are quite numerous, and the decisions have been collected by the learned counsel on both sides, who have ably and learnedly discussed many constitutional clauses which have been passed upon in one way or another. I find some contrariety of views; more apparent, however, than real. The general trend, particularly in the later cases, is decidedly toward the conclusion I have reached. I am confident the courts will yet concur in some such rule. The matter is so clear to me that I do not feel justified in yielding to the temptation to use the great mass of learning made so easily available by the industry and ability of counsel.

2. In considering the question whether the misappropriations alleged, or attempted to be, are within the constitutional provision, the stipulation must be borne in mind. The parties desire a decision upon the points which are necessarily in the case, and which plaintiff's cannot avoid by merely changing the form of the allegation. Under this we are not to scrutinize the averments as to loss by the corporation. It is charged in general language that loss resulted from the misappropriations. Under the stipulation this must be regarded as sufficient, although it must be admitted that the complaint is in this matter singularly imperfect. It is charged that the savings bank had a nominal capital of $100,000, of which only $20,000 was paid up. It had no reserve fund. It never had 50 per cent. of its deposits or of its loans secured in first mortgages or other liens upon real estate in this state. By section 571, Civ. Code, such banks are expressly authorized to receive deposits of money; to loan, invest, and collect the same. The loans must be on adequate security on real or personal property. This direction as to the disposition of the money on deposit is qualified in section 574, subd. 5, Id., which declares: "No corporation must purchase, hold, or convey bonds, se curities, or evidences of indebtedness, public or private, except bonds of the United States, of the state of California, and of the counties, cities, or cities and counties, or towns of the state of California, unless such corporation has a capital stock or reserve fund paid in, of not less than three hundred thousand dollars." In addition to these limitations upon the powers of the corporation, section 578, Id., declares that any director who borrows any of the funds of the corporation, or becomes surety for others to enable them to borrow, ipso facto forfeits his office. Directors are also trustees for the stockholders and indirectly for the creditors. They have always been held responsible as trustees in their management of the property and affairs of the corporation. Like trustees, they must not deal with the subject of the trust for their own advantage, or be interested adversely in any trust transaction, nor can they undertake another trust adverse in its nature to the interest of their beneficiary. If they willfully use the property which is subject of

the trust for an unauthorized purpose, and a loss ensues, they must make good the loss, although they in good faith sought to promote the interest of their beneficiary, and were not seeking an advantage for themselves. The ground of the liability is the willful misappropriation of the property. It is alleged in a general allegation, made applicable to each of the 27 misappropriations, that each was in the interest of Howard or of Mabury directly or for the benefit of the National Consolidated Bank of San Diego, a corporation, in which the defendants Howard, Mabury, and Witherby were the largest stockholders, and of which they were all the time directors and managers. They were also continuously directors of the savings bank. Both corporations were at all times entirely controlled by them. The Consolidated Bank, during the period in which the misappropriations were made, was in fact insolvent, but was still doing business. To supply its pressing wants, and to prevent the necessity of closing its doors, Howard appropriated the money in the savings bank to its use by pretending to purchase its discredited and unmerchantable paper. Every such purchase was expressly prohibited by the charter of the bank and by the laws in regard to savings banks. Every misappropriation was made to advance the personal interests of Howard and Mabury. No one was a loan which any banker could have made in the interest of the savings bank, and we are fully justified in believing that they were not made in good faith for that bank. Plainly, they could not have been so made. They were willful and deliberate misappropriations by Howard in the interest of and to sustain the tottering mercantile bank, which was principally owned and entirely managed by the defendants. This is shown not only by the general allegations, but also by facts stated. As to Howard, it may well be contended that these acts constitute embezzlement, under section 506 of the Penal Code. It is not necessary, however, to go so far. Directors and officers of corporations, as well as trustees, have always been held responsible for loss resulting from misappropriations of the trust property made by them or with their consent. The character of the misappropriations for which the officers who made them can be held responsible to the corporation has been settled in many cases. The liability has existed ever since there have been courts of equity and corporations or trustees. The constitution does not change the nature of the liability, except that for its purpose it is limited to moneys misappropriated. No officer, omitting for the nonce the suretyship, is ruade liable for any act or to any greater extent than he was liable before the constitutional amendment. The constitution merely makes the directors sureties for their fellow directors and for the officers of the corpora tion for moneys when so misappropriated as to make the officer misappropriating liable,

and authorizing the creditors and stockholders to sue. What such liabilities are, as I lave said, are old and familiar questions; and I repeat it seems obvious to me that such misappropriations are those for which the directors are liable. Both sides rely upon some remarks made in Fox v. Mining Co., 108 Cal. 369, 41 Pac. 308. Nothing decided in that case, and no doctrine announced, is at variance with these views. The allegations of the complaint in this case clearly bring it within the rule there laid down. The misappropriations are like embezzlements, and there was a "misappropriation of funds intrusted to an officer for a special purpose, by devoting them to some unauthorized purpose." I do not contend that the directors are liable beyond that. Not that the measure is harsh, and to be limited for that reason. Nor do I appreciate the importance of the question whether the law is penal or no. It is not penal in the technical sense, as it allows no recovery as a punishment, but only to compensate for a loss. But the liability created is that of suretyship, in which the innocent always suffers for the guilty, and therefore the surety may always stand upon the very letter of his bond. But the language of the law is unambiguous, and the words used have well-defined meaning, and have been frequently used by courts in relation to the same species of liability for centuries. No one contends that the suretyship extends to damages resulting from mere negligence, not resulting in some misappropriation, nor to loss through bad management, or incompetency or mistake; and I have no criticism to make upon the language used in Fox v. Mining Co., unless there is an intimation that the plain language of the law is to receive some unusual construction on the supposition that it is a harsh and unwise law. Whether the policy be good is not for us nor for the legislature. The design plainly was to prevent speculating in corporate funds by directors, and to make them vigilant for their beneficiaries.

Upon this general subject counsel for respondents states a case which he evidently thinks a difficult one. Supposing Howard had no personal interest in the alleged misappropriations, but was animated only by a desire to promote the interest of the savings bank, the question would test the matter very well. He says national banks cannot loan on real estate; savings banks, with some exceptions, can loan on no other security. If loans were made by each bank in violation of this rule, but solely in the interest of the bank, would the loan constitute a misappropriation for which the directors would be liable? If loss ensued, unquestionably the directors would in each case be liable. Civ. Code, § 2238. The rule of noscitur a sociis may be further illustrated. Section 17, art. 11, of the constitution, declares that the using of public money by an officer having charge of it, for any pur69 P.-6

pose not authorized by law, shall be a felony. Section 21, art. 4, is of similar effect, and was in the former constitutión. Section 424 of the Penal Code, which was in force when the present constitution was adopted, makes it a felony in an officer having the custody of public money to use the same for any purpose not authorized by law. These are examples of the misappropriation of trust funds. I think it clear that when an officer of a corporation knowingly appropriates funds intrusted to him for unlawful and unauthorized purposes, and loss ensues to the corporation, the directors are liable under this clause of the constitution. Upon this subject the following authorities will be found of interest: Thompson v. Greeley, 107 Mo. 577, 17 S. W. 962; Buell v. Warner, 33 Vt. 57; Dodd v. Wilkinson, 42 N. J. Eq. 647. 9 Atl. 685. Numerous cases under the United States banking act are cited in the briefs. Of these U. S. v. Britton, 107 U. S. 655, 2 Sup. Ct. 512, 27 L. Ed. 520, is relied upon by respondents as favorable to them. That was a criminal proceeding, and it was held that an actual intent to defraud, and to convert the funds to the use of himself or of another, must be charged. It was not in that case. The act of congress differs materially from the clause of the constitution involved here. I think, however, the averments here would make a case under the act of congress. See, also, Robinson v. Smith, 3 Paige, 224, 24 Am. Dec. 212; Brinckerhoff v. Bostwick, S8 N. Y. 52; Schley v. Dixon, 24 Ga. 273, 71 Am. Dec. 121; Shea v. Mabry, 1 Lea, 342.

3. That an assignee of a depositor can maintain the action I cannot doubt. The debt is assignable, and carries the right of action. It is not the mere assignment of a right of action for fraud. The debt and the remedies go together, and cannot be separated. The liability does not depend upon a judgment relieving the assignor from the obligations of a contract obtained by fraud, or the recovery of property actually conveyed by the owner, but which conveyance it is claimed is fraudulent. As I have shown, the obligation is that of a surety. Ownership of the debts carries all remedies. Wright v. Mining Co., 40 Cal. 20; Hopkins v. Contra Costa Co., 106 Cal. 566, 39 Pac. 933; Rued v. Cooper, 109 Cal. 692, 34 Pac. 98: Stephens v. Overstolz (C. C.) 43 Fed. 465; Emmons v. Barton, 109 Cal. 662, 42 Pac. 303; Bank v. Wilcox, 60 Cal. 126.

4. I think a depositor who becomes such after the misappropriation may sue to recover upon this liability. The consent of all the stockholders to a misappropriation would not bar the creditors. Halpin v. Brewing Co. (Sup.) 47 N. Y. Supp. 413; Waite, Corp. § 628; Thomp. Corp. § 4565; Neall v. Hill, 16 Cal. 152, 76 Am. Dec. 508; Wright v. Mining Co., 40 Cal. 20; Parrott v. Byers, Id. 626; Broder v. Conklin, 121 Cal. 287, 53 Pac. 699; Elkins v. Railroad Co., 36 N. J. Eq. 5. It is like the

right of a creditor of a corporation to resort to unpaid subscriptions. It was held in Winchester v. Mabury that the recovery constitutes a fund for the benefit of creditors. The presumption always is that the corporation has not wasted its assets; and, if the directors and other officers have done so, the duty is upon the directors to recover the loss from the defaulters. And it counts something that the remedy is for creditors. The new depositor becomes such on faith of the presumed assets. Whether there is any statute of limitations which can protect the director need not now be discussed. Whether the constitution gives a right of action to the corporation, and whether a suit may be brought on behalf of the corporation or not when the directors refuse to bring suit, or when, as here, the directors are necessary defendants, need not be determined. bank is in liquidation, and the recovery, if any, will go into the custody of the court for distribution precisely as it would have gone in a creditors' bill, or in some analogous proceeding.

The

5. Any creditor may institute proceedings upon this liability. If the necessary parties are not brought in, and that fact is made to appear, the court should order them to be brought in. The right of the individual creditor does not depend upon others. The suit should not be dismissed, especially where, as in this case, it does not appear that there are other creditors. The stockholders are certainly proper parties. For most purposes, however, if not for all, they may be represented in this action by the corporation.

6. Must the claim of a creditor be reduced to a judgment before he can become a party to the action? Certainly it need not be. As all must be joined, the requirement would necessitate great and useless delay. It is not a creditors' bill, which can be maintained only after all legal remedies have been exhausted. This action could be maintained only in a court of equity, and reason for resort to that jurisdiction is shown in the nature of the action itself. This was in reality settled in the case at law. Winchester v. Mabury, 122 Cal. 522, 55 Pac. 393.

7. Conceding that there are many allegations in the complaint which seem to indicate an action for negligence or fraud, that is quite immaterial. Necessarily, in such a case, there would be such averments. The question is simply, are the facts alleged sufficient in an action upon the constitutional liability? It is charged that the complaint avers the loss to be of the amounts improperly invested in the paper of the consolidated bank, and of interest at conventional rates according to the terms of the various instruments or evidences of debts purchased. It is earnestly contended that this is a ratification of the purchases, and that the plaintiff is estopped by his own pleading. This charge is true as to some of the alleged misappropriations. The allegation of loss is of the

amount due on the instruments purchased, including interest at agreed rates. We may stop to notice that this is utterly inconsistent with the contention of some of my associates, who think the complaint does not show that the amount invested was lost at all, but merely that more might have been made had the money been otherwise used. The action is not primarily to enforce an accounting. The accounting is required for the purpose of distribution of a fund which may be recovered for all creditors. The bringing of such an action implies an accounting, and such accounting would be ordered by the court as a matter of course. A specific demand for an accounting is not required. The prayer is no part of the statement of the cause of action, and where the defendant appears any relief authorized by the facts alleged and proven may be awarded. Staacke v. Bell, 125 Cal. 309, 57 Pac. 1012, was a judgment entered upon default, and in that case nothing was decided which is applicable to this case.

It is contended by the respondent that the constitutional provision is in conflict with the fourteenth amendment of the federal constitution, because it takes the property of corporate directors without due process of law, and because it denies to such persons the equal protection of the law. To hold the directors liable as sureties for creditors and other officers is not obnoxious to this charge, if the suretyship has been voluntarily assumed. If such provision is void because it punishes the innocent for the fault of others under such circumstances, then we must hold that no contract whereby one person undertakes for the conduct of another is valid. As I have said, in all such cases when loss occurs the innocent surety suffers for another's fault. There is no difference between this case and the ordinary contract of a surety, unless it can be said that this liability is placed upon the director against his will. Argument is hardly required to show that such is not the case. The state could refuse to grant corporate franchises altogether, or may grant on such terms as it pleases. The right to do business as a corporation, or to be a director, if I may speak of it as a right, is not a natural right. These directors took office knowing the responsibilities they assumed in so doing, and in the eye of the law did so as freely and voluntarily as they would have done had they signed a bond agreeing to be responsible for the corporate officers. It may seem an unwise policy to so heavily handicap state corporations, and then to permit corporations organized in other states, and which are not so burdened, to do business within the state as freely as those organized here. But the king can do no wrong, and the sovereign will has been declared.

The judgment is reversed, and the superior court is directed to overrule the demurrer, and allow the defendant reasonable time to answer the complaint.

We concur: BEATTY, C. J.; HARRISON, J.; HENSHAW, J.

VAN DYKE, J. I concur. From the facts alleged in the complaint--and as against the demurrer the allegations of the complaint are deemed to be true-the case amounts to a criminal misappropriation as defined in the Penal Code. And the evident intention of the framers of the constitutional provision in question was that such misappropriations only should render the directors or trustees of corporations and joint-stock associations liable, and does not refer to cases arising from bad investments made by such trustees or directors, through lack of good business judgment or otherwise, unaccompanied by any criminal intention.

MCFARLAND, J. I dissent, and adhere to the former opinion. 64 Pac. 692. I think that the judgment should be affirmed.

(156 Cal, 400)

RICHARDS v. FRAZER et al. (Sac. 870.) (Supreme Court of California. June 2, 1902.) CONTRACT TO PURCHASE LAND-PRICE-MISREPRESENTATION-ACCOUNTING-TRUST -EXISTENCE OF.

1. Civ. Code, § 853, provides that when a transfer of real property is made to one person, and the consideration therefor is paid by another, a trust results in favor of the person by whom such payment is made. Held, that where plaintiff and defendants agreed that defendants should buy certain land, and convey a one-fourth interest therein to plaintiff, and plaintiff paid to defendants a certain sum on account, a trust resulted in plaintiff's favor to the extent of one-fourth of the land to be acquired.

2. Where plaintiff and defendants agreed that defendants should purchase certain land, and convey a one-fourth interest therein to plaintiff at the rate paid by defendants, the land to be afterwards farmed in partnership by them, and plaintiff was induced by defendauts' misrepresentations or by their designed suppression of the truth to pay at a much higher rate, he was entitled, in his accounting with defendants, to be credited with the difference between the amount actually paid and that agreed to be paid.

Commissioners' decision. Department 2. Appeal from superior court, San Joaquin county; Edward I. Jones, Judge.

Action by L. A. Richards against P. B. Frazer, D. S. Rosenbaum, and D. A. Guernsey. From a judgment for defendants and from an order denying a new trial, plaintiff appeals. Reversed.

Rogers & Paterson and C. H. Fairall, for appellant. Nicol, Orr & Nutter and Budd & Thompson, for respondents.

land in the county of San Joaquin, known as the "Sargent Tract," containing 3,000 acres, and also to set aside a release executed by the plaintiff to the defendants, and for an accounting. The defendants deny that plaintiff was a partner in the purchase of the land, and plead, as to the farming, a settlement of accounts. They also plead in bar of the plaintiff's claims the release referred to in the complaint. The findings and judgment were for the defendants. The plaintiff appeals from the judgment and from an order denying his motion for a new trial.

With regard to the first issue, it is found by the court, in effect, that by deed of date December 7, 1891, the land in question was conveyed (by one Snead) one-half undivided to the defendant Rosenbaum and one-fourth to each of the other defendants; that on the 12th of December, 1891, the defendant Rosenbaum, in writing, agreed to sell to the plaintiff 750 acres (being one-fourth of the land) for the price of $75 per acre (or, in the aggregate, the sum of $56,250), receiving on account of the purchase price the sum of $6,250; and that thereupon, and subsequently to this transaction, a partnership was formed by the plaintiff and defendants for the purpose of farming the land for the year 1891-92. But these findings are obviously incorrect in several important particulars, for it appears from the testimony of the defendants, as well as that of the plaintiff, that several months before the making of the deed the plaintiff and defendants had (at least as to the farming) agreed upon the partnership, and also, in connection with that purpose, that plaintiff was to acquire an interest in the land. It also appears that the interests of the defendants in the land conveyed were equal, and that of the two-fourths of the land conveyed to Rosenbaum one-fourth was taken by him in trust, as they contend, for them and himself, or, as claimed by the plaintiff, in trust to be conveyed to him under his agreement with defendants; and accordingly the money received by him from the plaintiff was divided equally among the defendants. The real question involved is, therefore, not as to whether there was an agreement between the parties with reference to the plaintiff's becoming interested in the land (for on this point there is no dispute), but as to the nature and terms of the agreement. There is some discrepancy in the testimony as to the date of the agreement. The negotiations for the purchase of the land were commenced by the defendants in August, 1891, and the purchase was agreed upon in October. The defendants say there was no agreement prior to the latter date, which is probably true with reference to the closing of the contract. But it appears from the testimony of the plaintiff that prior to that date there was an agreement or under

with the defendants; and that this was the case appears almost conclusively from the