Upon further consideration of this case upon rehearing before the court in Bank, we adhere to the opinion of Justice McFarland, formerly rendered in Department. In addition to what is there said, we add some remarks concerning the points urged upon the rehearing: —
1. The proposition that a corporation cannot, except in the manner provided by law, divide its capital stock among its stockholders, has no application to this case. The property formerly belonging to the firm of Miller Lux, which was, by the successors in interest of that firm, conveyed to the newly formed corporation, also named "Miller Lux," was, in no proper sense, within the meaning of the law and the public policy forbidding such division, the capital stock of that corporation. In order to determine the character of the estate which the corporation Miller Lux held in that property it is necessary to consider together, as parts of one transaction, the deeds of conveyance of the respective parties to the corporation; the written agreement of the same parties, providing for the formation of that corporation with a prescribed form of articles of incorporation, and for the execution of said deeds conveying to it the said property, and the articles of incorporation under which that corporation was *Page 456 formed. These instruments clearly show that the corporation did not take an absolute unqualified estate in the property so conveyed to it, but, on the contrary, that it took the legal title in trust for the purposes declared in the agreement and in its articles, and that the grantors in the deeds were the beneficiaries of the trust. The main purpose of the trust was the conversion of the property conveyed to it into money and the division of it, in that form, among the beneficiaries, who were also its stockholders, according to their interests. The other powers given to the corporation were merely incidental and subsidiary to the main purpose. It is of no consequence that the agreement does not use the words "trust," or "trustee," nor expressly declare that the corporation is to take and hold the property as trustee in trust. It does declare with much detail the purposes for which it shall take the property and the disposition thereof to be made by it; and these elaborate provisions show clearly and conclusively that the corporation took no interest, beneficial to itself, in the property, but only the title, custody, and control of it, for the benefit of others. The thing created by the entire transaction was, in fact, a trust, and the corporation was in fact constituted a trustee of the property, and it matters not that the agreement does not call it by that name.
The fact that the corporation did, as provided in the agreement, issue stock to each interested party, having a nominal par value equal to the estimated value of the interest of the particular person in the property conveyed to it, did not convert the trust property into the absolute property of the corporation, did not prevent it from becoming trust property, nor in any respect add to the estate of the corporation therein, nor to its powers to deal therewith. For convenience of distribution the nominal capital stock of the corporation was fixed at twelve million dollars, divided into one hundred and twenty thousand shares of the par value of one hundred dollars each. They could as well have been made worth one dollar each. Whatever their par value, they were intended only as mere denominators to indicate the interests of the respective grantors in the Miller Lux partnership assets included in the scheme of distribution, and the proportions of the proceeds to which they would be entitled. The payment to each stockholder of his pro rata share of the property, as *Page 457 fast as it was converted into money, as the agreement provided, was, therefore, not a division of the capital stock of the corporation among its stockholders, but a mere distribution of the trust property in accordance with the terms of the trust.
It is urged that the stock was to be issued as fully paid stock, and that if in truth nothing was received for it except the property taken in trust, the beneficial interest in which still remained in the grantors, the scheme would be unlawful (Const., art. XII, sec. 11; Civ. Code, sec. 359), and that, therefore, there could not have been an intention to create a trust. The law forbidding the issuance of stock except for value is for the benefit of creditors and to secure equality among stockholders. The plan here adopted does no injustice to any stockholder, all of them having agreed to it with full knowledge of all the facts, and being on an equal footing. The rights of creditors are not involved in this action. The corporation and its stockholders may be estopped, as against creditors, to deny the liabilities to be implied from the form of its organization, as if the stock was actually paid up to its par value, but we think the intention to convey a mere trust estate to the corporation is so clear that it must be given that effect, even if it is inconsistent in some particulars with the provisions of the law governing corporations. That a corporation may be formed for such a purpose is clear. (Civ. Code, sec. 286) The principle that it may lawfully be a trustee of property, holding no beneficial interest therein, as to its stockholders, though it may be otherwise as to creditors, is recognized in Shorb v.Beaudry, 56 Cal. 450; Chater v. San Francisco etc. Co., 19 Cal. 247; Hunt v. Davis, 135 Cal. 34, [66 P. 957]; Cornell v.Corbin, 64 Cal. 200, [30 P. 629]; Clute v. Loveland, 68 Cal. 258, [9 P. 133]; and Behlowv. Fischer, 102 Cal. 215, [36 P. 509].
In this case the trust was declared and created by the "instrument under which the trustee claims the estate affected," as provided in subdivision 2 of section 852 of the Civil Code. That instrument consists of the deeds conveying the property to it and the previous agreement in pursuance whereof they were made, which must all be read together as one instrument. It was not necessary that the corporation should sign a declaration of the trust, as provided in subdivision 1 of that section. *Page 458
2. It was contended in the petition for rehearing that there was no power to amend the articles of incorporation so as to provide for the annual division of at least three hundred and sixty thousand dollars among the parties interested, or so as to require the sale of sufficient property for that purpose. The point is not well taken. The original agreement provided that, as to the subdivisions numbered 7 to 11, inclusive, of the agreement, and the corresponding subdivisions of the articles of incorporation, amendments could be made by the vote or written consent of stockholders representing at least four fifths of the capital stock. This was binding on the appellant, and such amendments could be made by four fifths of the stockholders without her consent and against her will. The amendment made was germane to the subjects covered by the subdivisions above mentioned. Subdivision 10 of the original articles provided "that the net profits of the corporation shall be divided in money, at least annually, among the stockholders, as dividends." Subdivisions 2 and 9 declared, in effect, that the "profits" and "dividends" to be divided annually were to consist of the excess of the proceeds of the property over the debts and expenses. Subdivision 10 was amended so as to declare that the sum of three hundred and sixty thousand dollars was to be so divided annually, and that if the "earnings" of the corporation, which we understand to mean the net proceeds of the property converted into money, should prove insufficient to make up that sum, it should be raised by sales of property. The corporation had power to make sales to that amount, at the discretion of its directors, without the amendment. The only effect of the amendment was to make it obligatory instead of discretionary. We think this was clearly an amendment to the section, as contemplated by the power of amendment given in the original agreement, and is binding on the appellant.
We do not consider the other objections urged as sufficiently important to require notice.
The judgment is affirmed.
McFarland, J., Henshaw, J., Lorigan, J., and Angellotti, J., concurred.
The following is the opinion of Department Two, rendered on November 13, 1906, adhered to in the foregoing opinion: — *Page 459