In a proper case of lost certificates an action will lie against the corporation to compel the issue of new ones in their place. If it is by statute made the duty of the corporation to replace them the remedy is by mandamus; otherwise by suit in equity.1

§ 550. The fiduciary relation of the corporation.—The property interest of each member is entrusted to the corporate entity for express purposes and no others. These purposes are defined in the charter or articles, the terms of which become incorporated in each contract of membership at the time of signing the same. The corporation thereby assumes the relation of trustee to each and every member, and becomes ipso facto responsible as a trustee whose duty it is to faithfully carry out the objects and purposes enumerated in the instrument by which the relation and duty are created. The right of protection and faithful performance, to which the shareholder is entitled, is co-extensive with his property interest, in the subject of the trust; and this individual interest and that of every other member combined, constitute the entire fund entrusted to the corporate entity.

"The corporation is a distinct individual, holding the legal title to the property in trust for the benefit of the shareholders, who are the beneficiaries having the equitable interest."2 The difference between the

1 See Biglin v. Fr. Ass'n, 46 Hun, 223. So an action may be brought to compel the issue and delivery of a certificate of stock standing on the books in the name of another from whom plaintiff has obtained title. Tregear v. Ettiwanda W. Co., 18 P. 658; 76 Cal. 537.

2 Miners' Ditch Co. v. Zellerbach, 37 Cal. 543, 591, per SAWYER, C. J. On the principle that the corporation is a trustee for the members, it was held that the right of the holder of a certificate entitling him to a paid-up interest which has been recognized on its records, which was non-assessable, and which never had been surrendered could not be forced by laches until repudiated by the corporation. Kobogum v. Jackson Iron Co., 76 Mich. 498; 43 N. W. 602. See also Barry v. Broach, 65 Miss. 450; 4 So. 117.

attitude which a corporation holds to strangers and to its own members is well defined in an important railroad case.1

Members have the same remedies to prevent breaches of trust and misapplications of the trust fund against the corporation as other cestuis que trust against their trustee, and the same defences are available to the corporation.2

§ 551. Increase of capital to represent acquisition of additional property and franchises.-Numerous questions may arise from an increase of capital stock consequent upon an accession to the property rights and franchises of one corporation by another; and the issue of new shares of stock of the purchasing corporation in payment of, or in exchange for those of the other with a view

"While it is true that a corporation holds the legal title of the corporate property, it is equally true that it holds it for the benefit of its stockholders. In them is the beneficial interest. If it makes it is their gain; and if it loses they bear the loss. At common law, though not parties to the record, they could not be witnesses for the corporation; for in all matters in which it was concerned they were considered to have a direct, certain and vested interest." San Diego v. S. D. & L. A. R. R. Co., 44 Cal. 106, 116, per BELCHER, C. C. Citing Greenlf. on Ev., sec. 333. Taylor v. Chichester, etc., Ry. Co. L. R., 2 Exch. 378. See also, Stevens v. Rutland, etc., R. R. Co., 29 Vt. 549, 550; Russell v. Wakefield W. W. Co. L. R., 20 Eq. 479, per JESSEL, M. R.; Sawyer v. Hoag, 17 Wall. 623, per Justice MILLER; Thompson v. Page, 1 Metc. (Mass.) 570 per SHAW, C. J.; Peabody v. Flint, 6 Allen, 56, per CHAPMAN, J.; Taylor v. Miami Exporting Co., 5 Ohio, 162, per WRIGHT, J.; Dodge v. Woolsey, 18 How. 331; Hardy v. Metropolitan Land, etc., Co. L. R. 7 Ch. 427; Kean v. Johnson, 9 N. J. Eq. 407; State v. B'k of Louisiana, 6 La. 745, 759.

1 Bissell v. Mich. South, etc., R. R. Co., 22 N. Y. 262, cited with approval in Miners' Ditch Co. v. Zellerbach, 37 Cal. 543, where it was said: "These suits in equity between different members of the company bear no analogy to actions at law by third parties against the corporation, either in respect to the parties to the suit or the subject in litigation."

As to the parties in actions against corporations, the members thereof in their individual capacity are strangers to the suit; and the rights of the persons who contract with corporations are unaffected by the rights of members inter se.

2 See Teachout v. D. M. B. G. St. Ry. Co., 75 Ia. 722; 38 N. W. 145; Burnham v. S. F. Fuse Mfg. Co., 76 Cal. 24; 17 P. 940; Rogers v. N. Y. & T. L., 1 N. Y. S. 908; 49 Hun, 606; Infra, Ch. XXIII.

to their cancellation. The rights of shareholders will depend in each case, to a great extent, upon the terms of the arrangement and of the statute under which it is consummated. It is an indispensable result of every issue of new shares of stock in a corporation, not made by way of exchange for its outstanding shares, that its share capital be thereby increased to the extent of the additional issue. Unless money or property is ac tually received for the shares, the proceeding would be fraudulent, and such a violation of statutory prohibitions as would render the charter subject to forfeiture. For that reason, being clearly an ultra vires transaction, stockholders would have a right to either have the over-issue enjoined or to proceed in equity for a cancellation of the certificates at any time prior to their passing into the hands of innocent purchasers without notice and for value.' But these objections do not apply in a case where the property and franchises of one corporation are purchased by another, where the property is taken in exchange for shares in the purchasing company, under statutory authority. And where a company has sufficient cash or property capital in excess of its nominal or share capital, it may, under such statutory authority, acquire the rights of another company with such excess, and issue shares to its stockholders to represent the same. In such case the shares stand in lieu of dividends.

It is well settled that such a transaction is legal and in no sense an inflation or gratuitous distribution. The prime requisites for an increase of shares in a corporation are in either case complied with. These are: 1. That there must be authority in the charter or general law for both the increase and the consolidation; 2. That the prescribed formalities must be complied

1 Infra, §§ 598, 615.

with by the body authorized to make it; 3. That it represent actual capital, that is, property in excess of that represented by all former issues. These conditions existing, no harm can result to individuals or to the public, from the transaction, whether the shares are issued to its own stockholders or to those of another corporation.1

§ 552. Unauthorized issue of preferred stock.-The incorporators may usually fix the entire capital stock at any amount they choose, and divide it to suit their convenience, whether into many shares of small, or into a few of large, nominal value.

They may provide in the terms of their association, in the absence of statutory regulation, that the payment of a small percentage of the face value shall be required, or that a large proportion of the entire amount shall be paid on delivery of the shares. They may also provide in the charter or articles for preferred shares, entitling the holders thereof to receive dividends out of the earnings to the exclusion of others. Whatever the requirements and limits of the constating instruments, they must be complied with and observed; and any departure or excess is always a violation of the contractual rights of all the non-assenting members.

§ 553. Action by purchaser of illegally issued shares.Laches. And although a corporation issues preferred

1 Williams v. West. Un. Tel. Co., 93 N. Y. 162, 190. See also note 1 to page 491; Terry v. Eagle Lock Co., 47 Conn. 141. As to the issue of stock and the resulting rights of shareholders in the original corporations, in case of consolidation, see Kohl v. Lillienthal, 81 Cal. 378; 20 P. 401; 22 P. 689. Complainant, at the instance of a corporation for the purpose of consolidation, organized another corporation, to which he conveyed land under a contract by which the company agreed to deliver to him "$58,000 in the bonds of the company on approval of the title by its attorney and acceptance of the land. Held that, whatever may have been the contemplation of the parties, the corporation was to deliver $58,000 of bonds of any issue within the limit allowed by its charter, and was not limited to an issue of $58,000. Cordova Coal Co. v. Long (Ala.), 8 So. 765.

stock without statutory authority, yet a purchaser who voluntarily subscribes and pays for it, for the purpose promoting the scheme under which it was issued, cannot hold it for a considerable period after the conditions upon which it was issued have been fulfilled, and then, on the insolvency of the company, assert the invalidity of the stock, and recover back the money paid for it.1

§ 554. "Calls"-what are.-Though different definitions have been given to the act of requiring payment of the sums promised in subscriptions, it is termed a "call" -sometimes "assessment." A call is a formal declaration by the official authorities of a corporation, that all or a part of the subscribed capital is required to be paid. The proper application of the term assessment is to contributions levied upon shares over and above the par value, where they are authorized by law, or the charter, or are voted by the stockholders. An installment differs from both a call and an assessment, being a part payment on a single call or assessment. A call sometimes has a wider meaning than that given, and includes the resolution requiring the payment, notice and other acts entitling the corporation to begin suit for the same.

§ 555. The authority for making.—The power to make calls is usually conferred upon the directors either in the general law or in the articles of association. 1

1 Bard v. Banigan, U. S. C. C. D. Conn., June 17, 1889; 39 F. 13. See Winters v. Armstrong, 57 Fed. Rep. 508; Byers v. Rollins, 13 Col. 22; 21 Pac. Rep. 894; 26 Am & Eng. Cor. Cas. 162, n.

2 Braddock v. Phil. Marlton & Medford R. R. Co., 45 N. J. L. 363. For other definitions, see Spangler v. Ind. & Ill. Cent. R. R. Co., 21 Ill. 276; Newry & Enniskillen Ry. Co. v. Edmonds, 2 Ex. Rep. 118; 17 L. J. Eq. 102.

3 Queen v. Londonderry & Coleraine Ry. Co., 13 Q. B. 998; Ambergate, etc., Ry. Co. v. Mitchell, 4 Ex. Rep. 540.

Anvil Min. Co. v. Sherman, 74 Wis. 226; 42 N. W. 226.