later authorizing all corporations, except monied corporations or those under the jurisdiction of public service commissions, to provide in their charters for the issuance of stock without par value. Since then Canada and thirteen states, of which the latest is Massachusetts, have provided for the issuance of non-par value stock.

"The scope of these statutes differs. Some have extended this privilege only to corporations other than those of a fiduciary or quasi public character, feeling doubtless that in such organizations the vice of the par value is attenuated by more strict supervision. A hesitancy to go the whole length is also shown in provisions in many statutes that no stock preferred either as to dividends or as to principal may be issued without par value.

"Various means are provided for fixing from time to time the consideration for which this stock may be issued, in place of the general rule that stock with par value may not be sold at less than par. In New York, the .shares may be sold at 'their fair market value,' and in the absence of fraud, the judgment of the board of directors as to such value shall be conclusive. When duly issued the shares are deemed fully paid and are nonassessable. A number of statutes require expressly that before a corporation may begin business or incur debts, its 'stated capital' must be fully paid in. If any liabilities are incurred before this time or if such capital is impaired by the issuance of dividends therefrom, the directors are made personally, jointly and severally liable.

"There is no difficulty in determining the amount of license or franchise taxes for corporations issuing stock without par value. Some states provide that such shares shall be taken to be, for this purpose alone, of a par value of $100. In other states a fee of five cents is required for each such share.

"It can hardly be claimed that the omission of a nominal par value on corporation stock will entirely put an end to inflation. The chief argument for such shares is rather 'truthfulness.' It would be well to provide as an additional precaution, that officers of corporations be

required to draw up estimates of their resources, plans for future operations, etc., and publish them to stockholders at frequent intervals. For the accuracy of these, they should be held accountable. The fears that stocks without par value would not meet with the investor's favor, at least until he is educated to an understanding of their nature, appears to have been groundless. Stocks of corporations organized under these statutes are quoted on the exchange side by side with those with a par value and are dealt in without seeming discrimination. The number of corporations taking advantage of these statutes is increasing, as confidence in the benefits of the change is established. In New York in 1918, 168 corporations were so organized.

"For the sake of uniformity, organization under these statutes should be made compulsory, and not optional; and there should be no distinction drawn between preferred and common stock, nor between 'monied' and other corporations. It is confidently expected that shares without par value will entirely supplant those with par value, and thus another fiction which has outlived its usefulness and serves only to obscure the real nature of corporation shares will be abolished."

Question 649:

(1) Why does this author think that par value shares make "stock-watering" possible? Does he think that shares with "no par value" would remedy this?

(2) When did the modern movement for law authorizing no par stock begin? Are the laws uniform?

(3) Are corporations with shares of no par value actually being formed? Are investors more cautious about putting their money into them than in other corporations?

§ 667. (Corporations, Sec. 31.) Unissued and treasury stock.

(Note: Unissued stock is stock authorized but not issued; treasury stock is issued stock owned by the corporation and in the treasury.)

§ 668. (Corporations, Sec. 32.) The certificate of stock.

Case 650. Chester Glass Co. v. Dewey, 16 Mass. 94. Facts: Suit against Dewey on his stock subscription and an assessment made on his share. Denial by defendant that he is a stockholder, for several reasons, one of which is, that he was never issued a certificate of stock. Point Involved: Whether a stock certificate is essential to constitute one a stockholder.

PARKER, C. J.:

66#

It is insisted, secondly, that he cannot be a member, without a certificate of his share; it being provided by the general act upon this subject that the stock shall be divided into shares, and that certificates shall issue to the stockholders. But it was not essential to the existence of the corporation, that certificates should have been issued. The corporation might be compelled, if there were a court of chancery, to give certificates; but still for want of them the stockholders would not lose their rights. The defendant never demanded a certificate. If he had and it had been refused, perhaps he might have declined being a member. But a certificate was, in fact, offered to him before his action was brought."

Question 650: Can one be a stockholder in a corporation without a certificate? Is he entitled to a certificate? How could he compel its issuance?

(Note: On the question of transfer of stock, forged and stolen certificates, see post, chapter 88 in this pårt.)

§ 669. (Corporations, Sec. 33.) The legal nature of shares of stock.

(Note: Shares of stock are intangible personal property. See Case 634, supra.)

CHAPTER 84

SUBSCRIPTION TO STOCK

§ 670. Form, manner and effect of subscribing to stock. § 671. Fraud in securing stock subscriptions.

§ 672. Subscriptions upon condition.

§ 670. (Corporations, Sec. 34.) Form, manner and effect of subscribing to stock.

(Note: Subscriptions to stock may conceivably be by way of acceptance of a proposition to sell, but we generally imply by the term subscription, an offer to buy. Being an offer, it can be withdrawn until acceptance, and if the corporation is not yet in existence, there can be no acceptance until it comes into existence. Acceptance may be shown by conduct. In fact the subscriber is generally simply treated as a stockholder, no express assent being shown.)

§ 671. (Corporations, Sec. 35.) Fraud in securing stock subscriptions.

Case 651. Morgan v. Skiddy, 62 N. Y. 319.

(Set out as Case No. 687, post.)

Case 652. Gress v. Knight, 135 Ga. 60, 31 L. R. A. N. S. 900.

Facts: November 23, 1907, the Bank of Wayland made an assignment for the benefit of creditors, and receivers were appointed. Certain stockholders file petitions alleging that they were induced to subscribe for stock through fraudulent representations, and asking for rescission of the stock subscription.

Point Involved: Whether a stockholder can be relieved of his liability as a stockholder on the ground of fraud, where since his subscription the rights of cred

itors have intervened and the corporation has become insolvent.

LUMPKIN, J., delivered the opinion of the Court: "In England it is settled that after the commencement of winding up proceedings against a corporation, an application to be relieved from liability as a shareholder on the ground of fraud practiced on him by agents of the company in procuring the subscription comes too late.

*

A stockholder occupies a three-fold relation: First, to the corporation itself; second, to other stockholders; and, third, to creditors of the corporation. Fraud does not render a contract absolutely void, but voidable. It remains valid until repudiated or avoided. As between a stockholder and the corporation, unless special circumstances alter the case, the general rule that contracts obtained by fraud may be avoided by the party defrauded applies to a stock subscription induced by the fraud of the company through its authorized agents. So, also, where only the rights of other shareholders are affected, the company being solvent and 'a going concern.' But where the rights of creditors are involved, the question is one of greater difficulty. Some American decisions have announced in general terms the rule laid down by the English courts; but in most of them additional circumstances existed, such as receiving benefits after knowledge or notice of the fraud, acts done, after notice or knowledge, inconsistent with a disaffirmance, laches, estoppel, the intervening of rights of innocent third parties, or the like. Thus, in Chubb v. Upton, 95 U. S. 665, 667, 24 L. Ed. 523, 524, Mr. Justice Hunt said: 'It has been several times adjudged in this court that in an action by such assignee to recover unpaid subscriptions upon stock in such an organization, the defense of false and fraudulent representations inducing such subscription cannot be set up, especially when the subscriber has not been vigilant in discovering such fraud, and in repudiating his contract.' It cannot be