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or maintain the action because of the prior forfeiture of its charter, “that the plaintiff is not now, or was at the time of the filing of the complaint, a corporation organized or existing under or by virtue of the laws of the state of California, or of any state, and that prior to the commencement of the action the said plaintiff, after due and regular proceedings for that purpose, had forfeited its charter as a corporation and as such ceased to exist, and ever since said time has ceased to be a corporation,” while loosely and inartificially drawn, sufficiently puts in issue, in the absence of a special demurrer, the forfeiture of the plaintiff's charter. — Kehrlein-Swinerton Construction Co. v. Rapken, 30 Cal. App. 11, 156 Pac. 972.

-Proof of forfeiture-Admissibility of evidence.-In such an action, the certificate of the secretary of state is not sufficient to prove the forfeiture of the plaintiff's charter for the nonpayment of its license tax, as the governor's proclamation declaring such forfeiture, or a certified copy thereof, is the only competent proof.-Kehrlein-Swinerton Construction Co. v. Rapken, 30 Cal. App. 11, 156 Pac. 972.

5. The proclamation of the governor is an essential step in proceedings to forfeit the charter of a corporation for failure to pay its license tax; and the only proof that can be received of such proclamation is the original, or a certified copy thereof.-KehrleinSwinerton Construction Co. v. Rapken, 30 Cal. App. 11, 156 Pac. 972.

-Substitution of trustees.-In such an action, the plaintiff has the right during the trial to have the names of its directors as trustees substituted for its own name as party plaintiff, upon proof or suggestion of the forfeiture of its charter prior to the commencement of the action. - KehrleinSwinerton Construction Co. v. Rapken, 30 Cal. App. 11, 156 Pac. 972.

7. Where a corporation which has forfeited its charter through failure to pay its license tax brings an action for breach

of contract, it is proper to grant plaintiff's motion for a substitution of the names of the trustees of the corporation as party plaintiff. — Kehrlein-Swinerton Construction Co. v. Rapken, 30 Cal. App. 11, 156 Pac. 972.

8 359. ISSUANCE OF STOCK FOR OTHER THAN

MONEY. 1. For patent-rights. 2. For promissory note. 3. To be paid out of dividends.

1. For patent-rights. — The issuance of stock of a corporation in exchange for patent-rights of unascertained value, where it is not shown that such rights were overvalued knowingly or otherwise, does not render the stockholders to whom the stock was issued liable to the creditors of the corporation for any unpaid subscription on the stock, because of the fact that a few days prior to the exchange other stock of the corporation was authorized to be sold at a value less than par.-Harrison v. Armour, 169 Cal. 787, 148 Pac. 1166.

2. For promissory note.-A corporation is not prohibited from issuing its stock for the promissory note of the purchaser, as a promissory note is included within the word "property," as used in section 359 of the Civil Code, which prohibits corporations from issuing its stock "except for money paid, labor done, or property actually received."-Quartz Glass & Mfg. Co. v. Joyce, 27 Cal. App. 523, 150 Pac. 648.

3. To be paid out of dividends.-A secret agreement between a corporation and a purchaser of its stock that the stock shall be paid for out of dividends to be declared upon the stock is invalid, since the effect thereof is to make a gift of the stock, with the corporation reserving the right to dividends thereon in a sum equal to the amount of the note, and constitutes no defense to an action brought by the corporation on the note.-Quartz Glass & Mfg. Co. v. Joyce, 27 Cal. App. 523, 150 Pac. 648.

CHAPTER III.

CORPORATE POWERS.

ARTICLE I.

GENERAL POWERS.

§ 361. Changing number of directors of corporation. 8 361. CHANGING NUMBER OF DIRECTORS OF CORPORATION. Any corporation or association may increase or diminish the number of its directors or trustees by the vote or written assent of stockholders representing a majority of its subscribed capital stock, or, if it has no capital stock, by the vote or written assent of a majority of the members. A certificate over the corporate seal, setting forth the action taken by the stockholders, or members, and stating the new number of directors, shall be signed by the president and secretary of such corporation or association, and filed in the office of the county clerk of the county where its original articles of incorporation were filed, and a copy of said certificate, certified by such county clerk, shall be filed in the office of the secretary of state, whereupon the number of directors or trustees shall be changed as stated in said certificate. This section shall apply to all corporations existing under the laws of the State of California, whether organized and incorporated prior to the enactment of this code, or subsequent thereto.

History: Original section, relating to consolidation of mining companies on joining claims, enacted March 21, 1872; amended March 20, 1876, Code Amdts. 1875-6, p. 75; repealed by .Code Commission, Act March 18, 1901, Stats. and Amdts. 1900-1, p. 351; act held unconstitutional, see History, $ 4, C. C.; re-repealed March 22, 1905, Stats, and Amdts. 1905, p. 775; present section enacted as a new section and given the same number June 11, 1915, Stats, and Amdts. 1915, p. 1456; May 10, 1917, Stats. and Amdts, 1917, p. 327. In effect July 27, 1917.

authorizing the filing of a voluntary petition in bankruptcy.-Bell v. Blessing, 225 Fed. 750.

-Consent need not be filed. Where the consent of stockholders is given in writing to a conveyance of real property of the corporation, the failure to file the same does not invalidate the deed.-Buxton v. Pennsylvania Lumber Co., 221 Fed. 718.

5. The stockholders only can take advantage of the failure to comply with the statute requiring their consent to the conveyance to be filed; the statutory provisions are for their protection, not for the protection of creditors.-Buxton v. Pennsylvania Lumber Co., 221 Fed. 718.

8 361a.

1. Consent to transfer of corporate franchise — Construction. Whether or not a franchise must be included in order to render a sale invalid is not clear, but it is certain, that if a corporation be engaged in business, such business must be included in the sale before such sale can be brought within either the terms or the meaning of this section. A corporation whose sole tangible asset was a piece of real estate, and whose business was the conduct of running a race track, holding fairs and exhibitions of live stock thereon, and farming a part thereof, may sell the entire property, excluding the business, without complying with this section.-Shaw v. Hollister Land & Imp. Co., 166 Cal. 257, 135 Pac. 965.

2. This section makes no reference to option contracts to purchase real estate, the inhibition being as to the "sale, lease, assignment, transfer or conveyance of the business, franchise, and property" as a whole unless the prescribed conditions are complied with.–Bradford v. Sunset Land

& Water Co., 30 Cal. App. 87, 157 Pac. 20.

3. The rule forbidding an assignment of the business, franchise and property of a corporation without the consent of stockholders holding not less than two-thirds of the stock, does not preclude a board of directors, one of whom owns practically all of the stock of the corporation, from

8 362.

1. Construction.—This section gives the right to curtail the corporate term by an amendment to its articles of incorporation.Tognazzini v. Jordan, 165 Cal. 19, Ann. Cas. 1914C, 655, 130 Pac. 879.

2. This section contained originally a proviso against corporate extension. The act as originally passed said "provided that the time of the existence of such corporation shall not be by such amendment extended beyond the time fixed in the original articles or certificates of incorporation." In

the amendments of 1893 and 1903 this proviso is substantially repeated (Stats. 1893, p. 131; Stats. 1903, p. 411).-Tognazzini v. Jordan, 165 Cal. 19, Ann. Can. 1914C 655, 130 Pac. 879.

ARTICLE II.

RECORDS.

$ 377. Records—of what, and how kept. $ 378. Other records to be kept by corporations for profit, and others. [Stock and transfer

book.]

8 377. RECORDS OF WHAT, AND HOW KEPT. All corporations for profit are required to keep a record of all their business transactions; a journal of all meetings of their directors, members, or stockholders, with the time and place of holding the same, whether regular or special, and if special, its object, how authorized, and the notice thereof given.

The record must embrace every act done or ordered to be done; who were present, and who absent; and, if requested by any director, member, or stockholder, the time shall be noted when he entered the meeting or obtained leave of absence therefrom. On a similar request, the ayes and noes must be taken on any proposition, and record thereof made. On similar request, the protest of any director, member, or stockholder, to any action or proposed action, must be entered in full. Such records shall be open to the inspection of any legislative committee, board, commission, or officer of the State of California whose duty it is to inspect or examine the same, and of any director, member, or bona fide stockholder thereof;

[Examination and inspection, denied when.) provided, however, the board of directors may, by unanimous vote, deny such examination or inspection to a stockholder who demands the same with intent to use to the injury of the corporation the information to be acquired thereby, and a satisfactory showing of such intent shall be a complete defense to any action or proceeding brought by any such person to compel the officers of any such corporation to submit any of such records for his inspection or examination.

History: Enacted March 21, 1872; amended May 31, 1917, Stats, and

Amdts. 1917, p. 1407. In effect July 30, 1917. 1. Minute-book-Competent as evidence. executed by the officers of the corporation -Inasmuch as the code requires the keeping by authority of the directors, duly authentiof books of the minutes of the proceedings cated by a resolution adopted by the board of directors, the minute-book of the corpo- of directors.--Union Trust Co. v. Dickinson, ration is admissible as evidence to show that 30 Cal. App. 91, 157 Pac, 615. a certain promissory note in question was

8378. OTHER RECORDS TO BE KEPT BY CORPORATIONS FOR PROFIT, AND OTHERS. [STOCK AND TRANSFER BOOK.] In addition to the records required to be kept by the preceding section, corporations for profit must keep a book, to be known as the "stock and transfer book,” in which must be kept a record of all stock; the names of the stockholders or members, alphabetically arranged; installments paid or unpaid; assessments levied and paid or unpaid; a statement of every alienation, sale, or transfer of stock made, the date thereof, and by and to whom; and all such other records as the by-laws prescribe.

Corporations for religious and benevolent purposes must provide in their by-laws for such records to be kept as may be necessary.

Such stock and transfer book shall be open to the inspection of any officer, bona fide stockholder, member, or creditor of the corporation.

History: Enacted March 21, 1872; amended May 31, 1917, Stats, and

Amdts. 1917, p. 1407. In effect July 30, 1917. 1. Inspection of corporate books and rec- inspection is not to benefit the corporation, ords.-A stockholder of a corporation has but to injure and embarrass it in the transthe right to inspect a record showing the action of its business.-Poor v. Yarnell, 28 names and postoffice addresses of the stock- Cal. App. 714, 153 Pac. 976. holders prepared by the board of directors, 2. Corporate books are not for public and it is no defense to a proceeding in man- information.--Stowe v. Harvey, 241 U. S. 199, damus to compel inspection that such rec- 60 L. Ed. 953, 36 Sup. Ct. Rep. 541, affirming ord is not one required by law to be kept 134 C. C. A. 635, 219 Fed. 17. by the officers, or that the purpose of the

CHAPTER IV.

EXTENSION AND DISSOLUTION OF CORPORATIONS.

$ 400. Directors of corporation are trustees of creditors, on dissolution. $ 400. DIRECTORS OF CORPORATION ARE TRUSTEES OF CREDITORS, ON DISSOLUTION. Unless other persons are appointed by the court, the directors or managers of the affairs of a coporation at the time of its dissolution are trustees of the creditors and stockholders or members of the corporation dissolved, and have full powers to settle the affairs of the corporation, collect and pay outstanding debts, sell the assets thereof in such manner as the court shall direct, and distribute the proceeds of such sales and all other assets to the stockholders. Such trustees shall have authority to sue for and recover the debts and property of the corporation, and shall be jointly and severally personally liable to its creditors and stockholders or members, to the extent of its property and effects that shall come into their hands. Death, resignation or failure or inability to act shall constitute a vacancy in the position of trustee, which vacancy shall be filled by appointment by the superior court upon petition of any person or creditor interested in the property of such corporation. Such trustees may be sued in any court in this state by any person having a claim against such corporation or its property. Trustees of corporations heretofore dissolved or whose charters have heretofore been forfeited by law shall have and discharge in the same manner and under the same obligations, all the powers and duties herein prescribed. Vacancies in the office of trustees of such corporations shall be filled as hereinbefore provided.

History: Enacted March 21, 1872; amended by Code Commission, Act March 16, 1901, Stats. and Amdts. 1900-1, p. 352; act held unconstitutional, see Kerr's Cyc. C. C., § 4; amendment re-enacted March 21, 1905, Stats. and Amdts. 1905, p. 563; May 11, 1917, Stats, and Amdts.

1917, p. 380. In effect July 27, 1917. 1. Construction.--This section does not

and can not, without being guilty of fraud, have the effect of continuing the existence secure to themselves advantages not comof the corporation as cestui que trust or mon to the latter.-Poor v. Yarnell, 28 Cal. otherwise so to render it capable of App. 714, 153 Pac. 976. defending actions in its own name.-Lowe 4. The provisions of this section and secv. Superior Court, 165 Cal. 708, 134 Pac. 190. tion 565 of the Code of Civil Procedure

2. Section 10a, added to the Corporation were not intended to apply in case of disso. License Act (Stats. Ex. Sess. 1906, p. 22), is lution of a corporation by and according substantially similar to this section. to any particular method. It is the fact Brandon v. Umpqua Lumber & Timber Co., of dissolution, the termination of the ex166 Cal. 322, 136 Pac. 62.

istence of the corporation as such that the 3. The board of directors as officers of the statute contemplates.-Henderson v. Palmer corporation are trustees of the stockholders, Union Oil Co., 29 Cal. App. 451, 156 Pac. 65.

as

CHAPTER VI.

FOREIGN CORPORATIONS.

$ 405. Designation of person on whom process may be served. Service on secretary of state

valid, when [repealed). $ 406. Foreign corporations, statute of limitations in favor of. Proof of corporate existence.

Change of designation [repealed]. $ 408. Foreign corporations to file certified copies of articles of incorporation [repealed). $ 409. Foreign corporations, fees to be paid by, on filing certified copies of articles of incor

poration (repealed). $ 410. Foreign corporations, penalty for failure to file certified copies of articles of incorpora

tion [repealed). 8 405. DESIGNATION OF PERSON ON WHOM PROCESS MAY BE SERVED. SERVICE ON SECRETARY OF STATE VALID, WHEN [repealed).

History: Amended by Code Commission, Act March 21, 1901, Stats. and Amdts. 1900-1, p. 553; act held unconstitutional, see Kerr's Cyc. C. C., § 4; re-enacted March 21, 1905, Stats, and Amdts. 1905, p. 630, a codification of § 1 Act March 17, 1899 (see introductory note to chapter); amended March 18, 1907, Stats, and Amdts. 1907, p. 558, Kerr's Stats. and Amdts. 1906-7, p. 410; repealed May 11, 1917, Stats, and Amdts. 1917, p. 381. In effect July 27, 1917.

8 406. FOREIGN CORPORATIONS, STATUTE OF LIMITATIONS IN FAVOR OF PROOF OF CORPORATE EXISTENCE. CHANGE OF DESIGNATION [repealed).

History: Enacted by Code Commission, Act March 16, 1901, Stats. and Amdts. 1900-1, p. 553; act held unconstitutional, see Kerr's Cyc. C. C., § 4; re-enacted March 21, 1905, Stats. and Amdts. 1905, p. 630 (see introductory note to this chapter); repealed May 11, 1917, Stats. and Amdts. 1917, p. 381. In effect July 27, 1917.

8 408. FOREIGN CORPORATIONS TO FILE CERTIFIED COPIES OF ARTICLES OF INCORPORATION (repealed).

History: Enactment approved March 21, 1905, Stats. and Amdts. 1905, p. 631; amended March 18, 1907, Stats, and Amdts. 1907, p. 559, Kerr's Stats, and Amdts. 1906-7, p. 411; repealed May 11, 1917, Stats. and Amdts. 1917, p. 381. In effect July 27, 1917.

8 409. FOREIGN CORPORATIONS, FEES TO BE PAID BY, ON FILING CERTIFIED COPIES OF ARTICLES OF INCORPORATION [repealed].

History: Enactment approved March 21, 1905, Stats, and Amdts. 1905, p. 631; repealed May 11, 1917, Stats, and Amdts. 1917, p. 381. In effect July 27, 1917.

8 410. FOREIGN CORPORATIONS, PENALTY FOR FAILURE TO FILE CERTIFIED COPIES OF ARTICLES OF INCORPORATION [repealed).

History: Enactment approved March 21, 1905, Stats. and Amdts. 1905, p. 631; amended April 26, 1911, Stats. and Amdts. 1911, p. 1113; repealed May 11, 1917, Stats, and Amdts. 1917, p. 381. In effect July 27, 1917.

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