUTHORITIES FROM OTHER STATES: 33 L. R. A. 593, 721, notes. See, also, 10 Cyc. 373, 439-442, 449-460; 12 Cent. Dig., cols. 426-432, §§ 328-336. § 95. Release or Discharge. [a] To an application for a writ of mandate to compel county supervisors to subscribe to |