cial condition of the bank appearing in the published official report thereof (which was signed by them), thus inducing him to purchase the stock at a gross over-valuation. The court held that if the directors signing this report knew that the same contained overvaluations which were material, they were individually liable to the purchaser who in good faith relied upon such report in making his purchase; and they say that this report need not be his sole reliance, it being sufficient that it was one of the inducements to his purchase; that it does not matter that this report was not published for the purpose of deceiving any particular individual; that deceit may be negative by suppression of what is one's duty to declare, and that the purchaser was justified in relying upon this report without making any independent investigation himself. This decision is very far reaching, and makes the publication of statements of the financial condition of corporations a matter of grave importance, attended with much risk to the officers giving them out.

Where associates in a business enterprise form sundry corporations, of which they own all the stock, as instrumentalities through which to carry out their purposes, no other interests being involved, and the transactions between them being fair, irregularity in the corporate proceedings to give them effect can not be availed of to impair or overturn the equitable rights of any of the parties.86

Nor is the transfer of all its property by a corporation to a foreign corporation, in order that threatened litigation may be conducted in the federal courts, evidence that the conveyance was fraudulent; and this even when one person owned substantially all of the stocks of both corporations, and the judgment creditor of the grantor corporation was, on account of such 86 Wise Realty Co. v. Stewart, 169 Cal. 176, 146 Pac. 534.

transfer, unable to collect his judgment against the grantor corporation.87

AS AGAINST ATTACHMENT LEVY AND SALE

66

It is not necessary under the statute that the sheriff should take the shares (certificates?) into his possession to make a valid levy (section 542, Code of Civil Procedure), nor to make a valid sale under execution (section 688, Code of Civil Procedure). One who in good faith purchases, at an execution sale, shares standing on the books of the corporation in the name of the execution debtor, and without notice that the shares have been pledged to another, gets good title to the shares and is entitled to have the certificate for the shares reissued to him,88 and for that purpose [dictum] the court would, upon appropriate proceedings, compel the surrender of the original certificate, in order that it might be reissued to the purchaser.' No suggestion is made, by further dictum, what could be done if the party owning the certificate resides beyond the jurisdiction of the court. If the old certificate could not be secured, issuing a new certificate would make an over-issue of capital stock floating about in the markets; if the execution purchaser could not get a certificate until the old one was secured and cancelled, the value of his property rights would be greatly reduced. Thus does this doctrine of the intangible, imponderable, invisible quality of shares, ignoring the certificate, produce confusion, and disarrange the orderly course of corporate affairs and business.

87 Manning v. App Consol. etc. Min. Co., 171 Cal. -, 154 Pac. 301. 88 West Coast etc. Co. v. Wulff, 133 Cal. 315, 85 Am. St. Rep. 171, 65 Pac. 622. A suit may be brought for conversion of the "shares" as distinguished from the "certificates." Payne v. Elliot, 54 Cal. 339, 35 Am. Rep. 80.

Another anomaly, not contained in the statutes, is stated by the court in this manner: "Under this section a pledgee of stock has the right, and, indeed, as an ordinary business precaution it may well be his duty, to cause a proper entry of the transaction between himself and his pledgor to be entered upon the books of the corporation for his protection, as this section contemplates." But unless a transfer of the stock on the books of the company be necessary for the pledgee's protection, "it will not be adjudged to be within his rights, for the effect of it might be to imperil valuable rights and privileges of the pledgor," such as the right to vote and to receive dividends, and questions of the removal of the stock [?] to foreign jurisdictions, and (the certificates being indorsed in blank under the agreement that they should not be transferred before the maturity of the debt) the court adds: "All that section 324 of the Civil Code exacts of the pledgee, for the protection of his interests, is that he should cause the transaction and the nature of it to be so entered upon the books of the corporation as to show the names of the pledgor and the pledgee, the number or designation of the shares, and the date of the transfer.''89 In another case the court quotes from Cook on Corporations with approval: "Where a corporation has notice that a stockholder holds his stock as trustee for another, it is bound to refuse a register of the trustee's transfer until it is satisfied the trustee has power to make the transfer. If the corporation allows the transfer, and the trustee had no power to make it, the corporation is liable to the cestui que trust,” and 89 Spreckels v. Nevada Bank, 113 Cal. 272, 277, 54 Am. St. Rep. 348, 33 L. R. A. 459, 45 Pac. 329. Followed in Welch v. Gillelen, 147 Cal. 571-577, 82 Pac. 248. But if the secretary enters the transfer as absolute, still the facts may be shown. Shattuck & Desmond W. Co. v. Gillelen, 154 Cal. 778, 99 Pac. 348. See Manning v. App Consol. etc. Min. Co., 171 Cal. 154 Pac. 301.

it is not liable for a conversion for refusal to transfer the stock contrary to the trust agreement."

There is, however, no provision in section 324 which requires a corporation to enter the terms of a transaction between a pledgor and pledgee upon its transfer or any other books; nor any provision that "exacts" from the pledgee for the protection of his interests, much less of the corporation, that the nature of the transaction should be entered on its transfer or other books. Under this section, if the transaction is a transfer, it may be entered on the books, otherwise not, which entry of transfer contains only the names of the parties making it; the corporation ought not to be made responsible for the correct interpretation of contracts between its stockholders to which it is not a party. If the word "pledgee" is inserted after the name in the certificate, the effect should be more than to indicate that the holder is charged with some trust, one in which the corporation has no interest, not that the corporation is bound by some trust between other parties to which it is not a party and in which it has no interest. The case of executors, etc., is different; their rights and powers are determined by law. The putting of the word "pledgee" after the name of the owner in the certificate ought to have no more effect than putting the word "trustee," which has none at all as affecting the power of the holder to transfer it.91

In a very late decision, where the designation after the holder's name was "trustee," the supreme court has expressed its views as to the futility of entries made on the records which the statute does not expressly require to be made. Following the stockholder's name with the word "trustee," the secretary

90 Young v. New Standard etc. Co., 148 Cal. 306, 83 Pac. 28.

91 Brewster v. Sime, 42 Cal. 139; Thompson v. Toland, 48 Cal. 99; Fletcher v. Kidder, 163 Cal. 769, 770, 127 Pac. 73.

made the entry, "Stock owned jointly by J. F. Kidder and Geo. Fletcher." The court said: "The entries were not such as the secretary was required to make, had no proper place on the books where entered," and excluded them as evidence.92

If, however, the certificate itself reads "pledgee for A," an assignment ought to have the signature of "A" also, for there it may be fairly said that the certificate is in favor of both; and the corporation should not be subjected to the risk of a proper determination of the terms of the pledge, or of the fact of its liquidation.

In the end the matter will have to be solved by statutes giving to stock certificates at least a quasi negotiability, as is the rule in so many states, and requiring the seizure of the certificate itself in order to secure title to the shares; otherwise that attachment or execution creditors be left to such other remedies as the law and the procedure of the courts afford.

Until actual sale, however, the levy of an execution or of an attachment, under the general doctrine in this state that such a levy seizes nothing but the actual title or interest of the debtor, the rights of the real owner or the pledgee of the certificate are unaffected by the levy; and he may, in the interval between the levy and sale, present his certificate to the corporation and demand and obtain a transfer of the stock on the books of the corporation to himself, which done, the levy falls to the ground."3

92 Fletcher v. Kidder, 163 Cal. 769, 770, 127 Pac. 73.

98 National Bank of Pacific v. Western Pacific R. Co., 157 Cal. 573, 21 Ann. Cas. 1391, 27 L. R. A. (N. S.) 987, 108 Pac. 676. This case contains a full discussion of all California cases on this subject, and puts this feature of it at rest. We do not cite the previous cases, for they are explained or distinguished and reduced to unity in this case.

Cal. Corp.-22