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multiplied by the number of his shares of stock shall equal, or to distribute them on the same principle among as many candidates as he shall think fit.

The provisions of this section, so far as it relates to cumulative voting, shall apply to all corporations and associations doing business in this state, having a capital stock or shares of stock, and electing directors by a meeting of stockholders held in this state, whether such corporations or associations are organized under the laws of this state or not, and no election for directors of any corporation or association, doing business in this state, and electing directors in this state, shall be valid, if the right of a stockholder to cumulate his shares as herein provided shall be denied.

In corporations having no capital stock, each member of the corporation may cast as many votes for one director as there are directors to be elected, or may distribute the same among any or all of the candidates.

In any case the director receiving the highest number of votes shall be declared elected.

The provisions of this section, so far as it relates to cumulative voting, shall not apply to literary, religious, scientific, social or benevolent societies, having no capital stock or shares unless it shall be so provided in their by-laws or rules. En. March 21, 1872. Amd. 1873-74, 202; 1877-78, 78; 1887, 95; 1903, 253.

Election, how conducted: See secs. 312, 315, C. C., note, and sec. 12, art. XII, Const. and notes.

Legislative History.

The election of directors was provided for in the corporation act of 1850, page 347; in the corporation act of 1853, page 87; in the railroad act of 1861, page 607; and the amendatory act of 1870, page 577.

The original section read as follows: "307. All elections must be by ballot, and unless otherwise prescribed by the by-laws, a majority cof the subscribed capital or of the members is necessary to a choice." The section as amended in 1873-74 read: “All elections of directors must be by ballot, and a vote of stockholders representing a majority of the subscribed capital stock, or of a majority of the members is necessary to a choice. If there be capital stock in the corporation, cach stockholder is entitled to one vote for each share held by him at all such elections, and also at all elections at other meetings of stockholders.'

The section as amended in 1877-78 was the same as the above, with the exception of the second and last paragraphs. The last paragraph above was added by the amendment of 1887 and the second paragraph above by the amendment of 1903.

Section Cited.

Wickersham v. Brittan, 93 Cal. 36, 28. Pac. 792, 29 Pac. 51; Dulin v. Pacific etc. Co., 103 Cal. 363, 28 Pac. 792, 29 Pac. 51; Market St. Ry. Co. v. Hellman, 109 Cal. 589, 597, 42 Pac. 225; Smith v. S. F. & N. P. Ry. Co., 115 Cal. 590, 609, 56 Am. St. Rep. 119, 47 Pac. 582; Krause v. Durbrow, 127 Cal. 683, 60 Pac. 438.

Annotation.

Right to Vote.—Every qualified stockholder present at an election has a right to vote, at one time, the number of shares owned by him for the whole number of directors to be elected, or to cumulate his shares upon one candidate, or distribute them among as many candi. dates as he may see fit. A corporation has no power to adopt any other mode of election. (Wright v. C. C. etc. Co., 67 Cal. 532, 8 Pac. 70. To same effect: Dulin v. Pacific etc. Co., 103 Cal. 357, 35 Pac. 1045, 37 Pac. 207; Smith v. S. F. & N. P. Ry., 115 Cal. 590, 56 Am. St. Rep. 119, 47 Pac. 582.)

The right of stockholders to elect directors, when given by statute, cannot be taken away by act of the corporation. (Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237.)

A court has no power to relieve stockholder of his error in failing to vote his stock for his own interest. (Dulin v. Pacific etc. Co., 103 Cal. 357, 35 Pac. 1045, 37 Pac. 207.)

A trustee of stock is the legal owner of the stock, and as against the corporation and all the world, except his cestui que trust, he may vote the stock for all purposes. (Market St. Ry. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225.)

But the pledgor of stock has the right to vote it, where the pledgee đoes not claim right to vote it under an agreement with pledgor. (Dulin v. Pacific etc. Co., 103 Cal. 357, 35 Pac. 1045, 37 Pac. 207.)

Stock belonging to corporation cannot be voted by any person, even if held in the name of such person as trustee. And certificates of stock issued as a pledge to secure a creditor (of the corporation) are illegally issued and cannot be voted by any person. (Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237. To same effect: Smith v. S. F. & N. P. Ry. Co., 115 Cal. 592, 56 Am. St. Rep. 119, 47 Pac. 582. Distinguished: Illinois etc. Bank v. Pacific Ry. Co., 117 Cal. 344, 49 Pac. 197. Note citation: 34 Am. St. Rep. 644.) Pooling Agreements.- An agreement between three persons for pur

Corporation Laws-11

cbase, as an entirety, of certain stock to be sold in course of administration of estate of a deceased person, and that, in order to secure control and management of business policy of the company, they would combine the stock purchased so that it would be voted as a urit for five years, the vote to be determined by ballot between them, is not void as against public policy, and is to be construed as giving the majority authority to vote the stock of the third owner by proxy, and such agreement having been made in consideration of the purchase of the stock, the proxy is in the nature of a power coupled with an interest which cannot be revoked at the pleasure of either of the parties. (Smith v. S. F. & N. P. Ry., 115 Cal. 584, 56 Am. St. Rep. 119, 47 Pac. 582.)

And an injunction will issue, in a proper case, to prevent stockholders from voting their stock in violation of an agreement to vote it together in accordance with the ballot of a majority of them. (Fos. ter v. Smith, 115 Cal. 611, 47 Pac. 591.)

Proxies.- A stockholder may vote his stock as he pleases, at an election of directors, and, while he may give a proxy to another stockholder, the court cannot compel him to do so in the absence of an agreement upon a valuable consideration that he would give such proxy. (Dulin v. Pacific etc. Co., 103 Cal. 357, 35 Pac. 1045, 37 Pac. 207.)

And stockbrokers, who have purchased stock of a corporation upon margins for others, if authorized to vote the stock at all, are bound to vote it in the interest of those for whom they have purchased it. (Fox v. Hale & Norcross etc. Co., 108 Cal. 369, 41 Pac. 308. See notes to subd. 3, sec. 303, C. C.)

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ORGANIZATION OF BOARD OF DIRECTORS, ETC.

Sec. 308, C. C. Immediately after their election, the directors must organize by the election of a president, who must be one of their number, a secretary and treasurer. They must perform the duties enjoined on them by law and the by-laws of the corporation. A majority of the directors is a sufficient number to form a board for the transaction of business, and every decision of a majority of the directors forming such board, made when duly assembled, is valid as a corporate act. En. March 21, 1872.

Quorum necessary for valid action: See sec. 305, C. C., ante and

notes.

Section Cited.

Smith v. Immigration etc. Assn., 78 Cal. 292, 12 Amr, St. Rep. 53, 20 Pac. 677; Alta Silver Mining Co. v. Mining Co., 78 Cal. 632, 21 Pac. 373; Wickersham v. Brittan, 93 Cal. 38, 39, 28 Pac. 792, 29 Pac. 51; Salfield v. Sutter Co. L. R. & Co., 94 Cal. 549, 29 Pac. 1105; Smith v. Dorn, 96 Cal. 82, 30 Pac. 1024; Dulin v. Pacific Wood & Coal Co., 103 Cal. 363, 35 Pac, 1045, 37 Pac. 207; Porter v. en County etc. CO., 127 Cal. 267, 59 Pac. 563; Curtin v. Salmon River etc. Co., 130 Cal. 348, 349, 80 Am. St. Rep. 132, 62 Pac. 552; Sims v. Petaluma Gas Co., 131 Cal. 659, 63 Pac. 1011.

Annotation.

Election of President.— The election of one not a member of the board of directors as president is void, and neither the board that elected him nor the court can make him president. (Dulin v. Pacific ete. Co., 103 Cal. 357, 35 Pac. 1045, 37 Pac. 207. To same effect: Sims v. Petaluma Gas Co., 131 Cal. 659, 63 Pac. 1011. See subd. 5, sec. 303, C. C., and notes, ante.)

The word “election,” as first used, refers to the election by the stockholders, and is the proper term to signify the choice by the votes of the entire body, whereas in its subsequent use it signifies cnly the appointment by the board of its own officers. The provisions of section 315, Civil Code, have reference only to the first class of elections. (Wickersham v. Brittan, 93 Cal. 38, 28 Pac. 792, 29 Pac.

51.)

Quorum, "When Duly Assembled,” May Act: See title “Quorum and Meetings,” in notes to sec. 305, C. C., ante, and title “Meetiugs,” in notes to subd. 1, sec. 303, C. C., ante.

Powers and Duties of Directors: See title “Powers of Directors," in notes to sec. 305, C. C., ante.

DIVIDENDS TO BE MADE FROM SURPLUS PROFITS-IN

CREASE AND REDUCTION OF CAPITAL STOCK. Sec. 309, C. C. The directors of corporations must not make dividends, except from the surplus profits arising from the business thereof; nor must they divide, withdraw, or pay to the stockholders, or any of them, any part of the capital stock; nor must they create debts beyond their subscribed capital stock; nor must they divide, withdraw, or pay to the stockholders, or any of them, any part of the capital stock, except as hereinafter provided, nor reduce or increase the capital stock, except as herein specially provided. For a violation of the provisions of this section, the directors under whose administration the same may have happened (except those who may have caused their dissent therefrom to be entered at large on the minutes of the directors at the time, or were not present when the same did happen) are, in their individual and private capacity, jointly and severally liable to the corporation, and to the creditors thereof, in the event of its dissolution, to the full amount of the capital stock so divided, withdrawn, paid out, or reduced, or debt contracted; and no statute of limitations is a bar to any suit against such directors for any sums for which they are liable by this section; provided, however, that where a corporation has been heretofore or may hereafter be formed for the purpose, among other things, of acquiring, holding, and selling real estate, water, and water rights, the directors of such corporation may, with the consent of stockholders representing two-thirds of the capital stock thereof, given at a meeting called for that purpose, divide among the stockholders the land, water, or water rights so by such corporation held, in the proportions to which their holdings of such stock at the time of such division would entitle them. All conveyances made by the corporation in pursuance of this section shall be made and received subject to the debts of such corporation existing at the date of the conveyance thereof. Nothing herein shall prohibit a division and distribution of the capital stock of any corporation which remains after the payment of all its debts, upon its dissolution, or the expiration of its term of existence. En. March 21, 1872. Amd. 1891, 468.

Increasing and diminishing capital stock: See post, sec. 359.
Penalties: See Pen. Code, secs. 560, 563, 564, 569, 570, post.

For liability of directors for embezzlement and misappropriation cf corporate funds, see sec. 3, art. XII, Const., and notes, ante.

For further liability of directors, see sec. 3, art. XII, Const., ante, and sec. 316, C. C., post, and sec. 300, C. C., ante, and secs. 504, 560, Pen. Code.

Legislative History:

The original section is the same as the above, with the omission of the words "nor must they divide, withdraw or pay to the stockhold. ers, or to any of them, any part of the capital stock, except as hereinafter provided,” and with the omission of the proviso and all that follows down to the last sentence, which is in the original.

Similar provisions to the above section are found in the incorporation act of 1850, page 348; the incorporation act of 1853, page 89; the railroad act of 1861, page 626, and the insurance act of 1866, pages 747, 757.

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