Page images
PDF
EPUB

poration. (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 payment 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 aseertainment 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 fellow. directors 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 tho depositors of the bank for loss caused by the misappropriation of moneys taken out of the bank and applied to unauthorized 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 appointen 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 ught 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. 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 dlebt of a depositor is assignable, and the action is to enforce the obligation of suretyship of directors. (Winchester v. Howard, 136 (al, 432, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.)

The consent of all the stockholders to a misappropriation would mot 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.)

The claim of a creditor need not be reduced to a judgment before ho 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 mrisappropriation 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 the corporation. (Lady Washington etc. Co. v. Wood, 113 Cal. 482, 45 Pac. 809.)

In an 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.)

TERM “CORPORATIONS' CONSTRUED.

Sec. 4, Art. XII. The term corporations, as used in this article, shall be construed to include all associations and joint-stock companies having any of the powers or privileges of corporations not possessed by individuals or partnerships; and all corporations shall have the right to sue and shall be subject to be sued, in all courts, in like cases as natural persons.

See section 354, Civil Code, post, as to power to sue and be sued.

Legislative History.

This section is the same as section 33, article IV, of the Constitution of 1849.

Section Cited.

Baines v. Babcock, 95 Cal. 592.

Annotation.

Right to Sue.-The right to sue and be sued, to maintain and defend actions concerning corporate rights and liabilities, is a power incident to every corporation. In this state it is not only conferred hiy statute, but is preserved by constitutional provision. With this right the stockholders cannot interfere, except when the directors refuse to act, or are guilty of fraud in the maintenance or defense of the action. (Baines v. Babcock, 95 Cal. 581, 29 Am. St. Rep. 158, 27 Pac. 674, 30 Pac. 776.)

BANKING PROHIBITED.

Sec. 5, Art. XII. The legislature shall have no power to pass any act granting any charter for banking purposes, but corporations or associations may be formed for such purposes under general laws. No corporation, association, or individual shall issue or put in circulation, as money, anything but the lawful money of the United States.

See section 356, Civil Code, post, for similar provision as to circulation,

Legislative History.

Similar provisions to this section are found in sections 34, 35, article IV, of the Constitution of 1849, as follows:

Sec. 34. The legislature shall have no power to pass any act granting any charter for banking purposes, but associations may be formed, under general laws, for the deposit of gold and silver; but no such associations shall make, issue, or put in circulation any bill, check, ticket, certificate, promissory note, or other paper, or the paper of any bank, to circulate as money.

Sec. 35. The legislature of this state shall prohibit by law any person or persons, association, company, or corporation from exercising the privileges of banking or creating paper to circulate as money."

There is no general law for the incorporation of commercial banks other than the bank commissioners' act. (Stats. 1903, p. 365.) Sections 571-580, Civil Code, post, provide for savings and loan corporations, which see for prior and supplemental legislation.

Section Cited.

Thomason v. Ashworth, 73 Cal. 77, 14 Pac. 615.

Annotation.

Banking Corporations. A corporation may be formed for the purpose of receiving deposits and loaning money under section 34, article IV, Constitution of 1849, and if it does not issue paper to circulate as money, it is not a bank, although it is called such. (Bank of Sonoma v. Fairbanks, 52 Cal. 196.)

Sections 34 and 35, article IV of the Constitution of 1849 did not prohibit the formation of banking corporations for the purpose of deposit and loan, which do not issue paper to circulate as money. (Bank of Martinez v. Hemme etc. Land Co., 105 Cal. 376, 38 Pac. 963.)

EXISTING CHARTERS, WHEN INVALID.

Sec. 6, Art. XII. All existing charters, grants, franchises, special or exclusive privileges, under which an actual and bona fide organization shall not have taken place, and business been commenced in good faith, at the time of the adoption of this constitution, shall thereafter have no validity.

This section has no parallel in the Constitution of 1849, and has never been cited or construed.

CHARTERS NOT TO BE EXTENDED, NOR FORFEITURE RE

MITTED. Sec. 7, Art. XII. The legislature shall not extend any franchise or charter, nor remit the forfeiture of any franchise o charter of any corporation now existing, or which shall hereafter exist under the laws of this state.

See subãivisions 16 and 26 of section 25, article IV, ante.

Legislative History.

This section has no parallel in the Constitution of 1849. It was adopted to restrict the power of the legislature to grant special privileges and to prevent the enactment of special legislation. (Con. stitutional Debates, p. 433.)

Section Cited.

People v. Los Angeles etc. Ry. Co., 91 Cal. 340, 27 Pac. 673; Melvin v. State, 121 Cal. 19, 53 Pac. 417.

Annotation.

Waiver of Forfeiture.- An act waiving a right to enforce a for: feiture does not “remit the forfeiture,” since there is no forfeiture until the sovereignty, which created the franchise, by proper proceeding in a proper court, procures an adjudication of forfeiture, and enforces it. (People v. Los Angeles etc. Ry. Co., 91 Cal. 338, 27 Pac. 673.)

ALL FRANCHISES SUBJECT TO THE RIGHT OF EMINENT

DOMAIN. Sec. 8, Art. XII. The exercise of the right of eminent domain shall never be so abridged or construed as to prevent the legislature from taking the property and franchises of incorporated companies and subjecting them to public use the same as the property of individuals, and the exercise of the police power of the state shall never be so abridged or construed as to permit corporations to conduct their business in such manner as to infringe the rights of individuals or the general well-being of the state.

See section I, article IV, Constitution, ante, for exercise of eminent domain.''

This section has no parallel in the Constitution of 1849, and has rot been cited or construed.

« PreviousContinue »