Section 806.-LIABILITY OF MEMBER WHERE THERE IS NO CAPITAL STOCK.-In corporations having no capital stock, each member is individually and personally liable for his proportion of its debts and liabilities. His liability is to be measured by a comparison of the amount of the debt with the number of members; and, therefore, if the corporation owes $10,000, and there are ten members, each will be liable for the one-tenth part of the debt, or $1,000.

Civil Code, Section 322.

Section 807.-PLEDGEE OR TRUSTEE NOT LIABLE FOR DEBTS.-A person who holds stock as collateral security does not become, by reason of the pledge, liable for the debts of the corporation; but the pledgor remains liable, as before the pledge. A person holding stock merely as a trustee does not become, in such representative capacity, liable for the debts of the corporation; but the person he represents as trustee is deemed the stockholder, as respects such liability.

Civil Code, Section 322.

Section 808.-WHEN LIABILITY OF STOCKHOLDER BEGINS. The liability of a stockholder for the debts of the corporation begins when he acquires his stock. He is not liable for the debts of the corporation incurred before he acquired his stock. For instance, to make a stockholder liable to pay his proportion of the • amount due on a note made by the corporation, it must appear that the debt for which the note was given was incurred since he became a stockholder. For if a corporation buys goods, before the stockholder acquires his stock, and afterwards makes its note for the amount, that stockholder is not liable on the note, because it was made for a debt incurred prior to the time when he became a stockholder. The stockholder's liability begins with the creation of the original debt, and the debt must be incurred while he is a stockholder, and not before; for otherwise, he is not

liable at all. (Decided by the Supreme Court in the case of Winona Wagon Company vs. Bull, which decision is printed in Volume 108 of the California Reports, page 1.)

FRAUDULENT

Section 809. TRANSFER. The question sometimes arises whether, when a corporation becomes insolvent, and unable to pay its debts as they become due in the ordinary course of business, a stockholder can transfer his shares to another and thus be rid of liability for the debts of the concern. The Supreme Court, in the case of Welch vs. Sargent, said on this point: "Generally speaking, the law places no restriction upon the right of a stockholder of a corporation to transfer his stock, so long as the corporation is solvent. But after the corporation has become insolvent, and the stockholder knows this, a shareholder cannot transfer his stock to irresponsible parties so as to relieve himself from liability to the creditors." It matters not what his intention was, for he may have transferred the stock in good faith, yet the law will still protect the creditors of an insolvent corporation by holding such a transfer void as to them. (Decided by the Supreme Court in the case of Welch vs. Sargent, which decision is printed in Volume 127 of the California Reports, page 72.)

Section 810.—STOCKHOLDER MAY SUE OTHER STOCKHOLDERS.-A stockholder may sue other stockholders in the same corporation for their pro rata of a debt due him by the corporation. (Decided by the Supreme Court in the case of Brown vs. Merrill, which decision is printed in Volume 107 of the California Reports, page 446.)

Section 811.-ASSIGNEE OF CREDITOR MAY SUE STOCKHOLDERS.-The creditor of a corporation may assign his account for collection, and the assignee will have the right to sue the stockholders in his own name. It is no defense, in a suit against stockholders, that the assignee, instead of the original creditor, brings the suit to collect the amount of the debt.

Section 812.-CREDITOR'S RIGHT TO UNPAID SUBSCRIPTIONS.-Debts due to a corporation constitute a portion of its assets, and may be reached by creditors. Among these are unpaid subscriptions to stock. As to creditors, the corporation is presumed to have sought credit based on its supposed capital, actually paid in or due from its stockholders. As the supposed capital is the sole basis of credit, the stockholders, who are the real parties carrying on the business, must make the representation as to its capital good; and a corporation cannot release the obligations of stockholders to pay up its unpaid subscriptions, and thus evade the payment of creditors. And the creditors may bring a suit to collect the unpaid balance due on stock of a corporation which has become insolvent.

Section 813. WITHIN WHAT TIME SUIT AGAINST STOCKHOLDER MUST BE COMMENCED.—A suit against a stockholder by a creditor of a corporation must be commenced within three years after the cause of action accrues. If a corporation owes a debt, and the creditor wishes to sue a stockholder for his proportion of the amount due, he must sue within three years after the debt was created, or the liability of the stockholder will be barred. And in this connection it has been decided that the liability of the stockholder cannot be renewed or extended by any renewal or extension of the indebtedness which the creditor may make with the corporation. (Decided by the Supreme Court in the case of Hyman vs. Coleman, which decision is printed in Volume 82 of the California Reports, page 650.) The liability of the stockholder is created and exists by statute. The liability arises. when a debt is contracted by the corporation. The liability is limited to three years from the time it arises, and the corporation has no power to extend that limitation without direct authority from the stockholders. Therefore, if a debt is owing to a corporation, and the corporation afterwards takes a note from the debtor, the liability of the stockholder does not begin when the note is given, but dates back to

the time when the debt was created. (Decided by the Supreme Court in the case of Hunt vs. Ward, which decision is printed in Volume 99 of the California Reports, page 612.) Code of Civil Procedure, Section 359.

Section 814. WHEN LIABILITY OF STOCKHOLDER IS SATISFIED. Each stockholder has a several liability, and that liability is proportionate to the amount of his stock; and when he has paid his portion of any debt, or of all the debts of the corporation, he is freed from all liability on that account.

Section 815.-LIABILITY OF STOCKHOLDERS IN DISTILLERY FOR FEDERAL TAXES.-Every stockholder in a corporation possessing a still, distillery, or distilling apparatus, is individually and personally liable to the United States for the taxes imposed on the liquors distilled. His individual property, although in no way connected with the business of such corporation, may be seized and distrained for Federal taxes due on spirits produced by it. (Decided by the Supreme Court in the case of Richter vs. Blasingame, which decision is printed in Volume 110 of the California Reports, page 530.)

Section 816.-HOLDING PROPERTY IN OTHER COUNTIES.-A corporation acquiring or holding property in a county other than its principal place of business must file in the office of the County Clerk of such county a certified copy of its Articles of Incorporation. The copy must be certified by the Secretary of State.

Civil Code, Section 299.

Section 817.-WITHIN WHAT TIME CORPORATION MUST COMMENCE BUSINESS.-A corporation must organize, by the election of a Board of Directors, and must commence business, within one year from the date of its certificate of incorporation. If it does not do so, or, if organized for the construction of any particular works, it

fails to commence the construction of its works within one year, any creditor may complain to the Attorney-General, who will begin a suit in the name of the State and have the Court declare the corporate existence forfeited and at an end.

Statutes of 1901, page 632.

Section 818.-LIABILITY OF PURCHASER OF SUBSCRIPTION STOCK.-A purchaser of stock of a corporation, in good faith and for a valuable consideration, from an original subscriber, who has not paid the full subscription price thereof, is liable for the unpaid subscription, where such non-payment appears from the books of the corporation, notwithstanding that he has no actual notice or knowledge of the same and it is represented to him by the president of the corporation and other sellers of stock that the same was fully paid for and it so appears on the face of the certificates. Such representation made by the president of a corporation are not binding upon it, without proof of express authority to make them, nor is the right of the corporation to require full payment of the subscription price affected by such representations made by the other original subscribers.

When the transferees of subscription stock cause the transfer to be recorded on the books of the corporation, they become liable for the unpaid subscription price thereof, and no express promise on their part to assume or pay the same is necessary.

In this State certificates of stock are not negotiable instruments, but mere evidence of the holder's right to a given share in the franchise and property of the corporation, and a purchaser takes them subject to all equities in favor of the corporation.

Unpaid subscriptions for stock are assets in bankruptcy, in the event of the insolvency of the corporation, and recoverable by the trustees.

The amount due from stockholders for subscribed stock is a trust fund for the creditors of the corporation, and such