§84. Calls.

A Call is a demand for payment of a subscription". Power to make calls is vested in the board of directors1. No valid call can be made before compliance with all necessary conditions precedent72. Thus, where subscriptions are given upon condition that they shall not be binding, or that no call shall be made, until the happening of some future event, a call made prior to the time contemplated will not support an action upon the subscription. Where subscriptions are made subject to call, the statute of limitations does not begin to run until a call has been made, either expressly by some lawful authority, or by implication through the operation of some statute. Like any other debt, the amount called in upon a subscription bears interest from the date of demand75.

§85. Corporate Liens on Stock.

Not infrequently statutes provide that the corporation shall have a lien upon its stock to the extent of debts due from the respective holders. The expression "debts due" is construed to mean "debts owing", and is not restricted to the narrower meaning of "debts matured and immediately payable." The provision being for the benefit of the corporation and its creditors, a liberal construction is warranted. There is no reason for applying the narrower view that, within the meaning of the statute, debts to be due must be overdue.

Liens may be created by by-laws, but when so created they are not binding upon bona fide purchasers. They are good, however, against those who take with notice, or without giving values. A lien created by statute is binding, even upon innocent purchasers for value79. An unregistered transfer, of which the

70. Omo v. Bernart, 108 Mich. 43-46.

71. Halsey Fire Engine Co. V. Donovan, 57 Mich. 318.

72. Westcott V. Minn. Mining Co., 23 Mich. 145.

73. Westcott V. Minn. Mining Co., (Id.)

74. Webber v. Hovey, 108 Mich. 49-54.

75. May v. Ullrich, 122 Mich. 6-9.

76. Cook's Corp., Sec. 527.

77.

Bronson Electric Co. V.

Rheubottom, 122 Mich. 608; Just v. State Savings Bank, 132 Mich. 600607.

78. Bronson Electric Co. v. Rheubottom (Id.)

79. Citizens State Bank v. Kalamazoo County Bank, 111 Mich. 313; Oakland County Savings Bank V. State Bank, 113 Mich. 284; Michigan Trust Co. v. State Bank, 111 Mich. 306; Newberry v. Detroit & Lake Superior Iron Co., 17 Mich.

140.

corporation has had no notice, will be subject to the lien of the corporation arising upon a debt of the transferor contracted after the transfer was mades. But if the corporation has actual notice of the transfer, and, having such notice, extends credit to the transferor, no lien will arises. After a lien in favor of the corporation has attached to shares, transfer of the shares on the books of the company can not be compelled until the lien has been satisfied 2. Should the corporation consent to such transfer, such consent would operate as a waiver of the liens.

Where a prospective transferee inquires of the company concerning the indebtedness of a stockholder, and is falsely informed, by a proper officer, that no such indebtedness exists. the corporation will be estopped from denying the truth of such officer's assertion, and its lien will be held to have been waived. as to such transferee, if he thereupon becomes a bona fide purchaser or pledgee of the shares in questions. A general lien created in favor of the corporation by statute applies to all debts due the corporation from stockholders, both in their individual capacity, as sureties, and as members of firms owing the corporation85. Such liens attach also for unpaid subscriptions. In case the stock is sold and brings less than the amount of the subscription debt, the stockholder is liable, as in other cases, for the deficiency. The fact that the corporation may hold other security for the indebtedness of a stockholder does not prevent

80. Michigan Trust Co. v. State Bank, 111 Mich. 306; Citizens Bank V. Kalamazoo County Bank, 111 Mich. 313; Newberry v. Detroit & Lake Superior Iron Co., 17 Mich. 140.

81. Birmingham Savings Co. v. Louisiana National Bank, 99 Alabama 370, 20 L. R. A. 600.

82. Citizens Bank v. Kalamazoo County Bank, 111 Mich. 313-319; Michigan Trust Co. v. State Bank. 111 Mich. 306; Newberry v. Detroit & Lake Superior Iron Co., 17 Mich. 140.

83. Just v. State Savings Bank, 132 Mich. 600-603.

84. Oakland County Savings Bank v. State Bank, 113 Mich. 284286. In his case Justice Montgomery said: "The question is, what

are proper steps to be taken to ascertain whether such a lien exists. If one may not do this with corre

* * *

spondence with the bank, or with the officer of the bank universally recognized as representing the bank in its correspondence, there would seem to be an end to legitimate transactions in stock of corporations. Common prudence suggests that the purchaser may inquire in the usual channels for the purpose of ascertaining whether the stock is subject to a lien. If such an inquiry be directed to the party who conducts the correspondence of the bank, it is bare assertion to say that, because he has not the power under the law to compel the board to consent to the transfer of the stock, he can not, through a simple lie, estop the bank."

85. Citizens Bank v. Kalamazoo Bank, 111 Mich. 313.

86. Carson v. Arctic Mining Co.. 5 Mich. 288: Merrimac Mining Co. v. Bagley, 14 Mich. 501-504.

enforcement of the statutory lien. From what has been said it follows, that a transferee of shares should ascertain from the corporation, in advance, the state of the transferor's title, and, upon taking an assignment of stock, should either have a new certificate issued to himself as owner or pledgee, as the case may be, or should at least give the corporation actual notice of his interest.

§86. Pledges of Stock.

Like an absolute transfer, a pledge may be made by endorsement and delivery of certificates. Parol evidence is admissible. to show that a transfer, absolute upon its face, is really a pledges. A pledgee who has stock transferred to his own name upon the books of the company, thus allowing himself to be held out as the owner of the shares, incurs, as to creditors, the liabilities of a stockholder90. But he cannot be held liable to creditors on account of an erroneous entry made, without his knowledge, upon the books of the corporation91.

A bona fide pledgee of stock issued as "fully paid" takes it free from liens for unpaid subscription assessments92. But where the corporation has a statutory lien for other indebtedness, the pledgee takes subject to it, in the absence of any waiver or estoppel on the part of the corporation. The statute is notice. to all the world, hence there can be no such thing as a bona fide pledgee as against liens so created. As we have seen, a lien created by a by-law is upon a different footing, and a bona fide pledgee of stock subject to such a lien takes the shares free from the encumbrance94.

One who grants an extension upon past due indebtedness, in consideration of such indebtedness being secured by a pledge is

87. Cook's Corp., Sec. 528.

88. Just v. State Savings Bank, 132 Mich. 600-606.

89. Smith v. Nixon, 145 Mich. 593-595; May v. Genesee County Savings Bank, 120 Mich. 330-334.

90. Pauly v. Trust Co., 165 U. S. 606, 41 L. ed. 847: American Steel & Wire Co. v. Eddy, 138 Mich. 403409.

91. May v. Savings Bank, 120 Mich. 330-334. It is the corporate record, not the form of the certificate, that affords creditors the notice upon which they are entitled to

rely. (Id.)

92. Young v. Erie Iron Co., 65 Mich. 111.

93. Oakland County Savings Bank v. State Bank, 113 Mich. 284; Citizens State Bank v. Kalamazoo County Bank, 111 Mich. 313; Michigan Trust Co. v. State Bank, 111 Mich. 306; Michigan Trust Co. v. State Bank, 111 Mich. 306. 94. Bronson Electric Light Co. v. Rheubottom, 122 Mich. 608; Just v. State Savings Bank, 132 Mich. 600

607.

a bona fide pledgee, provided he takes without notice of imperfections in the title of the pledgor. In other words, the preexisting indebtedness is a good consideration for the pledge. It has been held that, where stock has been issued to a promoter as a part of fraudulent secret profit, though subject to cancellation in his hands, such stock can not be cancelled in the hands of a bona fide pledgee9

Trover lies for the conversion of pledged shares. Transier by a pledgee of a certificate held in pledge amounts to a conversion98, not only of the certificate, but of the shares as well". In an action for conversion, the pledgor is entitled to recover the value of the stock. It is no defense that the pledgee had on hand, at all times, an equal number of shares standing in his name on the books of the same corporation100.

§87. Foreclosure of Pledge.

Upon maturity and non-payment of the debt secured, the pledgee may proceed at will to foreclose his lien. Should he delay, he will not be liable to the pledgor for any subsequent depreciation. The pledgee is not obliged to sell, even through requested so to do by the pledgor. The pledgor's sole remedy is by paying the debt.

Sale without notice is a conversion of the stock101, unless

95. Just v. State Savings Bank, (Id.); Schloss v. Feltus, 103 Mich. 525-532; DeMay v. Defer, 103 Mich. 239-245.

96. Cuban Colony Co. v. Kirby, 149 Mich. 453-459.

97. Morton v. Preston, 18 Mich. 60; Daggett v. Davis, 53 Mich. 36.

99. Allen v. Dubois, 117 Mich. 115-117; Feige v. Burt, 118 Mich. 243; Hempfling v. Burr, 59 Mich. 294: Daggett v. Davis, 53 Mich. 35. 99. Morton v. Preston, 18 Mich.

60.

100. Allen v. Dubois, 117 Mich.

115.

101. The following propositions are supported by the decision announced by Justice Moore in Feige v. Burt, 118 Mich. 243:

(a) Sale without notice is conversion of the stock;

(b) In the absence of agreement otherwise, the sale must be at public auction;

(c) Sale may be had after notice without judicial proceedings;

(d) Conversion of the stock by the pledgee entitles the pledgor to recover its value, against which the pledgee may recoup the amount of his claim. See also Hempfling__v. Burr, 59 Mich. 294; Daggett v. Davis, 53 Mich. 35. As a matter of practice, it is best to disregard all waivers made by the pledgor, and to proceed to sale at public auction. There is no statute in this state directing the procedure to be observed in effecting such sales. Notice of the time and place of the proposed sale should be personally served upon the pledgor a reasonable length of time prior to sale. In addition to this the sale should be publicly advertised. Such advertisement as is provided by law for constable sale of personal property (C. L. 1897, Secs. 881-882) is regarded as sufficient. At the time and place of

notice has been waived. The notice should be personal, unless some other method has been agreed upon. The sale must be public, in the absence of an agreement that it may be private. It is well established that the pledgee may not, directly or indirectly become a purchaser at his own sale. Should he bid in the stock, it will not amount to a conversion. The whole proceeding being void, he will still hold the stock as a pledgee. The pledgor may, however, either before or after sale, agree that the pledgee may become the purchaser, and such agreement will be binding102 Foreclosure of a pledge may be had in chancery, or pursuant to the common law right of sale incident to all pledges. Power of sale is fully implied from the nature of the transaction, and need not be expressly conferred.

sale, the proceedings may properly be the same as would be followed in case of a foreclosure sale under a

chattel mortgage.

102. Cook's Corp. Sec. 479.