[No. 15790. Department Two.-July 2, 1895.]

J. N. KNOWLES, RESPONDENT, v. WILLIAM SANDERCOCK ET AL., APPELLANTS.

CORPORATIONS-LIABILITY OF STOCKHOLDERS-AMOUNT OF STOCK OUTSTANDING-BURDEN OF PROOF.-In an action to enforce the liability of the stockholders of a corporation it is incumbent upon the plaintiff to prove the whole amount of the stock outstanding to enable the court to determine the liability.

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ID. SUFFICIENCY OF PROOF-Books of CORPORATION-TESTIMONY OF SECRETARY.-A stock certificate book, stock ledger and stock journal of the corporation, together with the testimony of the secretary of the corporation that they contain the names of all the stockholders, and that no other persons appeared on the books of the company as having owned stock during any of the times mentioned in the complaint, sufficient to prove the whole amount of stock outstanding, and the dates of the ownership of stock by the defendants. ID.-STOCK AND TRANSFER BOOK-MISSOMER-STOCK CERTIFICATE BOOK.-Where the stock certificate book offered in evidence appears to have been designed for a stock and transfer book, and its contents, so far as set out in the record, correspond with what is required by the code, in respect of a stock and transfer book, the fact that the book is not named as the code requires is not material. ID.-SUBSCRIPTION BOOK-PROOF OF STOCK SUBSCRIBED.-The code does not require that there shall be a subscription book kept by the corporation, nor direct how subscriptions shall be made, and, where it does not appear that the corporation had any other book showing who the subscribers were than the stock books offered in evidence, and the suit is by strangers to the corporation against its stockholders, the books kept by the corporation, together with the testimony of the secretary that they contained the names of all stockholders, are sufficient proof of the stock subscribed and outstanding. ID.-PLEADING DEBT OF CORPORATION-LOAN EVIDENCED BY NOTEBASIS OF LIABILITY OF STOCKHOLDERS-INTEREST ON NOTE.-In an action to enforce the liability of stockholders for the debts of the corporation the debt to be alleged is the debt of the corporation, and it may be pleaded in the usual mode, and a complaint alleging that on a day named a person named at the special instance and request of the corporation loaned to it a specified sum, which the corporation then and there promised to pay within two years after said date with interest at the rate of seven per cent per annum, and executed its promissory note to secure the same, which note is set out in the complaint, the indebtedness to the corporation is correctly pleaded, and the complaint is not objectionable on the ground that it does not show when the debt accrued, and the liability of the stockholders in such a case is no more based on a supposed original implied contract of loan than on the note; but a showing that the debt of the corporation was incurred while the defendant was a stockholder fixes his statutory liability, and he is liable

for his proportion of the interest specified in the note until the statute of limitations has run in his favor.

ID.-NATURE OF STOCKHOLDER'S LIABILITY-WRITTEN CONTRACT OF CORPORATION-PLEADING.-The stockholders of a corporation are perhaps not strictly liable on the contract of the corporation, but on the statute creating the liability; but, if the debt of the corporation was created by a written contract, the debt of the corporation based on the contract must be pleaded in the usual mode.

ID. ASSIGNMENT OF NOTE-TRANSFER OF DEBT.-The assignment of a note of the corporation given to secure a loan carries with it the debt of the corporation for the money loaned, and sustains a finding that the note and the original debt passed by assignment to the plaintiff.

ID.-PAYMENT BY STOCKHOLDERS--TRANSFER OF NOTE-DISCHARGE OF DEBT.-Voluntary payments by stockholders of the amount of their supposed proportionate liability of all the debts of the corporation, for the benefit of the creditors, to the president of the corporation, are not paid to the corporation, and the money is not in its possession, and such payments do not authorize the president to pay out the money in satisfaction of any one debt, and cannot be held to discharge a note of the corporation for which other stockholders are sued upon their proportion of liability therefor, nor is the note discharged by reason of the fact that the president of the corporation used the money with other borrowed money to take up the note, intending to assign it to the plaintiff for the purpose of causing suit to be brought on it against the stockholders and not intending to pay the note and such transaction is not a transaction of the corporation.

ID. LIABILITY OF STOCKHOLDERS FOR INTEREST-NOTE OF CORPORATION-ORIGINAL AGREEMENT NOT IN WRITING.-Where the original indebtedness consisted of an account for moneys loaned and expended for the benefit of the corporation for which the corporation gave its note with interest, when the interest on the note became a legal debt against the corporation it became a debt of the stockholders, and it cannot be objected that the claim evidenced by the note contains some charges for interest which cannot be recovered from the stockholders because the original agreement to pay the interest was not in writing.

ID.-RIGHT OF STOCKHOLDER AS CREDITOR TO ENFORCE LIABILITY.— The fact that a creditor who seeks to enforce the liability of stockholders is also a stockholder does not deprive him of the right to sue other stockholders for their proportionate share of the liability. ID. CLAIM FOR MONEY LOANED AND EXPENDED INTEREST.-Where a cause of action against the corporation upon which stockholders are charged with liability was for moneys lent to and expended for the use of the corporation the items of the account bear interest by virtue of the statute, and the fact that the statement of the balance of account includes interest which had accrued on the money lent and expended, and that there is no mention of interest in the complaint except upon the balance of account, sufficiently shows an indebtedness on the part of the corporation for the interest for which the defendant sued, as stockholders are liable for their proportion. (D.-DEBT OF CORPORATION SECURED BY MORTGAGE-LIABILITY OF STOCKHOLDER. The fact that the debt of the corporation is secured by mort

gage which the creditor holds and is unforeclosed, does not affect the liability of the stockholder whose liability for the debt of the corporation is primary and not that of a surety, and he is not injured nor benefited by the fact that the corporation has given security, nor by the fact that the debt was renewed.

ID. LIABILITY OF CORPORATION AS STOCKHOLDER-ULTRA VIRES SUBSCRIPTION TO STOCK.-A private corporation has no implied authority to invest in shares of another private corporation, and, in this state, a corporation is forbidden to engage in any business other than is expressly authorized in its charter or the law under which it is organized, and a corporation organized for the purpose of manufacturing, importing, buying, and selling furniture and upholstery cannot hold stock in a hotel corporation, and its subscription to its stock is ultra vires and void, and it cannot be charged with liability as a stockholder of the hotel corporation.

APPEAL from a judgment of the Superior Court of the City and County of San Francisco and from an order denying a new trial.

The facts are stated in the opinion of the court.

Edward P. Cole, and Ernest Graves, for Appellants Goldtree and Hollister.

The liability of stockholders is solely the creature of the statute law, and it must be exercised upon the conditions and within the limits which the statute provides. (Civ. Code, sec. 322; Hunt v. Ward, 99 Cal. 616; 37 Am. St. Rep. 87.) The twenty-five thousand dollar note to the Anglo-Californian Bank which was paid and extinguished with money voluntarily paid by shareholders ceased to be a binding obligation. (James v. Yaeger, 86 Cal. 187; Gordon v. Wansey, 21 Cal. 79; Civ. Code, sec. 1474.) A debt paid or discharged, being no longer an obligation of the corporation, no stockholders can be liable for any thing thereon. (Young v. Rosenbaum, 39 Cal. 654; San Jose Bank v. Pharis, 58 Cal. 380.) The only remedy of the stockholders making the payment would be in equity for contribution or for subrogation to the rights of the bank. (Redington v. Cornwell, 90 Cal. 49.) Suits can only be maintained against a stockholder on the original debt, and not on a note or other evidence of the debt. (Hunt v. Ward,

supra; Griffith v. Green, 13 N. Y. Supp. 470; Parrott v. Colby, 6 Hun, 55; 71 N. Y. 597; Stilphen v. Ware, 45 Cal. 111.) The debt of the hotel company to the First National Bank of San Luis Obispo was paid, and there can be no liability against a stockholder therefor. (San Jose Bank v. Pharis, supra.) If the debt was not paid but only secured by note and mortgage plaintiff cannot sue the stockholder, because it cannot sue the bank except to foreclose the mortgage and docket the judgment for the deficiency. (Barbieri v. Ramelli, 84 Cal. 154; Crim v. Kessing, 89 Cal. 487; 23 Am. St. Rep. 491; Biddel v. Brizzolara, 64 Cal. 362; Powell v. Patison, 100 Cal. 239; Mitchell v. Beckman, 64 Cal. 121, 122.) The right of action by a creditor against the stockholder accrues at the same time as the right against the corporation and not before. (Davidson v. Rankin, 34 Cal. 505; Young v. Rosenbaum, supra.) Plaintiff must allege and prove the whole amount of stock subscribed so as to enable the court to determine the liability. (Bidwell v. Babcock, 87 Cal. 29; Morrow v. Superior Court, 64 Cal. 383.) The certificate book was not a book required to be kept by the corporation and was not admissible. (1 Greenleaf on Evidence, sec. 493.) There is no evidence of the whole amount subscribed, and the law is that a stockholder is only liable for his share of the corporate debts, proportionate to the whole of the subscribed; and not the issued capital stock. (Code Civ. Proc. sec. 322; California Southern Hotel Co. v. Callender, 94 Cal. 120; 28 Am. St. Rep. 99.)

Sawyer & Burnett, for Appellant, California Furniture Manufacturing Company.

The California Furniture Manufacturing Company had no power to subscribe to the stock of the California Southern Hotel Company, and its attempted subscription and holding of stock therein was ultra vires, and void. (Const., art. XII, sec. 9; Civ. Code, secs. 283, 354, 355; Angel & Ames on Corporations, secs. 111, 392; Vandall v. South San Francisco Dock Co., 40 Cal. 88; 1 Mora

wetz on Corporations, secs. 433, 434; 1 Spelling on Corporations, sec. 172; Taylor on Corporations, sec. 267; Brice on Doctrine of Ultra Vires, sec. 133; 1 Beach on Private Corporations, sec. 522; Coleman v. San Rafael etc. Co., 49 Cal. 520; Hutchinson v. State Investment Co., 53 Cal. 622; Pearce v. Madison etc. R. R. Co., 21 How. 442; Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U. S. 1; Davis v. Old Colony R. R. Co., 131 Mass. 259; 41 Am. Rep. 221; Pennsylvania R. R. Co. v. St. Louis etc. R. R. Co., 118 U. S. 290; Board etc. Tippecanoe County v. Lafayette R. R. Co., 50 Ind. 85; Franklin Co. v. Lewiston Institution for Savings, 68 Me. 43; 28 Am. Rep. 9; Pearson v. Concord R. R. Corp., 62 N. H. 537; 13 Am. St. Rep. 590; Lucas v. White Line etc. Co., 70 Iowa, 541-47; 59 Am. Rep. 449; People v. Chicago Gas Trust Co., 130 Ill. 268, 283-85; 17 Am. St. Rep. 319; Lake Erie Valley Ry. Co. v. Iron Co., 46 Ohio St. 44; Central R. R. Co. v. Pennsylvania R. R. Co., 31 N. J. Eq. 475; Bowman Dairy Co. v. Mooney, 41 Mo. App. 665; Denny Hotel Co. v. Schram, 6 Wash. 134; 36 Am. St. Rep. 130; Central Trans. Co. v. Pullman's Palace Car Co., 139 U. S. 24; Hazlehurst v. Savannah etc. R. R. Co., 43 Ga. 57; Mechanics' etc. Bank v. Meridian Agency, 24 Conn. 159.)

Carter P. Pomeroy, for Respondent.

The books of the corporation were admissible in evidence to show the number of shares subscribed for, the names of the stockholders, and the amount of stock held by them, and, in the absence of evidence to impeach them, were controlling. (Evans v. Bailey, 66 Cal. 112; Civ. Code, sec. 322.) The liability of the defendants as stockholders was not extinguished by the voluntary payments made by other stockholders of their proportionate amount of the total liabilities of the corporation, nor by the purchase of the note by Howard and its assignment to the plaintiff. (Redington v. Cornwell, 90 Cal. 49.) The liabilities of all the stockholders were separate and distinct, and not joint. (Civ. Code, sec. 322.) The assignment of the note to the plaintiff operated as