When the law 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.176 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 tobacco marketing association. The stock was paid for through deductions made by the association from the proceeds derived from the sale of tobacco. The stock certificates 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 contracts. 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 stock certificates 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 from showing that the issuance of the stock to the marketing association was without authority. 177 It is not always essential that a person sign a subscription for stock to hold him as a subscriber. 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. 178 176 Maclaren, as Receiver of Goodhue County Cooperative Company v. Wold, 168 Minn. 234, 210 N. W. 29, 55 A.L.R. 321 (1926), 172 Minn. 334, 215 N.W. 428 (1927). 177 Burley Tobacco Growers' Coop. Association v. Indiana District Warehousing Corporation, 102 Ind. App. 138, 199 N.E. 436 (1936). 178 Zander v. Schuneman, 170 Minn. 353, 212 N.W. 587 (1927). But see Jackson v. Sabie, 36 N.D. 49, 161 N.W. 722 (1917). 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. The corporation had incurred debts on the strength of the subscription and 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."179 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 two or three 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 called upon to pay the note except from increased *** earnings ***."180 In the absence of statutory requirements, contracts for the sale or 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. 181 If a person in subscribing for stock relies on false representations that others in whom he had confidence have already subscribed, this constitutes a fraud justifying a rescission of the subscription contract, provided such action is taken "promptly and before the rights of creditors have intervened."182 Where an association began business without having all its capital stock subscribed, as required by statute, it was held that 179 Warren Company Cooperative Association v. Boyd, 171 N.C. 184, 88 S.E. 153 (1916). See also Equity Cooperative Association of Roy v. Equity Cooperative Milling Company of Montana, 63 Mont. 26, 206 P. 349 (1922). 180 Farmers' Cooperative Grain Company v. Startzer, 112 Neb. 19, 198 N.W. 170 (1924). See also Divine v. Western Slope Fruit Growers' Association, 27 Colo. App. 368, 149 P. 841 (1915). 181 Equity Cooperative Association of Roy v. Equity Cooperative Milling Company of Montana, 63 Mont. 26, 206 P. 349 (1922). 182 Bohn v. Burton-Lingo Company, 175 S. W. 173 (Tex. Civ. App. 1915); Webb v. Tri-State Fair & Racing Association, 238 Ky. 87, 36 S.W. 2d 839 (1931). See also Vest v. Farmers' Cooperative Elevator Co. of Riverdale, 108 Neb. 407, 187 N.W. 892 (1922). 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. 183 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. 184 Nor under any circumstances is a stockholder entitled to have his stock retired unless all conditions precedent to doing so have been met. 185 Where the State statute authorizes the cooperative to repurchase its stock at its par value when the shareholder ceases to be eligible, the shareholder cannot require payment in excess of par, 186 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. 187 The stock subscription form employed by cooperatives usually contains, in addition to an agreement to purchase a stated number of shares of stock upon the happening of a specific contingency, 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 contract, 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 contracts because of some defect in the organization procedure are considered elsewhere. 188 183 Flury v. Twin Cities Dairy Company, 136 Wash. 462, 240 P. 900 (1925). 184 Lewiston Coop. Soc. No. 1 v. Thorpe, 91 Me. 64, 39 A. 283 (1897). But cf. Farmers Union Co-op Gin Co. v. Taylor, 197 Okla. 495, 172 P. 2d 775 (1946). 185 Fillmore v. Farmers' Union Co-op Association, 139 Okla. 38, 280 P. 1072 (1929). See "Sample Legal Documents," infra, p. 550. 186 Avon Gin Co. v. Bond, 198 Miss. 197, 22 So. 2d 362 (1945). See Lambertv. Fisherman's Dock Cooperative, Inc., 115 N.J. Super. 424, 280 A. 2d 193 (1971), modified and remanded, 61 N.J. 596, 297 A. 2d 566 (1972). 187 Keeler v. New York Hide Exchange, 231 App. Div. 450, 247 N.Y.S. 482 (1931). 188 See "When Marketing Contracts Become Effective," infra, p. 173. How Stock is Paid For Stock, as a rule, may be paid for with cash, other property, or labor. Most States have statutory provisions relative to paying for stock otherwise than with cash that 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 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. Generally, for a payment for stock to be good against the corporation or its creditors, it must be paid for in money or what may fairly be considered the equivalent of the money value. 190 Stock and Nonstock Associations A stock corporation is a corporation that has capital stock. The owners of the stock, by acquiring it, become the stockholders or shareholders, and thus the "owners" of the corporation. Certificates of stock are usually issued to stockholders as evidence of their ownership of shares. 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. But this is not always true. Corporations are crea 1892 Kan. Stat. Ann. § 17-1613. This Kansas statute follows sec. 14 of the old Bingham Cooperative Marketing Act, Ky. Acts ch. 1 (1922), the act used as a model in many States. Note the provision in the Wisconsin Cooperative Associations Act: "No stock certificate may be issued except upon payment of the par value of the stock it represents. Payment for stock may be in cash or other property. If in other property, the value thereof shall be determined by the board and such determination, if made in good faith, shall be conclusive." 22 Wis. Stat. Ann. § 185.21(4). 190 In re Manufacturers' Box & Lumber Co., 251 F. 957 (D. N.J. 1918). tions of the legislature and, within constitutional limitations, they can be endowed with such powers and limitations as seem advisable. The State, then, can create business corporations without the elements mentioned. Although this is not generally done, 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 authorized to be created closely limited or very wide powers. Nonstock corporations do not have capital stock. They generally issue to their members certificates of membership evidencing the right of the members in the corporation. Aside from agricultural and other cooperatives, nonstock corporations usually do not engage in commercial activity. 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 had been divided were not issued. In time, however, 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 stock certificates issued to him. And now purchasers of stock may generally require the corporation to issue stock certificates. 191 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. 192 Thus, from an early date, stock certificates were assigned and transferred. Transferability is generally regarded as one of the outstanding characteristics of stock. In general, 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. On the other hand, the interest a member has in a nonstock corporation, which may be evidenced by a certificate of 191 Mutual Telephone Co. v. Jarrell, 200 Ky. 551, 295 S. W. 865 (1927). 1922 Cook on Corporations, 8th ed., sec. 331; Mobile Mut. Ins. Co. v. Cullom, 49 Ala. 558 (1873); Boston Music Hall v. Cory, 129 Mass. 435 (1880). |