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CHAPTER IV.

EXTENSION AND DISSOLUTION OF CORPORATIONS.

§ 399. Proceedings to disincorporate. § 400. On dissolution, directors to be trustees for creditors. $ 401. Extension of term." § 402. How corporations may continue their existence. (Repealed.) § 403. Title I to apply to all corporations, with certain exceptions.

PROCEEDINGS TO DISINCORPORATE.

Sec. 399, C. C. The dissolution of corporations is provided for:

1. If involuntary-in chapter V of title X, part II, of the Code of Civil Procedure;

2. If voluntary—in title VI, part III, of the Code of Civil Procedure. En. March 21, 1872.

Involuntary dissolution: See Code Civ. Proc., secs. 227, 802.
Voluntary dissolution: See Code Civ. Proc., secs. 1227-1233.

Act providing for dissolution of savings banks, trust companies and banks of deposit: See post, Appendix, title “Banks and Banking.”

Section Cited..

Havemeyer v. Superior Court, 84 Cal. 365, 366, 367; Yore v. Superior Court, 108 Cal. 436.

Annotation.

Disincorporation.— Under this section provision is made by reference to the provisions of the Code of Civil Procedure for involuntary as well as for voluntary dissolution. (Havemeyer v. Superior Court, 84 Cal. 367.)

Although in this section it is declared that the involuntary dissolution of corporations is provided for in the Code of Civil Procedure, it is rather singular that in turning to that code we find no express provision about the dissolution of corporations, or any mention of a corporation at all. However, it is provided that a person usurping any franchise may be excluded from such franchise by the judgment of the court; and it has been held that under this provision a corporation nray be dissolved. (Yore v. Superior Court, 108 Cal. 436, 41 Pac. 477.)

ON DISSOLUTION, DIRECTORS TO BE TRUSTEES FOR CRED

ITORS. Sec. 400, C. C. Unless other persons are appointed by the court, the directors or managers of the affairs of such corporation at the time of its dissolution are trustees of the creditors and stockholders or members of the corporation dissolved, and have full power to settle the affairs of the corporation. En. March 21, 1872.

Section Cited.

Havemeyer v. Superior Court, 84 Cal. 358, 365-367, 369, 370, 374, 780, 18 Am. St. Rep. 192, 24 Pac. 121; People v. Superior Court, 100 Cal. 119, 34 Pac. 492; State I. & I. Co. v. San Francisco, 101 Cal. 147-149, 35 Pac. 549.

Annotation.

Construction of Section.—This section applies to involuntary as well as to voluntary dissolution of a corporation. It provides a means of settlement of the affairs of a dissolved corporation without the intervention of a court, unless such intervention is invoked, and that is its whole scope. And so far as the rights and interests of beneficiaries of the trust reposed in the directors are concerned, the section is in harmony with section 565 of the Code of Civil Procedure. A distinct proceeding by a creditor or stockholder under section 565 of the Code of Civil Procedure is necessary to take the property out of the control of the trustees designated by this section. (Havemeyer v. Superior Court, 84 Cal 327, 18 Am. St. Rep. 192, 24 Pae. 121.)

Disposition of Property on Dissolution-Prior to Code.- Prior to code, upon dissolution, directors continued to be trustees of the creditors and stockholders for certain purposes, or in case directors died subsequent to dissolution, district court could appoint new trustees for like purposes. (Clarke v. San Francisco, 53 Cal. 306. To same effect: Kohl v. Lilienthal, 81 Cal. 385, 20 Pac. 401, 22 Pac. 689. Note citation: 57 Am. St. Rep. 76.)

On the dissolution of a literary corporation, by a surrender of its franchise, after the payment of its debts, all its personal property, and all its real property acquired by purchase for value vests by operation of law in the state. Such real estate as remains undisposed of, and which had been acquired by donation, would revert to the donors. (People v. College of California, 38 Cal. 166.)

A court of equity has no jurisdiction over corporations for the purpose of restraining their operation of winding up their concern. Such court may compel the officers of the corporation to account for any breach of trust, but the jurisdiction for this purpose is over the officers personally, and not over the corporation. (Neall v. Hill, 16 Cal. 145, 76 Am. Dec. 508. To same effect: State etc. Co. v, S. F., 101 Cal. 146, 35 Pac. 549.)

The trustees of a college can disincorporate it and transfer all its property to a similar institution. (People v. College of California, 38 Cal. 166.)

Disposition of Corporate Property After Dissolution. The method prescribed by the code for dissolution of corporation is exclusive, and there can be no distribution of its capital stock under any other circumstances. (Kohl v. Lilienthal, 81 Cal. 378, 20 Pac. 401, 22 Pac. 689.)

Corporations organized under laws of the state of California can be dissolved only in the manner prescribed by those laws. Its property is to be managed and controlled by its duly elected officers. (Merrill Lodge etc. v. Ellsworth, 78 Cal. 166, 20 Pac. 399, 400.)

And after final judgment that a de facto corporation has no legal existence, proceedings should be had for winding up and settling its affairs by trustees. (People v. Flint, 64 Cal. 49, 28 Pac. 495.)

The funds of an insolvent corporation are all to be dispensed solely for the benefit of creditors; and no stockholder can be permitted to share therein by subrogation or otherwise. (Sacramento Bank v. Pacific Bank, 124 Cal. 147, 71 Am. St. Rep. 36, 56 Pac. 787.)

Directors as Trustees.—The rights of the directors of a building and loan association to wind up its affairs cannot be interfered with by the appointment of a receiver at the suit of the state, which is neither a creditor nor stockholder of the corporation, and has no pecuniary interest therein, where no facts are alleged and found as to fraud, mrismanagement or incompetency of the directors, such as would justify the appointment of a receiver if the application had been made by a creditor or stockholder of the corporation. (People ex rel. v. B. & L. Assn., 127 Cal. 400, 59 Pac. 692.)

And when the state has secured the dissolution of the corporation, its function in the action has ceased and the property still belongs to the stockholders, and is to be distributed by the directors, who can be deprived of control of the property only at the instigation of a creditor or stockholder. (State Investment etc. Co. v. Superior Court, 101 Cal. 135, 35 Pac. 459.)

If there are no directors to act, or worthy to be trusted to act under this section, as trustee of a dissolved corporation, the court can, under section 2289 of the Civil Code, appoint trustees who will have the power and duties that are conferred upon directors by section 400 of the Civil Code. (State Investment etc. Co. v. Superior Court, 101 Cal. 135, 35 Pac. 459.)

The powers of the court to appoint other persons to settle the affairs of a dissolved corporation under this section does not authorize the court to take upon itself the power to settle the affairs, or to appoint a receiver for that purpose, except in accordance with section 565 of the Code of Civil Procedure on the application of any creditor of the corporation, or of any stockholder or member thereof. (State Investment etc. Co. v. Superior Court, 101 Cal. 135, 35 Pae. 549.)

Receiver.-It is at option of creditor or stockholder to have receiver of dissolved corporation appointed, in a suit brought for that purpose, provided facts can be alleged showing that a receiver is necessary, but if directors are sued and brought into court without cause, even by a creditor or stockholder, they may recover costs. (Havemeyer v. Superior Court, 84 Cal. 327, 18 Am. St. Rep. 192, 24 Pac. 121.)

See sec. 565, C. C. P.

Bank Commissioners' Act.-The bank commissioners' act (Stats. 1877-78, p. 740; Stats. 1903, p. 365) supersedes the provisions of this section and of section 565 of the Code of Civil Procedure, and that class of corporations is to be controlled in dissolution and insolvency by the provisions of these acts. (People v. Superior Court, 100 Cal. 119, 34 Pac. 492.)

EXTENSION OF TERM.

Sec. 401, C. C. Every corporation formed for a period less than fifty years may, at any time prior to the expiration of the term of its corporate existence, extend such term to a period not exceeding fifty years from its formation. Such extension may be made at any meeting of the stockholders or members, called by the directors expressly for considering the subject if voted by stockholders representing two-thirds of the capital stock; or by two-thirds of the members, or may be made upon the written assent of that number of stockholders or members. A certificate of the proceedings of the meeting upon such vote, or upon such assent, shall be signed by the chairman and secretary of the meeting and a majority of the directors, and be filed in the office of the county clerk, where the original articles of incorporation were filed, and a certified copy thereof in the office of the Secretary of State, and thereupon the term of the corporation shall be extended for the specified period. En. March 21, 1872. Amd. 1873-74, 209.

Legislative History.

The following is the original section: “Sec. 401. Every corporation heretofore formed, for any purpose enumerated in this title for which corporations may be formed, for a period of time less than fifty years, may, at any time prior to the expiration of the term of its corporate existence, extend such term to a period not exceeding fifty years from its formation. Such extension must be made at a nreeting of the stockholders or members, after such order of the directors and notice thereof, with such amount of capital stock or number of members represented, and such affirmative vote thereof, as required herein for the increase or diminution of the capital stock, and filing a certificate thereof in the same offices where their articles of incorporation are filed.”

Section Cited.

Market St. Ry. Co. v. Hellman, 109 Cal. 582, 42 Pac. 225; People v. Auburn etc. Turnpike Co., 122 Cal. 339, 55 Pac. 10.

Annotation.

Construction of the Section.—That this section was intended to apply to existing corporations goes without saying. It should be construed in connection with section 288 of the same code. (Market St. Ry. v. Hellman, 109 Cal. 582, 42 Pac. 225.)

Corporations Organized Prior to Code.- Corporation organized prior to code, having continued its existence under the code, becomes code corporation, and may extend term of its existence in conformity with code, beyond original period of its existence. Whether a corporation may avail itself of the provisions of this section without electing to comre under the provisions of the code not decided. (People v. Pfister, 57 Cal. 532, Ross, J., dissenting. To same effect: People v. Turnpike Co., 122 Cal. 339, 55 Pac, 10.)

HOW CORPORATIONS MAY CONTINUE THEIR EXISTENCE.

(REPEALED.) Sec. 402, C. C. En. March 21, 1872. Rep. 1873-74, 209.

Legislative History.

The following is the repealed section: “Sec. 402. All corporations uray continue their existence for an additional period, not exceeding fifty years, by filing a certificate, verified by the affidavit of the president and secretary, setting forth that, at a meeting of fourfifths of the members or stock, and on a two-thirds vote thereof, it was determined to continue such corporation for such additional length of time; the meeting of the stockholders or members to be had after notice thereof, published for four weeks in some news. paper in the county where the principal office of the corporation is located, giving the time and place of meeting; or, in lieu thereof,

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