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The contract of subscription is inchoate as a contract until the fornration of the corporation, which as the agent and common representative of the subscribers may enforce the subscription as a promise made for its benefit, and it is not material to the right of the corporation to maintain an action on the subscription that it is not expressly named in the subscription as promised. (Marysville etc. Co. v. Johnson, 93 Cal. 538, 27 Am. St. Rep. 215, 29 Pac. 126.)

An organization agreement inures with its rights and advantages to the benefit of the corporation when formed, and is enforceable by the corporation and the subscribers are liable on the agreement to the corporation when formed. (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, 41 Pac. 1016.)

Conditions-Adherence to Subscription Agreement.— The subscribers present at the organization of the corporation are agents of the absent subscribers only for the formation of the corporation agreed upon in the subscription agreement, and cannot act for or bind them beyond the bounds agreed upon for the formation of the corporation. (Marysville Electric Co. v. Johnson, 109 Cal. 192, 50 Am. St. Rep. 34, 36, 41 Pac. 1016.)

A preliminary subscription to the stock of a corporation to be formed is made upon the implied condition precedent that the corporation be formed for only the purposes stated in the subscription agreement; and where the articles included an additional business without the consent of the subscriber, it cannot recover against him on his subscription. (Marysville etc. Co. v. Johnson, 109 Cal. 192, 50 Am. St. Rep. 34, 36, 41 Pac. 1016.)

Only subscribers named in articles of incorporation with amount subscribed can be compelled to pay a preliminary subscription. (M. & S. V. Ry. v. Hildreth, 53 Cal. 123. Cited: San Joaquin etc. Co. 1. Beecher, 101 Cal. 79, 35 Pac. 349; Marysville etc. Co. v. Johnson, 109 Cal. 195, 50 Am. St. Rep. 35, 41 Pac. 1016. Note citations: 43 Am. Dec. 697; 81 Am. Dec. 395.)

Agreement to Take Stock after incorporation is not binding, unless the corporation organized is the corporation contemplated at the time of the agreement. (California Sugar Co. v. Schafer, 57 Cal. 396. To same effect: Marysville etc. Co. v. Johnson, 109 Cal. 195, 50 Am. St. Rep. 35, 41 Pac. 1016.)

Agreement to subscribe on stipulated condition, not binding, unless condition be complied with. (S. C. R. R. v. Schwartz, 53 Cal. 106. To same effect: California etc. Co. v. Russell, 88 Cal. 280, 26 Pac. 105.)

Subscriber to stock of proposed corporation on condition that a certain amount of capital stock shall be subscribed before a meeting of stockholders is called or the corporation formed incurs no ob. ligation to pay for such stock, until condition precedent is complied with. (California etc. Co. v. Russell, 88 Cal. 277, 26 Pac. 105.)

No ratification of the unauthorized subscriptions subsequent to organization can affect the liability of a subscriber, without his consent, who subscribed on condition that certain amount of capital stock should be subscribed before organization, if this condition precedent to organization was not complied with. (California etc. Co. v. Russell, 88 Cal. 277, 26 Pac. 105.)

Conditional and unauthorized subscriptions cannot be counted in making any proposed subscription of a certain amount of stock before organization. (California etc. Co. v. Russell, 88 Cal. 277, 26 Pac. 105.)

Statements as to the happening of a future event not a condition agreed upon by parties as a term of subscription do not avoid subscriptions obtained by an agent for shares of capital stock, and statements made by an agent soliciting subscribers for railroad stock, as to the route and time of completion of the road, do not render a subscription made upon the faith of them voidable or constitute a defense to a note given for the subscription, although the road be not built along the route within the time indicated. (Jefferson v. Hewitt, 95 Cal. 535, 30 Pac. 772.)

For assessment upon unpaid subscriptions, see section 332, Civil Code, post.

ARTICLE II.

BY-LAWS, DIRECTORS, ELECTIONS AND MEETINGS. $ 301. Adoption of by-laws, when, how, and by whom. $ 302. Directors, election of, etc. § 303. By-laws may provide for what. $ 304. By-laws to be copied and open to public inspection-Amend.

ment of. § 305. Powers of directors of corporations. § 306. Directors must be elected and by-laws adopted at first meet

ing. (Repealed.) $ 307. Right of stockholders to vote. $ 308. Organization of board of directors, etc. § 309. Dividends to be made from surplus profits- Increase and

reduction of capital stock. $ 310. Removal from office of directors, etc. § 311. Justice of the peace may order meeting, when. § 312. Majority of stock must be represented. $ 313. Stock, how represented. § 314. Election may be postponed. 8 315.

Complaints and proceedings regarding elections. § 316. False certificate, report, or notice to make officers liable. § 317. Meeting by consent to be valid.

8.318. Proceedings at meeting to be binding.
§ 319. Meetings, where held.
$ 320. Special meetings, how called.
§ 321. Certain books to be open for inspection.
$ 321a. Corporation may change its principal place of business.

ADOPTION OF BY-LAWS, WHEN, HOW, AND BY WHOM.

Sec. 301, C. C. Every corporation formed under this title must within one month after filing articles of incorporation, adopt a code of by-laws for its government not inconsistent with the Constitution and laws of this state. The assent of stockholders representing a majority of all the subscribed capital stock, or of a majority of the members, if there be no capital stock, is necessary to adopt by-laws, if they are adopted at a meeting called for that purpose; and in the event of such meeting being called, two weeks' notice of the same by adTertisement in some newspaper published in the county in which the principal place of business of the corporation is located, or if none is published therein, then in a paper published in an adjoining county, must be given by order of the acting president. The written assent of the holders of two-thirds of the stock, or of two-thirds of the members, if there be no capital stock, shall be effectual to adopt a code of by-laws without a meeting for that purpose. En. March 21, 1872. Amd. 187314, 200.

Repeal and amendment of by-laws: Post, sec. 304, C. C.
Power to make by-laws: Post, sec. 354, subd. 6, C. C.

Legislative History:

Prior to the Civil Code there was no requirement that corporations adopt by-laws, and most of the statutes pertaining to corporations contained no provisions for by-laws. Authority to adopt by-laws was given by section 7 of the corporation act of 1850, page 347, by the telegraph act of 1861, page 85, and by the canal company act of 1862, page 540.

The original section read as follows: Every corporation formed under this title must, at a meeting of its stockholders or members to be held within one month after filing articles of incorporation, adopt a code of by-laws for its government, not inconsistent with the Constitution and laws of this state. Notice of such meeting, by order of the acting president, specifying its object must be published two weeks in some newspaper published in the county where the meeting is to be held, or if none is published therein, a news. paper published in an adjoining county. In the adoption of the by-laws, each stockholder has as many votes as he holds shares of stock. If there is no capital stock, each member has one vote. A majority of all the subscribed capital stock, or of the members, if there is no capital stock, is necessary to adopt the by-laws or any of them."

Section Cited.

McFadden v. Board of Supervisors of Los Angeles, 74 Cal. 574, 16 Pac. 397; Market St. Ry. Co. v. Hellman, 109 Cal. 588, 42 Pac. 225; Vercoutere v. Golden State L. Co., 116 Cal. 414, 413, 48 Pac, 375; Wells v. Black, 117 Cal. 162, 59 Am. St. Rep. 162, 48 Pac. 1090.

Annotation.

By-laws Defined.-By-laws are the body of rules laid down for the government of a corporation, its officers and stockholders, in the conduct of its affairs. (Wells v. Black, 117 Cal. 161, 59 Am. St. Rep. 162, 48 Pac. 1090.)

Stockholders Bound by By-laws.-A stockholder is bound by the articles of incorporation and the by-laws adopted under this section, whether he has signed them or not. (McFadden v. Los Angeles County, 74 Cal. 574, 16 Pac. 397.)

A corporation organized for the purpose of supplying water for the use of the owners or occupants of land within a particular district may adopt by-laws limiting the right to use the water of the corporation exclusively to its own stockholders on land owned by them. (McFadden v. Board of Supervisors, 74 Cal. 571, 16 Pac. 397. To same effect: Loud v. Pomona etc. Co., 153 U. S. 583, 14 Sup. Ct. Rep. 928. Distinguished: Combs v. Ditch Co., 31 Am. St. Rep. 279.)

By-laws-Adoption and Effect.-In adopting by-laws the assent of stockholders representing a majority of all the subscribed capital stock is necessary. (Market Street Ry. v. Hellman, 109 Cal. 588, 42 Pac. 225.)

The real owner of stock may vote it, although it stands on the books in another's name. (People v. Hill, 16 Cal. 113. To same effect: Smith v. S. F. etc. Co., 115 Cal. 591, 56 Am. St. Rep. 123, 47 Pac. 582.)

The rule of stockholders' meetings is that the majority governs; and every stockholder contracts that such shall be the rule. (San Diego etc. Co. v. Pacific Beach Co., 112 Cal. 53, 44 Pac. 333.)

Any regulation or rule that a corporation may adopt under the form of a by-law, which contravenes the provisions of any existing law is invalid and has none of the elements of a by-law. Held, accordingly, a corporation organized under title 1, part IV of this code, being forbidden to withdraw any part of its capital stock, except upon its dissolution, cannot make a valid by-law providing that a stockholder may surrender his stock and withdraw from the corporation by giving sixty days' notice, and that he may thereupon be entitled to receive the amount paid in upon the stock. (Vercoutere v. Land Co., 116 Cal. 410, 48 Pac. 375.)

Where stockholders signed by-laws before organization of the company, such signatures constitute an agreement which the corporation thereafter formed in pursuance thereof can enforce; but the by-laws so agreed upon are not adopted regularly pursuant to this section, which provides for the adoption of by-laws after the or. ganization of the corporation. (Vercoutere v. Land Co., 116 Cal. 410, 48 Pac. 375.

Corporation has no power to pass retrospective by-laws. (People v. Crockett, 9 Cal. 112. Note citations: 57 Am. St. Rep. 388; 63 Am. Dec. 121; 85 Am. Dec. 619-621; 43 Am. St. Rep. 153, 154, 156.)

A corporation may repeal or waive a by-law and an acquiescence by shareholders in a course of action contrary to a by-law is a waiver of the by-law, so as not to affect the rights of persons dealing with the corporation in good faith, if they had no actual notice of the by-law, even though they be stockholders. (Underhill v. Santa Barbara ete. Co., 93 Cal, 300, 28 Pac. 1049.)

Old by-laws not mentioned or referred to in amended by-laws are not continued in force. (Murphy v. Pacific Bank, 130 Cal. 542, 62 Pac. 1059.)

A by-law adopted by a savings bank, whereby the liability of the stockholders was intended to be limited, is void as being in contravention of the laws of the state, and, although printed in the pass-book of each depositor, it carried no notice to and had no binding force upon depositors. (Wells v. Black, 117 Cal. 157, 59 Am. St. Rep. 162, 48 Pac. 1090.)

By-laws which define the duties of officers of the corporation go into the contract of the sureties on their official bonds, and constitute a part of it. They must be considered as having been inserted in the bond. (Humboldt S. & L. Soc. v. Wennerhold, 81 Cal. 528, 22 Pac. 920. To same effect: San Pedro etc. Co. v. Reynolds, 121 Cal. 79, 53 Pac. 410, as to contract of employment.)

A transfer of shares of stock of a corporation by the owner to a bona fide purchaser for value without notice vests the title in such purchaser free of equities between the seller and the corporation, though provided for by a by-law of the corporation. The exis. tence of such a by-law is not enough to charge the purchaser with notice. (Anglo-Cal. Bank v. Grangers' Bank, 63 Cal. 359. Distinguished: Jennings v. Bank, 79 Cal. 331, 12 Am. St. Rep. 51, 21 Fae. 852. Note citations. 85 Am. Dec. 621; 6 Am. St. Rep. 839; 43 Am. St. Rep. 156; 57 Am. St. Rep. 393. See, also, sec. 324, C. C., and note.)

Corporation Laws-9

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