CORPORATIONS (Continued). 8. PART PAYMENT IN STOCK RECOVERY OF STOCK OR VALUE RIGHT OF CORPORATION.-Where a part of the purchase price of lands sold to a corporation by its promoters at a secret profit was paid for in shares of stock, the corporation had the right to reclaim the shares or to recover their value as of the time of the wrong. (Id.) 9. JUDGMENT WHEN NOT ESTOPPEL.-In an action by a corporation to recover secret profits made by promoters on a sale of lands to the corporation, the defendants cannot set up by way of estoppel a judgment obtained against the plaintiff and one of the defendants in an action against them by a third party, since under seetion 1910 of the Code of Civil Procedure a judgment may operate as an estoppel between parties to it only when they are adverse parties. (Id.) 10. STATUTES OF LIMITATIONS - DIVISION OF SHARES AMONG PROMOTERS INSUFFICIENT NOTICE OF FRAUD.-Knowledge by a corporation that certain of its shares given by it to a promoter on a sale of lands by him to the corporation wherein the promoter made a secret profit had been transferred to other promoters was not sufficient to put the corporation on inquiry as to whether there had been a division of the shares pursuant to a scheme to defraud so as to bar an action for the recovery of the profits commenced more than three years thereafter. (Id.) 11. RECOVERY OF SECRET PROFITS-DISCOVERY OF FRAUD-PLEADING.In an action by a corporation to recover secret profits realized by promoters on a sale of lands to the corporation, brought after the expiration of the statutory period of three years, where the complaint alleged the facts constituting the fraud showing it to be a concealed one and that defendants concealed the facts from the plaintiff, there was a sufficient allegation as to why there was no earlier discovery. (Id.) 12. CIRCUMSTANCES OF DISCOVERY.-In such an action, where the evidence makes it plain that the circumstances under which the fraud was discovered did not involve a knowledge of facts upon which the plaintiff could be charged with a discovery prior to the three-year statutory period, plaintiff's failure to plead the circumstances under which the fraud was discovered was nonprejudicial. (Id.) 13. DELAY IN COMMENCEMENT OF ACTION-LACK OF LACHES.-In such action, the plaintiff cannot be charged with laches in delaying the commencement of the action after the discovery of the fraud, where brought within the period of limitation and no prejudice was shown to have resulted from the delay. (Id.) 14. SALE OF STOCK FOR DELINQUENT ASSESSMENT - PUBLICATION OF NOTICE ESSENTIAL.-A forfeiture of stock for nonpayment of an assessment is void in the absence of a publication of notice of CORPORATIONS (Continued). the delinquent sale as required by section 337 of the Civil Code. (American Well etc. Co. v. Blakemore, 343.) 15. SALE OF STOCK WITHOUT PUBLICATION-ACQUIESCENCE OF STOCKHOLDERS-VALIDITY OF FORFEITURE AS TO CREDITORS.-A bona fide sale of stock for nonpayment of an assessment made without publication of notice of the delinquent sale is binding upon the creditors of the corporation where no proceedings are taken to recover the stock as provided by section 347 of the Civil Code. (Id.) 16. PURCHASE OF STOCK BY CORPORATION AT DELINQUENT SALE— TERMINATION OF LIABILITY OF STOCKHOLDER FOR UNPAID BALANCES ON STOCK.-In view of sections 343 and 344 of the Civil Code, authorizing corporations to purchase its own stock at a delinquent assessment sale, the effect of such a sale, as between the stockholder and the corporation, is wholly to divest the stockholder of all right or interest in his shares, to pass title to the corporation, and to terminate all liability on the part of the stockholder for unpaid balances on his stock. (Id.) 17. INSOLVENCY OF CORPORATION STOCKHOLDERS NOT CHARGEABLE WITH KNOWLEDGE.-Stockholders of a corporation are not chargeable with knowledge of the corporation's insolvency. (Id.) 18. FORFEITURE ON STOCK AFTER INSOLVENCY OF CORPORATION LIABILITY OF STOCKHOLDERS FOR UNPAID BALANCES TO CREditors. In the absence of fraud, collusion, or intention to prejudice the rights of creditors, stockholders of a corporation whose stock has been forfeited and purchased by the corporation for delinquent assessments are not liable to the creditors of the corporation for the unpaid balances on their stock, notwithstanding the forfeiture was made after the corporation had become insolvent. (Id.) 19. CAPITALIZATION WITH OTHER THAN MONEY BASIS.-When the capital of a corporation is paid in something other than money, the thing accepted in lieu of money must be reasonably near its equivalent, and while the hopes or prospects for a property affect its immediate cash value, it is that cash value, and not the future value of the property if the hopes or prospects are realized, which must be taken as the basis of capitalization. (Rhode v. Dock-Hop Co., 367.) 20. ISSUANCE OF STOCK-TRANSFER OF MINING CLAIMS-STOCKHOLDERS NOT SUBSCRIBERS.-Persons to whom shares of stock in a mining company are issued as fully paid up in consideration of the transfer to the company of certain unpatented claims, in which they had an interest and which are not worth the par value of the shares, are not subscribers, and they are not liable as subscribers to the creditors of the corporation for the unpaid balances on the par value of the shares. (Id.) 21. ACCEPTANCE OF PARTIALLY PAID STOCK LIABILITY FOR UNPAID BALANCE. When one accepts partially paid stock, which does not CORPORATIONS (Continued). purport to be anything else, he does so, or must be taken to do so, upon the understanding that it is answerable upon call for the unpaid balance upon it, and that he as its owner must respond to such a call. (Id.) 22. ACCEPTANCE OF PURPORTED FULLY PAID STOCK — LIABILITY FOR FURTHER CALLS.-Where a person accepts the ownership of stock which purports to be fully paid he does not enter upon the relationship of stockholder to the corporation upon any understanding that this stock is liable for further calls on capital account, or that he, as an incident of his ownership and consequent relationship, assumes any such obligation. (Id.) 23. HOLDER OF WATERED STOCK-PRINCIPLE OF LIABILITY.-The principle upon which the holder of watered stock is held to make good what it is pretended the corporation received, but did not, is, that one giving credit to a corporation is entitled to rely upon its ostensible capitalization as the basis for the credit given, and that when the corporation issues watered stock and thereby assumes an ostensible capitalization in excess of its real assets, the transaction necessarily involves the misleading of subsequent creditors, and, whether done with that purpose actually in mind or not, is at least a constructive fraud upon such creditors. (Id.) 24. INNOCENT TRANSFEREE OF WATERED STOCK-LIABILITY FOR UNPAID CALLS.-One who is only a transferee of watered stock and did not participate in the transaction whereby it was originally issued and who took his stock unaware of the character of that transaction, cannot be compelled to make good the false representation as to the capital of the company which he had no part in making and the responsibility for which he has done nothing to assume. (Id.) 25. ACCEPTANCE OF WATERED STOCK OF MINING COMPANY-IGNORANCE OF FACT-NONLIABILITY TO CREDITORS.-Holders of shares of stock in a mining corporation issued as fully paid up but in fact issued in consideration of the transfer to the corporation of mining claims worth less than the par value of the shares are not liable to creditors of the corporation for the deficiency, where they did not directly or indirectly participate in the transaction, had no knowledge when they accepted their stock that it was issued for less than its par value, and acquired it merely as transferees of one of the parties to the original transaction by which it was issued. (Id.) 26. RECOVERY OF UNPAID BALANCES ON WATERED STOCK-EVIDENCEBURDEN OF PROOF.-In an action by a creditor of a corporation against holders of watered stock for unpaid balances on the par value of their shares, the burden is upon the plaintiff to allege and prove the connection of defendants with the fraudulent transaction. (Id.) CORPORATIONS (Continued). OF STOCKHOLDERS CHARACTER OF PROOF.-In such 27. LIABILITY action, it is sufficient to charge the defendants to show that they acquired their stock with notice or knowledge that it was issued for a consideration less than the par value of the shares. (Id.) 28. PLEADING PARTIES DEFENDANT.-In such an action, it is not necessary to join as parties defendant all holders of watered stock. (Id.) an 29. VALUATION OF CLAIMS REPORT OF MINING ENGINEER.-In action by a creditor of a mining corporation against the holders of watered stock issued in consideration of the transfer of mining claims to the corporation to recover the unpaid balances on their stock, a written report of a mining engineer on the claims is hearsay and inadmissible as direct evidence of the value of the claims, but is competent evidence as to the belief of the directors as to such valuation, if it appear that it was before the directors. (Id.) 30. CLASSIFICATION OF STOCK-PREFERENCE-AUTHORIZATION IN AR TICLES OF INCORPORATION ESSENTIAL CONSTRUCTION OF CODE.— The plain purpose of subdivision 6 of section 290 of the Civil Code is that there shall be no classification of shares of corporate stock by way of preference between them unless such classification, with the preference or distinction upon which it is based, be stated in the articles of incorporation. (Martin v. Palmer Union Oil Co., 386.) 31. NONASSESSABILITY OF STOCK-VOID CONTRACT OF SALE.-A contract between a corporation and a purchaser of its stock that the stock sold should be nonassessable is void in the absence of a provision in the articles of incorporation authorizing the issuance of nonassessable stock. (Id.) 32. FORMER DECISION OVERRULED.-The case of Lum v. American Wheel Co., 165 Cal. 657, holding that a contract between a corporation and a stockholder that the shares of the latter were not assessable was valid, is overruled, not as necessarily incorrect in the principles declared therein, but as inadvertently applying those principles to a case where they were not applicable because of a positive statutory provision to the contrary. (Id.) 33. DISTRIBUTION OF CAPITAL STOCK-LIABILITY OF DIRECTORS-EFFECT OF CODE AMENDMENT.-The amendment to section 309 of the Civil Code which took effect on July 27, 1917 (Stats. 1917, p. 657), providing that the liability of a director of a corporation heretofore incurred shall not exist in any case where, all of the debts and liabilities of the corporation to creditors having been paid, the capital stock divided, withdrawn, or paid out constituted all of the capital stock of the corporation and the same was paid out, withdrawn, or divided with the consent of all of the stockholders to or among themselves, operated as a repeal of the statutory CORPORATIONS (Continued). liability formerly existing, in all cases where the distribution of capital stock was made under the conditions stated in such amendment. (Freeman v. Glenn County Telephone Co., 508.) 34. DESTRUCTION OF PENDING ACTION.-The effect of the repeal of the statutory liability of directors of a corporation in cases where there had been a distribution of a capital stock with the consent of stockholders was to destroy the right of a stockholder to further prosecute a pending action to enforce the liability of the directors. (Id.) 35. JUDGMENT AGAINST DIRECTORS-APPEAL SUFFICIENCY OF ANSWER -CONSIDERATION OF CODE AMENDMENT.-On an appeal from a judgment against the directors of a corporation for distribution of capital stock in violation of section 309 of the Civil Code, the court has the power in reviewing the ruling sustaining the demurrer to the answer, which ruling was made prior to the going into effect of the amendment of July 27, 1917, to such section, to consider the allegations of the answer in the same light as if the order had been made after the amendment had become effective. (Id.) 36. SUFFICIENCY OF AMENDED ANSWER-REVERSAL OF JUDGMENT.-A judgment against the directors of a corporation for distribution of capital stock cannot be allowed to stand where it appears from the amended answer that the stock remaining after the payment of debts was divided and distributed to the stockholders with the knowledge and consent of the plaintiff stockholder. (Id.) 37. STOCKHOLDER'S LIABILITY STATUTE OF LIMITATIONS.-The liability of stockholders of corporations under section 32 of the Civil Code has its inception in the creation of the original liability of the corporation and ceases at the end of three years after said date. (Realty & Rebuilding Co. v. Rea, 565.) 38. ASSIGNMENT OF LEASE TO CORPORATION TIME OF CREATION OF LIABILITY.-Where a lease containing a provision that at the expiration of the three-year term the lessee might, by giving notice, elect to take a three-year extension, was assigned to a corporation without any agreement on the part of the assignee to be bound by the covenants of the lease, the liability of the corporation for the payment of the rent for the extended term was not created until it gave notice of the exercise of the option, and an action to enforce the liability of the stockholders commenced within three years thereafter is not barred by the statute of limitations. (Id.) 39. TRANSFER OF STOCK-RECORDATION UPON BOOKS-DUTY OF STOCKHOLDER.—While it is true that, as a general rule, the presumption that a person is a stockholder of a corporation as long as his name appears on the books as such is not conclusive, nevertheless an owner who claims to have transferred his stock cannot overcome the presumptions of continued ownership, at least as to creditors of the corporation, without proof that he has done all in his power |