CHAPTER XXI.

PROMOTERS.

SEC. 187-NATURE OF RELATION TO THE CORPORATION. SEC. 188-PROMOTERS' CONTRACTS.

SECTION 187-NATURE OF RELATION TO THE CORPORATION.

A

A promoter is one who by his active endeavors assists in procuring the formation of a corporation and subscriptions to its shares, whether he afterward becomes connected with the corporation or not. [Mission Co. v. Flash, 97 Cal. 610, 32 Pac. 600.] promoter is considered in law as occupying a fiduciary relationship toward the corporation from the moment he engages in its formation. [Mission Co. v. Flash, 97 Cal. 610, 32 Pac. 600; Burbank v. Dennis, 101 Cal. 90, 35 Pac. 444.] Any concealment of material facts, or other fraud by which the promoter, while such, makes a profit out of his dealings with the corporation, renders him liable to account to it for such profit. [Id.]

Providing he acts honestly, and faithfully discloses to the others about to enter the corporation all material knowledge which affects the judiciousness of the purchase, a promoter can sell to the corporation any land or prop

erty he may own or has an interest in, other than that acquired as an agent of the corporation, and can charge any price that the corporation or the incorporators see fit to pay. Id. Also Kellerman v. Maier, 116 Cal. 416, 48 Pac. 377.

But out of his fiduciary position he shall make no profit. All profits made out of property bought by him with the corporation's money, belong to the corporation. [Id.] If the promoter defrauds the corporation in any sale, such sale may be set aside and the corporation can recover compensation for any loss it has sustained. [Id.]

Any property conferred on the promoters or agreements made with them intended for the benefit of the corporation, inure to it upon its creation, irrespective of any agreement or want of agreement to that effect. A grant of a franchise to certain persons on condition that they incorporate, is a grant to the corporation. By operation of law, the franchise passes from the corporators to the corporation the moment it comes into being.3 An agreement in the subscription to stock to pay to a certain named person makes that person an agent of all the incorporators before organization, and of the corporation after organization. Such person is then liable to

1. San Joaquin Co. v. West, 91 Cal. 399, 29 Pac. 785; Spring Valley W. W. v. San Francisco, 22 Cal. 431; San Francisco v. Spring Valley W. W., 48 Cal. 493.

2. Spring Valley W. W. v. San Francisco, 22 Cal. 434; San Francisco v. Spring Valley W. W., 48 Cal. 493.

the corporation for moneys had and received." He is not, however, a trustee and the money in his hands is not a trust fund. San Joaquin County v. West, 94 Cal. 399, 29 Pac. 785.

For torts committed by the incorporators or promotors in creating the corporation, but before it is actually created, the corporation is not liable. Berry v. S. F. & N. P. R. R. Co.,

50 Cal. 435.

SECTION 188-PROMOTER'S CONTRACTS.

The promoters are not the corporation and their contracts are not its contracts, but if those contracts are originally made for the corporation, the corporation can, after it comes into existence, adopt them as its own.

Scadden Flat etc. Co. v. Scadden, 121 Cal. 33, 53 Pac. 440.

Any acts manifesting an intention to accept the consideration of such a contract are evidence of adoption. If the corporation accepts the benefits of a third party's contract with its promoters," the corporation has adopted the contract and can sue and be sued thereon. Hawkins v. Mansfield etc. Co., 52 Cal. 513.

But if the corporation refuses to adopt a contract of its promoters, it cannot be sued on such contract. A contract by a promoter to give certain shares to a person when the corporation should be organized, cannot be

4. San Joaquin Co. v. West, 94 Cal. 399, 29 Pac. 785.

5. Morrison v. Gold Mt. Co., 52 Cal. 306; Hawkins v. Mansfield etc. Co., 52 Cal. 513; Scadden Flat etc. Co. v. Scadden, 121 Cal. 33, 53 Pac. 440.

6. Scadden Flat etc. Co. v. Scadden, 121 Cal. 33, 53 Pac. 440, Chater v. San Francisco Sugar Co., 19 Cal. 219.

enforced against the corporation. [Hawkins v. Mansfield etc. Co., 52 Cal. 513.] And a contract between the promoters that each should have a certain number of shares, after organization, does not bind the corporation. Morrison v. Gold. Min. Co., 52 Cal. 306.

CHAPTER XXII.

DE FACTO CORPORATIONS.

SEC. 189-HOW CREATED.

SEC. 190-POWERS AND LIABILITIES.

SEC. 191-ESTOPPEL TO DENY INCORPORATION.

SECTION 189-HOW CREATED.

"A partnership or a joint-stock company is

not the necessary result

of an

attempt to organize a corporation." ard v. Kaull, 44 Cal. 440.

abortive

Blanch

When individuals have made a bona fide attempt to incorporate and then do business as a corporation, claiming to be such, the corporation is one "de facto." The prerequisites to a "de facto" existence are (a) a general law under which incorporation can be had; (b) an attempt in good faith to comply therewith and to organize as a corporation; (c) doing business as a corporation.

2

When these prerequisites exist, the result is a de facto corporation, whose due incorporation or right to exercise corporate powers can

1. Los Angeles Holiness Band v. Spiers, 126 Cal. 541, 58 Pac. 1049; Lakeside etc. Co. v. Crane, 80 Cal. 181, 22 Pac. 76; Golden Gate Co. v. Hendy Works, 82 Cal. 184, 23 Pac. 45; People v. La Rue, 67 Cal. at 530, 8 Pac. 84; Bakersfield Hall Asso. v. Chester, 55 Cal 98; Stockton etc. Co. v. Stockton etc. R. R. Co., 45 Cal. 680; Rondell v. Fay, 32 Cal. 354; Dannebroge etc. Co. v. Allmont, 26 Cal. 286.