fiduciary relation to their co-subscribers, and were bound to truthfully declare to their associates any personal interest that they had in the matter of the purchase. Without such disclosure they could not legally profit at the expense of their associates. If they were guilty of any misrepresentation in the facts or suppression of truth in relation to their personal interest in the proposed purchase, the corporation is entitled to set aside the transaction, or recover compensation for any loss which it has suffered. Question 645: How was the second profit made in this case? Were the promoters held liable? PART II STOCK AND STOCKHOLDERS Chapter 83. Definitions and Kinds of Stock. § 664. Definition of capital stock and share of stock. § 665. Common and preferred stock. § 666. Par and no-par stock. § 667. Unissued and treasury stock. § 668. The certificate of stock. § 669. The legal nature of shares of stock. § 664. (Corporations, Sec. 28.) Definition of capital stock and shares of stock. Case 646. State v. Morristown Fire Ass'n, 23 N. J. L. 195. Point Involved: The definition of capital stock; its distinction from the property of the corporation. CHIEF JUSTICE GREEN: "The phrase 'capital stock' as employed in acts of incorporation, is never, that I am aware, used to indicate the value of the property of the company. It is very generally, if not universally, used to designate the amount of capital to be contributed by the stockholders for the purposes of the corporation. The amount thus contributed constitutes the 'capital stock' of the company. The value of the stock may be greatly increased by surplus profits or be diminished by losses, but the amount of the capital stock remains the same. "The funds of the company may fluctuate. Its capital stock remains invariable, save by legislative enactment. This distinction between the value of the property of incorporated companies and their capital stock is perfectly familiar.” Question 646: Define capital stock; how does it differ from the property of the corporation? Case 647 Storrow v. Texas Consol. Comp. & Mfg. Asso., 87 Fed. 612. "A share of stock has been defined to be a right which its owner has in the management, profits, and ultimate assets of the corporation; but he has no legal title to the profits or property of the corporation until a dividend is declared, and a division made on the dissolution of the corporation. Common stock differs in many ways from what is termed 'preferred stock.' The owner of the former is entitled to an equal pro rata division of the profits, if there be any, but has no advantage of any other shareholder or class of shareholders of common stock. Preferred stock, on the other hand, generally entitles its owner to dividends out of the net profits before and in preference of the holders of the common stock. Generally, the rights, powers, and privileges of preferred stockholders depend upon the terms upon which it is issued; preferred stock making a multiplicity of forms, according to the desire or ingenuity of the stockholders, and the necessity of the corporation itself. The percentage of preferred stock dividends is always fixed before it is issued. It is a matter of contract, and may be made cumulative, as it was in this case. Every holder of pre ferred stock, by its terms, was guaranteed a dividend of 6 per cent per annum thereon to be paid out of the net earnings of the association, which are properly the gross receipts, less the expenses of operation, interest on debts, and other liabilities payable first. The rest is the net profits out of which the shareholders of preferred stock should be paid the 6 per cent dividend. While it was largely a matter of discretion with the board of directors as to what use they would put the profits to, whether to declare a dividend or use them in the business of the company, there is a limit to this discretion; and the courts will not allow the directors to use their powers oppressively by refusing to declare a dividend while the net profits and character of the business clearly warrant it. This rule is applicable not only to the holders of the common stock, but also to the preferred stock, which is entitled, as a matter of right, to have a dividend declared out of the net profits, if it can be shown that the directors did not exercise reasonable discretion in withholding the same. By the final dissolution of the corporation, the holders of the preferred stock would be entitled to receive only the full face-value thereof, after which the balance of the property would be equally divided among the common stockholders." Question 647: (1) Define a share of stock. (2) How does common differ from preferred stock? § 665. (Corporations, Sec. 29.) Common and preferred stock. Case 648. Spear v. Rockland-Rockport Lime Co., 113 Maine Reports 285, 93 Atl. 754. SAVAGE, C. J.: Bill in equity by a preferred stockholder, for himself and in behalf of all other preferred stockholders, against the Rockland-Rockport Lime Company and its directors, for the purpose of requiring a declaration of "a dividend of 7 per cent., payable on the 1st days of March and September of each year, with inter est on each dividend from the time it became due until the date of the bill." The case comes before this court on exceptions to the sustaining of the defendants' de murrer. The facts stated in the bill, and which must be taken on the demurrer to be true, are these: The defendant corporation was organized in 1900 for the purpose of the manufacture and sale of lime. Its capital stock of $2,000,000 was divided into preferred and common stock; and $825,000 of preferred, and $875,000 of common stock have been issued. Each kind of stock was of the par value of $100 a share. On January 23, 1901, the plaintiff purchased ten shares of preferred stock, which he still owns. He received a certificate of stock which contained an agreement: "That the preferred stock is entitled, out of the net earnings of the company, to a semiannual, preferential, cumulative dividend at the rate of 7 per centum per annum, and no more, payable on the 1st days of March and September in each year, to be paid or provided for before any dividend shall be set apart or paid on common stock; that in case of liquidation or dissolution, the preferred stock shall be paid in full at par, together with accrued and unpaid dividends, before any payment is made on the common stock," and so forth. January 18, 1900, the defendant mortgaged its property and franchise for $1,000,000, to secure the payment of bonds, the proceeds of which, with that of the capital stock gave it a working capital of $2,700,000. In April, 1901, it issued its debenture bonds for $1,000,000, from which it realized the sum of $950,000, thereby increasing the working capital to $3,650,000. Its net earnings to and including 1910 are alleged to have been about $688,000. It is alleged that on December 31, 1910, the corporate assets amounted in value to $4,131,039.76, and its liabilities, outside of capital stock, and including "undivided profits" were $2,431,039.76; that the excess of assets over liabilities is composed in part of the net earnings, which have been applied by the directors to the in |