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pretense on the part of the plaintiff below that the defendants in error had notice of the assignment of the note in question to the plaintiff in error, and therefore the instruction could not prejudice the rights of plaintiff in error. As we discover in the record no error prejudicial to the rights of the plaintiff in error, the judgment of the trial court will be affirmed. All the judges concurring
(116 Cal. 553)
HERMAN v. HECHT et al. (S. F. 293.) (Supreme Court of California. April 23, 1897.) CORPORATIONS-STOCKHOLDERS' LIABILITY--PLEAD
ING-VARIANCE-ASSIGNMENTS-EVIDENCE. 1. The requirement that an action to enforce the liability of stockholders for the corporation's debt must be on the original debt is substantially complied with by a complaint setting out a note of the corporation, and alleging that on the date of the note the corporation borrowed the amount thereof from the payee "on the terms and conditions, and according to the tenor and effect," of said note, since the inception of the debt and the execution of the note are coincident.
2. A finding that a corporation did not "borrow" a certain sum from a bank on its note, in an action against the stockholders on the note, is not justified where the undisputed evidence is that the note was given to the bank in exchange for a partnership note held by the bank, which the corporation had assumed, since the transaction was, in substance, a loan, and a payment of the partnership note with its proceeds.
3. The variance, if any, between a complaint alleging a loan, and proof of such exchange of notes, is immaterial, under Code Civ. Proc. $ 163, providing that no variance is material which has not actually misled a party to his prejudice. where the facts as to the consideration of the note were alleged in the answer.
1. The indorsers of the note of a corporation for $10,000 paid it, and subsequently assigned it, in writing, for an expressed consideration of $5. They testified that they hoped to get something out of the collection of the note from the stockholders, but had no arrangement with the assignee therefor. Held, that the assignee was the “real party in interest," and could sue to enforce the liability of the stockholders.
5. Evidence that plaintiff's assignors were also stockholders of the corporation is immaterial in such an action.
6. The pendency of a suit and attachment proceeding on the note by the assignee against the corporation is no defense to the stockhold
7. If a defense, it is not available unless pleaded.
Commissioners' decision. Department 2. Appeal from superior court, city and county of San Francisco; William T. Wallace, Judge.
Action by Alexander Herman against Abraham E. Hecht and others. Judgment for defendants on facts found by the court. A new trial was denied, and plaintiff appeals. Reversed.
Wm. B. Sharp, for appellant. Wilson & Wilson, for respondents.
ing Company, a California corporation, their proportion of a promissory note made by said corporation to the Farmers' & Merchants' Bank of Los Angeles, dated April 20, 1881, for the sum of $40,000, payable 15 days after demand, with interest at a specified rate. Said note was indorsed by William Scholle, J. Brandenstein, and I. Cahn. The defendants' answer, in addition to denials which put in issue the averments of the complaint, alleged, in substance, that in 1879 the said corporation borrowed from said Farmers' & Merchants' Bank of Los Angeles the sum of $10,000, and gave its note for said sum; that upon the maturity of that note a new note was given by said corporation for the same sum; that on or about March 10, 1880, said corporation sold and conveyed all its property and assets to the Oakland Bag Company, a co-partnership composed of William Scholle, Israel Cahn, and Jos. Brandenstein; that said co-partnership assumed all the liabilities of the corporation existing at the date of sale, and shortly thereafter said co-partnership gave its own note to said bank, and took up the note made by the said corporation; that on or about March 25, 1891, said corporation, the Pacific Jute-Manufacturing Company, purchased from said co-partnership all the real and personal property, effects, and assets then owned, used, and employed by them under said co-partnership name, and immediately thereafter said corporation commenced and carried on the business for which it was incorporated; that on April 20, 1881, said corporation executed to said bank the note here in suit, and took up the note made by said co-partnership to said bank; and that said note was so executed and delivered by said corporation in substitution of the said note of equal amount then held by said bank, and without any consideration being then, or at all, paid to said corporation, And as a further defense it was alleged that the plaintiff was not the real party in interest, but that said note sued on by him was at the time of the commencement of the action held and owned by said Brandenstein, Scholle, and Cahn, the said indorsers thereof. The action was tried by the court, and the following findings of fact were made: "(1) The plaintiff, Alexander Herman, is not the real party in interest in this action. (2) The Pacific Jute-Manufacturing Company did not on the 20th day of April, 1881, or at any time, for the uses and purposes of its business, or otherwise, borrow from the Farmers' & Merchants' Bank of the City of Los Angeles the sum of $10,000, or any part thereof, or any sum of money." Upon these findings, judg. ment was entered for the defendants. The plaintiff moved for a new trial, and this appeal is from an order denying said motion.
Appellant specifies, in proper and sufficient form, that said findings are not justified by the evidence, and also that the court erred in certain rulings upon the admission of evidence.
HAYNES, C. This action is brought by plaintiff against Abraham E. Hecht and 14 other defendants to recover from them, as stockholders in the Pacific Jute Manufactur
The exception to the second finding will be was a valuable consideration for the note. first considered. The complaint set out a The question, therefore, is whether these facts, copy of a promissory note dated April 20, about which there is no conflict in the evi1881, made by the Pacific Jute-Manufacturing dence, justify the finding that the corporation Company to the Farmers' & Merchants' Bank did not “borrow” from the bank $10,000, or of Los Angeles, for the sum of $10,000, paya- any sum of money. There is no question that ble at 15 days after demand, and alleged that the note was executed by the corporation, nor said corporation, in its corporate name, and is it questioned that the bank parted with for the uses and purposes of its business, on value to the amount stated in the note. The said date “borrowed the sum of $40,000" from transaction was, in effect, a loan of that sum said bank, “upon the terms and conditions, and to the corporation. If the cashier had counted according to the tenor and effect," of said note. out the money to the agent of the corporation, These allegations show that the inception of and he had taken it to the collection clerk, the debt, obligation, or liability, and the execu- and there paid the same money and taken up tion of the note, were coincident; and there- the note of the bag company, there could be fore, so far as the question of pleading is con- no question that it was a “borrowing" by the cerned, respondents' contention that the ac- corporation. The law looks at the substance tion must be upon the "original indebtedness" of the transaction, in determining its character, is without merit. Knowles v. Sandercock, and does not require the doing of vain things. 107 Cal. C29, 40 Pac. 1017. And as to the In Hamilton v. Starkweather, 28 Conn. 138, evidence it was shown that on April 20, 1881, it was held that money paid to B. at the rethe day upon which the note was executed, quest of A., and upon A.'s promise to repay it, the board of directors of said corporation by is money lent to A., and can be recovered unresolution authorized the president and secre- der a count in general assumpsit for money tary to borrow money in such sum as might lent. The court said: “The plaintiff having be necessary, not exceeding $500,000, and to paid the money as requested, we think it was, execute the note or notes of the corporation in substance, a loan. And whether it might therefor, and that the note set out in the also have been treated as money paid is of no complaint was executed in pursuance of said importance. There is no principle that reresolution. At the time of the sale by the
quires a manual transfer of money into the corporation to the co-partnership,—the name borrower's hands in order to constitute a loan. and style of which was the Oakland Bag Man- The question is not so much what was the ufacturing Company,-said co-partnership as- form of the transaction, as what was the sumed all the debts and liabilities of the corpo- substance of it. * The transaction has ration, and when the co-partnership afterwards every characteristic of a loan, except that it sold to the corporation all its property and as- was not paid over into defendant's hands. sets the corporation assumed all the debts And this, in Wade v. Wilson, 1 East, 195, was and liabilities of the co-partnership. At the held to be unnecessary.” But, whether this time last mentioned the Farmers' & Mer
be so or not, the finding should have been in chants' Bank held the note of the Oakland favor of the plaintiff upon the issue of the Bag Company, indorsed by Brandenstein, defendants' liability for their proportion of the Scholle, and Cahn, for $10,000, dated January
money represented by the note of the cor31, 1881, at 15 days, and at the time the note
poration; for, if it could not be considered as of the corporation set out in the complaint was a loan of money by the bank, the facts show executed the note of the bag company was a liability of the corporation for the amount taken up; or, as claimed by appellant, no named in the note, and for which a stockmoney passed from the bank to the corpora- holder's liability exists, and in that case it is tion, but the note of the corporation, indorsed a mere question of variance between the alleby Brandenstein, Scholle, and Cahn, was sub- gation of the complaint and the proof, and stituted for it. It is not questioned that this "no variance between the allegation in a pleadtransaction was the origin of the liability of ing and the proof is to be deemed material, unthe corporation to the bank, which is here in less it has actually misled the adverse party question, nor that the note of the bag company to his prejudice in maintaining his action or was thereby paid, and the liability of the co- defense upon the merits. Wherever it appartnership extinguished. The former liabil
pears that a party has been so misled the court ity of the corporation to the bank which exist
may order the pleading to be amended upon ed at the time of the sale to the Oakland Bag such terms as may be just.” Code Civ. Proc, Company was paid by the bag company, 8 469. whether in money or by its note is immaterial; It cannot be said that the defendants were so that from that time until the transaction misled to their prejudice, since the fact that of April 20, 1891, the corporation was not the money was not actually paid into the indebted to the bank. So far as the actual lia- hands of the corporation, but was applied to bility of the corporation and its stockholders the satisfaction of the bag company's note, to the bank is concerned, it is immaterial or was given in lieu of it or in substitution whether the bank actually paid to the corpora- for it, was distinctly alleged in the answer; tion $10,000, and took its note for that sum, and if no other issue had been raised, or deor surrendered the note of the bag company fense pleaded by the defendants, the plainfor the same sum; for in either case there tiff would have been entitled to judgment
on the pleadings. As it was, the court should have found according to the evidence, under section 470, Code Civ. Proc., and, if no other defense was established, should have entered judgment thereon for the plaintiff. The court found, however, that the plaintiff is not the real party in interest. This finding cannot be sustained. Said note was indorsed by Brandenstein, Scholle, and Cahn. It was not paid at maturity, and was duly protested for nonpayment, and the liability of the indorsers became fixed on April 19, 1883, and on May 31, 1883, they paid said note, and it was thereupon delivered to them; and afterwards they assigned and transferred it to the plaintiff by the following instrument: “In consideration of five dollars to us paid by A. Herman, the receipt whereof is hereby acknowledged, we hereby sell, assign, and transfer to said A. Herman a certain promissory note, dated 20th day of April, 1881, made by the Pacific JuteManufacturing Company, payable fifteen days after demand, for $40,000, and interest at the rate of four per cent. per year, indorsed and taken up by us. And we authorize him to collect the same against the maker of said note (but not against us, indorsers thereof) for his sole use and benefit. Witness our hands this 5th day of June, 1883." The indorsers who signed the above instrument were examined touching said transfer, and were asked whether Herman paid any consideration for the note, and whether they were to participate in the fruits of the litigation if the plaintiff should recover. The replies were to the effect that they thought five dollars was paid, but did not distinctly remember it; and to the second question the reply was that they had no legal or absolute right to get anything, but would be disappointed if they did not, or that they hoped to get something out of it, but that there was no understanding that they were to get anything. It was also admitted that these indorsers, Brandenstein, Scholle, and Cahn, were each stockholders in said corporation. It is contended by appellant that said finding is but a conclusion of law. Whether this be so or not, we need not inquire; for, if it be conceded that it is a finding of fact, it is not sustained by the evidence. The assignment vested the legal title to the note in the plaintiff, and, if the action had been against the corporation upon the same note, it is clear that this defense would not have availed it to defeat the action. See Giselman v. Starr, 106 Cal. 651, 657, 40 Pac. 8. That the assignment transferred to the plaintiff the indebtedness of the corporation is beyond question, and the liability of the stockholder must accrue to the creditor of the corporation, and cannot exist as to any one-who it not such creditor. It is true that plaintiff's assignors are stockholders, but that does not affect the liability of the defendants; nor does the fact that they did not sue as plaintiffs affect
any right of the defendants. Each defendant could be held liable only for his proportion of the debt of the corporation, and, such liability being several, one or more or all the stockholders may be joined as defendants, or a stockholder who is also a creditor may sue other stockholders. Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047, where it is also held that the assignment of the note carried with it the original debt. It is immaterial whether plaintiff's assignors received the money consideration mentioned in the assignment, or whether they hope to obtain a benefit from a recovery by the plaintiff. The writing imports a consideration sufficient to sustain the assignment, and as the defendants do not show that they have some equity or defense against plaintiff's assignors which they do not have against the plaintiff, or show that a judgment against them in favor of the plaintiff would not protect them, they are not concerned with what the plaintiff may do with the fruits of such judgment. Giselman V. Starr, 106 Cal. 657, 658, 40 Pac. 8.
The court erred in admitting evidence that plaintiff's assignors were stockholders in the Pacific Jute-Manufacturing Company. The fact that they were stockholders would have been no defense to the action if they had been the plaintiffs (Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047), and therefore could not be a defense to an action by their assignee.
The court also erred in admitting evidence that the plaintiff had sued the corporation and caused a writ of attachment to issue, and that said action was still pending. That fact constituted no defense to plaintiff's action; but, if it did, it was a defense which was not pleaded, and therefore not available to the defendants. The order denying a new trial should be reversed.
We concur: BELCHER, C.; BRITT, C.
PER CURIAM. For the reasons given in . the foregoing opinion the order appealed from is reversed, and a new trial granted.
(116 Cal. 518) TERALTA LAND & WATER CO. v. SHAF.
FER, County Auditor. (L. A. 167.) (Supreme Court of California. April 20, 1897.) Tax Sales-REDEMPTION-VESTED RIGHTS.
Pol. Code, § 3817, which provided that where real estate had been sold for delinquent taxes, and the state had become the purchaser, and had not disposed of it, redemption might be made by paying the amount of the tax due, with interest at 7 per cent. per annum, subsequent taxes, costs, and a penalty of 25 per cent., was amended by Act March 28, 1895 (St. 1895, p. 309), in terms made retroactive, re. quiring the redemptioner to pay a penalty of 10 per cent, if redeemed within six months, 20 per cent. if redeemed within one year, etc., ipcreasing the penalty by 20 per cent. each year till the fifth and subsequent years, the maxi.
mum penalty being 100 per cent. Held that, gether with all taxes that were a lien on the as applied to sales prior to its passage, the act real estate at the time said taxes became deis unconstitutional, as disturbing vested rights, since to the right to redeem it adds new condi
linquent; an amount equal to the percentage tions, more onerous than those which existed of all subsequent taxes; interest thereon; all when such sales were made.
costs and charges; and a penalty of 25 per Commissioners' decision. In bank. Ap
cent., etc. It became the duty of the county peal from superior court, San Diego Coun
auditor to furnish the person desiring to re
deem an estimate of the amount necessary ty; George Puterbaugh, Judge. Writ of mandate, on the petition of the
therefor. The act of March 28, 1895 (St. 1895, Teralta Land & Water Company, to compel
p. 309), amended section 3817 of the Political E. E. Shaffer, auditor of San Diego coun
Code so that, in lieu of the penalty of 25 per ty, to furnish an estimate of the amount re
cent., the redemptioner is required to pay a quired to redeem certain lands from tax sale,
penalty of 10 per cent. if redeemed within From a judgment in favor of plaintiff, de
six months from the date of sale, 20 per cent. fendant appeals. Affirmed.
if redeemed within one year, 40 per cent. if
redeemed within two years, 60 per cent. if A. H. Sweet, Dist. Atty., for appellant.
redeemed within three years, 80 per cent. if Collier, Pillsbury & Collier, W. F. Fitzgerald,
j'edeemed within four years, and 100 per cent. Atty. Gen., and Henry E. Carter, Dep. Atty. if redeemed within five or any greater numGen., for respondent.
ber of years after the date of sale. The sec
tion in terms applies: "In all cases where SEARLS, C. The Teralta Land & Water real estate has been or may hereafter be sold Company (a corporation), respondent herein, for delinquent taxes to the state, and the filed its petition, duly verified, in the superior state has not disposed of the same, the percourt in and for the county of San Diego, son whose estate has been or may hereafter showing that it was the owner of certain de- be sold," etc. scribed lands, situate in said county of San The sole question presented for determinaDiego, which were sold for delinquent state tion is this: Is the owner of the land entiand county taxes duly levied for the fiscal tled to make redemption obliged to pay the years 1889-90, 1890–91, and 1891-92, and pur- amount to redeem required by the act of chased by the state of California. On the March 28, 1895, or can be redeem by paying 25th day of September, 1895, plaintiff, being the amount required under the laws in force desirous of redeeming said lands, applied to at the date of sale? No part of the Political defendant, auditor of the county of San Code is retroactive unless expressly so deDiego. to furnish to it an estimate of the clared. Pol. Code, $ 3. This applies to amount required to redeem the same, and de- ! amendments thereto equally with the origmanded that such estimate be made under the inal. . Railroad Co. v. Shackelford, 63 Cal. statutes in force at the date of the respective | 261. That the legislature intended to make sales of said land, and prior to the year 1895. the amendment of 1895 to section 3817 retroThe auditor refused to furnish the estimate active is amply attested by the language used: as demanded, upon the ground that the act "A retrospective statute atfecting and chanof March 28, 1895, was the only statute in ging vested rights is very generally considerforce relating to the redemption of real estate ed in this country as founded on unconstitufrom sales for delinquent taxes, whether such tional principles, and consequently inoperasales took place prior to the passage of said tive and void. But this doctrine is not underact or afterwards. He offered to furnish an stood to apply to remedial statutes which • estimate under the act of 1895, but refused may be of a retrospective nature, provided to do so under any prior statute. An alterna- they do not impair contracts or disturb vesttive writ of mandate issued to defendant, ed rights, and go only to confirm rights alwho came in and demurred to the petition, ready existing, and, in furtherance of the upon grounds substantially involving the remedy, by curing defects and adding to the proposition that the petition or sworn state.
of enforcing existing obligations." ment of the plaintiff did not state facts enti- 1 Kent, Comm. 455. Remedial statutes which tling plaintiff to redeem from the sales there- are retrospective, but do not impair contracts in mentioned under any law or laws except or disturb vested rights, are not unconstituthe statute of March 28. 1895. The court tional; and the legislature may from time to overruled the demurer, and, defendant failing time alter, change, or modify the remedy, to answer. his default was entered, and the provided in so doing they do not affect the writ of mandate was made peremptory. De- right; but whenever they so far alter the fendant appeals from the judgment.
remedy as to impair, destroy, change, or renUnder the Political Code (section 3817) as it der the right scarcely worth pursuing, they existed prior to 1895, where real estate was necessarily impair the obligation of the consold for delinquent taxes, and the state had tract upon which such right is founded. become the purchaser, and had not disposed Smith v. Morse, 2 Cal. 524; Scarborough v. of the same, the former owner or his heirs, Dugan, 10 Cal. 305; People v. Seymour, 16 etc., had the right to redeem by paying to the Cal. 332; Moore v. Martin, 38 Cal. 428; Recounty treasurer the amount of the tax due, demption Co. v. Sedgwick, 15 Cal. 515; Oullawith interest at 7 per cent. per annum, to- han v. Sweeney, 79 Cal. 337, 21 Pac. 960;
Bates v. Gregory, 89 Cal. 387, 26 Pac. 891; the purchaser, and for which he has paid his Dentzel v. Waldie, 30 Cal. 138.
money, is that he shall have title at the time Appellant very properly admits that "an then provided by the law; and to extend the act which impairs the obligation of a con- time for redemption is to alter the substance tract, or devests a vested right, is in conflict of the contract, as much as would be the with section 10, art. 1, of the federal consti.
extension of the time for payment of a promtution, and with section 16 of article 1 of the issory note; so a law which shortens the time constitution of the state of California." He for redemption from a mortgage after a forecontends, however, that the amendment of closure sale has taken place is void, the 1895 to section 3817 of the Political Code does rights of the party being fixed by the forenot impair the obligation of a contract, or closure and the law then in force." Black devest a vested right. His theory is that a on Tax Titles, at section 175, says: ““The tax duly levied has the effect of a judgment right of redemption from a tax sale must be against the person, and the lien created governed by the law in force at the time of thereby has the force and effect of an execu
sale. It cannot be affected by subsequent tion duly levied against all the property of legislation.” He quotes from Merrill v. Dearthe delinquent (Pol. Code, $ 3716), and that ing, 32 Minn. 479, 21 N. W. 721, as follows: the sale of property upon default of payment “The right of property acquired by the purand the right of redemption as an incident
chaser at this sale, and the right of redempthereto is a remedy which may be changed tion remaining to the owner, must both be at any time at the will of the legislature, and, | governed by the law in force at the time of though retroactive, will not be invalid for sale. Neither, in our judgment, could be ei. that reason. In support of this position, and ther abridged or enlarged by subsequent leg. of the argument in favor thereof, counsel islation. This is unquestionably so as to the cite: Redemption Co. v. Sedgwick, 15 Cal. right of the purchaser. The same rule ought 525; Loan Soc. v. Hayes, 56 Cal. 303; Oulla- to apply in favor of the owner as against han v. Sweeney, 79 Cal. 537, 21 Pac. 960; and any statute shortening the time to redeem, several other cases. In Redemption Co. y. as it is equally unjust to legislate against the Sedgwick the change in the redemption law owner of the land as in his favor.” Negus was made before the sale took place. In v. Yancey, 22 Iowa, 57; Goenen v. Schroeder, Lumber Co. v. Olmstead, 85 Cal. 80, 24 Pac. 8 Minn. 387 (Gil. 344); Robinson v. Howe, 13 618, which was an action to foreclose a me- Wis. 380; Conway v. Cable, 37 Ill. 82; Moody chanic's lien, after a portion of the materials v. Hoskins, 61 Miss. 408, 1 South, 622; Cahad been furnished, the law was amended, ruthers v. McLaran, 56 Miss. 371; Wolfe v. and it was held that the amendment shorten- Henderson, 28 Ark. 304. Blackwell on Tax ing the time for filing a lien, but which af
Titles, at section 729 (5th Ed.), expresses the forded an adequate remedy, was not retroac- same views in the following language: "The tive, and applied to pending cases of uncom- law in being at the time of sale governs the pleted buildings. In the Oullahan Case the right of redemption. The time can be neicourt held that an amendment to the statute ther lengthened nor shortened by subsequent after a tax sale, requiring the purchaser to legislation. * The right to redeem is give notice before applying for a deed, went a condition attached to the sale, and the legto the remedy only, and was applicable to islature cannot defeat it by a subsequent act. cases existing at the time the law took effect. A provision affecting the period of redempThe court assumed, for the purposes of that tion can only apply to sales after the day on case (but did not decide), “that the legislature which the act took effect.” cannot make an absolute extension of the The enforced sale of property on execution, time for redemption of property previously or for the nonpayment of taxes, institutes a sold."
contract with the purchaser which cannot be We think it well settled that the legislature materially altered without his consent. The may, at any time before a sale of property right of the owner to redeem is perhaps, under a decree or execution, amend the law strictly speaking, one not resting in contract,' in relation to redemption, by extending or but is a right vested in him under the law,-a shortening the time therefor, and apply it to right pertaining to the contract itself, and existing cases. The question here, however, which, in reason and justice, is not more open is: Can the legislature, after a tax sale, law- to attack than that of the purchaser. It has fully amend the law so as to apply new and been said in a few of the many cases on the more onerous conditions to the right to re- subject that, so far as the right to redeem deem than those which existed when the sale is concerned, it is not derived from any conwas made? We think this question is an- tract, but is given by the law only, and the swered in the negative by the elementary time within which it may be exercised may writers, and by the adjudicated cases. be shortened by the legislature, provided a Cooley, in his work on Constitutional Limita- reasonable time is left within which to extions, at page 353 (6th Ed.), says: “So, a ercise it, without impairing the obligation of law is void which extends the time for the the contract. We think these cases are opredemption of lands sold on execution, or for posed to the weight of authority; but, condelinquent taxes, after the sale has been cede that they are not, and we think the case made; for in such a case the contract with at bar is clearly distinguishable from them.