thority to convey other valuable property and rights in addition to the land, for the same price, and yet that is what the written contract made by the agents in this case provided for. The tile, the fencing material, the lumber and the logs, all were personal property belonging to Mr. Spengler, separate and apart from the realty."

As a general rule "it may be said that the acts of an agent, assuming to have authority to sell his principal's personal property, will not bind the principal, unless he has actually given the agent such authority, or has held him out to the public as clothed with it." 2 C. J. 592 Sec. 229.

In the contract of employment herein there is nothing that would warrant or justify the agents in making the sale of the personal property, nor was there any evidence that Mr. Cottle in any form or manner held out to the public that his agents were clothed with authority to make such sales.

There is a duty which devolves upon the person dealing with an agent, to ascertain what power or authority has been bestowed upon him by his principal, 1 Cal. Jur. 114, Sec. 20. In some cases, as in the present one, where the defendant failed or neglected to see the contract between the owner and his agents or to learn the contents thereof, the law appears to be severe and harsh, yet it is practically uniform in matters of this kind.

The defendant should have ascertained what was the scope of the agent's authority, before she paid her money for the property, 1 Cal. Jur. 715: 2 Corp. Jur. 562 id 565, 9b. Thompson V. Green River Power Co. 154 N. G. 13: 69 S. E. 756. When the authority is by law required to be in writing a person is charged with knowledge of that fact, and of the limitations upon the agents' power contained in such writing. 2 Corp. Jur. 565 Sec. 207.

In the case of Davis V. Trachsler, 3 Cal. App. 559, the court said: "The question to be determined by the court is, Was the sale made by G. W. Hopkins (the agent) to Frank Trachsler (the buyer) on March 24, 1897, within the scope of Hopkins' authority under the appointment of July 13, 1896? Authority to an agent to sell the real estate must be in writing (Civil Code, Sec. 1624, subdivision 69), and his actual authority is only such as the principal intentionally confers or intentionally allows the agent to think he possesses (Civil Code, Sec. 2316). There is no testimony tending to show the instrument by which Hopkins was appointed was recorded. But it was known by appellant that he was holding himself out to be the agent of Davis. The receipt and contract of May 24, 1897, was signed as agent, the appellant having actual notice of the agency, it was incumbent on him to ascertain the scope of authority possessed by Hopkins (Solari V. Snow, 101 Cal. 387: 35 Pac. 1004) and whether he had any right to make contracts of sale and especially the kind he made with appellant (Mudget V. Day, 12 Cal. 139: Hayes V. Campbell, 63 Cal. 143: Stetson V. Briggs, 114 Cal. 514: 46 Pac. 603), an agent can only bind his principal when he acts within the scope of his authority."

"When an agent acts under a special or express authority, whether verbal or written, the party dealing with him is bound to know at his peril what the power of the agent is, and to understand its legal effect, and if the agent exceeds the boundary of his legal authority, the act, so far as it concerns the principal, is void." Blum v. Robertson 24 Cal. 140.

There is nothing in the contract of employment between Cottle and his agents Tainter & Deuprey authorizing the latter to sell the personal property belonging to Cottle located on the orchard which was sold to defendant; it thus follows that such sale, or promise of sale, by the agents to the defendant of

the fruit boxes, trays, crops, etc., was void, as to Cottle the owner.

The plaintiff, therefore, is entitled to judgment for the recovery of said personal property or its value. Let findings and judgment be prepared accordingly. P. F. Gosbey, Judge.

HOOD, AS TRUSTEE, Etc.

VS

FREDERICK STERN

SUPERIOR COURT, COUNTY OF SAN FRANCISCO

(Corporations; Bonus Stock; Fraud; Escrow; Liabilities)..

1924.

Suit by Walter Hood, as trustee in bankruptcy of the Mercantile Finance Company against Frederick Stern. Judgment for plaintiff.

1. CORPORATIONS STOCK NOT FULLY PAID IN FACT-COMMISSIONERS PERMIT CANNOT MAKE IT SO. While Civil Code Section 359 prohibits corporations from issuing stock except for money paid, labor done or property actually received, and the issuance of stock in strict accordance with the permit to issue common stock, one share in payment for each share of preferred stock sold, might estop the corporation and its share-holders from claiming the stock was not fully paid, yet if not in fact fully paid the permit of the Commissioner cannot make it paid or give holder immunity from liability to creditors.

2. CORPORATIONS BONUS OR GIFT STOCK

INFORMED CREDITORS.

UN

The acceptance of bonus or gift of stock imposes an obligation under the statutes to pay for the shares so far as necessary to satisfy claims of uninformed creditors.

3. CORPORATIONS FRAUD PAYMENT IN STOCK— OVERVALUATION'

The liability of the holder of stock issued for property or services is determined by "the good faith rule" and there must be a reasonable approximation in values and the stock will be deemed paid only to extent of fair value rendered for it and any known overvaluation is a constructive fraud upon creditors.

4. CORPORATIONS CREDITORS WATERED STOCK--TRUST FUND THEORY ABANDONED FOR TORT THEORY.

Not every creditor may have recourse against the holder of watered stock for the trust fund theory is now generally

abandoned and recovery is predicated, not on the implied promise of payment, but on the tort committed in falsely representing the capitalization and thereby obtaining for the corporation unmerited credit.

5. FRAUD CORPORATIONS KNOWLEDGE OF CREDITOR.

STOCKHOLDERS

When a corporation was permitted to pay stockholder one share of common stock for each share of preferred stock sold by him and he was guilty of fraud in selling preferred stocks he held the common stock as if issued without present payment and without pretense of sale of the preferred and while a creditor with knowledge could not claim he was defrauded, it is not enough to say he had sufficient information to put him on inquiry.

Without an express statutory declaration, stock will not be held void to the prejudice of creditors because of a departure from the prescribed terms of sale or issuance, even though the officers might be subject to penal consequences, in view of Corporate Securities Act section 12.

Although stock is issued in violation of law, the stockholders liability to creditors may be the same as if a bona fide subscriber.

8.

CORPORATIONS

BONUS STOCK

SUED HOLDERS MUST PAY.

ILLEGALLY IS

Holders of bonus stock are required to pay for their shares, even though illegally issued, when necessary to satisfy claims of qualified creditors.

9.

CORPORATIONS

STOCKHOLDER ACCEPTANCE OF STOCK SUFFICIENT SUBSCRIPTION UNNECESSARY.

One may become a stockholder through acceptance alone without ever having been a subscriber; and if the stock was issued contrary to law, he cannot for that reason escape the concomitant liability of a regular stockholder.

10. CORPORATIONS

STOCKHOLDERS.

CREDITORS RIGHTS AGAINST

As to creditors rights there can be no distinction drawn between one who in form subscribes for original stock agreeing to pay less than its par value therefor and one who purchases the same at less than its par value.