ducting the corporate business.20 An assessment is also invalid where the money is to be used in carrying out an ultra vires contract.21 If the statute provides for levying assessments to make up deficiencies due to impairments of capital, it is immaterial how the capital became depleted.22 If an assessment is made in part for an authorized purpose and in part for an unauthorized one, and the illegal part is indeterminate, the whole assessment is void.23 But a reduction in the amount of such an assessment by rebating the amount intended to cover the unauthorized expenditure may amount to a new valid assessment.24 It will be presumed that assessments were made in good faith and for a proper purpose. And if the purpose is a 25 proper one the motive of the directors in levying it is immaterial.26 The necessity for levying an assessment cannot be questioned by a stockholder.27 20 A by-law providing that where there are not sufficient funds in the treasurer's hands to pay the indebtedness of the corporation an assessment shall be made to cover the amount necessary to cancel said indebtedness unless otherwise arranged and paid, authorizes an assessment only when there are not sufficient funds in the treasurer's hands to pay the indebtedness of the company, and then only authorizes an assessment for a sufficient amount to cancel the indebtedness. It does not authorize an assessment for the purpose of paying the estimated expenses of conducting company for the current year. And this is true though a portion of the year has expired before the assessment is made, where it does not af firmatively appear that the amount of the assessment is required to pay indebtedness then due above the moneys on hand. Delaware Valley Tel. Co. the v. Tiffany, 131 N. Y. App. Div. 343, 115 N. Y. Supp. 867. 21 See Grand Valley Irrigation Co. v. Fruita Improvement Co., 37 Colo. 483, 86 Pac. 324. 22 An assessment is not rendered invalid because the impairment was due to mismanagement. Slette v. Lar son, 125 Minn. 263, 146 N. W. 1093. 24 Grand Valley Irrigation Co. v. Fruita Improvement Co., 37 Colo. 483, 86 Pac. 324. 25 An averment that an assessment was not levied "in good faith, but for the purpose of freezing out this complainant," is not sufficient to negative the presumption that it was levied for a proper purpose, or to cast discredit upon its bona fide character. Von Horst v. American Hop & Barley Co., 177 Fed. 976. 26 Where it is legally levied for the purpose of paying debts, its enforcement will not be enjoined merely because it is alleged that it was not made in good faith, but for the purpose of freezing out the complainant. Von Horst v. American Hop & Barley Co., 177 Fed. 976. 27 Weber v. Della Mountain Min. Co., 14 Idaho 404, 94 Pac. 441. The decision of the comptroller of the currency as to the impairment of the capital stock of a national bank is conclusive and final on the stockholders and the bank, and leaves no alternative but to make up the deficiency or go into liquidation. If assessments to a certain amount only are authorized, the limitation cannot be exceeded.28 But within that limitation, and in the absence of further restrictions, the amount rests in the discretion of the person or body authorized to make the assessment, and their action will not be interfered with unless an abuse of discretion is clearly shown.29 The presumption is that, in fixing the amount, the directors acted honestly and in accordance with their best judgment having due regard to the legitimate expenses of the corporation,30 and the burden is on the stockholder to show that it was so largely in excess of the requirements of the association as to warrant an inference of fraud or culpable negligence.31 It is sometimes provided that no assessment shall be levied until after a certain percentage of the capital stock has been subscribed,32 or while a portion of a previous assessment remains unpaid,33 or until Thomas v. Gilbert, 55 Ore. 14, Ann. 28 Great Falls & C. R. R. v. Copp, 38 N. H. 124; State v. Morristown Fire Ass'n, 23 N. J. L. 195. In North Dakota the assessment is limited to ten per cent of the capital stock named in the articles of incorporation. Comp. Laws 1913, § 4571; More v. Courier-News, 29 N. D. 385, 151 N. W. 2. Where the charter provides that no assessments shall be laid upon any share of a greater amount in the whole than $100, assessments in excess of that amount are void. Lewey's Island R. Co. v. Bolton, 48 Me. 451, 77 Am. Dec. 236; Great Falls & C. R. R. v. Copp, 38 N. H. 124. See also § 676, supra. 29 Under the Kentucky statute authorizing the secretary of state to order a bank to assess its stockholders to an amount not exceeding the par value of the stock to make good any impairment of its capital, he has a large discretion as to the amount of the assessment, and his action in ordering an assessment of 100 per cent will not be interfered with unless an abuse of discretion is clearly shown. Corbin Banking Co. v. Mitchell, 141 Ky. 172, 31 L. R. A. (N. S.) 446, 132 See also § 676, supra. 30 Allegheny Valley Camp Meeting Ass'n v. Kountz, 29 Pa. Super. Ct. 110. 31 Allegheny Valley Camp Meeting Ass'n v. Kountz, 29 Pa. Super. Ct. 110. 32 Gary v. York Min. Co., 9 Utah 464, 35 Pac. 494. In California a corporation has no authority to levy an assessment until after one-fourth of the capital stock has been subscribed, and an assessment made before that time is void. Civ. Code, § 331; Herbert Kraft Co. Bank v. Bank of Orland, 133 Cal. 64, 65 Pac. 143. And the same is true in Idaho. In a suit to set aside a sale of stock for nonpayment of an assessment, the complaint need not allege that onefourth of the stock had been subscribed before the assessment was levied, but it is for the corporation to show that such was the case. Corcoran v. Sonora Mining & Milling Co., 8 Idaho 651, 71 Pac. 127. 33 Utah Comp. Laws 1907, § 357, provides that, with certain exceptions, no assessment shall be levied while a portion of a previous one remains un a certain amount of stock set apart as working capital has been exhausted.34 It is not necessary that treasury stock be sold before an assessment can be levied to pay debts, where the articles of incorporation leave the disposition of such stock to the discretion of the board of directors, and it appears that no substantial amount could have been realized on its sale.35 Nor will the enforcement of an assessment to pay a corporate debt be enjoined on the ground that it is inequitable and unjust merely because the debt is secured by a mortgage on land worth much more than the amount of the debt.30 S4274. Persons liable; rights and liabilities of pledgees, agents and trustees. Generally an assessment can only be levied upon persons who are stockholders at the time,37 and a person who has ceased to be a stockholder by a valid transfer of his shares cannot be assessed.38 An assessment imposes no personal liability upon one to whom stock paid. Where this provision is relied on as a ground for enjoining a sale of stock for nonpayment of an assessment, the plaintiff has the burden of negativing the exceptions by his proof. It is not sufficient to merely negative them in his complaint. The acceptance of a note in full settlement of an assessment is a sufficient payment within the meaning of the statute. And the same is true of a credit of the amount of the assessment on a note given by the corporation to a stockholder for money loaned by him to it. Smith v. Sinaloa Land & Fruit Co., 42 Utah 445, 132 Pac. 556. A provision in the by-laws that no assessment shall be levied while any portion of the previous one remains unpaid unless the power of the corporation shall have been exercised for the purpose of collecting such previous assessments, or the collecting of the previous one has been enjoined, is for the protection of stockholders who have paid their assessments, and does not operate to exempt a stockholder who fails to pay an assessment against his stock from any further assessment. Pennecard v. Giant Ledge Min. Co., 97 Wash. 384, 166 Pac. 629. 34 Where the articles of incorporation provided that no assessment should be levied for any purpose until a certain amount of stock set apart as working capital was exhausted, it was held that it was in effect exhausted where it appeared that the directors were unable to sell it, and that an assessment might then be levied. Gary v. York Min. Co., 9 Utah 464, 35 Pac. 494. The same is true where the articles of incorporation provide that no assessment shall be levied while there is treasury stock remaining in the treasury, but the stock so remaining has no salable or other substantial value. Jones v. Bonanza Mining & Milling Co., 32 Utah 440, 91 Pac. 273. 35 Nelson v. Keith-O'Brien Co., 32 Utah 396, 91 Pac. 30. 36 Von Horst v. American Hop & Barley Co., 177 Fed. 976. 37 Chouteau Spring Co. v. Harris, 20 Mo. 382. 38 Chouteau Spring Co. v. Harris, 20 Mo. 382. See also Libby v. Tobey, 82 Me. 397, 19 Atl. 904. And see §§ 3769 et seq., 4111, and 4196 et seq., supra. 4 has been pledged as collateral, at least in the absence of a provision in the charter or statute to the contrary; 39 and even though the lien of the corporation extends to the stock in the hands of the pledgee, he may surrender the stock in his possession and thus relieve himself from all liability.40 But he may pay the assessment if he sees fit, through the stockholder, and if he does so will have a lien on the stock as against the stockholder to indemnify him for the amount so paid.41 It has been said that the rule that stock cannot be forfeited or sold for nonpayment of assessments unless the charter or a statute so provides is especially applicable to stock which is in the hands of an innocent pledgee for value. But if the shares are issued subject to the condition that they may be assessed, the right of assessment follows them into the hands of every person who has them.43 And so, where the statute gives a lien on the stock for the amount of an unpaid assessment, it may be taken and sold for that purpose even though it is in the hands of a bona fide pledgee, since he ought not to be allowed to occupy any better position than would the owner of the shares.44 A pledgee may maintain a suit to enjoin a sale under an illegal assessment, or may sue in equity to compel the corporation to recognize him as a stockholder.46 Neither the pledgor nor his agent can acquire any interest in the pledged stock superior to that of the pledgee by purchasing the same at a sale to enforce an assessment.47 Nor will the laches of the pledgee deprive the pledgor of his right to sue in equity for his stock or at law for the value of his interest therein.48 44 Corbin Banking Co. v. Mitchell, 141 Ky. 172, 31 L. R. A. (N. S.) 446, 132 S. W. 426. 45 First Nat. Bank v. Multnomah State Bank, 87 Ore. 423, 170 Pac. 534. See also § 4278, infra. 46 A pledgee of stock may maintain See also § 4278, infra. 171 Pac. 938. Cal. 48 Wilson v. Colorado Min. Co., 227 Fed. 721. J An agent who bids in stock of his principal at an assessment sale holds the same in trust for his principal.49 A person holding stock as trustee is personally liable for assessments thereon atlhough he has disclosed to the corporation the names of the persons whom he represents.50 § 4275. Mode of levying assessments; equality. The requirements of the statute as to the mode of making the assessments must be complied with.51 Assessments by directors must be made by a duly constituted board,52 at a legal meeting called upon proper notice.53 on the pews. Mayberry v. Mead, 80 Me. 27, 12 Atl. 635. 49 Seymour v. Salsberry, 171 Pac, 938. Cal. Maine. Mayberry v. Mead, 80 Me. 27, 12 Atl. 635. Rhode Island. Atlantic Delaine Co. V. Mason, 5 R. I. 463. Utah. Raht v. Sevier Mining & Milling Co., 18 Utah 290, 54 Pac. 889. In Marshall v. Wentz, 28 Cal. App. 540, 153 Pac. 244, a complaint in garnishment proceedings against a stockholder to subject an unpaid assessment was held to sufficiently show the legality of the assessment as against a general demurrer. In Hennessey V. Alleghany Min. Co., 159 Cal. 398, 113 Pac. 1071, a complaint in a suit to set aside an assessment and sale was held to be insufficient in that it failed to set out the irregularities and defects complained of except generally and by way of conclusion. Assessors of a corporation of the pew owners of a meetinghouse, incorporated under Rev. St. 1871, c. 12, can only assess on the pews the sum voted by the members to be raised, and have no right to add thereto an overlay at their pleasure and assess it In California "the procedure for levying and collecting an assessment, and for the sale of delinquent stock, is the same, whether it be a 'call' for subscription, or an 'assessment' on paid up stock to pay debts and expenses. Bottle Mining & Milling Co. v. Kern, 9 Cal. App. 527, 99 Pac. 994. See also § 664, supra. 52 Whitehead v. Sweet, 126 Cal. 67, 58 Pac. 376. And see § 673, supra. 53 Von Horst v. American Hop & Barley Co., 177 Fed. 976; Cheney v. Canfield, 158 Cal. 342, 32 L. R. A. (N. S.) 16, 111 Pac. 92; La Habra Oil Co. v. Francis, Cal. App. 169 Pac. 400; Smith v. Sinaloa Land & Fruit Co., 42 Utah 445, 132 Pac. 556; Hatch v. Lucky Bill Min. Co., 25 Utah 405, 71 Pac. 865. The burden of proving that insufficient notice was given of a special meeting at which an assessment was levied is on a stockholder attacking the assessment on that ground. La Habra Oil Co. v. Francis, - Cal. App. -, 169 Pac. 400. A finding that an assessment was levied at a meeting "duly and regularly convened," and that the assessment was "lawfully and rightfully levied," includes a finding that the necessary notice of the meeting was given. Younglove v. Steinman, 80 Cal. 375, 22 Pac. 189. |