a certificate for the shares is four years, and the same period, after a repudiation of a trust, in effect a "pool," under which the corporation held the stock, bars a suit for the stock.12

All such shares remain, however, assessable by the corporation equally for corporation purposes, the same as if fully paid, but while the corporation can not sue the stockholders for the difference between par and the amount paid, creditors may do so.13

Stock certificates are not negotiable instruments" in the same manner as commercial paper within the definition of sections 3087 to 3095 of the Civil Code, so that a bona fide holder takes them discharged of all equities existing between the original owner and the corporation. Many other states give them something of this character between all parties, not including the corporation, but this state does not. The purchaser of a stock certificate is liable to an assessment to pay up to par on the same, as was the original party who received the same, who is released by the transfer on the books of the corporation, and this though there was nothing on its face to indicate that it was not fully paid and though he bought it in open market through a regular stock exchange.15 The only action which the

12 Cortelyou v. Imperial Land Co., 166 Cal. 14, 134 Pac. 981. 13 Stockton Combined Harvester etc. Works v. Houser, 109 Cal. 1, 41 Pac. 809, and cases cited in the foregoing notes.

14 Graves v. Mono Lake etc. Mining Co., 81 Cal. 303-325, 22 Pac. 665; Barstow v. Savage Min, Co., 64 Cal. 388, 391, 49 Am. Rep. 705, 1 Pac. 349; Sherwood v. Meadow Valley Min. Co., 50 Cal. 412; Perkins v. Cowles, 157 Cal. 625, 137 Am. St. Rep. 158, 30 L. R. A. (N. S.) 283, 108 Pac. 711.

15 Perkins v. Cowles, 157 Cal. 625-631, 137 Am. St. Rep. 158, 30 L. R. A. (N. S.) 283, 108 Pac. 711; O'Dea v. Hollywood etc. Ass'n, 154 Cal. 53, 72, 97 Pac. 1; Craig v. Hesperia Land etc. Co., 113 Cal. 7, 54 Am. St. Rep. 316, 35 L. R. A. 306, 45 Pac. 10; Visalia & T. R. Co. v. Hyde, 110 Cal. 632, 52 Am. St. Rep. 136, 43 Pac. 10; People's Home Sav. Bk. v. Sadler, 1 Cal. App. 189-195, 81 Pac.

purchasers have for misrepresentations as to full payment is against the parties making them for damages, or for a rescission of the purchase.

What will be the effect of the amendment of 1905, quoted above, requiring stock certificates which are not fully paid to show on their face how much has been paid thereon is uncertain. No case has yet arisen in which the effect of that clause has been declared; two of the latest cases, though decided after the amendment was made, expressly state that the rights considered were on certificates issued long before, and that the provision of this amendment did not therefore affect them. The principles announced in the Perkins and O'Dea cases, cited above, make it doubtful whether the purchaser of a certificate which did not contain any statements of how much had been paid on it would be protected against proceedings to compel him to pay the same up to par, even since the code section has been put in its present form. Without reference to either of these cases, in a very late case, the court said that no inference will be drawn that shares are not fully paid because the certificates contained no statement as to that fact. Nor was any reference made to the provision of the above section of the code on that subject; in such a case, the effect of that section ought to raise the presumption of full payment.

16

Would the failure of the officers issuing it to make such a statement, or a false or erroneous statement on the certificate that it was fully paid, bind the corporation? Or rather would it prevent other stockholders from asserting the truth, and claiming that those shares should be paid up equally with their own before their shares could be assessed by the corporation? Would the officers, making an error in that respect, be

10 Harrison v. Armour, 169 Cal. 787, 147 Pac. 1166.

pecuniarily liable to the corporation? And would the stockholder be compelled to look to the officers for reimbursement for his loss? These and other questions suggest themselves, and how they will be determined can not be foreseen. It is reasonable, and we think just, that the purchaser of such a certificate should be protected, at least so far as the corporation is concerned. The case might be different as to creditors of the corporation. The great growth of the business of the county, and as a consequence the great increase in the number of corporations and the stocks handled in the markets and passing from hand to hand among the people, make it more and more necessary that rules analogous to those governing commercial paper should apply to stock certificates. This, we believe, will be the final result. It is practically the law in many of the states already.

COMMON AND PREFERRED

The statute requires the certificates to state on their face, when both common and preferred stocks are provided for, whether the stock contained in the certificates is common or preferred.

Also all the certificates shall state the number of shares of each kind of stock, and although the statute does not expressly so declare, naturally the par value of the shares.

This section provides that the certificates shall also contain a statement of the nature and extent of the preference granted to the preferred stock. As this language is not limited to the certificates for preferred shares, this statement is probably required to be printed on the certificates for the common shares as well as on the preferred shares, although we do not know of any other state making a requirement that such a statement must be printed on the certificates for Cal. Corp.-20

the common shares. The consequences of a failure to do so are not declared, and they are not easy to foresee; clearly the holder of such a certificate would not lose his rights under the Articles, by-laws, and the law, whatever they might otherwise be, for to do so would be to obliterate all the stockholders and thus destroy the corporation.

HOW TRANSFERRED, ETC.

Section 324 of the Civil Code is as follows:

§ 324. Whenever the capital stock of any corporation is divided into shares, and certificates therefor are issued, such shares of stock, except as hereinafter provided, are personal property,

And may be transferred by indorsement by signature of the proprietor, his agent, attorney, or legal representative, and the delivery of the certificate;

But such transfer is not valid, except as to the parties thereto, until the same is so entered upon the books of the corporation as to show the names of the parties by whom and to whom transferred, the number of the certificate, the number or designation of the shares, and the date of the transfer;

WATER COMPANY STOCKS

Provided, however, that any corporation organized for, or engaged in the business of selling, distributing, supplying, or delivering water for irrigation purposes or for domestic use, may in its by-laws provide that water shall only be so sold, distributed, supplied, or delivered to owners of its capital stock, and that such stock shall be appurtenant to certain lands when the same are described in the certificate issued therefor; and when such certificate shall be so issued, and a certified copy of such by-law recorded in the office of the county recorder in the county where such lands are situated, the shares of stock so located on any land shall only be transferred with said lands, and shall pass as an appurtenance thereto.

PENALTY FOR REFUSAL TO TRANSFER

Whenever any officer of any corporation shall refuse to make entries upon the books thereof, or to transfer stock therein, or to issue a certificate or certificates therefor to the transferee as provided by this and the next preceding section, such officer shall be subject to a penalty of four hundred dollars, to be recovered as liquidated damages, in an action brought against him by the person aggrieved. (Amended March 22, 1907; Stats. 1907, p. 854.)

PERSONAL PROPERTY

Shares of stock are personal property, and were so held long prior to the enactment of this statute; the statute was merely declaratory of the law as it already existed. But shares of stock and certificates of stock in this state have been buffeted about by ill-fitting definitions, and exposed to all the perils of abstract reasoning concerning their inherent nature, and have never been considered in the light of experience or scientific observation. Or, to put it in another way, necessity and metaphysics have been harnessed together with the usual result of mismated teams.

It has been said that the stock certificate is not only not the stock, nor does it embody the stock, but at most it is in a very limited sense only evidence of the ownership of the stock, and further that it is not the best evidence, for of that fact the books of the corporation are the primary and best evidence. The reasoning has been further refined by saying that even the stock itself is nothing substantive; that it is only a "chose in action, really without form and a void; simply a privilege to demand a thing. This process of reasoning is progressive, for, the viewpoint changing, the shares themselves are transformed from the chose in action into evidence only of the chose in action.