Shares of stock usually are represented by certificates. A certificate of stock is not the stock itself but simply evidence of its ownership. just as a deed is evidence of the ownership of land. A stockholder or shareholder is one who owns one or more shares of stock. One may be a stockholder, although no certificate of stock has been issued to him,30 just as one may be the owner of other personal property, although he has never received a bill of sale thereto.

A stockholder is not by reason of this fact a creditor of an association, and the possession of a certificate of stock, whether common or preferred, represents not indebtedness but ownership.81

However, when a provision of a certificate of preferred stock absolutely obligated a corporation to pay the par value thereof on a certain date with cumulative dividends, it was held that the holder of the certificate was a creditor and that his rights should be determined accordingly.

32

An overissue of stock by an association is void.33 Apparently the association would at least be liable for the purchase price of the overissued stock.84

When the constitution of a State imposes double liability on stockholders, a stockholder is not subject to such double liability on stock which the corporation was not authorized to issue.95

Stock may be assigned or transferred only by those who are authorized to do so. A warehouse corporation issued stock to growers of tobacco who were members of a cooperative tobacco marketing association. The stock was paid for through deductions made by the association from the proceeds derived from the sale of tobacco. The certificates of stock were retained by the warehouse corporation. Later the association claimed that the growers were indebted to it for liquidated damages for breach of their marketing agreements

30 In re Culver's Estate, 145 Iowa 1, 123 N. W. 743; Bushnell v. Elkins, 34 Wyo. 495, 245 P. 304, 51 A. L. R. 13.

31

Sternbergh v. Brock, 225 Pa. 279, 74 A. 166, 24 L. R. A. (N. S.) 1078; Wineinger v. Farmers' & Stockmen's Loan & Investment Ass'n, (Tex. Civ. App.) 278 S. W. 932, affirmed in (Tex. Com. App.) 287 S. W. 1091.

32

Oklahoma Wheat Pool Elevator Corporation v. Bouquot, 180 Okla. 159, 68 P. 2d 97. See also 14 C. J. 416; O'Brien Mercantile Company v. Bay Lake Fruit Growers' Association, 178 Minn. 179, 226 N. W. 513.

33

3 Graf v. Neith Co-operative Dairy Products Association, 216 Wis. 519, 257 N. W. 618; Scovill v. Thayer, 105 U. S. 143, 26 L. Ed. 968; 1 Cook on CORPORATIONS, Sth ed., sec. 292.

341 Cook on CORPORATIONS, 8th ed., sec. 293.

35 Maclaren, as Receiver of Goodhue County Co-operative Company v. Wold, 168 Minn. 234, 210 N. W. 29, 55 A. L. R. 321, 172 Minn. 334, 215 N. W. 428.

The warehouse corporation thereupon canceled the certificates of stock issued in favor of the growers and issued new certificates of stock in favor of the marketing association. It was held, however, that as the growers had not authorized the transfer or assignment of their certificates of stock and as the marketing association and the warehouse corporation were not authorized to determine and adjust the claims of the association against the growers, the marketing association was not entitled to receive any part of the liquidating dividends declared by the warehouse corporation on the stock. It was further held that the warehouse corporation was not estopped to show that the issuance of the stock to the marketing association was without authority.26

It is not always indispensable that a person sign a subscription for stock to hold him as a subscriber; and where a stockholder attended a meeting of stockholders at which he voted in favor of organizing a new corporation for the purpose of taking over the stock of the old corporation, it was held that such a stockholder who signed the articles of incorporation of the new company should be deemed to have subscribed for the amount of stock which he held in the old.37

Where a person subscribed for stock of a cooperative on condition that the subscription would be "used to do business on the Rochdale System," failure to so operate was held to be no defense to a suit on the subscription, as the corporation had incurred debts on the strength of the subscription and as it would have enhanced "the burden of those stockholders who had paid in full." Neither did a previous refusal to accept the amount of his subscription release him "as against creditors or other stockholders." 38

A subscriber for stock in Nebraska, when sued on the promissory note which he gave therefor, successfully defended by showing that he was induced to buy stock by representations that within a year "a new $40,000 elevator would be built to take the place of the old one which was dilapidated and out of date"; and that the new structure would be equipped with modern machinery and that he "and other subscribing patrons, would be paid 2 or 3 cents a bushel above local market prices for grain at the new elevator; that the stock would 'carry itself' and that defendant would never be

86

Burley Tobacco Growers' Co-operative Association v. Indiana District Warehousing Corporation, 102 Ind. App. 138, 199 N. E. 436.

37 Zander v. Schuneman, 170 Minn. 353, 212 N. W. 587. But see Jackson v. Sabile, 36 N. D. 49, 161 N. W. 722.

38 Warren Company Co-operative Association v. Boyd, 171 N. C. 184, 88 S. E. 153. See also Equity Co-operative Association of Roy v. Equity Co-operative Milling Company of Montana, 63 Mont. 26, 206 P. 349; 14 C. J. 512.

called upon to pay the note except from dividends on his stock which would be derived from increased earnings * * * 39

In the absence of statutory requirements, contracts for the sale cr purchase of shares of stock in a fully organized corporation are made in the same manner as other contracts and are governed by like principles. 40

It has been held that, if a person in subscribing for stock relies on false representations that others in whom he has confidence have already subscribed, this constitutes a fraud justifying a rescission of the subscription contract, if such action is taken "promptly and before the rights of creditors have intervened.” 41

Where an association began business without having all its capital stock subscribed, as required by statute, it was held that a subscriber for stock was not liable, on account of this fact, on his stock subscription and that the corporation was not entitled to apply the purchase price of milk delivered by the subscriber on the payment of his note given for the purchase of stock.42

Even though the bylaws of a cooperative provide for the repurchase of its stock, if the matter is discretionary with the association, a stockholder is not entitled, without the consent of the association, to have his stock retired or to have its value used as an offset to a claim which the association has against him, nor under any circumstances is a stockholder entitled to have his stock retired unless all conditions precedent to doing so have been met.44

43

When stock or memberships in an association are repurchased for less than their liquidating value, at least from a liquidating standpoint the remaining members are benefited. 45

The stock subscription form employed by cooperative associations, usually contains, in addition to an agrement to purchase a stated number of shares of stock upon the happening of a specific con

39 Farmers' Co-operative Grain Company v. Startzer, 112 Neb. 19, 198 N. W. 170. See also Divine v. Western Slope Fruit Growers Association, 27 Colo. App. 368, 149 P. 841.

40

Equity Co-operative Association of Roy v. Equity Co-operative Milling Company of Montana, 63 Mont. 26, 206 P. 349; 14 C. J. 512.

"Bohn v. Burton-Lingo Company, (Tex. Civ. App.), 175 S. W. 173; Webb v. Tri-State Fair & Racing Association, 238 Ky. 87, 36 S. W. 2d 839. See also Vest v. Farmers Cooperative Elevator Company of Riverdale, 108 Neb. 407, 187 N. W. 892.

42 Flury v. Twin Cities Dairy Company, 136 Wash. 462, 240 P. 900.

Lewiston Co-op. Soc. No. 1 v. Thorpe, 91 Me. 64, 39 A. 283.

44

Fillmore v. Farmers' Union Co-op. Ass'n, 139 Okla. 38, 280 P. 1072. also Bylaws, p. 42.

See

45 Keeler v. New York Hide Exchange, 231 App. Div. 450, 247 N. Y. S. 482.

tingency, an agreement to market certain commodities of the subscriber through the association, when organized. If the subscription is invalid by reason of the fact that conditions precedent to organization have not been complied with, the question arises whether the association will be able to enforce its marketing agreement, as well as whether it will be able to hold the subscriber for his subscription to capital stock. Cases involving the right of an association to enforce its marketing agreements because of some defect in the organization procedure are considered elsewhere."

How Stock Is Paid For

Stock, as a rule, may be paid for with cash, other property, or labor. In most States there are statutory provisions relative to paying for stock otherwise than with cash, and these should be ascertained and carefully followed. In some States the cooperative statutes provide substantially as follows:

No association shall issue stock to a member until it has been fully paid for. The promissory notes of the members may be accepted by the association as full or partial payment. The association shall hold the stock as security for the payment of the note; but such retention as security shall not affect the member's right to vote."

In the absence of charter or statutory provisions, stock may be issued in payment for property, but the property should be worth the par value of the stock received for it. It is the general rule that for a payment for stock to be good against the corporation or creditors thereof, it must be paid for in money or what may fairly be considered the equivalent of the money value.*8

Stock and Nonstock Associations

A stock corporation is a corporation that has capital stock. As evidence of these shares certificates of stock are usually issued. The owners of these certificates of stock, by acquiring them, become the shareholders or stockholders, and thus become the "owners" of the corporation.

Capital stock and stock certificates are generally regarded as characteristics of a business corporation. That is, business corporations usually have capital stock and usually issue certificates of stock. This is not necessarily true. For corporations are creations of the legislature and it can, within constitutional limitations, endow them with

46

See When Marketing Contracts Become Effective, p. 126.

47 See sec. 14 of Bingham Cooperative Marketing Act of Kentucky, p. 379 of Appendix.

"In re Manufacturers' Box & Lumber Co., 251 F. 957.

such powers and limitations as seem advisable. The State, then, can create business corporations without the elements mentioned. This is not generally done, but the power to do so undoubtedly exists. In short, the legislature has complete control, within constitutional limitations, of the creation of corporations. It may make no provision for their creation, or it may grant to those created closely limited or very wide powers.

Nonstock corporations do not have capital stock and, aside from agricultural and other cooperatives, usually are not commercial organizations. They generally issue to their members certificates of membership evidencing the right of the members in the corporation. Some of the more common types of corporations of this class are incorporated churches, clubs, or social organizations.

In the early history of business corporations having capital stock, certificates of stock evidencing the shares into which the capital stock of the corporation had been divided were not issued, but as time went. on some corporations issued certificates of stock evidencing the interest of shareholders in the corporation.

The convenience and desirability of stock certificates which could. be readily transferred from hand to hand were so apparent that it soon came to be looked upon as a right of a member of a business corporation to have certificates of stock issued to him. And now purchasers of stock may generally require the corporation to issue certificates of stock.49

From an early date stock certificates were assigned and transferred, and this assignability is generally regarded as one of their leading qualities. Generally speaking, the policy of the law is opposed to restraint on the disposition or sale of property. The courts, however, have upheld restrictions on the right of members to transfer shares of stock. At common law, shares of stock are regarded as personal property capable of sale, transfer, or succession in any of the ways by which personal property may be transferred.50

On the other hand, the interest which a member has in a nonstock corporation, which is usually evidenced by a certificate of membership, is not transferable at common law. In a certain case the plaintiff acquired a certificate of membership from one who was formerly a member of a nonstock corporation, but it was held that this did not constitute the plaintiff a member of the corporation.51 Certificates of

49

Mutual Telephone Co. v. Jarrell, 220 Ky. 551, 295 S. W. 865.

502 Cook on CORPORATIONS, 8th ed., sec. 331; Mobile Mut. Ins. Co. v. Cullom, 49 Ala. 558; Boston Music Hall v. Cory, 129 Mass. 435.

51 American Live Stock Commission Co. v. Chicago Live-stock Exchange, 143 Ill. 210, 32 N. E. 274, 18 L. R. A. 190, 36 Ann. St. Rep. 385.