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RESTRICTIONS ON POWERS OF CORPORATIONS.

Sec. 9, Art. XII. No corporation shall engage in any business other than that expressly authorized in its charter, or the law under which it may have been or may hereafter be organized; nor shall it hold for a longer period than five years any real estate except such as may be necessary for carrying on its business.

See section 355, Civil Code, post, for limitation of powers.

Legislative History.

This section has no parallel in the Constitution of 1849. Its adop. tion was an expression of the policy of the state to prevent the accumulation of property in the hands of corporations. (Constitutional Debates, p. 438.)

Section Cited.

Knowles v. Sandercock, 107 Cal. 643, 40 Pac. 1047; People v. Stockton Sav. etc. Soc., 133 Cal. 612, 85 Am. St. Rep. 225.

Annotation.

Corporate Purposes.-A corporation is forbidden to engage in any business other than such as is expressly authorized in its charter or the law under which it is organized. To hold stock in another corporation is to engage in the business of such corporation. (Knowles v. Sandercock, 107 Cal. 629, 643, 40 Pac. 1047.)

This section does not cause property held in violation of it to escheat to the state. (People v. Stockton Sav. etc. Soc., 133 Cal. 612, 85 Am. St. Rep. 225, 133 Cal. 611.)

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LIABILITIES OF FRANCHISE UNDER LEASE OR GRANT.

Sec. 10, Art. XII. The legislature shall not pass any laws permitting the leasing or alienation of any franchise, so as to relieve the franchise or property held thereunder from the liabilities of the lessor or grantor, lessee or grantee, contracted or incurred in the operation, use, or enjoyment of such franchise, or any of its privileges.

Legislative History.

This section is new and peculiar to this state. It is not to be construed as a grant of authority to lease, but as a restriction upon the legislature to make such a grant of authority. It is for the purpose of preventing a corporation from leaving remediless a cred. itor and to preserve the right of the state to a forfeiture of the franchise. (Lee v. S. P. R. R. Co., 116 Cal. 101, 47 Pac. 932, 53 Am. St. Rep. 140, and note.)

Section Cited.

Lee v. S. P. R. R. Co., 116 Cal. 97, 47 Pac. 932, 58 Am. St. Rep. 140, and note.

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Annotation.

Alienation of Franchises.— This section does not give a personal action against the corporation which owned property for an injury which has resulted to an employee of a lessee of the owner in the use of the property in the hands of the lessee, but is designed to subject the franchise and property to liability incurred in its occupation, whether the franchise be exercised or the property be used by the original owner or the lessee or grantee. (Lee v. Southern Pac. R. R. Co., 116 Cal. 97, 58 Am. St. Rep. 140, and note, 47 Pae. 932.)

CORPORATION STOCK, RESTRICTION ON ISSUE OF.

Sec. 11, Art. XII. No corporation shall issue stock or bonds, except for money paid, labor done, or property actually received, and all fictitious increase of stock or indebtedness shall be void. The stock and bonded indebtedness of corporations shall not be increased except in pursuance of general law, nor without the consent of the persons holding the larger amount in value of the stock, at a meeting called for that purpose, giving sixty days' public notice, as may be provided by law.

See section 359, Civil Code, post, for similar provision.

Legislative History.

This section has no parallel in the Constitution of 1849. The purpose of the section was to prevent the fictitious increase of the stock or indebtedness of corporations. (Constitutional Debates, p. 438; Pacific Trust Co. v. Dorsey, 72 Cal. 56, 12 Pac. 49.)

Section Cited.

Ewing v. Oroville M. Co., 56 Cal. 654; Stein v. Howard, 65 Cal. 617, 4 Pac. 662; Pacific Trust Co. v. Dorsey, 72 Cal. 55, 12 Pac. 44; Thomason v. Ashworth, 73 Cal. 77, 14 Pac. 615; Underhill v. Santa Barbara Co., 93 Cal. 307, 23 Pac. 1049; Illinois T. etc. Bank v. Pacific Ry. Co., 117 Cal. 344, 49 Pac. 197; Smith v. Martin, 135 Cal. 250, 67 Pac. 779; Vermont etc. Co. v. De Clez etc. Co., 135 Cal. 582, 87 Am. St. Rep. 143, 67 Pac. 1057.

Annotation.

Increase of Stock and Bonds.- Bonded indebtedness does not embrace a non-negotiable note and mortgage executed by a private corporation to secure its indebtedness for money loaned, money paid, property purchased, or labor performed in the ordinary course of its authorized business, and actually received and used in such business. (Underhill v. Santa Barbara etc. Co., 93 Cal. 308, 28 Pac. 1049.)

Fictitious increase does not mean an increase of the capital stock of the corporation and the issuing of additional shares to be sold at a price less than the nominal par value, to supply a fund actually required for the use of the corporation. Such an increase under such circumstances is not prohibited. (Stein v. Howard, 65 Cal. 616, 4 Pac, 662.)

Section 359 of the Civil Code, at the time of the adoption of the Constitution, was inconsistent therewith, and was annulled. The first clause of section 11, article XII, Constitution, as to issuing stock except for certain purposes, is prohibitory, and the second clause requires the enactment of a general law and is not self-exeenting. (McDonald v. Patterson, 54 Cal. 245. Distinguished: Ewing v. Oroville M. Co., 56 Cal. 649.)

A promissory note, given in payment of a subscription to stock of a corporation, constitutes the receipt of "property” on which the stock may be issued. (Pacific Trust Co. v. Dorsey, 72 Cal. 55, 12

Pac. 49.)

This section does not prevent a corporation from pledging its bonds as collateral security. (Illinois etc. Bank v. Pacific Ry. Co., 117 Cal. 332, 49 Pac. 197.)

Stock issued in exchange for labor or property is upon lawful consideration, and is neither fictitious nor void as to the public. (Smith v. Martin, 135 Cal. 47, 67 Pac. 779.)

Stockholders purchasing stock at less than par are liable to the collection of the unpaid residue of the par value of the stock upon a creditor's bill filed for that purpose. (Vermont etc. Co. v. Declez, ete. Co., 135 Cal. 579, 87 Am. St. Rep. 143, 67 Pac. 1057. Distinguish. ing Stein v. Howard, 65 Cal. 616, 4 Pac. 662.)

ELECTION OF DIRECTORS-CUMULATIVE OR DISTRIBUTIVE

VOTES. Sec. 12, Art. XII. In all elections for directors or managers of corporations every stockholder shall have the right to vote, in person or by proxy, the number of shares of stock owned by him for as many persons as there are directors or managers to be elected, or to cumulate said shares and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock shall equal, or to distribute them, cri the same principle, among as many candidates as he shall think fit; and such directors or managers shall not be elected in any other manner, except that members of co-operative societies formed for agricultural, mercantile, and manufacturing purposes, may vote on all questions affecting such societies in manner prescribed by law.

See sections 307, 312, Civil Code, post, as to corporate elections.

Legislative History.

This section has no parallel in the Constitution of 1849. Its purpose was to secure representation on the board of directors by minority stockholders. (Constitutional Debates, p. 442; Wright v. Central Water Co., 67 Cal. 532, 8 Pac. 70.)

Section Cited.

Wright v. Central Water Co., 67 Cal. 535, 8 Pac. 70.

Annotation.

Directors.- Under this section all the directors must be elected on one ballot. (Wright v. Central etc. Water Co., 67 Cal. 532, 8 Pac. 70.)

STATE NOT TO LOAN ITS CREDIT NOR SUBSCRIBE TO STOCK

OF CORPORATIONS. Sec. 13, Art. XII. The state shall not in any manner loan its credit nor shall it subscribe to, or be interested in the stock of any company, association, or corporation.

See sections 22 and 31, article IV, Constitution, ante.

Legislative History.

The similar provision in the Constitution of 1849 is section 10 of article XI, for which see section 31 of article IV of the Constitution, ante.

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Section Cited.

There are no citations of this section.

Annotation.

State Credit.-This section prohibits the loaning of public credit for private purposes under any circumstances. (Stockton etc. R. R. Co. v. Stockton, 41 Cal. 147; Ramsey v. Haeger, 76 Ill. 432.)

It does not prohibit the appropriation of public funds to aid a corporation in the construction of a railroad to be used for military purposes. (People v. Pacheco, 27 Cal. 175.)

CORPORATIONS TO HAVE OFFICE FOR TRANSACTION OF

BUSINESS IN STOCKS. Sec. 14, Art. XII. Every corporation other than religious, educational, or benevolent, organized or doing business in this state, shall have and maintain an office or place in this state for the transaction of its business, where transfers of stock shall be made, and in which shall be kept, for inspection by every person having an interest therein, and legislative committees, books in which shall be recorded the amount of capital stock subscribed, and by whom; the names of the owners of its stock, and the amounts owned by them respectively; the amount of stock paid in, and by whom; the transfers of stock; the amount of its assets and liabilities, and the names and place of residence of its officers.

For principal place of business, see sections 290, 321a, Civil Code
For transfer of shares, see section 324, Civil Code.
For records of corporations, see sections 377, 378, Civil Code.

Legislative History.

This section has no parallel in the Constitution of 1849. Its purpose was to give the stockholder a constitutional right to examine the corporate stock-books and to afford an opportunity for legislative investigation if necessary. (Constitutional Debates, p. 444.)

Section Cited.

Vermont etc. Co. v. Declez etc. Co., 135 Cal. 584, 87 Am. St. Rep. 143, 67 Pac. 1057; Johnson v. Langdon, 135 Cal. 625, 87 Am. St. Rep. 156, 67 Pac. 1050.

Annotation.

Inspection of Books.— A stockholder has the right to inspect the books, records and journals of the corporation; and mandamus will lie to compel the secretary who is custodian to allow his inspection

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