112. Certificates of Stock not Negotiable Instruments. A certificate of stock is merely evidence that the holder is a member of the corporation. A person may be a member of a corporation, and be entitled to the rights of a stockholder, without having a certificate of stock. Certificates are convenient as evidence of membership. Transfers of stock are usually made by filling in a blank on the back of the certificate for that purpose, by which the owner declares the transfer to the purchaser, and designates the purchaser, or someone, his attorney to present the certificate to the corporation, to have the transfer registered on the books of the company. It is the usual custom to surrender certificates to the purchaser. A corporation has a right to rely upon its books, and if a person wrongfully or fraudulently attempts to transfer a certificate of stock which he does not own, or has no right to transfer, the purchaser takes no better title than the seller had. In this particular, certificates of stock are not negotiable instruments. Negotiable instruments are good for value in the hands of innocent purchasers, who purchase before the instrument is due. As between the parties themselves, a transfer of a certificate of stock is good, but as to the corporation or creditors of the seller, the transfer is not effectual until recorded on the books of the corporation.
A CORNER IN THE SALES DEPARTMENT OF THE MICHIGAN STOVE COMPANY, DETROIT, MICH.
113. Individual Liability of Stockholders for Debts of a Corporation. A corporation is an artificial person having an existence in law, separate and apart from that of its members. Its profits cannot be divided until the managing agents of the corporation so decree. Its property does not belong to the members, but to the corporation itself. At one time some states provided by statute for double liability of stockholders. In case a corporation was unable to pay its debts, creditors could compel stockholders to pay to the corporation an amount equal to the par value of their stock, after paying the full face or par value of their stock. Statutes providing for double liability have quite generally been abrogated. At the present time, except in the case of national banks, corporations organized under United States law, few states provide for double liability of stockholders. If A has subscribed for ten shares of stock, the par value of each share being one hundred dollars ($100.00), and pays one-half the amount of his subscription to the company, in case of insolvency of the corporation, creditors can force A to pay the balance of his stock subscription, or five hundred dollars ($500.00). Even though not insolvent, the corporation can collect the balance of five hundred dollars ($500.00) from A by call and assessment, and can enforce collection by suit. A's subscription is a contract between himself, and the corporation. Unlike partners, stockholders are not personally responsible for the debts of the corporation of which they are members. In dealing with partnerships, a person may rely upon the personal financial worth of the individual members of the partnership. The property of the individual members may be subjected to pay the debts of the partnership. But in case of a party dealing with a corporation, he cannot rely upon the personal worth or responsibility of the members of the corporation, since the members individually are not liable for the corporation's debts. The corporation is separate and distinct from its members, and when the assets of the corporation are exhausted, the property of the individual members is not liable.
114. Officers and Agents of a Corporation. A corporation is an artificial person which must necessarily conduct its affairs through agents. The managing board of a corporation having a capital stock is usually called the board of directors. The managing board of a corporation having no capital stock is usually called the board of trustees. These managing boards are elected by the members of the corporation. In case the corporation is one organized for profit, the members are called stockholders or shareholders. The directors or managing board, of a corporation may delegate the performance of what are called ministerial duties. They may appoint officers and agents to assist them in the performance of their duties of a certain character. The officers of a corporation elected by the directors usually consist of a president, vice-president, secretary and treasurer. If a corporation's business transactions are limited, practically the only duty of the president is to preside at the meeting of the board of directors. If the affairs of the corporation are many and complicated, the president is usually intrusted with many duties. The board of directors meets at stated times, authorizes and passes on certain important matters, but the duty of carrying them into execution, and of performing the routine work, falls on the president. In a corporation of large affairs, the president may pay current bills, make purchases, give notes, if necessary, make sales and give and take mortgages on property. He is often given authority to act as general manager for the corporation. In this event, he may perform all the duties connected with the general operation of the business. The vice-president has authority to perform the duties of the president during his absence or disability. It is the duty of the secretary to keep the records of the corporation. It is the duty of the treasurer to take care of the funds of the corporation. The officers of a corporation are liable to the corporation for breach of trust. They are personally liable to third persons when they exceed their authority. A corporation, through its properly appointed officers, as well as through its board of directors, may appoint subordinate agents to perform work for the corporation. The corporation is responsible for the acts of its agent, performed within the real or apparent scope of the agent's authority.
115. Execution of Contracts and Negotiable Instruments by a Corporation. A corporation can act only through its agents. The agents authorized to act for a corporation are the board of directors, the officers appointed by the board, or the officers. A corporation, as one of its powers, has the right to use a common seal. While a corporation commonly uses its seal in signing written instruments of importance, for the purpose of showing authority of its agents to enter into such contracts, a corporation need not use its seal except in those cases when it is necessary that a natural person use a seal. A corporation usually authorizes its officers to make contracts. A president and secretary, acting together, have the right to make contracts for their corporation, by reason of the general authority conferred upon them by the board of directors. The proper signature of a corporation to a written document is the name of the corporation, followed by the signature of the president as its president, and by the signature of the secretary as its secretary. For example, if the India Rubber Company is to sign a contract, the proper signature is:
The India Rubber Co.,
By John Smith, its President.
By John Jones, its Secretary.
When the signature must be acknowledged before an officer authorized to administer oaths, before it will be received for record, as in the case of a deed, the officer authorized to sign the name of the corporation to the deed may make the acknowledgment.
Negotiable instruments, such as promissory notes, drafts and checks, should be signed with the corporate name by the proper officer, as its officer. It is held, however, that by custom, a cashier of a bank may make and indorse negotiable paper in his own name, merely adding the designation cashier to his signature, and by this means make the paper that of the corporation, and not incur any personal liability therefor. This is an exception to the general rule. Where a person signs as agent, he should sign the name of his principal, by himself, as agent. If he signs his own name, followed by the word, agent, or president, or whatever his office may be, he binds himself personally, and not his principal.