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of this section in securing a capital stock. (People v. Perrin, 56 Cal. 346.)
It is not a condition precedent to the incorporation of a bank, after it has elected to have a capital stock under this section, or to its right to commence business as such, that the entire amount of capital stock provided for should be subscribed. (Dallemand v. 0. F. Sav. Bank, 74 Cal. 598, 16 Pac. 497.)
CHANGE OF NAME-FILING COPY OF DECREE.
Sec. 300a, C. C. Every corporation which has changed its name under the provisions of sections 1275, 1276, 1277, 1278 and 1279, of the Code of Civil Procedure, must file in the office of the Secretary of State a certified copy of the decree of the court, changing such name. En. Stats. 1903, 256.
Articles of incorporation to be filed with Secretary of State: Sec. tion 296, Civil Code, ante. Sections 1275, 1276, 1278 and 1279 of the Code of Civil Procedure are to be found herein under sections from that code.
PROMOTION AND SUBSCRIPTION AGREEMENTS. There are no statutory or code provisions regulating the promotion of corporations and controlling the subscription or other contracts that are preliminary to incorporation. Therefore the decisions relating to the acts and contracts preliminary to actual incorporation are given here, as they properly come before a consideration of the next article. [Editors' Note.)
Promoters-Relation to Corporation.-A promoter of a corporation is a person who by his active endeavors assists in procuring the for. mation of the company and the subscription of its shares, whether he afterward becomes connected with the company or not. He is considered in law as occupying a fiduciary relation to the corporation and its stockholders who subscribe upon the trust that the promoters will control the enterprise for the benefit of the company. (Ex-Mission L. & W. Co. v. Flash, 97 Cal. 610, 32 Pac. 600.)
A promoter of a corporation who brings about its organization and aids in procuring subscriptions thereto is considered in law as occupying a fiduciary relationship toward the corporation and its stock. holders, and, while he may sell property to the corporation, he must make full disclosure of his interest and position with respect thereto, and must not make any false representations as to its cost price. (Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444; Ex-Mission L. & W. Co. v. Flash, 97 Cal. 610, 32 Pac. 600.)
If a promoter acts honestly and faithfully discloses all facts relating to the property which would determine the judiciousness of the purchase, he can sell any property he may own or has an interest in to the corporation at any price the corporation or stockholders will pay, but cannot sell to the corporation property acquired by him as agent of the corporation, but if he is guilty of the misrepresentation of facts or the suppression of truth in relation to the character and value of the property, or his personal interest, the company can set aside the transaction or recover compensation for the loss it has suffered. (Ex-Mission L. & W. Co. v. Flash, 97 Cal. 610, 32 Pac. 600.)
Transactions in which the promoters of a corporation suppress or misrepresent material facts or otherwise deceive the corporation or corruptly control its action are fraudulent, and the corporation may elect either to set aside such transaction or to recover the promoter's secret profits. (Burbank v.Dennis, 101 Cal. 90, 35 Pac. 444. To same effect: Buena Vista Co. v. Tuohy, 107 Cal. 264, 40 Pac. 386; Blood v. La Serena etc. Co., 113 Cal. 236, 41 Pac, 1017, 45 Pac. 252.)
The statute of limitations does not begin to run against an action by a corporation to compel a conveyance from the promoters thereof, while remaining in possession of the property agreed to be conveyed hy such promoters to it for a consideration which has been fully performed by the corporation. (Scadden Flat etc. Co. v. Scadden, 121 Cal. 33, 53 Pac. 440.)
All profits made by a promoter out of property bought by him belong to the corporation. (Ex-Mission L. & W. Co. v. Flash, 97 Cal. 610, 32 Pac. 600.) All property acquired by promoters, or agreements made with them for the benefit of the corporation, inure to the corporation upon its creation. (San Joaquin etc. Co. v. West, 94 Cal. 399, 29 Pac. 785. To same effect: Marysville etc. Co. v. Johnson, 109 Cal. 195, 50 Am. St. Rep. 35.) A franchise granted to incorporators prior to the formation of a corporation passes by operation of law to the corporation upon its creation. (S. V. W. W. v. S. F., 22 Cal. 434; S. F. v. S. V. W. W., 48 Cal. 493.)
An agency created by an agreement for the organization of a cor. poration becomes, upon the formation of the corporation, the agency of the corporation and ceases to be the agency of the subscribers, and the agents are removable by the corporation at any time if their agency is not coupled with an interest. (San Joaquin etc. Co. v. West, 94 Cal. 399, 29 Pac. 785.) A corporation formed in accordance with an organization agreement is entitled to the custody of money collected by agents from subscribers under the organization agreement, and nray sue to recover the same from the collecting agent. (San Joaquin etc. Co. v. West, 94 Cal. 399, 29 Pac. 785.)
Knowledge by directors of fraud of promoters is not knowledge by the stockholders, and the fraud practiced upon the stockholders cannot be ratified or waived by the directors, and an action will lie by a stockholder, if the corporation refuses to sue to recover the amount fraudulently withheld by the promoters. (Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444. Note citation: Christian etc. Assn. v. Walton, 59 Am. St. Rep. 640.)
The promoters of a corporation are not the corporation, and their contracts cannot be its contracts, though the promoters become its only stockholders, directors and officers, but after it comes into existence it may, after adopting arrangements made for it in advance, make them its contract, and may thereby become bound to fulfill a contract made in its behalf, in anticipation of its existence, and may acquire a right to enforce such a contract against the other party hy its acceptance or performance by the corporation. (Scadden Flat etc. Co. v. Scadden, 121 Cal. 33, 53 Pac. 440. To same effect: Morrison v. Gold M. etc. Co., 52 Cal. 306; Hawkins v. Mansfield ete. Co., 52 Cal. 513.)
When the promoter of a corporation subscribed to sufficient number of shares to make the entire subscription complete as an assumed agent for stockholders thereafter subscribing or taking shares of stock, whose subscriptions were deducted from his in the original issuance of the stock, with the acquiescence of all parties concerned and without any intended fraud, the promoter must be deemed the agent of such subsequent subscribers or shareholders, and the stock received by them cannot be deemed as overissue. (Tulare etc. Bank v. Talbot, 131 Cal. 45, 63 Pac. 172.)
An agreement among parties expecting to incorporate that a promoter is entitled to so many shares of stock in the company is not the agreement of the corporation and cannot be enforced against it. (Morrison v. Gold Mt, etc. Co., 52 Cal. 306.)
A corporation is not bound by a transfer made by a promoter before incorporation of share of stock to be issued as soon as the corporation was created, and cannot be compelled to issue the stock. (Hawkins v. Mansfield etc. Co., 52 Cal. 513.)
A corporation is not liable for torts committed by its promoters before it is actually created. (Berry v. S. F. & N. P. R. R. Co., 50 Cal. 135.)
Subscriptions to Capital Stock may be enforced by corporation after its organization. (Marysville etc. Co. v. Johnson, 93 Cal. 538, , 27 Am. St. Rep. 215, 220, 29 Pac. 126. To same effect: Kohler v. Agassiz, 99 Cal. 15, 33 Pac. 741; San Joaquin etc. Co. v. Beecher, 101 Cal. 70, 35 Pac. 349; Marysville etc. Co. v. Johnson, 109 Cal. 192,50 Am. St. Rep. 34, 41 Pac. 1016; Ventura etc. Co. v. Hartman, 116 Cal. 260, 48 Pac. 65. Note citations: 32 Am. St. Rep. 436; 42 Am. St. Rep. 384; 33 Am. St. Rep. 247; 39 Am. St. Rep. 401.)
See sec. 332, C. C., post.
SUBSCRIPTION AND OTHER PRELIMINARY AGREEMENTS.
Contracts Before Incorporation.—Rights in a corporation can be fixed by a contract prior to incorporation and a contract for stock in a corporation to be formed will be specifically enforced in equity when it appears that the party had performed his part of the contract and was entitled to his share of the stock. (Chater v. S. F. Sugar Co., 19 Cal. 219. To same effect: Treasurer v. Commercial Min. Co., 23 Cal. 392.)
A subscription to the capital stock of a proposed corporation is valid as an agreement between the subscribers, who upon the formation of the corporation become bound to take and pay for the number of shares subscribed. (Marysville etc. Co. v. Johnson, 93 Cal. 538, 27 Amr. St. Rep. 215, 29 Pac, 126.)
The mutual promise of the subscribers is a sufficient consideration for the promise of each, and is valid and binding. (West v. Crawford, 80 Cal. 19, 21 Pac. 1123. Distinguished: Marysville etc. Co. v. Johnson, 109 Cal. 196, 50 Am. St. Rep. 36, 41 Pac. 1016.)
Cancellation of unissued certificate of stock does not effect a cancellation of the subscription for such stock. A subscription cannot be canceled except for fraud or mistake without the unanimous consent of all the stockholders. (Pacific Fruit Co. v. Coon, 107 Cal. 447, 40 Pac. 542.)
Mere signing of agreement to subscribe to stock of corporation does not make such subscribers members of such corporation. To so do the statute must have been complied with by the signing of the articles of incorporation or otherwise complying with its provisions. (West v. Crawford, 80 Cal. 28, 21 Pac. 1123; San Joaquin etc. Co. v. West, 94 Cal. 399, 27 Pac. 785; San Joaquin etc. Co. v. Beecher, 101 Cal. 70-74, 35 Pac. 349.)
An agreement to subscribe to the stock of corporation, to be thereafter formed, does not make the subscriber a member of the corporation; but such membership is immaterial where there is an express promise to pay a certain percentage of the par value of stock to a designated agent, after incorporation shall have been formed. (West v. Crawford, 80 Cal. 19, 21 Pac. 1123.)
The signing of an agreement to take stock in a railroad corporation before the incorporation thereof does not constitute the subscriber a stockholder in the sense to make him liable for assessments subsequently levied. (Monterey etc. R. R. Co. v. Hildreth, 53 Cal. 123.)
Agreement between individuals prior to incorporation that certain parties shall be entitled to specified number of shares upon incorporation is not the contract of the corporation. (Morrison v. Gold etc. M. Co., 52 Cal. 306; Hawkins v. Mansfield etc. Co., 52 Cal. 513. Note citation: Hardware Co. v. Hardware Co., 13 Am. St. Rep. 26-59.)
An agreement for the formation of a corporation and for the taking of a specified number of shares therein by each of the parties to the agreement, as to incorporating, is executory, but when the promoters meet and organize the corporation as specified in the agreement, that is an acceptance by the corporation of such promoters as stockholders, and they are thereby and thenceforth bound as such. (San Joaquin L. & W. Co. v. Beecher, 101 Cal. 70, 35 Pac. 349.)
The subscriber's liability for unpaid subscriptions is not fixed by section 322 of the Civil Code, but by the terms of the subscription agreement. (Marysville etc. Co. v. Johnson, 93 Cal. 538, 27 Am. St. Rep. 215, 29 Pac. 126.)
A subscriber to the stock of a corporation may, by the terms of bis subscription, vary his liability to calls or assessments from that imposed by the statute, but the liability of the subscriber in such case is measured by the terms of his agreement, and is to be determined by a construction of the language used in the agreement. (Ventura etc. R. R. Co. v. Hartman, 116 Cal. 260, 48 Pac. 65.)
Subscriber to stock may contract for payment of installment otherwise than upon organization and assessment. (West v. Crawford, 80 Cal. 19, 21 Pac. 1123. To same effect: Marysville etc. Co. v. Johnson, 93 Cal. 549, 27 Am. St. Rep. 219, 29 Pac. 126; California etc. Co. v. Callender, 94 Cal. 127, 28 Am. St. Rep. 105, 29 Pac. 859; Ventura etc. Co. v. Hartman, 116 Cal. 263, 48 Pac. 65; Vercoutere v. Land Co., 116 Cal. 415, 48 Pac. 375. Note citation: 42 Am. St. Rep. 384.)
Agreement to subscribe to stock prior to incorporation and to pay twenty per cent of the amount subscribed to designated person five days after filing of acts of incorporation, to be by such person paid to agents of the corporation for investment, is valid, and binds such subscriber regardless of his refusal to participate in final or. ganization of incorporation and regardless of the limits of the power of the corporation to levy assessments in excess of ten per cent of value of stock. (West v. Crawford, 80 Cal. 19, 21 Pac. 1123. To same effect: Ventura etc. Co. v. Hartman, 116 Cal. 263, 48 Pac. 65; Vercoutere v. Land Co., 116 Cal. 415, 48 Pac. 375. See to same effect: Marysville etc. Co. v. Johnston, 93 Cal. 549, 27 Am. St. Rep. 219, 29 Pac. 120; California etc. Co. v. Callender, 94 Cal. 127, 28 Am. St. Rep. 105, 29 Pac. 859; Kohler v. Agassiz, 99 Cal. 15, 33 Pac. 741. Note citation: Hudson etc. Co. v. Towner, 42 Am. St. Rep. 384.)
A promissory note issued to a banking corporation in payment of a subscription to its capital stock is not void as being against public policy. (Pacific Trust Co. v. Dorsey, 72 Cal. 55, 12 Pac. 49.)
Corporation the Agency of Incorporators.- A corporation formed in pursuance of a previous agreement is mere agency of the incorporators created for the sake of convenience in carrying out agreement as between the incorporators. (Chater v. S. F. Sugar Co., 19 Cal. 219.)