shares of the capital stock of any corporation or association, on margin or to be delivered at a further day, shall be void, and any money paid on such contracts may be recovered by the party paying it by suit in any court of competent jurisdiction.

Legislative History.

Section 27 of article IV of the old Constitution prohibited lotteries but contained no prohibition against or regulation of the selling of stock on margins or for future delivery. In Cashman v. Root, 89 Cal. 382, 23 Am. St. Rep. 482, 26 Pac. 888, Mr. Justice Temple says that the court will take judicial notice that the constitutional provision was adopted just after a period of remarkable stock speculation and that its intent was to prohibit such practice.

Section Cited.

Kutz v. Fleisher, 67 Cal. 93, 7 Pac. 195; Cashman v. Root, 89 Cal. 372, 23 Am. St. Rep. 482, 26 Pac. 883; Kullman v. Simmens, 104 Cal. 599, 38 Pac. 362; Rued v. Cooper, 109 Cal. 692, 34 Pac. 98, and 119 Cal. 465, 51 Pac. 704; Maurer v. King, 127 Cal. 118, 59 Pac. 290; Parker v. Otis, 130 Cal. 326, 92 Am. St. Rep. 56, 62 Pac. 571.

Annotation.

remedial, not penal.

Sale of Stock on Margin.-This provision is (Parker v. Otis, 130 Cal. 322, 92 Am. St. Rep. 56, 62 Pac. 571.) This provision is self-executing and renders of itself void contracts of the class prohibited. (Sheehy v. Shinn, 103 Cal. 325, 37 Pac. 393.) It is not in conflict with the federal constitution. (Parker v. Otis, 130 Cal. 322, 92 Am. St. Rep. 56, 62 Pac. 571.) Whether or not a particular transaction is in violation of this provision is a question of fact. (Baldwin v. Zadig, 104 Cal. 594, 38 Pac. 363.)

This provision will not be extended so as to forbid the delivery of stock as a conditional payment for the purchase of land, with a guaranty of cash value, and an agreement to take it back at the end of two years, upon request, and to make the payments in cash. (Maurer v. King, 127 Cal. 114, 59 Pac. 290.)

A contract between brokers, whereby one agrees to purchase and sell stocks for the account of the other, to advance money for the purpose and pay assessments on the stocks purchased is not obnoxious to section 26, article IV of the Constitution. (Kutz v. Fleisher, 67 Cal. 93, 7 Pac. 195.)

An agreement by which the broker is to purchase stock, charging the customer with commissions and the interest on the money advanced, and holding the stocks as security until their sale, the customer simply receiving and paying the difference between the buying and selling values of the stock, is in violation of this section.

(Cashman v. Root, 89 Cal. 373, 23 Am. St. Rep. 482, 26 Pac. 883; Wetmore v. Barret, 103 Cal. 246, 37 Pac. 140; Sheehy v. Shinn, 103 Cal. 325, 37 Pac. 393; Kullman v. Simmens, 104 Cal. 600, 38 Pac. 362.)

The payment of a mere margin of the cost price of stock to brokers, under an agreement that the brokers were to make advances for the purchaser, and hold the stocks purchased as security for their advances, with power to sell to protect their interest, without delivery to the purchaser of any particular shares of stock purchased, but with readiness of the brokers at any time on demand to deliver a like number of shares upon payment of all balance due, is within the prohibition of this section. (Parker v. Otis, 130 Cal. 322, 92 Am. St. Rep. 56, 62 Pac. 571.)

One who sues to recover money voluntarily paid for the purchase of stocks on margins or to be delivered at a future day, in violation of this provision, is not entitled to recover interest thereon. (Baldwin v. Zadig, 104 Cal. 594, 38 Pac. 363.)

An undisclosed principal may recover money paid by his agent upon a contract in violation of this section. (Parker v. Otis, 130

Cal. 322, 92 Am. St. Rep. 56, 62 Pac. 571.)

This provision is not to be confined to the particular person handing over the money. (Parker v. Otis, 130 Cal. 322, 92 Am. St. Rep. 56, 62 Pac. 571.)

The prohibition of the Constitution cannot be avoided by interposing a broker between the buyer and seller. If by agreement the customer is enabled to purchase stock on margin, the agreement is within the prohibition of the Constitution, and the fact that broker did not himself sell, but was only the instrument through which the illegal end was accomplished, makes no difference. (Cashman v. Root, 89 Cal. 373, 23 Am. St. Rep. 482, 26 Pac. 883.)

This provision will not be so construed as to permit an evasion of it. (Parker v. Otis, 130 Cal. 322, 92 Am. St. Rep. 56 62 Pac. 571; Sheehy v. Shinn, 103 Cal. 325, 37 Pac. 393.)

The construction of the provision is a matter of law for the courts and does not depend upon evidence as to what the terms "on margin," or "to be delivered at a future day," mean according to the usage of brokers during the years preceding the adoption of the Constitution. (Sheehy v. Shinn, 103 Cal. 325, 37 Pac. 393.)

The word "margin" as most frequently employed in this state at the time of, and many years prior to, the adoption of the Constitution, meant a sum deposited by the purchaser of stock with the broker, paying a certain percentage of the purchase price, the broker agreeing to advance the balance of the purchase price upon condition that he should hold the stock as security for his advance with the right to sell it in case of depreciation in value and failure of the purchaser to keep the margin good; and this is the sense in which the word was used by the framers of the new Constitution. (Sheehy v. Shinn, 103 Cal. 325, 37 Pac. 393.)

An agreement for the sale of stock upon payment of the part of the agreed price, the stock to be retained by the vendor as security for the balance and only to be delivered upon such payment, with the right of the vendor to sell it at any time without notice to the vendee if it had so depreciated in the market as to be worth less than three times the unpaid balance, is a sale of stock on margin and for future delivery. (Sheehy v. Shinn, 103 Cal. 325, 37 Pac. 393.) A broker cannot make and force sales of stock on margin and for future delivery and retain the payments made under such contracts by the evasion of going through the form of buying from a third party for account of the purchaser, as his attorney in fact, when by his contract he has made elaborate provision that the title to the shares shall remain in himself and never pass to the purchaser until full payment is made. (Sheehy v. Shinn, 103 Cal. 325, 37 Pac. 393.)

The rule against the sale of stock on margin does not prevent any legitimate transfer of stock, whether through the agency of a broker or otherwise, nor any legitimate and bona fide pledge of stock as security for borrowed money where borrowed for the purpose of paying off the stock or any other purpose; and where such is not only the form, but the substance of the contract, the inhibition of the Constitution does not apply. (Sheehy v. Shinn, 103 Cal. 325, 37 Pac. 393.)

The right of action of an insolvent debtor to recover moneys paid by the insolvent to the stock brokers for the purchase and sale of stocks on margin in violation of article IV of section 26 of the Constitution would survive in case of his death and pass as part of the estate of the insolvent to the assignee in insolvency. (Rued v. Cooper, 109 Cal. 682, 34 Pac. 98.)

A written contract to buy and sell stocks must be construed as referring to the stocks of incorporated companies. (Parker v. Otis, 130 Cal. 322, 92 Am. St. Rep. 56, 62 Pac. 571.)

If our Constitution fails on its face to distinguish between bona fide and gambling contracts, that does not render it the less a proper police regulation, if the question to be determined by the court in each case is whether the Constitution is violated and the court will always see that legitimate business transactions are not brought under this ban. (Parker v. Otis, 130 Cal. 322, 92 Am. 'St. Rep. 56, 62 Pac. 571.)

An action to recover the money paid in violation of this section of the Constitution is not barred within one year as being an action to recover penalty within the meaning of section 340 of the Code of Civil Procedure; but the action is for money due and received in which recovery cannot be had except after demand and refusal. (Parker v. Otis, 130 Cal. 322, 92 Am. St. Rep. 56, 62 Pac. 571.)

PUBLIC AID TO CORPORATIONS.

Sec. 31, Art. IV. The legislature shall have no power to give or to lend, or to authorize the giving or lending, of the credit of the state, or of any county, city and county, city, township, or other political corporation or subdivision of the state now existing, or that may be hereafter established, in aid of or to any person, association, or corporation, whether municipal or otherwise, or to pledge the credit thereof, in any manner whatever, for the payment of the liabilities of any individual, association, municipal or other corporation whatever; nor shall it have power to make any gift, or authorize the making of any gift, of any public money or thing of value to any individual, municipal or other corporation whatever; provided, that nothing in this section shall prevent the legislature granting aid pursuant to section twenty-two of this article; and it shall not have power to authorize the state, or any political subdivision thereof, to subscribe for stock, or to become a stockholder in any corporation whatever.

See section 22, article IV, and section 13, article XII, Constitution.

Legislative History.

The similar provision in the old Constitution is as follows: Article XI, section 10: "The credit of the state shall not in any manner be given, or loaned to or in aid of any individual association, or corporation; nor shall the state, directly or indirectly, become a stockholder in any association or corporation."'

Section Cited.

Constitution, 1849: People v. Pacheco, 27 Cal. 207. Constitution, 1879: Higgins v. San Diego W. Co., 118 Cal. 546, 45 Pac. 824, 50 Pac. 670. The other citations of this section do not relate to private corporations.

Annotation.

Aid to Private Enterprise.-An appropriation to a railroad company to aid in building a railroad, in consideration of valuable services, is not a gift or loan of the credit of the state. (People v. Pacheco, 27 Cal. 175.)

Under the former Constitution, the legislature might compel 2 county to become a subscriber to a railroad, and the legislature was the sole judge of the question as to whether the railroad was a public benefit, and the supervisors could be compelled by manda.

mus to make such subscription. (Napa Valley R. R. Co. v. Napa County, 30 Cal. 435.)

Under the former Constitution, aid, as fostering a public use, could be extended to the construction of a railroad by means of the power of eminent domain, by a tax in aid of the road, by a subscription to its capital stock, and by donation made by cities and other political subdivisions of the state, under the authority of the legislature. (S. & V. R. R. Co. v. Stockton, 41 Cal. 147.)

This section prohibits the loaning of public credit for private purposes under any circumstances. (Stockton etc. R. R. Co. v. Stock

ton, 41 Cal. 147.)

It does not prohibit the appropriation of public funds to aid a corporation in the construction of a railroad to be used for military purposes. (People v. Pacheco, 27 Cal. 175.)

The bonds issued by Central Pacific Railroad Company, under act of April 4, 1864, are valid and state is liable upon the interest coupons issued in accordance with provisions of that act. (Bank of California v. Dunn, 66 Cal. 38, 4 Pac. 916.)

It is assumed that a contract by a municipal corporation to pay money to any person or corporation to secure the construction of a railroad would be in violation of this section. (Higgins v. San Diego Water Co., 118 Cal. 524, 546, 45 Pac. 824, 50 Pac. 670.)

Municipal corporations have no power to subscribe to the stock of private corporations without being authorized so to do by the legis lature, and such power when given must be exercised in the mode and manner and upon the conditions prescribed by the act. v. Teschemaker, 24 Cal. 578.)

(French

Aid to Railroads, Act 1870.-Under the railroad aid act of 1870 (Stats. 1869-70, p. 746), aid could be granted to a railroad company which had not been incorporated prior to the passage of the order of the supervisors calling an election to vote on such aid, and the supervisors could authorize a change of route in part after the election. (Coleman v. Board of Supervisors, 50 Cal. 493.)

A subsidy in bonds to a railroad is not defeated because the road purchases as part of its route a road already constructed or because of a slight departure from the prescribed route. (Stockton R. R. Co. v. Stockton, 51 Cal. 328.)

When road was constructed for only a portion of the distance between the termini specified in the proposition as voted upon, the supervisors could issue bonds to an amount corresponding to the number of miles of completed road, the subsidy being so much per mile. (Nevada Bank v. Steinmitz, 64 Cal. 301, 30 Pac. 970.)