session. The laws of many states provide for the creation of such a committee, and in New Jersey, Delaware, and Nevada such a committee is usually provided for in the general clauses concerning the government of the corporation, which the statutes of those states. authorize to be inserted in the Articles of Incorporation. It is doubtful, in California, whether such a provision in the by-laws would be legal. If all action by an executive committee must come before the board of directors for approval or ratification, the committee is of little, if any, practical value.

There is no statute on the subject in this state, nor can any provisions for regulating or conducting the business of the corporation be inserted in the Articles, as in New Jersey and the other states named.

The existence of an executive committee has come before our supreme court but three times, and once before the district court of appeal, so far as we have discovered, and then not in a way which settled its character, status, or powers. Its legality seemed to be taken for granted; but in one instance the case presented really no powers at all, for its action was "under the general direction of the board of directors," and nothing was stated as to what it could do.122

In another case this committee was authorized by the board of directors to do a certain thing which they did, and their action was held legal; but this was simply the creation of a special agency; the same power might have been given to any one not connected with the corporation in any manner. 123 The other was an execu

122 Bonner Oil Co. v. Pennsylvania Oil Co., 150 Cal. 658, 89 Pac. 613. Another case was Horton v. Remillard Brick Co., 170 Cal. 384, 149 Pac. 813.

123 Andres v. Fry, 113 Cal. 124, 45 Pac. 534.

tive committee of a bank with considerable powers, but there was no discussion of its legality or powers.'

124

In a case of a New Jersey corporation (where the law expressly provides for the appointment of an executive committee) the action of the executive committee in indorsing a promissory note, the corporation receiving the proceeds, was declared to be binding on the corporation.125

OFFICERS CHARGED WITH NOTICE OF CUSTOMS AND USAGES

The officers and directors of a corporation are charged with notice of the customs and usages of the corporation; this was so decided on questions in regard to compensation for their services.126 See "Compensation of Officers," under section 303, Civil Code.

124 Chetwood v. California Nat'l Bank, 113 Cal. 414, 45 Pac. 704. 125 Tilden v. Goldy Machine Co., 9 Cal. App. 9, 98 Pac. 39.

126 Fraylor v. Sonora Min. Co., 17 Cal. 594; McCarthy v. Mt. Tecarte Land & W. Co., 111 Cal. 328, 338, 43 Pac. 956.

CHAPTER XIV

CERTIFICATES OF STOCK

Section 323 of the Civil Code is as follows:

§ 323. All corporations for profit must issue certificates for stock when fully paid up, signed by the president and secretary, and may provide, in their by-laws, for issuing certificates prior to full payment, under such restrictions and for such purposes as their by-laws may provide, but any certificate issued prior to full payment must show on its face what amount has been paid thereon.

All certificates of stock issued by corporations authorized by their Articles of Incorporation to issue stocks of different classes, shall express upon their face the character of stock represented by said certificates.

The said certificates shall also state the number of shares of stock of each class which said corporation is authorized to issue, and the said certificates shall also contain a statement of the nature and extent of the preference granted to the preferred stock. (Amended March 18, 1907; Stats. 1907, p. 348.)

The last two sentences of this section were added by the amendment of 1907 to provide different kinds of certificates for common and preferred stocks. The clause "but any certificate issued prior to full payment must show on its face what amount has been paid thereon" was added in 1905.

The actual issuance of a certificate of stock is not necessary to create the property right in the shares. Nor will an informality in a certificate accepted by the stockholder relieve him from the obligation to pay the

same,' nor does any duty devolve upon the purchaser of stock to see that not only his name, but the names of all other purchasers, together with the number of shares owned by them, respectively, are entered on the corporate books; failure of the corporation to per-. form such duty can not be imputed to the stockholder.2 It may exist without any certificate; and a corporation may give credit for its stock as well as for any other property sold by it, but it is not bound to issue the certificate until the subscription price is paid in full.* The cancellation of an unissued certificate (being made out erroneously as to the name) is not a cancellation of the subscription, nor could the subscription be cancelled without the unanimous consent of all the stockholders; the subscriber is still liable to the corporation and its creditors.5

3

A certificate, however informal, even if it shows unpaid installments due at a future time, is sufficient, under a proper provision in its by-laws, and vests the title to the shares in the party named therein. The corporation not having possession of the certificate has no lien upon it for unpaid balances, and the corporation has no general lien upon the stock certificate,

1 Ferrochem v. Danziger, 23 Cal. App. 584, 138 Pac. 966.

2 Hughes Mfg. etc. Co. v. Wilcox, 13 Cal. App. 22, 27, 108 Pac. 871. 3 Mitchell v. Beckman, 64 Cal. 117-121, 28 Pac. 110; California Southern Hotel Co. v. Callender, 94 Cal. 120-127, 28 Am. St. Rep. 99, 29 Pac. 859; Pacific Fruit Co. v. Coon, 107 Cal. 447-452, 40 Pac. 542; Lankershim Ranch etc. Co. v. Herberger, 82 Cal. 600602, 23 Pac. 134; San Joaquin Land etc. Co. v. Beecher, 101 Cal. 70-79, 35 Pac. 349; Garretson v. Pacific etc. Oil Co., 146 Cal. 184-188, 79 Pac. 838.

4 California Southern Hotel Co. v. Callender, 94 Cal. 120, 127, 28 Am. St. Rep. 99, 29 Pac. 859.

5 Pacific Fruit Co. v. Coon, 107 Cal. 447, 40 Pac. 542.

independent of possession; it may have a lien on the shares, but not on the certificate so as to prevent a transfer. Such a lien may be created by contract between the corporation and its stockholders by inserting apt provisions in the stock certificate. A certificate signed by de facto officers is valid.9

The above section of the Civil Code makes it imperative that a stock certificate issue when it is fully paid, but it authorizes the creation of a by-law for issuing certificates before full payment. And as between the stockholders and the corporation it may issue certificates as fully paid for less than par.10 While the unanimous consent of stockholders can not cure the illegality of stock issued in violation of law, yet three years' acquiescence by stockholders estops them from raising any objection, short of positive violation of law. But this rule will not obtain against creditors of the corporation because the unpaid balance of the par value of stock or subscriptions is a trust fund for the benefit of creditors.11

The statute of limitation on a suit against the corporation for specific performance of its duty to deliver

6 Lankershim Ranch etc. Co. v. Herberger, 82 Cal. 600, 23 Pac. 134; Craig v. Hesperia Land etc. Co., 113 Cal. 7-12, 54 Am. St. Rep. 316, 35 L. R. A. 306, 45 Pac. 10.

7 Craig v. Hesperia etc. Co., 113 Cal. 7-12, 54 Am. St. Rep. 316, 35 L. R. A. 306, 45 Pac. 10.

8 Jennings v. Bank of California, 79 Cal. 323, 12 Am. St. Rep. 145, 5 L. R. A. 233, 21 Pac. 852.

9 Sherwood v. Wallin, 154 Cal. 735-740, 99 Pac. 191.

10 Green v. Abietine Medical Co., 96 Cal. 322-330, 31 Pac. 100; Smith v. Martin, 135 Cal. 247, 67 Pac. 779; Turner v. Fidelity Loan Concern, 2 Cal. App. 122-131, 83 Pac. 62, 70; O'Dea v. Hollywood etc. Ass'n, 154 Cal. 53-67, 97 Pac. 1.

11 Vermont Marble Co. v. Declez etc. Co., 135 Cal. 579-585, 87 Am. St. Rep. 143, 56 L. R. A. 728, 67 Pac. 1057; Union Savings Bank v. Leiter, 145 Cal. 696-702, 79 Pac. 441; Turner v. Fidelity Loan Concern, 2 Cal. App. 122-131, 83 Pac. 62, 70; O'Dea v. Hollywood etc. Ass'n, 154 Cal. 53-67, 97 Pac. 1.