damages against the corporation. The certificate is a continuing representation of the validity of the shares, when made to an innocent party; the original owner can claim the rights of membership; the forger or the person who induces the corporation to act is liable to it for any loss it sustains. The same rules apply to lost certificates not due to the fault of the owner. Thus, where a certificate was issued to D and by him sold and indorsed in blank to P, from whom it was stolen without his fault by an unknown person, who transferred it to brokers who sold it to M, P can recover the shares and M and the brokers must look to the thief.24

§ 34. Transfers in breach of trust. When A holds shares in trust for B, and there is nothing in the certificate or on the register to show that a trust exists, a bona fide purchaser from A gets a good title as against B, and B must look to A. If the certificate or register shows a trust exists, the purchaser takes it subject to the trust; if the corporation has knowledge of the existence of the trust and of any limit on the power of the trustee to transfer, and it negligently allows him to transfer contrary to his authority, the corporation is liable to the party injured.

§35. Gift. A gift of shares may be made by delivery of the certificate for that purpose, without indorsement. Registration is not essential to the validity of the gift, though perhaps the full legal title is not complete until indorsement on the certificate or transfer is made on the corporate books.

§ 36. Effect of transfer. The general rule is that the transferror is no longer a member, and is no longer in any way liable to the corporation or its creditors, even though the shares are not fully paid; the purchaser, on the other hand, assumes, if he has knowledge of the facts, all the obligations and is entitled to all the rights of the seller. If he has no knowledge that the shares were not paid up, in the absence of any statute to the contrary, he is not liable to the corporation or to its creditors-he has a right to presume they are paid up, though the certificate does not so state, and he is not obliged to inquire into the matter. In such case it would seem the transferror would remain

24 East Birmingham Land Co. v. Dennis, 85 Ala. 565.

liable to the corporation, at least so far as necessary to protect creditors. The matter is regulated by statutes in many states.

Section 6. Rights of Creditors.

§ 37. Non-payment of shares. Difficult questions arise as to the liability of shareholders who have an agreement with the corporation by which they are not to pay in full for their shares. Such agreements are valid as between the corporation and the shareholders, but are generally invalid as against creditors, so the creditor can require full payment for his protection.

There are four exceptions: (1) When the shareholder has purchased from another shareholder, in good faith, shares that were not in fact fully paid but which he supposed were, he is not liable to creditors for the unpaid amount. (2) When the corporation is in failing circumstances, but with the power to increase its stock, and it does this, under stress of circumstances and in good faith, to re-establish itself, it may sell such stock at its market value, or issue it as a bonus along with bonds issued, to tide over its difficulties; and those who take the stock or bonds or both, in good faith, at their market value then, will not be held to any further liability in favor of subsequent creditors. (3) It is held in New York and Illinois that a corporation like a railroad company may issue its shares below par, or at their market value, in payment of a construction company for the construction of its road, and such company is not liable to subsequent creditors for the difference between the face value of the shares, and the price at which they were taken. (4) In case shares are paid for in property, it is generally held that, so long as there is no actual fraud in valuing the property, whatever price it is taken at, even if it is an over-valuation, shall be final and creditors cannot complain; other states, notably Missouri, hold that any overvaluation, though made in good faith, must be paid back to the company by the person receiving the shares upon that basis, if necessary to pay creditors who have relied on the company's having the capital it pretends to have. Many cases also hold that an excessive over-valuation is prima facie fraudulent, and the discrepancy will be required to be satisfactorily explained, or made up. Perhaps good will is property with which shares can

be paid for, if it really exists in the particular case; and labor, services, patents, franchises, etc., are property within the rule.

§ 38. Statutory liability of shareholders to creditors. This is a liability placed upon shareholders, over and above their common law liability, for the protection of creditors; it is not generally a part of the corporate funds for the purposes of carrying on its business, but it is a security for creditors alone. The statutes usually specify only corporations organized for particular purposes.

CHAPTER XV.

INSURANCE.

§1. Nature of insurance. Insurance is essentially a contract or agreement, whereby one party, in consideration of a price paid by another party, guarantees to that other that he shall not suffer loss or damage by the happening of certain specified contingencies. In fire and marine insurance the principle is entirely that of indemnity. In no circumstances may the insured recover more, and he may recover less, than what he has actually lost. Since the value of a life cannot ordinarily be exactly ascertained, the doctrine of indemnity is not applied to life insurance.

§ 2. Kinds of policies. There are several kinds of policies. The most common form of fire policy is the open policy. In this the sum mentioned on the face of the policy merely fixes the maximum amount, beyond which the company is under no circumstances liable and in the event of a loss it is open to the company to show that the damage was in fact less than the amount stated in the policy. In the valued policy, on the other hand, the value of the property insured is conclusively agreed to by the parties and in the event of loss no question can be raised as to its value; the only question is: Did the loss occur? Marine policies are generally, and life and accident policies practically always, valued. The mere fact that the total sum mentioned in the policy is apportioned among several items does not render the policy valued. Thus, where the policy was for $8,500 on one brick and two wooden houses, and opposite the first item was placed the sum of $6,700 and opposite the latter item the sum of $1,800, the policy was held not to be valued but merely to show the maximum amount of recovery which could be had with respect to each item. A floating policy is one issued to cover goods in a definite place, but where the goods are constantly changing so that the

exact articles insured cannot be definitely described. This is frequently used in case of articles in warehouses and stores. This form of policy is also called a blanket policy.

A regular life policy is where the insurer, in consideration of certain premiums, agrees to pay a stated sum at the death of the person insured to whomever is designated in the policy. An endowment policy is where the premiums are paid for a certain number of years, generally ten or twenty. If the insured dies during that time, the face of the policy is paid to the designated person. If the insured lives to the end of the specified period, the face of the policy is paid to him.

§ 3. Meaning of terms used. Some of the more commonly used phrases in insurance law are the following: The person or corporation promising the indemnity is the insurer. The person taking out the policy and with whom the contract is made is properly designated as the insured, although the term is sometimes applied to the person to whom the policy is made payable, who of course may or may not be identical with the person taking out the policy. The person to whom the insurance is made payable is more properly designated as the beneficiary. A policy may under certain circumstances be transferred to a third person, who is then called the assignee.

§ 4. Who may be an insurer? At common law any person could become an insurer. Today practically all of the business of underwriting insurance is done by corporations, and in some states, by statute, only corporations can issue insurance policies. These insurance companies are usually corporations organized for that purpose as a business for profit. There are several socalled fraternal orders or mutual benefit companies. These proceed in somewhat different ways, and in some respects vary from regular insurance companies, but the law that governs them is substantially the same as that with regard to regular insurance companies.

§ 5. Insurable interest. If one who had no interest in the property insured could take out a policy upon it, since under those circumstances he would, in return for the payment of a comparatively small premium, stand to win a very much larger amount by the destruction of the property, it is clear it would be