existence of corporate authority to do an act, there it is not needed that there be an express assent thereto on the part of stockholders to work an equitable estoppel upon them. Their conduct may have been such, though negative in character, as to be taken for an acquiescence in the act; and when harm would come to such third parties if the act were held invalid, the stockholders are estopped from questioning it. We suppose acquiescence or tacit assent to mean the neglect to promptly and actively condemn the unauthorized act, and to seek judicial redress, after knowledge of the committal of it, whereby innocent third parties have been led to put themselves in a position from which they cannot be taken without loss. It is the doctrine of equitable estoppel, which applies to members of corporate or associated bodies, as well as to persons acting in a natural capacity: 2 Story Eq. Jur., § 1539. It is said that there is no question here between the stockholders and third parties; that it is a question between a minority of the stockholders and a majority of them or the assignees of that majority, and so all stockholders. True, it is a question at this time between the holders of preferred stock and of common stock; but it is a question of what were the rights which those preferred stockholders took on when they were strangers to the corporation and third parties as between it and the common stockholders in it. They were not stockholders, nor the assignees of stockholders, until as third parties they bought in the market shares of the preferred stock and parted with their money therefor. It was as third parties that they in good faith relied on that action of the corporate body; and so the question is between them as such and the common stockholders, whether they shall have that right in the corporation which they thought they were to get when they went into the market and bought the right of being a stockholder.

In our view of the matter, a holder of common stock had an equitable right to restrain the privileged payment to a preferred stockholder from the profits of the company, and to have the contract therefor declared invalid. It was his duty to have been prompt in his application to the courts for that relief, before evil could fall upon innocent parties; and where application to the courts therefor has been delayed by his neglect, and advantages have been gained by the corporate body, assistance should be denied: Zabriskie v. Cleveland R. R. Co., 23 How. (U. S.), 395, 398; Evans v. Smallcombe, L. R., 3 H. of L. Cas. 249. It is said that the common stockholder should have some time in which to seek relief. It is enough to say in answer that four years at least went by before a holder of common stock asked for the aid of the courts, and then not until a holder of preferred stock

asked that aid to restrain proposed corporate action meant to put the common stock upon an equality with his own.

It is true that, as a rule, the assignee of corporate stock takes no greater right than his assignor had to give, and is subject to all the equities which burden the assignor. It may be that there are some holders of preferred stock who were the first holders thereof, and some who became at an early date owners of it by assignment from the first holders. As to those, there is some plausibility in the contention of the common stockholder that they may not, in a legal sense, be injuriously affected by his delay, though the court should order the preferred stock to be called in and canceled. But the prayer for judgment is that all of the preferred stock, in whose hands soever it may be, be so dealt with, or for action equivalent thereto. Many, probably most of the holders of it, have become so after it had been some time in the market, notoriously dealt in as a valid and recognized issue, and at prices greater than that at which the common stock ruled, and greater than would be restored to the holder by any mode of equalization now suggested. The difference in the market price of the two kinds of stock is here noticed only as being a notorious fact, which could not fail to meet the attention of holders of common stock, and to call upon them for prompt action, if they ever meant to question the validity of the preferred stock; and as showing that the equalization of the two kinds of stock, upon the basis of making good for the payment of five dollars per share, at which the preference was first subscribed for, would not restore many preferred holders to the position in which they once stood. It is not practicable to adjudge that one or some shares be called in and canceled, or equalized with the common stock, without all are so treated; and to treat all thus would be to do an injury to some persons who have acted in reliance upon the doings of the company, which have been until now unquestioned by the common stockholders.

Nor can the issue of the preferred stock, with the privilege attached to it, be said to be an executory contract. It is so only in a part of it which it remains for the corporation to do. The first holders of it made their subscriptions and paid the stipulated price; and so they executed the contract on their part, and the corporation and the common stockholder got the benefit of the execution. The stock has been issued and gone into the channels of trade. The price paid for the privilege held out by the offer of preferred stock went into the funds of the corporation, gave it relief from its needs, and aided in putting it upon a course of prosperity which enhanced the value in market not only of the preferred, but of the common stock. The contract has been executed in its essential parts; there remains to be done only what is a

consequence of it, the result of the purchase of the stock on the one side, and the sale of it on the other. That can scarcely be called a contract yet to be executed, in the application to it of the doctrine of ultra vires, whereby one party to it has received, and used for its purposes, the stipulated consideration, and has given to the other a right which he may sell in the market. The vendees cannot be put back to the situation in which they were when they bought, by any terms proposed by the corporation or the common stockholders. Both parties would not now have the same position as if no contract had been made: 63 N. Y., supra; De Groff v. Am. Linen Thread Co., 21 N. Y., 127; 22 id., supra. We have before made mention of the position that the transaction was unconscionable and extortionate. Looking at it now, it seems to be so. In consideration of five dollars paid, the company undertook to repay seven dollars yearly for all time, if there should be enough earned to do so; which will be an enormous return. It is difficult to enter into the exact condition of things at the date of the transaction, and to estimate the propriety of such a bargain. It may be that the prospect of earnings at all, or enough to fulfil the undertaking, was too remote to be probable, and that it was a desperate chance that was taken by those who subscribed. There is some reason to suppose so, from the fact that the chance was offered to all stockholders, and that so many did not take it, though it now appears so preposterously advantageous. However that may be, an unconscionable arrangement will not be disturbed when there has been ratification of it with knowledge of all its bearings, after time has been had for consideration. 1 Story Eq. Jur., § 345.

CHAPTER VIII.

SUBSCRIPTION TO CAPITAL STOCK.

JEFFERSON V. HEWETT.

SUPREME COURT OF CALIFORNIA, 1892.

(95 Cal. 535.)

Subscription to Stock-Representations by Agent of the Corporation Concerning the Happening of a Future Event.

*

Paterson, J.: On July 14, 1888, the defendants executed and delivered to the Santa Ana, Fairview & Pacific Railroad Company their non-negotiable note for the sum of $5,000, payable four months after date, which was assigned to the Fair View Development Company, and by the last named company assigned to these appellants. The court found that the note was given for fifty shares of the capital stock of the company first above named, but that it was made and delivered "upon the sole consideration and inducement of the promise and assurance of said company that it would complete its railroad from Fair View to the Pacific ocean before the maturity of said promise in writing, to wit, within 60 or 90 days from said date; that the said company failed to complete its railroad, or any part thereof, within the said time, and that no part of said railroad between said last-named points has at any time been commenced and constructed or completed; that by reason of such failure the consideration of defendants' agreement to take said stock, and of their promise in writing set out in the complaint, has wholly failed;" but that the note "was not delivered upon the express condition that the railroad * * would be completed within sixty or ninety days from its date, nor upon condition that if said road was not so completed defendants would not have to pay said instrument or any part thereof. The court further found that the defendants notified the company of their failure to complete the road within the time specified, demanded the return of their note, and afterwards on answering herein brought the certificate of stock into court, and deposited it with the clerk for the plaintiffs. The defendant R. E. Hewitt testified that on July 10, 1888, Dr. Bailey stated to him that he was a stockholder, secretary, and director in the railroad company, and that there

was a limited amount of the capital stock not sold, "less than $15,000 of the original $60,000 issue, and that he was authorized to dispose of part of this to his friends;" that the company was going to increase the stock to $200,000 or $300,000, and place it on the market at once; "that the railroad was going right on from Fair View to the beach within sixty or ninety days at the furthest, and that he would take the stock if he could; that he held now a large amount of stock in the company;" that on the 13th the doctor came to his house, and said that "the engine and rolling stock of the company was paid for, but that the road was not doing much now more than paying expenses, but that it would be on a good paying basis as soon as it was extended to the beach, and that everything was ready to do this;" that on the 14th the doctor said he could rely implicitly upon his statements as a friend; that he would not make them unless they were true; and from his position in the company he knew that if defendants did not take the stock they would regret it; that the doctor insisted upon his taking 50 shares or more; that witness said to him he did not have the faith in this enterprise that the doctor had, and unless the road was completed to the beach he would not have the stock as a gift.

The findings of the court show that the statements of Dr. Bailey, testified to by the defendant, were made without any fraudulent purpose; that the defendants were prevented from making any investigation by reason of the statement of the doctor that he was the secretary and director of the company, and owned a large amount of stock therein, and from his position in the company he knew his statements were true, and that defendants could rely upon them; that the defendants believed the statements made by Bailey, and, relying upon them, were induced to make the note, and agree to take 50 shares of the capital stock of the company. We do not think that the facts shown by the record and found by the court constitute any defense to the action. The rule is well settled that statements concerning the happening of a future event cannot be relied upon to avoid subscriptions obtained by an agent of a corporation. Relating, as they do, to the probability or improbability of the happening of a future event, they must necessarily be matters of opinion merely. Morawetz states the proposition thus: "A statement made by an agent obtaining subscriptions for shares in a railroad company, to the effect that the proposed road would be built upon a certain route, or within a certain period of time, would not render a subscription made upon the faith of it voidable, though the statement be made with the intention to deceive, and the road be not built upon the route, or within the time, indicated." 1 Mor. Priv. Corp. § 98. And a large number of cases are cited in support of the text. See, also,