So, also, 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.)

Neither can a benevolent association, incorporated to promote cause of temperance and not for pecuniary profit, divide any part of the corporate property or funds among its members, and every member of such association may sue to prevent or set aside such a plain misappropriation of corporate funds. (Ashton v. Dashaway Assn., 84 Cal. 61, 22 Pac. 660, 23 Pac. 1091.)

The payment of an assessment by a corporation as a stockholder in another corporation is an investment of capital and not a current expense. (Excelsior W. & M. Co. v. Pierce, 90 Cal. 142, 27 Pac. 44.)

Debts in Excess of Subscribed Capital.-This section does not prevent a corporation from creating debts in excess of its subscribed capital stock, or make such indebtedness void, but merely provides a remedy in favor of the corporation and its creditors against the directors. So, it is held, notes and mortgages, issued to secure an indebtedness beyond the subscribed capital stock of the corporation, are not void. (Underhill v. Santa Barbara etc. Co., 93 Cal. 300, 28 Fac. 1049.)

The debts of constituent corporations, while not primary obligations of the consolidated corporation, are charges upon its property, which will reduce it so much, and hence come within the rule limiting the indebtedness to the amount of the subscribed capital stock. (Market St. Ry. v. Hellman, 109 Cal. 596, 42 Pac. 225.)

The prohibited debts are ordinary subsisting debts in excess of the capital stock, and not the aggregate debts of the corporation, created during its entire corporate existence. The prohibition applies to debts in excess of all the subscribed capital stock, whether it has all been paid in or only part of it, and regardless of the disposition which may have been made of it. And a purchase of mines for the full amount of the capital stock, to be paid for in the stock of the corporation, a portion of which only is paid in, does not make all debts thereafter created in excess of the subscribed capital stock. (Moore v. Lent, 81 Cal. 502, 22 Pac. 875. Note citation: 22 Am. St. Rep. 530.)

Director's Liability.-The statute which provides to make one person individually liable for the debts of another, and prescribes how and under what circumstances he shall be held liable is penal in its nature, and like other statutes which create a forfeiture or impose a penalty, is to be strictly construed against the liability. (Moore v. Lent, 81 Cal. 502, 22 Pac. 875.)

The directors of a corporation are not liable for a loss resulting from an unprofitable investment, where the investment was considered judicious when made, and the loss could not have been reasonably anticipated. Such a loss is a loss of capital and not a current expense. (Excelsior W. & M. Co. v. Pierce, 90 Cal. 145, 27 Pac. 44.) So, also, the directors of a mining corporation, which has become indebted, are not guilty of an infraction of this section, because they declare and pay dividends out of the net proceeds of their mine withcut paying the whole of its debts other than for current expenses. (Excelsior W. & M. Co. v. Pierce, 90 Cal. 142, 27 Pac. 44.)

There is no conflict between this section and section 359 of the Code of Civil Procedure. This section relates to the liability of directors of corporations, while section 359 of the Code of Civil Procedure refers to the liability of stockholders. (Santa Rosa Nat. Bank v. Barnett, 125 Cal. 412, 58 Pac. 85.)

The statute of limitations does not run against the enforcement of a director's liability. (Dictum: Wells, Fargo & Co. v. Enright, 127

Cal. 674, 60 Pac. 439.)

The subscribed capital stock of a corporation is the fund upon which the transactions of a corporation are to be made and is the guaranty of creditors that all obligations to that amount will be met; but it cannot be considered as the debt of a corporation, whether paid in or not, in estimating the amount of the indebtedness beyond which the directors of a corporation may make themselves personally liable. Debts to be thus considered are only those created by voluntary acts of the directors. (Moore v. Lent, 81 Cal. 502, 22 Pac. 875.)

In order to make the directors of a corporation personally liable under this section for the debt created beyond subscribed capital stock, it must appear that the corporation must have been indebted at the same time in an aggregate amount exceeding the amount of capital stock. (Moore v. Lent, 81 Cal. 502, 22 Pac. 875.)

Corporate officers and directors who form a fraudulent combination and agreement for the payment of an excessive price for work done for the corporation are liable for the excess of price paid. (Fox v. Hale & Norcross etc. Co., 108 Cal. 369, 41 Pac. 408. Note citation: 57 Am. St. Rep. 65.)

Actions Against Directors.—An action against trustees of a corporation for misappropriation of its funds must generally be brought in the name of the corporation; but the stockholders may sue in their own names when the corporation, on a proper demand from a stockholder, refuses to institute action. When the action is by the stockholder, it is necessary to aver a demand and refusal without which the action will not be sustained. (Cogswell v. Bull, 39 Cal. 320. To same effect: Waymire v. S. F. etc. Co., 112 Cal. 650, 44 Pac. 1086. Note citations: 41 Am. Dec. 368; 53 Am. Dec. 644.)

In action by stockholders against the trustees, proof that any one of the plaintiffs is a stockholder is sufficient to maintain the action. (Parrott v. Byers, 40 Cal. 614.)

The right of a creditor to sue the directors for misappropriated funds does not depend upon others. The court can order the necessary parties brought in. The stockholders are proper parties, but, for most purposes, they may be represented in the action by the corporation. (Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.)

The consent of all the stockholders to a misappropriation would not bar the creditors, or prevent any creditor from instituting proceedings to enforce the liability of the directors. (Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.)

An assignee of depositors can maintain an action against the directors of a savings bank in the interest of all the creditors. The debt of a depositor is assignable, and the action is to enforce the obligation of suretyship of the directors. (Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.)

The claim of a creditor need not be reduced to a judgment before he can sue the directors on their liability for misappropriated funds. Although the action can be maintained only in equity, it is not such a creditor's bill as must first exhaust all legal remedies, before suing in equity. A specific demand for an accounting is not required in such action against directors. (Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.)

Under section 3, article XII, of the Constitution, conceding it to be self-executing, an action at law on behalf of one or more of the creditors of the corporation cannot be sustained, but the only proper remedy, on behalf of the creditors, is a bill in equity, where all the creditors are parties, or are represented, and in which there can be an accounting and adjustment of equities, after ascertainment of all the facts. (Winchester v. Maybury, 122 Cal. 522, 55 Pac. 393.)

Action for fraud against directors of corporation, either by corporation or by stockholders, is barred in three years where evidence of fraud is matter of public record and entered upon the books of the corporation. (Lady Washington etc. Co. v. Wood, 113 Cal. 482, 45 Pac. 809.)

Distribution of Property on Dissolution.-Stockholders have no legal title to the property of the corporation. That remains in the corporation, and the shares simply represent the right of the shareholders to share in the distribution of the profits of the corporation, and in the final distribution of its estate when it shall cease to exist, and its estate shall have been finally administered. In advance of such final distribution, stockholders cannot even unanimously agree to a distribution or division of any part of the capital stock which directors are forbidden to make. (Kohl v.

Lilienthal, 81 Cal. 378, 20 Pac. 401, 22 Pac. 689. To same effect: Richter v. Henningsan, 110 Cal. 534, 42 Pac. 1077; Vercoutere v. Land Co., 116 Cal. 416, 48 Pac. 375.)

But, when corporation ceases to exist, from whatever cause, its property is left to be disposed of according to law; and upon dissolution of a trading corporation by judgment of forfeiture, its property neither reverts to the grantors, nor escheats to the state, but belongs, after payment of its debts, to those who were stockholders at the date of its dissolution. (Havemeyer v. Superior Court, 84 Cal. 327, 18 Am. St. Rep. 192, 24 Pac. 121. Note citations: 40 Am. St. Rep. 158; 58 Am. St. Rep. 781.)

The people of the state have no interest to be affected by appointment of a receiver of the property of a dissolved corporation which has forfeited its franchise for the purpose of distributing it among the stockholders and members of the corporation. (Havemeyer v. Superior Court, 84 Cal. 327, 18 Am. St. Rep. 192, 24 Pac. 121. Cited: Yore v. Superior Court, 108 Cal. 436, 41 Pac. 477.)

The method prescribed by 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.

Dissolution, Procedure: See sec. 1228 et seq., C. C. P., post.

REMOVAL FROM OFFICE OF DIRECTORS, ETC.

Sec. 310, C. C. No director shall be removed from office, unless by a vote of two-thirds of the members, or of stockholders holding two-thirds of the capital stock, at a general meeting held after previous notice of the time and place, and of the intention to propose such removal. Meetings of stockholders for this purpose may be called by the president, or by a majority of the directors, or by members or stockholders holding at least one-half of the votes. Such calls must be in writing, and addressed to the secretary, who must thereupon give notice of the time, place, and object of the meeting, and by whose order it is called. If the secretary refuse to give the notice, or if there is none, the call may be addressed directly to the members or stockholders, and be served as a notice, in which case it must specify the time and place of meeting. The notice must be given in the manner provided in section 301 of this title, unless other express provision has been made therefor in the by-laws. In case of removal, the vacancy may be filled by election at the same meeting. En. March 21, 1872.

Act to protect stockholders and persons dealing with corporations from misrepresentations of officers: See post, Appendix.

Provision was made in the act of 1872 (Stats. 1871-72, p. 443), for removal on petition by the court. Constitutionality of the act questioned in Chollar Min. Co. v. Wilson, 66 Cal. 376, 5 Pac. 670.

Section Cited.

Ex-Mission L. & W. Co. v. Flash, 97 Cal. 630, 32 Pac. 600.

Annotation.

Removal of Directors.-No director can be ousted except by a vote of the stockholders owning two-thirds of the capital stock. (ExMission L. & W. Co. v. Flash, 97 Cal. 630, 32 Pac. 600.)

The power of amotion is incident to every corporation, and the removal of the mere private or ministerial officers of a corporation is a right which belongs to the corporation alone. The assistance cf the courts can only be invoked against such officers as are intrusted by law with the management of the affairs of the corporation; and, as against these, the remedy is purely legal. It is well settled that there is no jurisdiction in equity with regard to the removal of corporate officers of any description. (Neall v. Hill, 16 Cal. 149, 76 Am. Dec. 508. Citing Atty. Gen. v. Clarendon, 17 Ves. 491; Bayless v. Orne, 1 Fre. Ch. R. 171.)

Where, however, special jurisdiction is conferred upon a court (vide Stats. 1871-72, p. 443, sec. 1), to remove corporate officers upon petition, to invest the court with jurisdiction the requirements of

the act must be complied with, and it must so appear on the face of the record. And when a statute requires such petition to be signed by a majority of the shareholders, a signing by a majority of the stock is not sufficient. (Chollar Min. Co. v. Wilson, 66 Cal. 374, 5 Pac. 670. Note citation: 62 Am. Dec. 792.)

JUSTICE OF THE PEACE MAY ORDER MEETING WHEN.

Sec. 311, C. C. Whenever, from any cause, there is no person authorized to call or to preside at a meeting of a corporation, any justice of the peace of the county where such corporation is established may, on written application of three or more of the stockholders or of the members thereof, issue a warrant to one of the stockholders or members, directing him to call a meeting of the corporation, by giving the notice required, and the justice may in the same warrant direct such person to preside at such meeting until a clerk is chosen and