as he relied on nothing to his damage.66 But there is a minority view that the creditor's knowledge is immaterial.67

Sec. 41. CALLS FOR PAYMENT. Stock may be issued for payment to be made at once or on call. If on call, there is no debt due until the call is made, but if the corporation fails the subscription is due at once without call.

If it is the agreement that stock or some part thereof is not to be due until a call is made, then such call is necessary before the stockholder's debt arises upon his subscriptions; and he cannot be sued until such call is made; neither will the statute of limitations run in his favor until such call.

A call is made by the directors.

A call is not necessary if the corporation becomes insolvent and comes under the jurisdiction of a court of equity or bankruptcy for the distribution of its assets among creditors. All subscriptions are then immediately due, and payment will be enforced to the extent necessary for the payment of debts.

A call is not necessary to enable the corporation to enforce payment unless the agreement is that the payment or some installment or installments thereof are not to be paid until a call is made. But if no date is mentioned for payment, the rule is generally adopted that a call is then necessary. A subscriber may, however, pay at any time, though no call has been made.

66. John R. Proctor Land Co. v. Cooke, 19 Ky. L. R. 1734; Bank v. Gustin Minerva Consol. Min. Co., 42 Minn. 327, 6 L. R. A. 676.

67. Sprague v. National Bank of America, 172 Ill. 149, 42 L. R. A. 606.

Sec. 42. PAYMENT REQUIRED BY STATUTE AS A RIGHT PRECEDENT TO CORPORATE LIFE. In various states statutes provide that a certain percentage of the stock subscriptions must be actually paid in.

The statutes of the various states must be consulted with reference to this subject. As an illustration, the State of Illinois requires that fifty per cent of all the issued stock of the corporation must be paid in. This means that either the stock of one-half of the subscribers must all be paid for, or that various stockholders pay enough to equal at least one-half of the capitalization.

Sec. 43. FORFEITURE OF STOCK FOR NON-PAYMENT. In the absence of provisions in the by-laws or charter passed prior to the issue of the shares involved, there was no common law right of forfeiture for non-payment of shares. But that right is given quite generally by statute.

In case a subscriber does not pay for his stock, the right is usually given to declare a forfeiture of that stock. That right, however, is entirely statutory, and the provisions of the statute must be observed. It is usually provided that the stock must be sold and if any surplus remains after the debt is paid from the proceeds of the sale, the subscriber is entitled thereto. But if a deficiency result, the delinquent stockholder is liable therefor.

CHAPTER 8.

RIGHTS OF STOCKHOLDERS.

Sec. 44. IN GENERAL. A stockholder, as such, has no voice in the management of the corporation except as he votes at stockholders' meetings, but he has a right to insist that the management be honest and along the lines of the legitimate corporate purposes and he has a right to know what is going on. He may apply to the court in proper cases to protect these rights. A stockholder may freely contract with the corporation and thereby secure special rights against it.

We have already considered the status of the share holder. It remains for us in this chapter to consider certain of his rights. Though he may not, except at stockholders' meetings, have any voice in affairs of the corporation, yet he has many rights in the way of protection of his interests which he may assert outside of stockholders' meetings. He has a right to know what is going on; to that end he may inspect the books of the company. He has a right to insist that the corporation shall pursue its proper corporate activities and none other; to that end he may apply to the courts for an injunction or other relief. He has a right to receive dividends; for that is the ultimate purpose of the corporation. Besides these rights which he has as a stockholder he may have other rights growing out of special contract, for we shall consider in this chapter that a stockholder is under no disability to contract with the corporation in respect to matters upon

which other parties might contract. These rights are considered in the following sections of this chapter.

A. The Rights Growing Out of the Stockholders'
Relationship, as Such.

Sec. 45.

STOCKHOLDERS' RIGHTS TO DIVIDENDS. The directors have a discretion in the declaration of dividends; but if this discretion is clearly abused, a court of equity will compel such declaration.

Dividends are not payable except upon a declaration by the directors. Though the corporation has a surplus out of which it clearly could and perhaps, ought, to pay dividends, yet so long as no dividends have been declared, none are payable. A stockholder cannot bring suit against the corporation for his dividend until after it has been declared, for until that time there is no dividend due. Neither will the court at the instance of a stockholder, or the whole body of stockholders, declare a dividend and then order it paid or give judgment. What remedy then, has a stockholder?

First let it be noted that the directors have a discretion in declaring dividends. This is true not only in regard to common, but even in regard to preferred stock, dividends upon which, as in the case of common stock, are not payable until a dividend has been declared. And this discretion is a large discretion in the case of common stock.

Yet, after all, the purpose of the corporation is that of profit for its stockholders. That purpose cannot be indefinitely defeated. Accordingly, the law has been established that if the directors are withholding the declaration fraudulently or in bad faith, then a stockholder, upon

making that appear, may have a decree against them in a court of equity that they declare a dividend.68

Sec. 46. RIGHT OF STOCKHOLDER TO PREVENT ULTRA VIRES ACTS. A stockholder may, if he have no other means of relief, secure an injunction to prevent the directors or other officers of the corporation from carrying out ultra vires acts, or secure a rescission of them if executed.

Much in the same way that a citizen and taxpayer of a municipality may file a bill in a court of equity to prevent the officers of the municipality from paying out money on uses alleged to be illegal or upon ordinances alleged to be void, so may the stockholder in a corporation prevent the doing of those things which are beyond the power of ("ultra vires") the corporation. And if without such stockholder's consent or negligence, the officers of the corporation have executed illegal contracts, rescission of them may be obtained by the stockholder.

In such case, the stockholder must not be guilty of unexcused delay in bringing his suit, or of acquiescence in the act. He must also show that by an appeal to the other stockholders or to the directors he could not thereby secure relief, either showing that he has made such an appeal or that it would have been unavailing, if made.69

Sec. 47. RIGHT OF STOCKHOLDER TO PREVENT A CHANGE OF THE CHARTER IN MATERIAL RESPECTS. A stockholder may prevent a change in object, amount of capitalization, etc., unless change is sought according to a general law authorizing such change by a vote of a

68. Lee et al. v. Fisk et al., 222 Mass. 418, 103 N. E. 835; Spear v. Rockland-Rockport Lime Co., 113 Me. 285, 93 Atl. 754. 69. City of Chicago v. Cameron, 120 Ill. 447.