supported by an independent consideration.17 Nor is a sale by trustees of trust property to a corporation of which they are stockholders and directors a sale to themselves.18

§ 6. Disregard of Corporate Entity. Both law and equity will, however, disregard this distinct existence of the corporation and its stockholders and will treat them as identical when necessary to prevent or redress fraud, or to protect the rights of third persons, or to prevent a palpable injustice.18 So this will be done to prevent fraud and protect the rights of third persons where an individual or a set of individuals who own all of the stock of a corporation use the corporation merely as an instrumentality through which to transact business.20 And under such circumstances the corporation may be held obligated for the acts of the stockholders in the same manner and to the same extent as they would be liable in the absence of the existence of the corporation, or the stockholders may be held

17. Sherwood v. Lowell, 34 Cal. App. 365, 167 Pac. 554. 18. Herbert Kraft Co. v. Bryan, 140 Cal. 73, 73 Pac. 745; Copsey v. Sacramento Bank, 133 Cal. 659, 85 Am. St. Rep. 238, 66 Pac. 7, 204.

As to the right of a director to deal with the corporation, see infra, § 213 et seq.

19. Midwest Air Filters v. Finn, 74 Cal. Dec. 116, 258 Pac. 382; Clark v. Millsap, 197 Cal. 765, 243 Pac. 918; Minifie v. Rowley, 187 Cal. 481, 202 Pac. 673; Hotaling v. Hotaling, 193 Cal. 368, 224 Pac. 455; Erkenbrecher v. Grant, 187 Cal. 7, 200 Pac. 641; Stanford Hotel Co. v. M. Schwind Co., 180 Cal. 348, 181 Pac. 780; Llewellyn Iron Works v. Abbott Kinney Co., 172 Cal. 210, 155 Pac. 986; Ragsdale v. Nagle, 106 Cal. 332, 39 Pac. 628; Offeman v. Robertson-Cole Studios, 51 Cal. App. Dec. 386, 251 Pac. 830; McCormick Saeltzer Co. v. Grizzly Creek Lumber Co., 74 Cal. App. 278, 240 Pac. 32. "One man" Corporations, see infra, § 309.

An agreement made in contemplation of incorporation by the persons interested, where the interests of others are not affected, controls the conduct of the corporation's affairs, and if necessary to enforce the provisions of the agreement for division of profits, the corporate fiction will be ignored. Conover v. Smith, 53 Cal. App. Dec. 352, 256 Pac. 835.

20. Clark v. Millsap, 197 Cal. 765, 243 Pac. 918; Llewellyn Iron Works v. Abbott Kinney Co., 172 Cal. 210, 155 Pac. 986; Zenos v. Britten-Cook Land & Live Stock Co., 75 Cal. App. 299, 242 Pac. 914; McCormick Saeltzer Co. v. Grizzly Creek Lumber Co., 74 Cal. App. 278, 240 Pac. 32; Mills v. Richmond Co., 63 Cal. App. 594, 219 Pac. 465.

1. Clark v. Millsap, 197 Cal. 765, 243 Pac. 918; Llewellyn Iron Works v. Abbott Kinney Co., 172 Cal. 210, 155 Pac. 986; Zenos v. Britten-Cook

2

liable individually for acts done by them in the name and through the medium of the corporation. This rule is frequently applied where a single individual uses the corporate name in the manner suggested, but it is equally applicable where two or more own all of the stock and act in conjunction in the name of the corporation.3

Before the fiction of distinct corporate entity can be disregarded, and the obligations of a corporation can be legally recognized as those of a particular person, and vice versa, it must be made to appear that the corporation is not only influ enced and governed by that person, but that there is such a unity of interest and ownership that the individuality or separateness of said person and corporation has ceased; and also that the facts are such that adherence to the fiction of separate existence would, under the particular circumstances, sanction a fraud, promote injustice, or aid the consummation of a wrong.5 Nor will the fiction be disregarded in favor of a person who dealt with the corporation with full knowledge of the facts, and of the relation of the dominating stockholder to it. To justify a disregard of the corporate entity, it is not necessary that any

Land & Live Stock Co., 75 Cal. App. 299, 242 Pac. 914; McCormick Saeltzer Co. v. Grizzly Creek Lumber Co., 74 Cal. App. 278, 240 Pac. 32; Campbell v. Hanford, 67 Cal. App. 155, 227 Pac. 234; Commercial Surety Co. v. Modesto Drug Co., 43 Cal. App. 162, 184 Pac. 964.

2. Clark v. Millsap, 197 Cal. 765, 243 Pac. 918.

3. Clark v. Millsap, 197 Cal. 765, 243 Pac. 918; Zenos v. Britten-Cook Land & Livestock Co., 75 Cal. App. 299, 242 Pac. 914; Hotaling v. Hotaling, 193 Cal. 368, 224 Pac. 455; Campbell v. Hanford, 67 Cal. App. 155, 227 Pac. 234 (where two persons owned practically all of the stock); Mills v. Richmond Co., 63 Cal. App. 594, 219 Pac. 465 (all stock owned by an individual except a few qualifying shares); Commercial Surety Co. v. Modesto Drug Co., 43 Cal. App. 162, 184 Pac. 964 (all the stock but one share owned by two persons).

4. Minifie v. Rowley, 187 Cal. 481, 202 Pac. 673; Erkenbrecher v. Grant, 187 Cal. 7, 200 Pac. 641; Llewellyn Iron Works v. Abbott Kinney Co., 172 Cal. 210, 155 Pac. 986 (holding that a showing that an individual was the president and the owner and holder of a majority of the stock of the corporation was insufficient); Weaver v. Atlantian Const. Co., 53 Cal. App. Dec. 821, 258 Pac. 111.

5. Minifie v. Rowley, 187 Cal. 481, 202 Pac. 673; Erkenbrecher v. Grant, 187 Cal. 7, 200 Pac. 641.

6. Lynch v. McDonald, 155 Cal. 704, 102 Pac. 918.

actual fraud be shown, however, but it is sufficient if it appears that the dealings were in form with a corporation but in reality with an individual or individuals, and that a refusal to recognize this fact will bring about inequitable results."

8

§ 7. Corporate Franchise.-The right to be a corporation and to exist as such, and as a corporation to do the business specified in its articles, is generally known as the corporate franchise. This franchise to be a corporation is property, separate and distinct from the tangible property and any special franchises10 which the corporation may acquire. And it is personal property,11 and is subject to separate taxation.12

§ 8. Power of State With Respect to Corporations-Applica bility of Statutes.-There is no natural right to do business under a corporate name.13 A corporation is purely a creature of the law and can exist and carry on business only by permission of the state and by virtue of statutory authority.14 And though formed under a general law, a corporation derives its right to exist as a corporation, with all the incidents thereof,

7. Minifie v. Rowley, 187 Cal. 481, 202 Pac. 673.

8. Kaiser Land & Fruit Co. v. Curry, 155 Cal. 638, 103 Pac. 341; Bank of California v. San Francisco, 142 Cal. 276, 100 Am. St. Rep. 130, 64 L. R. A. 918, 75 Pac. 832; Spring Valley Water Works v. Schottler, 62 Cal. 69; San Joaquin & K. R. C. & Irr. Co. v. Merced County, 2 Cal. App. 593, 84 Pac. 285.

9. Kaiser Land & Fruit Co. v. Curry, 155 Cal. 638, 103 Pac. 341; Bank of California v. San Francisco, 142 Cal. 276 100 Am. St. Rep. 130, 64 L. R. A. 918, 75 Pac. 832; Spring Valley Water Works v. Schottler, 62

Cal. 69.

10. Bank of California v. San Francisco, 142 Cal. 276, 100 Am. St. Rep. 130, 64 L. R. A. 918, 75 Pac. 832; San Joaquin & K. R. C. & Irr. Co. v. Merced County, 2 Cal. App. 593, 84 Pac. 285.

11. Bank of California v. San Francisco, 142 Cal. 276, 100 Am. St. Rep. 130, 64 L. R. A. 918, 75 Pac. 832.

12. See infra, § 591.

13. San Francisco v. Liverpool & L. G. Ins. Co., 74 Cal. 113, 5 Am. St. Rep. 425, 15 Pac. 380.

14. Boca Mill Co. v. Curry, 154 Cal. 326, 97 Pac. 1117; People v. Dashaway Assn., 84 Cal. 114, 12 L. R. A. 117, 24 Pac. 277; Moran v. Ross, 79 Cal. 159, 21 Pac. 547; Dean v. Davis, 51 Cal. 406.

directly from the sovereign power, to the same extent as though it had been created by special act of the legislature.15

Subject only to constitutional limitations, the power of the statele and of the legislature17 over corporations is absolute. Corporations may be formed only when the state so permits, 18 and only for such purposes as it may authorize.19 The state has sole power to determine upon what conditions corporations may be created and exist within its borders, 20 and it may refuse to grant a franchise to be a corporation, or may grant the franchise upon fixed terms.1 But the state cannot deprive a corporation of the rights guaranteed to it by the federal Constitution, nor of its right to resort to courts of law, nor of the equal protection of the laws, nor subject it to unequal and oppressive burdens. And of course the power of the legislature in relation to corporations is also subject to the limitations and restrictions provided by the state Constitution.

The legislature is the only branch of the state government empowered to form or authorize the formation of corporations,3 and its authority in this regard cannot be delegated to a court.

Civ. Code, § 403, as Amended by Stats. 1925, p. 428. "The provisions of this title are applicable to every corporation, unless such corporation is excepted from its operation, or unless a special provision is made in relation thereto inconsistent with some provision in this title, in which case the special provision prevails. . . .

15. Bank of California v. San Francisco, 142 Cal. 276, 100 Am. St. Rep. 130, 64 L. R. A. 918, 75 Pac. 832.

16. San Francisco v. Liverpool L. & G. Ins. Co., 74 Cal. 113, 5 Am. St. Rep. 425, 15 Pac. 380.

17. Boca Mill Co. v. Curry, 154 Cal. 326, 97 Pac. 1117; San Francisco v. Liverpool L. & G. Ins. Co., 74 Cal. 113, 5 Am. St. Rep. 425, 15 Pac. 380.

18. Bank of California v. San Francisco, 142 Cal. 276, 100 Am. St. Rep. 130, 64 L. R. A. 918, 75 Pac. 832.

19. See infra, § 53.

20. Kaiser Land & Fruit Co. v. Curry, 155 Cal. 638, 103 Pac. 341.

1. City Properties Co. v. Jordan, 163 Cal. 587, 126 Pac. 351.

2. Johnson v. Goodyear Min. Co., 127 Cal. 4, 78 Am. St. Rep. 17, 47

L. R. A. 338, 59 Pac. 304.

3. Boca Mill Co. v. Curry, 154 Cal. 326, 97 Pac. 1117; People v. Town of Nevada, 6 Cal. 143.

4. People v. Town of Nevada, 6 Cal. 143.

Section 1898 of the Code of Civil Procedure, after defining private statutes, provides that "All other statutes are public, in which are included statutes creating or affecting corporations."

$9. Power of Visitation and Supervision. The legislature has power to investigate the business and affairs of corporations, with a view to correct corporate abuses, usually called a supervisorial or visitorial power, and it may exercise this power through a committee.

Civ. Code, 383. "The legislature, or either branch thereof, may examine into the affairs and condition of any corporation in this state at all times; and, for that purpose, any committee appointed by the legislature, or either branch. thereof, may administer all necessary oaths to the directors, officers, and stockholders of such corporation, and may examine them on oath in relation to the affairs and condition thereof; and may examine the safes, books, papers, and documents belonging to such corporation, or pertaining to its affairs and condition, and compel the production of all keys, books, papers, and documents by summary process, to be issued on application to any court of record or any judge thereof, under such rules and regulations as the court may prescribe."6

Civ. Code, § 382. "The attorney-general or district attorney, whenever and as often as required by the governor, must examine into the affairs and condition of any corporation in this state, and report such examination, in writing, together with a detailed statement of facts, to the governor, who must lay the same before the legislature; and for that purpose the attorney-general or district attorney may administer all necessary oaths to the directors and officers of any corporation, and may examine them on oath in relation to the affairs and conditions thereof, and may examine the books, papers, and documents belonging to such corporation, or appertaining to its affairs and condition."

And the Political Code (§ 474), gives to the attorney general authority "to examine all books and papers of any and all cor

5. Application of Bunkers, 1 Cal. App. 61, 81 Pac. 748. 6. Application of Bunkers, 1 Cal. App. 61, 81 Pac. 748.