Overissue

Bonds. Where there is an agreement that a railroad company shall issue only a fixed number of bonds per mile, bonds issued in excess of the limit will be postponed in lien and payment to those within the limit; Mc Murray v. Moran, 134 U. S. 159, l() Sup. Ct. 427, 33 L. Ed. 814; and one who buys bonds within the limit upon the faith of this agreement is fully entitled to the benefit of it; id.; where bonds are issued, secured by a mortgage w’hich recites the amount of the bonds and that part of them were to be used to take up bonds of a prior issue, the lien of the mortgage will be confined to an amount of bonds which, added to the specified incumbrances, shall not exceed the limit fixed; Clallin v. R. Co., 8 Fed. 118; where the question was raised by subsequent bondholders. Where an issue of railroad bonds was limited in amount, and the governor of a state indorsed on them a recital that they were issued in pursuance of law, it was hold that a bona fide purchaser was not bound to look beyond his certificate and that the bonds so certified in excess of the authorized issue were entitled to share pro rata with the other bonds; Stanton v. R. Co., 2 Woods 523, Fed. Cas. No. 13,297. Bonds are numbered for mere convenience, and holders of those of a higher number stand on the same footing, in a distribution of a fund, as those of lower numbers; id. Where a mortgage was given to secure a specified issue of bonds and by mistake a larger number were issued and the excess came into the hands of a bona fide holder, there being nothing to put him on inquiry, the company was held estopped to set up that they were not secured by the mortgage, cured by a recorded mortgage, but not against a subsequent recorded mortgage; Stephens v. Benton, 1 Duv. (Ky;) 112. Where a statute limited the issue of bonds to the amount of the capital stock actually paid in, it was held that bonds issued in excess of this amount were illegal, and that a second mortgage bondholder could take advantage of their illegality, though the company itself did not seek to repudiate them; Com. v. Smith, 10 Allen (Mass.) 448, 87 Am. Dec. 072; blit see Peatman v. Power Co., 100 la. 245, GO N. W. 541; where bonds issued in excess were held to be valid to the extent of the consideration received for them. Where a railroad company was authorized to issue bonds to a certain amount in relation to the amount of the capital stock, and a mortgage was executed for a larger amount than was authorized, it was held that between bona fide holders of the mortgage bonds and the company, the bonds were entitled to the lien of the mortgage, and that subsequent creditors with notice of the bonds occupied no better position than the company; Fidelity Co. v. R. Co., 138 Pa. 494, 21 Atl. 21, 21 Am. St. Rep. 911. A constitutional provision forbidding the fictitious increase of corporate indebtedness will not be enforced where mortgage bonds are sold at par to innocent purchasers, for construction and equipment; id. 1 Stock. Any issue of stock of a corporation in excess of that authorized by statute or charter is void; New York & N. II. R. Co. v. Schuyler, 34 N. Y. 30; even in the hands of a bona fule purchaser; People’s Bank v. Kurtz, 99 Pa. 344, 44 Am. Rep. 112; Appeal of Mount Holly Paper Co., 99 Pa. 513. A bona fide holder of overissued stock, purporting to be signed by an authorized corporate officer, and actually issued by the corporation, may sue the corporation in tort and recover damages; New York & N. II. It. Co. v. Schuyler, 34 N. Y. 30 (the leading case); Appeal of Mt. Holly Paper Co., 99 Pa. 513; Bank of Kentucky v. Bank, 1 Pars. Eq. Cas. (Pa.) 180, 210; the doctrine of estoppel applying; Klstorbock’s Appeal, 127 Pa. 001, 18 Atl. 383, 14 Am. St. Rep. 808; and the same rule applies where the overissued stock is held as collateral for notes; Appeal of Mt. Holly Paper Co., 99 Pa. 513; not so, as to a purchaser not in good faith for full value; Ryder v. R. Co., 134 N. Y. 83, 31 N. E. 251; although the signature of one corporate officer had been forged by another; Fifth Ave. Bank v. R. Co., 137 N. Y. 231, 33 N. E. 378, 19 L. R. A. 331, 33 Am. St. Rep. 712. If statutory or charter provisions authorize an increase of the capital stock, but the formalities prescribed for making the in crease are not complied with, it is termed The authorized corporate officers and the corporation are jointly and severally liable to immediate or subsequent purchasers (buying upon the faith of certificates) of an overissue or irregular issue of stock, who have sustained damage thereby; Bruff v. Mali, 56 N. Y. 200; Windram v. French, 151 Mass. 547, 21 N. II 014, 8 L. R. A. 750. Equity will enjoin the transfer of spurious stock, the payment of dividends thereon, or the voting thereof by the pretended owners; Kent v. Min. Co., 78 N. Y. 159. Such stock is a cloud upon the title of the genuine stock, which a court of equity will remove at the suit of the corporation or the stockholders; Dewing v. Perdicaries, 90 U. S. 193, 21 L. Ed. 054; and the holder thereof who knew it to be overissued, at the time of the subscription, can defeat an action at law on his subscription therefor; Scovill v. Thayer, 105 U. S. 145, 2G L. Ed. 90S; or an action upon a promissory note given therefor; Merrill v. Reaver, 50 la.

401.

Failure by a holder of valid stock for six: years to complain of an overissue of stock is laches; Jutte v. Hutchinson, ISO Pa. 2 is, 42 Atl. 125. Whatever might be the rule as to a bona fide purchaser of or subscriber for an overissue of shares of stock in a corporation, one who procures the overissue without consideration by false representations will not be heard to assert that a stockholder who voted therefor relying on such representations is estopped to question the validity of the shares; Haskell v. Read, 08 Neb. 107, 95 N. W. 997, 90 N. W. 1007.