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SUBSCRIPTION AND OTHER PRELIMINARY AGREEMENTS.
Contracts Before Incorporation.-Righ 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 Anr. 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 a 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 pro. moters meet and organize the corporation as specified in the agree. ment, 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 agreemrent. (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.)
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. John. son, 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 thene 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 busiTiess 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. (8. 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.
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. $ 315. Complaints and proceedings regarding elections. $ 316. False certificate, report, or notice to make officers liable. § 317. Meeting by consent to be valid.
$.318. Proceedings at meeting to be binding.
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.
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 preeting is to be held, or if none is published therein, a news