Page images

stockholder, is not invalid, as taking away the liability fixed by the constitution. (French v. Teschemaker, 24 Cal. 518.)

One stockholder may enforce the personal liability of other stockholders in the corporation for a debt due such stockholder from the corporation. (Brown v. Merrill, 107 Cal. 446, 48 Am. St. Rep. 145, 40 Pac. 557; Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047.)

This provision applies to corporations formed before as well as after the adoption of the new Constitution. (McGowan v. McDonald, 111 Cal. 57, 52 Am. St. Rep. 149, 43 Pac. 418.)

Under a like provision in the Constitution of Kansas, it was held that it was enforceable in this state against California stockholders in a Kansas corporation. (Ferguson v. Sherman, 116 Cal. 169, 47 Pac. 1023.)

When It Attaches. This section has no application to liabilities of stockholders which accrued prior to its adoption. (Harmon v. Page, 62 Cal. 448.)

A subscriber for shares is responsible as a stockholder, although he has not paid for his stock or received a certificate therefor. (Mitchell v. Beckman, 64 Cal. 117, 28 Pac. 110.)

A pledgee of stock is not a stockholder withir: the meaning of this section. (Borland v. Nevada Bank, 99 Cal. 89, 37 Am. St. Rep. 32, 33 Pac. 737.)

The liability of the stockholder is dependent upon the fact that he is a stockholder at the time the debt is created, and such liability cannot be extended by the corporation by a note given for an indebtedness not created while he was a stockholder, hy suffering a judgment to be recovered on such indebtedness, or in any other manner. (Winona Wagon Co. v. Bull, 108 Cal. 1, 40 Pac. 1077; Lar

Baldwin, 35 Cal. 155; Danielson v. Yoakum, 116 Cal. 382, 48 Fac. 322; Partridge v. Butler, 113 Cal. 326, 45 Pac. 678; Santa Rosa Yat. Bank v. Barnett, 125 Cal. 407, 58 Pac. 35.)

The liability of a stockholder in a savings bank accrues at the time of the acceptance of the deposit. (Wells v. Black, 117 Cal. 157, 5. Am. St. Rep. 162, 48 Pac. 1090.)

A stockholder in a savings bank is liable for his proportion of a deposit in such bank. (Wells v. Black, 117 Cal. 157, 59 Am. St. Rep. 162, 48 Pac. 1090.)

A liability for overdrafts to a bank is created upon the daily balances against the corporation shown by the account. (Santa Rosa Nat. Bank v. Barnett, 125 Cal. 407, 58 Pac. 85.)

The liability of a corporation for the services of an attorney is not created until the rendition of the services. (Johnson v. Bank of Lake, 125 Cal. 6, 73 Am. St. Rep. 17, 57 Pac. 664.)

Where an accommodation indorser of the note of a corporation pays the same, the debt is extinguished, and the stockholders' liability upon the debt comes to an end, and neither under the doctrine

rabee v.

of equitable assignment nor of subrogation can it be transferred as a live and subsisting obligation, but at the time of payment by the indorser a new liability springs up against the corporation and its stockholders, a liability upon an implied contract to reimburse what lias been expended, including costs and expenses. (Yule v. Bishop, 133 Cal. 574, 62 Pac. 68, 65 Pac. 1094.)

Nature of.-An action to recover upon the liability of a stock. holder is an action at law, (Morrow v. Superior Court, 61 Cal. 383, 1 Pac. 354.)

A stockholder's liability is a “liability created by law." (Moore /v. Boyd, 74 Cal. 167, 15 Pac. 670; Hunt v. Ward, 99 Cal. 612, 37 Am. St. Rep. 87, 34 Pac. 335.)

It is also a liability created by statute. (Bank v. Pacific Coast S. S. Co., 103 Cal. 594, 37 Pac. 499.)

It is also an obligation arising upon contract. (Dennis v. Superior Court, 91 Cal. 548, 27 Pac. 1031; Kennedy v. California Sav. Bank, 97 Cal. 93, 33 Am. St. Rep. 163, 31 Pac. 846.)

The obligation of stockholders is direct and primary. They are principal debtors, and not sureties of the corporation, and their liability is not contingent upon a recovery against the corporation, nor is it affected by a suspension or renewal as to the corporation. (Faymonville v. McCollough, 59 Cal. 285; Davidson v. Rankin, 34 Cal. 503; Hyman v. Coleinan, 82 Cal. 650, 16 Am. St. Rep. 178, 23 Pac. 62; Mitchell v. Beckman, 64 Cal. 117, 28 Pac. 110.)

Stockholders are not jointly and severally liable, but each stockholder is severally liable for his proportion of the indebtedness, and when he has paid his portion of any debt, or of all the debts of the corporation, he is freed from all liability, and has no cause of action against any other stockholder for money so paid. (Brown v. Merrill, 107 Cal. 446, 48 Am. St. Rep. 145, 40 Pac. 557; Derby v. Stevens, 64 Cal. 287, 30 Pac. 820.)

The mere fact that the corporation has pledged to the debtor certain property as security for the debt does not prevent the debtor from suing the stockholders. (Sonoma Valley Bank v. Hill, 59 Cal. 107.)

A judgment against the corporation does not extinguish, suspend, or merge the liability of the stockholders. (Young v. Rosenbaum, 39 Cal. 646.)

Nor does such a judgment prolong the time within which an action may be maintained against the stockholders. (Stilphen v. Ware, 45 Cal. 110.)

An action may be maintained against the stockholders, although the debt is secured by a mortgage of the corporation which has not been foreclosed. (Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047.)

Stockholders are liable for interest as well as principal. (Wells, Fargo & Co. v. Enright, 127 Cal. 669, 60 Pac. 439.)

A stockholder of an insolvent bank has no right to share in the dividends of the bank by way of subrogation to the rights of a creditor to whom he has paid his proportionate share of his claim. (Sacramento Bank v. Pacific Bank, 124 Cal. 147, 71 Am. St. Rep. 36, and note, 56 Pac. 787.)

Release of.—Whenever a debt of a corporation is satisfied in part, there is also pro tanto a discharge of the liability of the stockholders. (San Jose Sav. Bank v. Pharis, 58 Cal. 380.)

Where a creditor of a corporation releases a stockholder from all personal liability, he thereby discharges the corporation and other stockholders to the same extent as the one to whom the release is executed. If the release is for the releasee's proportion, the company and other stockholders are only released pro tanto. (Prince v. Lynch, 38 Cal. 528, 99 Am. Dec. 427, and note.)

Practice.-A complaint to recover on the stockholder's liability must state the amount of the whole number of shares subscribed for. (Bidwell v. Babcock, 87 Cal. 29, 25 Pac. 752; Roebling's Sons Co. v. Butler, 112 Cal. 677, 45 Pac. 6.)

As to the form of the complaint generally, see Duke v. Huntington, 130 Cal. 272, 62 Pac. 510; Whitehurst v. Stuart, 129 Cal. 194, 61 Pac. 963.

The complaint must show affirmatively that the defendant was a stockholder when the debt was incurred, and a mere allegation that he was a stockholder when the note was executed is insufficient. (Case Plow Works v. Montgomery, 115 Cal. 380, 47 Pac. 108.)

A creditor is not bound to exhaust the remedies against the corporation before proceeding against the stockholder. (Morrow v. Superior Court, 64 Cal. 383, 1 Pac. 354.)

The provisions of this section do not oust a court of equity of jurisdiction to compel stockholders to pay for the benefit of creditors the amount of the capital stock subscribed for by them. (Harmon v. Page, 62 Cal. 448.)

Although the liability of the stockholder is that of an original debtor, it is proper to plead the debt as that of the corporation. (Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047.)

Where one stockholder pays a note of the corporation, and sues the other stockholders for contribution, the superior court has no jurisdiction, if the several amounts asked against each stockholder are less than three hundred dollars. (Myers v. Sierra Valley etc. Co., 122 Cal. 669, 55 Pac. 689.)

Liability of Directors.—This provision only applies to such misappropriations of moneys as are similar to embezzlement, consisting of the misappropriations of funds intrusted to an officer for a par. ticular purpose, by devoting them to some unauthorized purpose, and does not apply to the payment of an extravagant price for services or materials properly appertaining to the business of the corporation. (Fox v. Hale & Norcross etc. Min. Co., 108 Cal. 369, 41 *Pac. 308.)

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

An action at law on behalf of one or more of the creditors of a corporation cannot be sustained under the provision as to the liability of directors, but the only proper remedy is a bill in equity where all the creditors are parties, or are represented, and in which there can be an accounting after ascertainment of facts. (Win. chester v. Mabury, 122 Cal. 522, 55 Pac. 393.)

Section 3 of article XII of the Constitution regulating the liability of directors of corporations and joint-stock associations for moneys embezzled or misappropriated by them during their several terms of office is self-executing, and the proper remedy for its enforcement is by bill in equity in which the rights of the creditors are superior to those of the stockholders, (Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.)

The provisions of section 3 of article XII of the state Constitution are not in conflict with the fourteenth amendment of the federal Constitution. The directors took office knowing the responsibilities of suretyship which they assumed in so doing, and in the eye of the law did so as freely and voluntarily as if they had signed a bond agreeing to be responsible for the corporate officers. (Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.)

The Constitution makes the directors sureties for their fellowdirectors and for the officers of the corporation for moneys so misappropriated as to make the officer appropriating them liable for a violation of the law. The liability imposed upon the directors is not penal in the technical sense, no recovery being allowed as a punishment, but only to compensate for a loss occasioned by nisappropriation. (Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 163, 64 Pac. 692, 69 Pac. 77.)

The directors of a savings bank are liable to an action on behalf of the depositors of the bank for loss caused by the misappropriation of moneys taken out of the bank and applied to unauthor. ized and illegal purposes in the interest of the directors or of some of them. (Winchester v. Howard, 136 Cal. 432, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.)

The fact that the bookkeeper of a corporation was appointed by the president, and not by the manager thereof, cannot relieve the manager from liability for false entries in the books and defalcations made by the bookkeeper, where the fraud and defalcations of the bookkeeper were made possible by the manager's own fraud, and where, if he had given strict and upright attentiun to his duty, the embezzlement of the bookkeeper could not have been successfully carried out. (San Pedro Co. v. Reynolds, 121 Cal. 74, 53 Pac. 410.)

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 stock. holder, 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. 1080. Note citations: 41 Am. Dec. 368; 53 Am. Dec. 644.)

Action by stockholder against executive committee of board of directors of insolvent bank for an accounting is, in its nature, a legal action ex delicto against the defendants as joint tort-feasors, and not ex contractu. (Chetwood v. California Nat. Bk., 113 Cal. 414, 45 Pac. 704.)

Depositors who become such subsequent to the misappropriation may sue to recover on the liability of the directors. The new depositor becomes such on faith of the presumed assets, and the remedy is for the benefit of all creditors of the corporation. (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 directors. (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 pro. ceedings to enforce the liability 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 specific before suing in equity. A 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.)

The right of a creditor to sue the directors for misappropriation of 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.)

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

« PreviousContinue »