stockholders, for the proportion of his claim payable by each, and in such action the court. must ascertain the proportion of the claim or debt for which each defendant is liable, and a several judgment must be rendered against each, in conformity therewith. If any stockholder pays his proportion of any debt due from the corporation, incurred while he was such stockholder, he is relieved from any further personal liability for such debt; and if an action has been brought against him upon such debt, it shall be dismissed, as to him, upon his paying the costs, or such proportion thereof as, may be properly chargeable against him. The liability of each stockholder is determined by the amount of stock or shares owned by him at the time the debt or liability was incurred; and such liability is not released by any subsequent transfer of stock. The term stockholder, as used in this section, shall apply not only to such persons as appear by the books of the corporation to be such, but also to every equitable owner of stock, although the same appear on the books in the name of another, and also to every person who has advanced the installments or purchase money of stock in the name of a minor, so long as the latter remains a minor; and also to every guardian, or other trustee, who voluntarily invests any trust funds in the stock. Trust funds in the hands of a guardian, or trustee, shall not be liable under the provisions of this section, by reason of any such investment, nor shall the person for whose benefit the investment is made be responsible in respect to the stock until he becomes competent and able to control the same; but the responsibility of the guardian or trustee making the investment shall continue until that period. Stock held as collateral security, or by a trustee, or in any other representative capacity, does not make the holder thereof a stockholder within the meaning of this section, except in the cases above mentioned, so as to charge him with any proportion of the debts or liabilities of the corporation; but the pledgor, or person or estate represented, is to be deemed the stockholder, as respects such liability. In corporations having no capital stock, each member is individually and personally liable for his proportion of its debts and liabilities, and similar actions may be brought against him, either alone or jointly with other members, to enforce such

liability, as by this section may be brought against one or more stockholders, and similar judgments may be rendered. The liability of each stockholder of a corporation formed under the laws of any other state or territory of the United States, or of any foreign country, and doing business within this state. shall be the same as the liability of a stockholder or of a corporation created under the Constitution and laws of this state. March 21, 1872. Amd. 1873-74, 203; 1875-76, 73.

En.

Act to protect stockholders from fraudulent representations of officers: See post, Appendix, title "Corporations."

Liability of stockholders for debts of the corporation is declared in Const. Cal. 1879, art. XII, sec. 3.

Legislative History.

Sections 32 and 36 of article IV of the Constitution of 1849 (see sections 2 and 3, article XII, Constitution 1879, ante) provided for a stochkolder's liability, but it was held in French v. Teschemacker, 24 Cal. 518, that these provisions were inoperative without the aid of legislation to give them practical effect. This legislation was supplied by section 32 of the corporation act of 1850, page 350, and by section 16 of the corporation act of 1853, page 90.

Section 17 of the life insurance act of 1866, page 752, also provided for a stockholder's liability. These constitutional and statutory provisions were not sufficient, and the code section adopted in 1872 furnish a more stringent rule as to stockholders' liability. The original section is as follows:

"Sec. 322. Each stockholder or member of any corporation is severally, individually, and personally liable for such proportion of all its debts and liabilities as the amount of stock or shares owned by him in such corporation bears to the whole of the subscribed capital stock or shares of the corporation, for the recovery of which joint or several actions may be instituted and prosecuted; and in any such action against any of the stockholders or members of a corporation, the court must ascertain and determine the proportion of the debt which is the subject of the suit for which each of the stockholders or members who are defendants in the action are severally liable, and judgment must be given severally in conformity therewith. If any stockholder or member of a corporation pays his proportion of any debt due by such corporation, he is released and discharged from any further individual or personal liability for such debt. Stock held as collateral security, or by a trustee, or in any other representative capacity does not make the holder thereof a stockholder but the pledgor or person or estate represented is the stockholder.''

The section was amended by act of March 30, 1874 (Amendments 1873-74, 203), so as to read like the amendment in the text, except that

it did not have the last sentence commencing with the words "The liability of each stockholder."

Section Cited.

Sonoma Valley Bank v. Hill, 59 Cal. 109, 110; Faymonville v. McCullough, 59 Cal. 286; Harmon v. Page, 62 Cal. 461; Mitchell v. Beckman, 64 Cal. 121, 28 Pac. 110; Derby v. Stevens, 64 Cal. 288, 289, 30 Pac. 820; Santa Cruz R. R. v. Spreckels, 65 Cal. 210, 3 Pac. 661, 802; Bidwell v. Babcock, 87 Cal. 29, 31, 32, 25 Pac. 752; Barnes v. Babcock, 95 Cal. 580, 589, 29 Am. St. Rep. 158, 27 Pac. 674, 30 Pac. 776; Kennedy v. California Savings Bank, 97 Cal. 95, 33 Am. St. Rep. 163, 31 Pac. 846; Borland v. Nevada Bank, 99 Cal. 92, 37 Am. St. Rep. 32, 33 Pac. 737; Griffin & S. Co. v. Magnolia & H. F. C. Co., 107 Cal. 381, 40 Pac, 495; Brown v. Merrill, 107 Cal. 446, 48 Am. St. Rep. 145, 40 Pac. 557; Winona Wagon Co. v. Bull, 108 Cal. 4, 5, 40 Pac. 1077; Market St. Ry. Co. v. Hellman, 109 Cal. 588, 42 Pac. 225; McGowan v. McDonald, 111 Cal. 63, 66, 52 Am. St. Rep. 149, 43 Pac. 418; Pelton v. San Jacinto Lumber Co., 113 Cal. 25, 45 Pac. 12; Case etc. Works v. Montgomery, 115 Cal. 380, 47 Pac. 108; Smith v. S. F. & N. P. R. R. Co., 115 Cal. 594, 56 Am. St. Rep. 119, and note, 47 Pac. 582; Danielson v. Yoakum, 116 Cal. 384, 48 Pac. 322; Grimwood v. Barry, 118 Cal. 276, 50 Pac. 430; Myers v. Sierra Valley etc. Assn., 122 Cal. 672, 673, 674, 55 Pac. 689; Sacramento Bank v. Pacific Bank, 124 Cal. 150, 71 Am. St. Rep. 36, 56 Pac. 787; Johnson v. Bank of Lake etc., 125 Cal. 8, 73 Am. St. Rep. 17, 57 Pac. 664; Santa Rosa National Bank v. Barnett, 125 Cal. 412, 58 Pac. 85; Welch v. Sargent, 127 Cal. 82, 59 Pac. 319; Wells, Fargo & Co. v. Enright, 127 Cal. 675, 60 Pac. 439; Duke v. Huntington, 130 Cal. 274, 62 Pac. 510; Greenleaf v. Jacks, 133 Cal. 507, 65 Pac. 1039; Abbot v. Jacks, 136 Cal. 513, 69 Pac. 257.

Annotation.

Stockholder's Liability-Generally.-The stockholder's liability is founded on the theory of the corporation's agency for him in matters within its powers. (Kennedy v. California Savings Bank, 97 Cal. 93, 33 Am. St. Rep. 163, 168, 31 Pac. 846. To same effect: McGowan v. McDonald, 111 Cal. 71, 52 Am. St. Rep. 158, 4 Pac. 418; Bliss v. Sneath, 119 Cal. 530, 51 Pac. 848.)

Corporation is agent of stockholders in making contracts and incurring liability authorized by law and by its articles of incorporation; and its contracts thus made bind its stockholders as respect their individual liability for its indebtedness; and any admissions or declarations made by corporation within scope of its agency and as part of res gestae may be proved against stockholders as principals. (McGowan v. McDonald, 111 Cal. 57, 52 Am. St. Rep. 149, 43 Pac. 418.)

And a stockholder cannot avoid liability for debts of corporation if the stock stands in his name on the books. (Wolf v. St. Louis Co., 15 Cal. 319. To same effect: Moore v. Boyd, 74 Cal. 174, 15 Pac. 670. Note citation: 3 Am. St. Rep. 859.)

And, under this section, a stockholder is liable not only for the stock standing in his name on the books, but also for all the stock owned by him which stands on the books in the name of another. (Duke v. Huntington, 130 Cal. 272, 62 Pac. 510.)

If the rule which prevails in some courts, as to transfer to escape liability, applies at all in California, it does not apply unless the transfer was for the purpose of escaping liability, and to a person whom the stockholders knew to be irresponsible. (Moore v. Boyd,

74 Cal. 167, 15 Pac. 670.)

A transfer upon the books of a company of five shares, to enable a person to act as a director, makes him liable as a stockholder to the extent of such shares. (Moore v. Boyd, 74 Cal. 167, 15 Pac. 670.) The liability of stockholders, at date of filing, is limited to those named in the articles, and to the amounts therein mentioned. (M. & S. V. R. R. v. Hildreth, 53 Cal. 123. Note citations: 43 Am. Dec. 697; 81 Am. Dec. 395.)

But if persons are bona fide stockholders and holders of bona fide stock, it is immaterial as to fixing their liability, whether or not they were original subscribers. (Tulare etc. Bank v. Talbot, 131 Cal. 45,

€3 Pac. 172.)

And where stock was issued to a woman in her name and was accepted by her, and stood for three years on the books in her name, it renders her liable as a stockholder, along with her husband, to whom she had assigned the stock. (Abbott v. Jack, 136 Cal. 510, 69 Pac.

257.)

A stockholder is liable for interest as much as for the original indebtedness. (Wells, Fargo & Co. v. Enright, 127 Cal. 669, 60 Pac. 439. To same effect: Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047.)

The original liability of a corporation and its stockholders is to the one from whom the consideration of an authorized note was actually received, and to whom such note was made payable. Neither the corporation nor its stockholders could resist an action by him, on the ground that the money paid by him had been received from another for the purpose of making the loan. The legal rights of the plaintiff rest upon his title to the note of the corporation indorsed by him to the authorized payee. (Spreckels v. Butler, 128 Cal. 645, 61 Pac. 378.)

A judgment against a corporation, while the party is a stockholder, upon a contract entered into before he became stockholder, is not a contract upon which he is liable. (Larribee v. Baldwin, 35 Cal. 155.) The Constitution of 1849 having provided that all laws for formation of corporations might be altered from time to time or repealed,

the legislature and the people of the state had power to change the law as to the liability of stockholders, without violating the obligation of a contract under Constitution of United States. (McGowan v. McDonald, 111 Cal. 57, 52 Am. St. Rep. 149, 43 Pac. 418.)

For the purpose of administration, certificates of stock constitute property in the state where the stock is to be administered upon according to its legal policy, and can only be reached there by the creditors of the deceased owner of the stock. (Murphy v. Crouse, 135 Cal. 14, 87 Am. St. Rep. 90, 66 Pac. 971.)

Held, prior to code, that to determine how much one stockholder cf a corporation is liable to pay to a corporate creditor, it is necessary to find the whole amount of the indebtedness of the corporation created while he was a stockholder. (Larribee v. Baldwin, 35 Cal. 155.)

Section 36, article 4, of the Constitution of 1849 is not self-executing, but the legislature must regulate the liability and fix the rule of ascertainment of each stockholder's proportion. (French v. Teschemaker, 24 Cal. 518. To same effect: Larrabee v. Baldwin, 35 Cal. 166; McGowan v. McDonald, 111 Cal. 63, 52 Am. St. Rep. 149, 43 Pac. 418. Note citations: 52 Am. St. Rep. 151; 3 Am. St. Rep. 837.)

The Constitution of 1849 left to the legislature the power to regulate the personal liability of stockholders, and to prescribe the rule by which each stockholder's proportion of debts of the corporation shall be ascertained. (Larrabee v. Baldwin, 35 Cal. 155.)

Under the Constitution of 1849 the stockholders of a corporation could not be sued as individuals for the debts of the corporation. (Curtiss v. Murry, 26 Cal. 633.)

But corporations organized prior to the code are subject, as respects the liability of stockholders, to the provisions of the Constitution of 1879, and of the Civil Code on that subject, although such corporations did not elect to continue their existence under the code. (McGowan v. McDonald, 111 Cal. 57, 52 Am. St. Rep. 149, 43 Pac. 418.)

Sections 2 and 3 of article XII of Constitution of 1879, relating to liability of stockholders in corporation, has no application to liability of stockholder accrued prior to adoption of Constitution. (Harmon v. Page, 62 Cal. 448.)

Sections 32 and 36, article IV, Constitution of 1863, substantially same as foregoing. (Harmon v. Page, 62 Cal. 448.)

Measure and Nature of Liability.-The constitutional and statutory provisions as to a stockholder's liability should receive a just and reasonable construction. (Mokelumne etc. Co. v. Woodbury, 14 Cal. 265.)

Stockholder's liability for corporate debts is a primary obligation. (Morrow v. Superior Court, 64 Cal. 383, 1 Pac. 354. To same effect: