Hood

In the Superior Court of the State of California,

In and for the City and County of San Francisco.

Dept. No. 14.

Walter Hood, as Trustee, etc., Plaintiff. vs. No. 126601 Frederick Stern, Defendant.

Memorandum of Decision.

Plaintiff sues as the trustee in bankruptcy of Mercantile Finance Company, of which the defendant, Frederick Stern was president and general manager. The claims of creditors being $130,654.75 in excess of all assets, recovery of this sum is sought from the defendant as a stockholder with 1,972,075 shares of common stock, mostly unpaid.

*92 The permits of the Commissioner of Corporations authorized the sale of the company’s preferred stock for lawful money of the United States, but all save an insignificant portion of the preferred stock was issued at Stem’s instance for promissory notes known by him to be worthless.

As compensation for services in selling preferred stock upon the terms stated in the permit, authority was given also to issue to Stern common stock, share for share as preferred stock was sold. And, under color of this authorization, Stern received and placed in escrow certificates for 1,972,075 shares of common stock, which, with one share of…