cannot be delegated. In the absence of power expressly conferred by charter or general statute, neither the corporation in general meeting, by special resolution or otherwise, can forfeit shares for non-payment of installments.2 Shares which have become delinquent and subject to forfeiture are not ipso facto the property of the corporation, but belong to the holder until the process of forfeiture and sale is completed, in strict compliance with the laws of the state, and the charter and by-laws.3 But when the forfeiture proceedings are complete the holder of the shares has no further rights as a stockholder, and cannot object to the disposition of the corporate property. As to what will amount to a substantial compliance with the provisions of the statute or charter by the corporation in the proceedings to forfeit shares has never been definitely settled by the courts. Certain circumstances have sometimes been held to excuse a nonobservance of formalities, but owing to conflict and uncertainty in the decisions it is impossible to state a definite rule on the subject. § 586. When an injunction lies.-Where a statute 1 York, etc., R. R. Co. v. Ritchie, 40 Me. 425. Rosenback v. Salt Springs Nat. B'k, 53 Barb. 495; In re Long Island R. R. Co., 19 Wend. 37; Matter of Stevedores' Ass'n, 2 Daly, 14; Downing v. Potts, 23 N. J. 66; Cartan v. Father Mathew, etc., Soc., 3 Id. 20; Perrin v. Granger, 30 Vt. 595; Wescott v. Minnesota, etc., Co., 23 Mich. 145; Pentz v. Citizens', etc., Co., 35 Md. 73; Barton's Case, 4 De G. & J. 46; Fletcher's Case, 37 L. J. Ch. 49; Clarke v. Hart, 6 H. L. 633. See Lesseps v. Architects' Co., 4 La. Ann. 316; Detweiler v. Breckenkamp, 83 Me. 45. Where an act of incor 3 Mitchell v. Vermont C. R. Co., 4 N. Y. S. 406. poration provided that if a subscriber failed to pay a call his stock should be sold for the amount of the call and the purchaser have all the rights and be subject to all the liabilities of the original owner; it was held that the remedy was only intended to enforce payment of the calls as made, and if the corporation neglected to resort to its remedy at the proper time it thereby lost its right. Stokes v. Lebanon, etc., T. Co., 6 Humph. 241. prohibits the bringing of any action to recover stocks sold, based on non-compliance with statutory formalities, unless a tender is first made of assessments and interest an injunction will not be granted to restrain an irregular sale without such tender being first made.1 But unless there was an assessment in compliance with the statute, all subsequent proceedings are a nullity and no tender is necessary. When that is the case, the owner of the shares is undoubtedly entitled to either an injunction to restrain the sale or an action to recover the shares after the sale. The remedy by injunction prevents multiplicity of suits, and determines the rights of all parties on whose shares the assessment is sought to be enforced, and therefore undoubtedly is the most convenient as well as the most efficacious remedy.2 § 587. The prime requisites of a valid forfeiture.-When in case the assessment is valid and the subsequent proceedings are attacked by suit under the statute to redeem, it is important to determine what are and what are not such irregularities as will sustain the action. The essential steps to be taken by the corporation were in an English case said to be: 1. A call regularly made by a board of directors duly elected. 2. That the shares after non-payment of the call must have been declared to be forfeited by a board of directors duly elected. Previous to this decision,, it had been generally considered 1. That the acts of de facto directors not questioned at the time are here, as in other matters, perfectly valid; and 2. That a substantial observance of formalities, unless immediately taken advantage of and objected to, is sufficient.* 1 Burnham v. S. F. F. Mfg. Co., 76 Cal. 28; 17 P. 939. 2 Id. 3 Garden Gully, etc., Co. v. McLister, L. R. 1 App. 39. Courts decline to construe statutory provisions giving powers in contravention of common right, as the authority to forfeit shares clearly is, somewhat strictly; and therefore to hold a formality directed by the legislature to be imperative, which, if prescribed by ordinary individuals and corporations in contracts between themselves, would be directory merely. In an action to sustain a sale of stock on persons claiming to be directors, the court will inquire into their title to the office, although it would not entertain an original bill to test the validity of an election." In an order declaring a forfeiture, the particular stock proposed to be forfeited must be specified and must be contained in the notice to the holder. The notice should not vary essentially from the form given in the statute. § 588. Fraudulent abuse of the right to forfeit.-The power to forfeit shares, like that to keep a registry and make transfers, is entrusted to the corporation for the benefit of all the shareholders, and must be exercised impartially, in good faith, so as to promote the common interest. But the party seeking to set aside a fraud 1 Lewey's Island R. R. Co. v. Bolton, 40 Me. 451; Budd v. Multnomah W. R. Co., 15 Or. 413; 15 P. 659; Johnson v. Little's Iron Agency, L. J. 46 Eq. 786; Watson v. Eales, 23 Beav. 294; Heaston v. Cin., etc., R. R. Co., 16 Ind. 275; Louisville, etc., Turnpike Co. v. Merriweather, 5 B. Mon. 13. See Lexington, etc., R. R. Co. v. Chandler, 13 Metc. 311; Miss., etc., R. R. Co. v. Gaster, 20 Ark. 455. 2 Moses v. Tompkins, 84 Ala. 613; 4 So. 763. * Johnson, etc., Co. v. Albany, etc., R. Co., 40 How. Pr. 193; 54 N. Y. 416. Where the calls which were not paid proclaimed that the stock will be forfeited, it was held to amount to only a threat, and that it should at least have stated that the shares specified "are hereby forfeited." Macon, etc., R. R. Co., v. Vason, 57 Ga. 314. Where a statute authorized directors to make by-laws providing for the forfeiture of stock, and no by-laws had been made on the subject, but the directors declared plaintiff's share forfeited by resolutions, it was held that the resolution not being of general application, it was invalid. Budd v. Multnomah St. Ry. Co., 15 Or. 413; 15 P. 659. 5 Richmond's Case, 4 K. & J. 305; Sweny v. Smith, L. R. 7 Eq. 324; Green's ulent forfeiture must proceed promptly, and is not entitled to relief if interests of others in the forfeiture would be thereby affected injuriously. If there has been collusion with the directors, by part of the shareholders, others will be released from liability to the corporation, as in Manisty's case, where stockholders upon ceasing to be directors allowed their shares to be forfeited; where directors in order to induce subscriptions had taken shares in trust for their own company; 3 where a dispute was compromised by forfeiting shares which the stockholder contended he was entitled to repudiate for fraud.4 § 589. How rights to dividends may be enforced.—If directors representing the corporation without reasonable cause, should refuse to divide what is actual surplus, a court of equity would grant relief at the suit of any member. Before an individual member can maintain a suit either to compel or to restrain declaration of a dividend, he must show that he has exhausted every other means of obtaining redress without avail. 5 After a dividend has been declared each shareholder Brice's Ultra Vires, (2d Am. Ed.), 490. Where the directors make a call on the corporate stock and threaten to forfeit under the charter the shares of those who refuse to respond, they will be enjoined from forfeiting such shares as are paid in full. Moore v. N. J. Lighterage Co., 5 N. Y. Supp. 192; 23 N. Y. St. Rep. 213. 1 Weeks v. S. I. C. M. Co., 55 N. Y. Supr. 1. A stockholder in a corporation who declines to pay a legitimate assessment, and suffers his stock to be sold in consequence, and subsequently, while the stock is of very small value, when afforded an opportunity to redeem it, declines to do so because it is not worth the expense, in his opinion, will not be allowed afterwards, when the stock has reached a considerable value through the exertions of others, to maintain an equitable proceeding to set aside the assessment sale, and redeem his stock. Sayre v. Citizens' Gas-light & Heat Co., 69 Cal. 207; 10 P. 408. 2 78 S. & J. 745. 3 Richmond's Case, 4 K. & J. 305. 4 Gower's Case, L. R. 6 Eq. 77; Dixon v. Evans, L. R. 5 H. L. 606. 5 Supra, § 569. Jackson v. Newark Plank Road Co., 31 N. J. Law. 277, 280. has a separate individual right to his ratable share, which he may enforce by action of assumpsit against the corporation.1 § 590. Setting off indebtedness against dividends.-When a shareholder is indebted to a corporation which has declared a dividend, the latter may refuse to pay cash and may enter a credit to the amount of the dividend against the indebtedness, or retain an amount sufficient to satisfy such indebtedness. Such rule does not interfere with the free sale and transfer of shares, as dividends do not follow the shares, but belong to the holder at the time they are declared.2 And a shareholder cannot refuse to pay interest on a mortgage he has given to secure payment for his stock on the ground that the company has surplus profits on hand from which it should declare a dividend.3 A corporation has an equitable lien on the dividends in such cases. And if a party buys the shares pending such lien, he cannot compel the corporation to execute a transfer until all past due installments then due on the stock are paid. § 591. Remedies between the cestuis que trust and the trustee in a "trust."-The relation created and the rights resulting to corporations combining to form a "trust or individuals become important only when it is found that the trust itself is not illegal. In other cases, courts will refuse to recognize any rights or equities so as to give them any standing in court. Supra, § 446. 2 Bates v. N. Y. Ins. Co., 3 Johns. Cas. 238. See St. Louis Perpetual Ins. Co. v. Goodfellow. 9 Mo. 149; Sargent v. Franklin Ins. Co., 8 Pick. 90; Hagar v. Union Nat. B'k, 63 Me. 509. See Merchants' B'k v. Shouse, 102 Pa. St. 488. 3 Ely v. Sprague, Clarke's N. Y. Ch. 359. |