called upon to pay in the amount before allowed for interest, in consequence of which B. paid to the company that sum on the shares transferred to him by A., it was held that B. could not maintain an action to recover the amount from A., there being neither fraud nor warranty.1 In Louisiana, where property incumbered with a mortgage to secure the subscription of a shareholder to the capital stock of a corporation, is sold with the shares of stock, for a certain price, and without guaranty against the mortgage, the purchaser is liable to the original stockholder, who, when called on for payment of the subscription, may call in warranty his vendee, although there had never been any transfer of the stock on the books of the company. Shares of stock being, as seen elsewhere, "goods, wares and merchandise" within the statute of frauds,3 an executory verbal contract to sell them is void,4 and a release from such a contract has been held an insufficient consideration to support a promise by the releasee to pay a sum of money.5

2737. Express Warranty in the Sale of Shares.- A warranty by the seller of corporate stock, that no assessments are about to be made, is not broken by the fact that shortly after the sale the stockholders by agreement issue new stock to be purchased by themselves, the proceeds to be applied in payment of debts.

§ 2738. No Implied Warranty that Directors will Accept Purchaser. As already seen,' the governing instrument of the corporation in some cases vests in the directors the power to

1 Cunningham v. Spier, 13 Johns. (N. Y.) 392.

2 Clinton &c. R. Co. v. Eason, 14 La. An. 828.

3 Ante, § 2749.

4 Tisdale (Mass.) 9.

V. Harris, 20 Pick.

5 North v. Forest, 15 Conn. 400.

Humphrey v. Merriam, 46 Minn.

413; s. c. 49 N. W. Rep. 199.

* Ante, § 2320.

refuse to admit a transferee to membership. This is more frequently the case in respect of English companies. It has been held that a contract whereby shares are sold according to the rules of the London stock exchange does not import an undertaking by the vendor that the company will register the transferee; so that if the directors decline to register him the transferee has no action for damages against the transferor.1

§ 2739. No Implied Warranty that the Corporation is a Corporation de Jure.-It has been held that the law does not imply a warranty on the part of the vendor of certificates of stock that the corporation issuing them is a corporation de jure; but that if the corporation is authorized by an existing statute and is otherwise a corporation de facto, that is sufficient to relieve him under the theory of an implied warranty.2

§ 2740. No Implied Warranty Against Fraudulent OverIssues. It has been held that, while the vendor of shares of stock impliedly warrants that the certificate is issued by the duly constituted officers of the company and is sealed with the genuine seal of the corporation,-that is to say, he impliedly warrants that it is no forgery, yet that he does not impliedly warrant that such shares have not been fraudulently issued by the officers of the corporation in excess of its charter limit; and that if such proves to be the case, the vendee has no recourse against him. This decision proceeds upon the principle, already stated, that although in such a case the purchaser of fraudulent shares is not entitled to the rights of the shareholder, yet the fraudulently issued certificate so far operates in his hands as an estoppel against the corporation as to prevent them from resisting his action to be indemnified in respect of what he has lost by reason of purchasing or advancing money on the faith of the same.4

3

1 Stray v. Russell, 1 El. & El. 888, 917; London Founder's Assoc. v. Clarke, 20 Q. B. Div. 576; s. c. 57 L. J. (Q. B.) 291; 59 L. T. (N. s.) 93; 36 Week. Rep. 489.

2 Harter v. Eltzroth, 111 Ind. 159, 161.

3 People's Bank v. Kurtz, 99 Pa. St. 344; s. c. 44 Am. Rep. 112. See to the same effect, Seiser v. Mali, 41 N. Y. 619; reversing s. c. 32 Barb. (N. Y.) 76. Compare State v. North Louisiana &c. R. Co., 34 La. An. 947.

4 It was upon this ground that Taft,

§ 2741. A Contrary View. It has been held by Taft, J., in the Superior Court of Cincinnati, in an elaborate opinion, that in a sale of spurious corporate stock certificates by an innocent vendor to an innocent vendee, there is an implied warranty of genuineness, and the vendor is liable for its breach.1 A little reflection will disclose that this holding involves an exceedingly close question. A careful discrimination must be made between the sale of pretended shares which are evidenced by certificates which are spurious, in the sense in which forged or fraudulent certificates are spurious, and the case of the sale of shares of a well-known series which may turn out to have been issued without authority on the part of the officers of the corporation to issue them. Mr. Benjamin, in discussing the principle, says: “Under this head may also properly be included the class of cases in which it has been held that a vendor who sells bills of exchange, notes, shares, certificates and other securities, is bound, not by the collateral contract of warranty, but by the principal contract itself, to deliver, as a condition precedent, that which is genuine, and not that which is false, counterfeit, or not marketable by the name or denomination used in describing it." The cases cited by Benjamin in support of this passage were not all of them cases involving forgeries, though several of them were cases of that character. Among the cases which he thus cites is one where the subject of sale was four bonds of the government of Guatemala. The bonds delivered under the contract were bonds which had been but which were not marketable

3

J., in a case about to be considered, undertook to distinguish this case from the case which he had under consideration in Cincinnati &c. R. Co. v. Citizens' Nat. Bank, 24 Oh. L. J. 198, 211. In the case at bar he said: "The certificates, while properly signed by the duly constituted officers, were not issued by them. The ratio decidendi of the Kurtz case is that the vendor of the certificates in question there, which were fraudulently issued, transferred to the vendee a chose in action giving to the vendee exactly the same remedy and amount of recovery against the

issued by that government, or valuable, because the gov

company as if the stock had been genuine and the transfer had been refused by the company. It has already been held in this case that no recovery can be had against the railway company on these certificates. This fact makes the Kurtz case inapplicable here."

1 Cincinnati &c. R. Co. v. Citizen's Nat. Bank, 24 Oh. L. J. 198.

2 Benjamin on Sales, Ben. Ed. 1858, § 607.

3 Jones v. Ryde, 5 Taunt. 488; Westropp v. Solomon, 8 C. B. 345; Gurney v. Womersley, 4 El. & Bl. 133.

ernment had, after their issue, repudiated all of its bonds which were unstamped, as these were. Although both parties to the sale were ignorant of this repudiation, it was held that the price of the bonds could be recovered. The reasoning of Tindal, C. J., was that the contract was for real Guatemala bonds, and that the case was the same as if the contract had been to sell foreign coin and the defendant had delivered counters instead. "It is not," said he, "a question of warranty, but whether the defendant has not delivered something which, though resembling the article contracted to be sold, is of no value."1 Another case in illustration of the same doctrine was a case where the subject of the sale was what purported on its face to be a foreign bill of exchange, and which, therefore, prima facie, required no stamp in order to its validity under the English stamp laws. But it turned out that the bill was really drawn in England, and, being unstamped, it was hence worthless. It was held that the purchaser was entitled to recover back the price, because the thing sold was not of the kind described in the contract of sale,that is, was not really a foreign bill of exchange.2 The principle on which the English courts thus proceed is closely analogous to a principle already considered, under which a party enters into a contract to take shares in a given venture, — that is, in a corporation organized for certain objects or having a certain capital, and when it comes to the execution of the contract, he finds that it involves an attempt to impose upon him shares of a different nature, that is, shares in a corporation organized for different objects or having a different capital. In such cases, as he contracted to become the purchaser of one thing, he cannot be compelled to become the purchaser of another thing. In other words, the law cannot make for him a different contract. from that to which he himself consented. Judge Taft, after going carefully over these and other decisions, came to the con- . clusion that the principle involved in them is applicable to the case where a corporation, having issued all the shares which it could issue under its governing statute and articles, other share

1 Young v. Cole, 3 Bing. (N. C.) 724.

2 Gompertz v. Bartlett, 2 El. & Bl.

3 Ante, § 66, et seq., and § 1267, et seq.

849.

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certificates, signed in blank by the president and sealed with the corporate seal and left with the secretary for use in executing transfers, were fraudulently issued by him and pledged as collateral security for his own ends. The learned Judge held that, in the case of an assignment of a certificate, representing such spurious shares, there was an implied warranty that the certificate represented genuine shares; in other words, the thing intended to be transferred was not the particular piece of paper, but genuine shares of the particular corporation; and he pointed out that the American theory proceeds upon an implied warranty of identity, while the English theory, reaching the same result, proceeds upon a condition of the principal contract, that one thing has been bargained for and another delivered.1

§ 2742. Cases to Which the Foregoing Principle does not Apply. The foregoing principle does not apply to a case where both parties know what they are contracting for, although the thing turns out to be, in regard of its validity, different from what both parties expected. There may be very great difficulty in distinguishing the two classes of cases, and possibly they are not distinguishable on any very strict principle. But, in illustration of this attempted distinction, we may take an English case where the subject of the sale was "Kentish Coast Railway Scrip." The scrip delivered, in pursuance of the contract of sale, was scrip which had been sold in the market by that name for several months. There was no scrip of that name in existence. The company had been organized; allotments of its stock had been made; money had been deposited under such allotments, and scrip certificates had been issued by the secretary to represent them. After several months, during which the certificates had been generally dealt in in the market, the directors declared that the issue of the certificates was in excess of the authority of the secretary. An action was brought by the purchaser against his vendor to recover on the theory of an implied warranty that the secretary had authority to issue the certificates. But the Court of Exchequer decided that the question was whether, when the parties contracted for a sale of "Kentish

1 Cincinnati &c. R. Co. v. Citizen's Nat. Bank, 24 Oh. L. J. 198, 210.