books of the company by indorsement and surrender of the certificate, and he indorses the same and then loses it, and it comes into the hands of a bona fide purchaser for value, such purchaser acquires no right to the stock. (Decided by the Supreme Court in the case of Sherwood vs. Meadow Valley Mining Company, which decision is printed in Volume 50 of the California Reports, page 412.) In the case cited, the language of Parsons on Contracts is referred to, where he says: "The result would seem to be that all corporation bonds and government stocks, which pass by delivery, or indorsement with delivery, are negotiable; but that certificates of stock in a corporation are not.”

CANNOT

Section 784.- WHEN CORPORATION CLAIM ITS OWN STOCK INVALID.-A corporation is precluded from setting up the claim that its own stock is invalid, or not issued according to law, where the rights of a bona fide purchaser are involved. So it has been held that, where a corporation issues capital stock, and represents it as fully paid and causes it to be so listed on the stock and bond exchange, the law will deny it the right to claim that the stock is invalid, as against a bona fide purchaser, even if the stock was in fact issued without consideration. (Decided by the Supreme Court in the case of Smith vs. Martin, which decision is printed in Volume 135 of the California Reports, page 247.)

Section 785.-REMEDY AGAINST CORPORATION FOR REFUSING TO RECOGNIZE STOCKHOLDER. -If the corporation refuses to recognize the lawful holder of stock as a stockholder, or refuses to deliver to him a new certificate, or to register him on its books, he has two remedies. He may sue in the Superior Court and compel the corporation to recognize him as a stockholder, by registering him upon its books and delivering to him a new certificate; or, he may sue the corporation for damages, on the ground that by its refusal it has been guilty of a conversion of his stock. These remedies are given not only to the

real owner of the stock, but also to others, as the pledgee, the guardian, or the administrator. (Decided by the Supreme Court in the case of Herbert Kraft Company Bank vs. Bank of Orland, which decision is printed in Volume 133 of the California Reports, page 64.)

Section 786.-MORTGAGE OF SHARES OF STOCK. -The statute law declares what personal property may be mortgaged in California. Other personal property, however, may be mortgaged, and the mortgage will be good as between the parties to it. Shares of stock in a corporation are personal property. A mortgage of shares of stock may be made, which is valid and binding between the parties, and without delivery of possession of the certificate of stock. Such a mortgage is void as to creditors and subsequent purchasers in good faith for a valuable consideration; but where no such persons are complaining, the mortgage is good between the parties to it.

Section 787.-SEAL OF

CORPORATION.-Every corporation must have a seal, but it need not be used upon every occasion. Corporations, like individuals, may appoint agents, and make most of the contracts which fall within their general powers, without the use of a seal.

Section 788. DEED WITHOUT CORPORATE SEAL. In a suit involving the validity of the deed of a corporation, executed without the corporate seal by persons signing as Directors, one who claims under such deed must show affirmatively that the deed was authorized by a resolution of the Directors entered on the records of the corporation, or that it was ratified by such resolution. (Decided by the Supreme Court in the case of Barney vs, Pforr, which decision is printed in Volume 117 of the California Reports, page 56.)

Section 789. WHAT REAL ESTATE MAY BE HELD BY CORPORATION. A corporation may hold indefinitely any real estate necessary to be used by it in the conduct of its legitimate business; but the Constitution of California provides that no corporation shall hold for a longer period than five years any real estate, except such as may be necessary for carrying on its business. Therefore, if a corporation acquires any real estate, in any manner, which is not necessary in carrying on its business, it must sell such real estate within five years after the title is vested in it; and if it does not do so, the Attorney-General may bring a suit against the corporation, in the name of the people of the State, to compel it to sell the land.

Constitution of California, Article 12, Section 9.

Section 790.-CORPORATION MUST KEEP WITHIN OBJECT OF ITS CREATION.-It is one of the cardinal principles governing the conduct of a corporation that it must keep within the purposes and objects for which it was organized. If organized to carry on a particular business, it cannot engage in another. So, if a corporation formed to do a banking business should engage in insurance, the latter business would be outside of its legitimate object, and its acts in that business would have no validity. So far has this principle been carried in California, our Supreme Court has said that a contract of a corporation, outside of the object of its creation as defined by the law of its organization, and therefore beyond the powers conferred upon it by the Legislature, is not voidable only, but wholly void and of no legal effect. The objection to such a contract is not merely that the corporation ought not to have made it. but that it could not make it.

Section 791. VOID CONTRACT CANNOT BE RATIFIED.-A contract which is absolutely void, because outside of the objects of the corporation, cannot be ratified. The contract cannot be ratified by either party to it, because it could not have been authorized by either. No performance

on either side can give a void contract any validity, or be the foundation of any right of action upon it. (Decided by the Supreme Court in the case of Chemical National Bank vs. Havermal, which decision is printed in Volume 120 of the California Reports, page 53.)

Section 792.-WHEN CORPORATION BOUND BY ITS OWN INVALID ACT.-While an absolutely void contract cannot be ratified, yet corporations are often bound by their own invalid acts, as where the Directors have done an act without their lawful power, but the corporation has retained the benefits and still enjoys the fruits of the transaction. In such a case, the corporation is not permitted to deny the validity of its own act, although it was irregular or invalid. This rule is illustrated by a decision of the Supreme Court, where a promissory note was irregularly executed by the President and Secretary of a corporation, and upon being sued on the note, the corporation, without returning or offering to return the money received from the lender, denied the validity of the note and attempted to repudiate it. The Supreme Court said: "Assuming that the contract was outside its power, the law does not allow a corporation to retain the benefits which it has received from the contract and escape liability upon it. The invalidity of a contract is subject to the equitable exception that, although a corporation in making a contract acts in disagreement with its charter, where it is a simple question of capacity or authority to contract, arising either on a question of regularity of organization, or of power conferred by the charter, a party who has had the benefit of the agreement cannot be permitted, in an action founded upon it, to question its validity. It would be in the highest degree inequitable and unjust to permit the defendant to repudiate a contract the fruits of which he retains. The exception referred to is founded upon the fact that the contract, though invalid, has been executed in the interests of the corporation, and for its benefit and advantage. Where, therefore, it has received the fruits of such a contract, it cannot refuse payment on the

ground that it had no power to contract. It would be otherwise if the contract had not been executed." (Decided by the Supreme Court in the case of Main vs. Casserly, which decision is printed in Volume 97 of the California Reports, page 127.)

Section 793.- NOTICE TO CORPORATION.-The President is the proper person to whom notice, which is to affect a corporation, is to be given. The corporation has no eyes, ears, or understanding, save through its agents. The President is considered the head of the corporation, and it is his duty to report to the Directors information affecting the interests of the Corporation. Therefore, notice of any matter, given to the President, is notice to the corporation.

Section 794.-LEASE OF FRANCHISE.-Where a corporation secures a franchise, by municipal grant, to operate gas and electric works, and to supply the inhabitants of the city with the product, it cannot lawfully lease its works and privileges to another, and such a lease, when made, is against public policy and void. The reason for this is, a franchise is a personal privilege, and can never be assigned without the consent of the grantor. (Decided by the Supreme Court in the case of Visalia Gas and Electric Light Company vs. Sims, which decision is printed in Volume 104 of the California Reports, page 326.)

Section 795.— MORTGAGE OF CORPORATION PROPERTY.-The President has not the power by virtue of his office to mortgage the property of the corporation. Nor has the Secretary such power by virtue of his office. Nor have both together the power which neither has separately, nor have the stockholders such power. The powers of a corporation must be exercised, and its property controlled, by its Board of Directors, the decision of a majority of the Directors, when lawfully assembled, being valid as a corporate act. A mortgage of the corporation property can only be made by authority of a resolution of the Board of