§ 596. Title to office will not be tried.-A court of equity will not entertain jurisdiction of a suit the purpose of which is merely to test the legality of an election of directors or to remove an officer of a corporation who is in actual possession; yet, when the question arises incidentally and collaterally in a suit rightfully filed for another purpose, the court will decide it; as where a new board of directors elected with a view to effecting a consolidation with another corporation attempt to consummate it and a bill is filed to enjoin them, the court may and will inquire into the legality of their election.1 § 597. Inability of board to agree.-A clear case for interposition of a court of equity at the suit of a shareholder is where by reason of disagreements among the members or of the managing body, or on account of there being rival bodies both claiming titles to office, there is a stoppage of the corporate business. It is according to the terms of each contract of membership that the business of the company in which he has invested his capital shall be continued with reasonable diligence and dispatch, and a refusal or inability of his chosen agents to prosecute the business is such a violation of that contract as entitles him to equitable relief." An equity of a similar character inures to the benefit respect to the subject of the action was held to be a waiver of the objection that no demand had been made previous to bringing the suit. Parrott v. Byers, 40 Cal. 614. See also Brinkerhoff v. Bostwick, 88 N. Y. 52; Ramsay v. Gould, 57 Barb. 398; Fisher v. Andrews, 37 Hun, 176; Doud v. Wis., etc., R. Co., 65 Wis. 108; 25 N. W. 533; Pond v. Vermont, etc., R. Co., 12 Blatchf. 280; Mussina v. Goldthwaite, 34 Tex. 125. 1 Nathan v. Thompkins, 82 Ala. 437; 2 So. 747. See also, Johnson v. Jones, 23 N. J. Eq. 216; Perry v. Tuscaloosa Cotton-Seed Oil Mill Co., 9 So. 217 (April 30, 1891). 2 Lehigh Coal, etc., Co. v. Cent. R. R. Co., 35 N. J. Eq. 349; Pond v. Vermont Valley R. R. Co., 12 Blatchf. 280; Featherstone v. Cooke, L. R. 16 Eq. 298. See, however, Einstein v. Rosenfeld, 38 N. J. Eq. 309. of the shareholder, when the directors refuse or neglect to call a meeting for an election of officers, or on other occasions provided by law or the constating instruments. If members of a corporation have a right to select its officers and are entitled to their faithful service when employed, with equal reason should it be said that they have a right to change them from time to time, or at any rate, should not be deprived by the acts or negligence of the directors of an opportunity to exercise the right. Whether the remedy in case of failure to call a meeting is by bill in equity or by mandamus depends upon the general law of the place where redress is sought and the charter. Where the statutes or charter expressly impose the duty of calling a meeting upon the directors, the proper remedy is by mandamus.1 § 598. Discrimination among shareholders.—Any advantage given to one class of shareholders in a corporation over others destroys their equality and takes away a right which originally existed in it and materially varies the effect of each and every outstanding certificate of stock. Each certificate represents a right which cannot be divested or impaired without the consent of the owner unless the power so to do is in some way reserved.2 Shares of stock are in the nature of choses in action, and give the holder a fixed right in the division of the profits and earnings of a company so long as it exists, and its effects when it is dissolved. That right is as inviolable as is any right in property, and can no more be taken away or lessened against the will of the owner than can any other right. 1 Infra, § 657, et seq. 2 Mech. B'k v. N. Y. & N. H. R. R. Co., 13 N. Y. 599, 627; Campbell v. Am. Zylionte Co., 122 N. Y. 455; 25 N. E. 853; Y. 159; Bailey v. Champlain M. & P. Co. English, 142 Mass. 267; 8 N. E. 45. Kent v. Quicksilver Min. Co., 78 N. (Wis.), 46 N. W. 539; Nickerson v. Invidious and unfair discriminations may be made in a variety of ways. Among the most frequent methods by which one class of shareholders are favored at the expense of another is by the issue of shares of stock to them on terms which give them an advantage in the matter of dividends over another class without the latter's consent; or in giving one class priority in the payment of dividends contrary to the terms of the original contract to that effect to which the entire membership became parties. Now it is manifest that any action of a corporation, whether in the hands of the majority or of a governing board which takes hold of the shares of its capital stock already sold and in the hands of lawful owners, and without legal authority divides them into two classes whereby one is given prior right to the receipt of a fixed sum from the earnings before the other may have any receipt therefrom whatever, is a violation of the contract of membership into which each shareholder has entered at the time of subscribing for or purchasing shares. In cases of this nature, the remedy is by bill in equity. The injured shareholder could not sue at law, for there his contractual relation is not protected. Whatever the form which the inequality in the distribution of profits,' in a new issue of shares, or assessments or other act,3 has assumed or is about to assume, 1 Luling v. 2 Dousman v. Wisconsin, etc., Min. Co., 40 Wis. 418. A street-railway company, in doubling its capital stock, issued to a subscriber additional shares equal in amount to what he had already received and paid for by 39 acres of land. A stockholder brought a bill to cancel the additional shares, alleging himself to be a bona fide stockholder, and that the land was overvalued fivefold, with the fraudulent intent to issue thereon fictitious stock without additional consideration. It was held that the bill was sufficient, without averring that plaintiff was a stockholder at the time of the transaction, or that the stock devolved upon him by operation of law. Parson v. Joseph (Ala.), S So. 788. * Preston v. Grand Collier Dock Co., 11 Sim. 327; Bailey v. Birkenhead, etc., the shareholder may proceed in equity for redress of the wrongs done and for prevention of those threatened. An injured shareholder in such case would be entitled to sue either in the form of a shareholder's bill on behalf of himself and all that class of shareholders discriminated against, or he could resort to his individual right of action in equity against the corporation for a refusal of its agents to proceed against the wrongdoers, or for a specific performance of his contract of membership. § 599. Discriminations in collecting subscriptions—Watered stock. Various devices have been resorted to by corporations for inflating or "watering" their capital and raising money on shares, in violation of statutes and constitutional provisions declaring that certificates shall only be issued for their par value in cash or property or labor at its actual cash value. All such transactions are ultra vires, and will be restrained on application of a non-consenting shareholder. Whether the dissenting or non-consenting shareholder is entitled to have the transaction set aside after consummation presents a more serious question, depending altogether upon the question whether there has been actual fraud, and whether the purchaser of such stock has participated therein. If there has been such a gross over-valuation of the property or services accepted in payment as to raise a presumption of fraud, it would seem that an action would lie against the wrong-doers to have the Ry. Co., 12 Beav. 433; Macon, etc., R. C. Co. v. Vason, 57 Ga. 314, 316, 317. The complaint in an action to recover an assessment of 35 per cent. on the stock of defendant alleged that, at a certain time prior to such assessment, defendant had paid 40 per cent. on his stock, but that some of the stockholders had paid but 2 per cent. It was held that though the assessment was made by a court of another state in a suit before it, it would on demurrer be deemed to have been an unequal and therefore void assessment. Gt. West. Tel. Co. v. Burnham (Wis.), 47 N. W. 373; Bowen v. Kuehn, Id. 374. stock returned and cancelled upon restoration of the property or its value, or upon payment of the reasonable value of the labor, as in the case of other wrongs done to the collective corporate interest. But it has been well established that aside from the right of creditors to interfere and enforce the liability of the holders of such stock for the balance as unpaid capital, in certain cases such transactions will be allowed to stand both for and against the corporation; in other words, that the corporation itself is estopped to deny the validity of the sale. It follows that since the corporation is itself concluded, the shareholders who have paid or agreed to pay full value for their shares have no remedy as representatives of the collective interest in the name of the corporation. Nothing is plainer, however, than that their individual interests may be greatly injured in this way and that they are entitled to redress. Their remedy is in their individual names, any one or more having a right may bring separate actions against the corporation, and the holders of the stock to have the same returned and cancelled.1 Where the fraud consists in over-valuation of property or labor, the judgment will be the same as in case of a creditor's bill; the transaction will be rescinded or in case of stock being issued as fully paid up on partial payment, the holders thereof will be held liable to make full payment.2 1 In Fosdick v. Sturgiss, 1 Biss. 255, the court said there could be no question of the availability of this remedy. See also, Gehman, etc., R. R. Co. v. Kelly, 77 Ill. 426; Sturgis v. Stetson, 1 Biss. 246, 254. 2 For a full discussion of this subject from the creditor standpoint, see infra, § 788. Such transactions are not void but only voidable. It has been so held even under constitutional provisions that stock shall not be issued except for money, labor done, or money or property actually received, and that all fictitious increase of stock shall be void. Such provisions are held to have the effect to render the stock void only when the issue is entirely fictitious. In Stein v. Howard, 65 Cal. 616; 4 P. 662, it was held that the constitutional prohibition does not prevent the issue of stock at less than its par value, the court saying: |