ness by the corporation to one of the defendant stockholders for services were set up by plea containing all the elements of a quantum meruit, the court should have found the value of such services and set off the same against the stockholders' liability.

2. SAME-RESOLUTIONS-ENACTMENT.

Where the record of a directors' meeting of a corporation recited that the directors were notified, and the contrary did not appear, proof of the notice of the meeting was not necessary to sustain the validity of a resolution adopted there.

3. SAME-ISSUANCE OF STOCK-RESOLUTIONINCORPORATORS' AGREEMENT EVIDENCE.

Where, in a creditors' suit against stockholders of a corporation to recover alleged unpaid subscriptions, it appeared that the corporators' agreement to subscribe for stock was adopted by the corporation, such agreement was admissible in evidence as bearing on the construction and validity of resolutions of its board of directors under which the stock was directed to be issued to the subscribers. 4. SAME-PAID-UP STOCK.

A resolution adopted by a corporation's board of directors directed that the secretary and president issue to the stockholders the shares of stock subscribed by them respectively, and later another resolution was passed that, in consideration of the assignment to the corporation of certain property, 240 shares of stock should be issued to R., 239 shares to B., and in consideration of $1 and their good will and services other shares should be issued to certain others. Held, that under Const. art. 12. § 11, and Civ. Code, §§ 323, 359, prohibiting the issuance of certificates not paid up, the stock issued under such resolutions should be considered as paid-up stock.

5. SAME-INCORPORATORS' AGREEMENT-ADOPTION BY CORPORATION.

Where an incorporators' agreement providing for the issuance of stock in payment for a business and for the good will and services of certain incorporators was adopted by the corporation, it became binding on it.

6. SAME-AUTHORITY OF DIRECTORS.

A resolution of directors of a corporation providing for the issuance of stock cannot be attacked because of the interest of the directors voting therefor, where they were the sole beneficiaries.

7. SAME-CONSIDERATION OF STOCK-PROPERTY-FRAUD-PRESUMPTIONS.

The issuance of corporate stock in consideration of property or services will be presumed to have been free from fraud, unless the contrary clearly appears.

8. SAME-CREDITORS' SUIT-VARIANCE.

A creditors' suit against a stockholder of a corporation, based on an alleged unpaid subscription, is not supported by findings and evidence showing that the subscription contract was executed.

9. SAME-CREDITORS' RIGHT TO SUE-STAT

UTES.

Civ. Code, § 322, provides that each stockholder of a corporation is individually and personally liable for such proportion of its debts and liabilities as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock or shares of the corporation, and for a like proportion only of each debt or claim against the corporation, and that any creditor may institute joint or several actions against any of its stockholders for the proportion of his claim payable by each, in which the court must ascertain the proportion of the debt for which each defendant is liable and render a several judgment, etc.; section 331 provides for the levy of assessments of subscribed capital stock; section 332 declares that no assessment

shall exceed 10 per cent. of the capital stock, except an assessment for the full amount unpaid or such percentage as may be necessary to satisfy creditors; and section 349 authorizes the board of directors to proceed by action to recover the amount of the assessment. Held, that creditors of a corporation could not maintain an action directly against stockholders on a subscription contract, but could only enforce such liability through an assessment levied by the corporation or the court in a suit to which the stockholders are parties.

Appeal from Superior Court, Los Angeles County; Waldo M. York, Judge.

Action by Stephen L. Turner against Fidelity Loan Concern and others. W. S. James intervened. From a judgment against defendants H. M. Lord and O. P. Widaman, and from an order denying their motion for a new trial, they appeal. Reversed.

S. J. Parsons, for appellants. Walter Bordwell, for respondents. Lawler & Allen, for defendant Rowan. Camp & Lissner, for intervener.

SMITII, J. Appeal from a judgment against the defendants Lord and Widaman, and from an order denying their motion for a new trial. The plaintiff and intervener are creditors of the defendant corporation, on judgments of date June 4, 1901, or later, and the suit was brought to subject to the payment of plaintiff's claim the alleged subscription liability of the appellant defendants. The causes of action on which the judgments were rendered arose in the year 1901; but with regard to plaintiff's cause of action, it appears from evidence introduced by him that part thereof was in renewal of a note of the corporation to him, of date October 4, 1900, for the sum of $500, given in lieu of a personal note of O'Bryan, who was president of the corporation. The certificate of incorporation was filed August 18, 1900. The capital stock of the corporation consists of 500 shares of the par value of $100 each of which the defendant Widaman and Bingham, the assignor of the defendant Lord, are named as having subscribed for 10 shares each. One Rowan, who is named as a subscriber for one share, was originally a defendant in the case; but the suit as to him has been dismissed. The other subscribers named are Raymund and O'Bryan-the former for 240 shares, the latter for 239 shares. These subscriptions together make up the full amount of the capital stock, and the subscribers are named in the certificate as directors of the corporation. The certificates of stock to Bingham and Widaman are dated in August, 1900, and were issued to them in the month of November of that year, under two resolutions of the board of directors, of date August 25, and September 4, 1900; which are as follows: "On motion, duly seconded, it was resolved that the secretary and president be and they are hereby authorized to issue to the stockholders of this corporation the certain shares of stock subscribed by the respective incorporators, namely, to R. C. O'Bryan a

certificate calling for 239 shares, to H. A. Bingham a certificate calling for 10 shares, to Robert A. Rowan a certificate calling for 1 share, to W. B. Raymund a certificate calling for 240 shares, and to O. P. Widaman a certificate calling for 10 shares. And upon the motion of O. P. Widaman it was resolved that in consideration of the assignment, sale and delivery to this corporation of all the fixtures, safe, property and effects now used in the office of this company, that there shall be issued to W. B. Raymund 240 shares of the capital stock of this corporation, and to R. C. O'Bryan 239 shares, and in consideration of the payment to this company by O. P. Widaman, Robert A. Rowan and H. A. Bingham of the sum of $1.00 (one dollar) each, and the further consideration of their good will, interest and services in and about the management, formation and directorship of said corporation, that there shall be issued to the said O. P. Widaman 10 shares of the capital stock of this corporation, to Robert A. Rowan 1 share of the capital stock of this corporation, and to H. A. Bingham 10 shares of the capital stock of this corporation, and the president and secretary, respectively, are hereby authorized and directed to issue such capital stock as aforesaid under the name and seal of this corporation."

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The complaint alleges: That Widaman and Rowan "were subscribers to the capital stock of said defendant corporation at the time of its organization"; that they have not "paid the full amount of their subscription or any portion thereof"; and "that each of said defendants is indebted to said defendant corporation on account of his subscription," Widaman in the sum of $1,000, Rowan in the sum of $100; that since the organization of the corporation the defendant Lord "has become and is now the owner of 10 shares of stock" therein; that "there is due, owing and unpaid on account of said 10 shares of stock to the said corporaion the sum of $1,000, no part of which has ever been paid by the defendant Lord, or by his predecessors in interest of the said 10 shares of stock." The prayer of the complaint is, in effect, that the court ascertain the amount of indebtedness from each of the defendants Lord, Widaman, and Rowan to the corporation on account of their subscription, and that plaintiff have judgment against each of them for the amount due to the plaintiff on his judgment against the defendant corporation, not to exceed the amount due from each of said defendants to the defendant corporation. The allegations and prayer of the complaint in intervention are substantially similar, except that it is alleged in the latter that the defendants are the only stockholders liable for unpaid subscriptions; but this allegation is negatived by the findings. There was a demurrer to the complaint, which was overruled.

The answers of the defendants deny the alleged indebtedness, and plead specially, in effect, that the stock was issued as paid-up

a

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stock, to the defendant Widaman and to Bingham, the predecessor of the defendant Lord, in consideration of services rendered and to be rendered. But on the answers of the two defendants-as on the allegations of the complaint, and on the evidence and facts found-their cases differ in detail. As to the defendant Widaman, the cause of action is on his alleged subscription to the capital stock, as evidenced by the certificate of incorporation; and in his answer, besides denying "that he ever subscribed and agreed to pay any sum whatever for 10 shares of the capital stock of the" corporation, he alleges in effect: That there was an agreement between the incorporators of the company, that there should be issued to him for certain legal services to be rendered by him the 10 shares of stock for which in the certificate he is named as subscriber; that this agreement was confirmed and adopted by the company; that the services were rendered and the stock issued to him accordingly; and that the services rendered were in excess of the nominal or par value of the stock. As to the defendant Lord, the cause of action is based on his acceptance of the stock as assignee of Bingham; and in his answer, besides denials, it is alleged that the stock was fully paid for by Bingham, and was issued to him as paid-up stock— which is in effect equivalent to the defense more specifically pleaded by Widaman; and it is further alleged that he was induced to take the stock by representations made to him by the corporation, through its proper officers, that it had been fully paid for, as to which allegation, it may be observed that it appears from his testimony that he was invited by O'Bryan, the president of the corporation, "to take the Bingham stock and act as director," and that, accepting the proposition, he took the stock supposing it to be paid for.

On the issues made by Widaman, the findings are, in effect, that he has paid no part of the sum for which he subscribed to the capital stock of the company, and there is due on account of his said subscription the sum of $1,000; that a certificate of 10 shares of stock was issued to him "on account of said subscription." As to other matters pleaded by this defendant it is found: “(10) That the defendant Widaman did do work as an attorney at law for the defendant corporation for which the president and secretary of said corporation issued to said defendant Widaman his certificate for said shares of its capital stock; that said defendant Widaman did perform work and labor or render services to said corporation in excess of the value of said 10 shares of stock; that no contract between the defendant Widaman and the promoters of said defendant corporation, whereby said promoters were to pay the said defendant Widaman for services render ed or to be rendered by him in the organization of said corporation, was ever recognized

by resolution of the board of directors of said corporation, or otherwise; that no such resolution was ever passed after the organization of said corporation; that said 10 shares of stock issued by said defendant corporation to the defendant Widaman were never by any authority of said corporation so issued to him as fully paid stock in consideration of the services rendered by said defendant Widaman to the promoters of said corporation; that the said defendant Widaman had not fully paid for said 10 shares of stock issued to him by said corporation at the time of the delivery thereof or at any other time; that there was due from the defendant Widaman at the time of the issuance of said stock to him the sum of $1,000 to said defendant corporation." There is no finding as to the allegation of the answer of this defendant that the value of the services rendered by him was in excess of the par value of the stock, though there was evidence that the services were worth more than twice the par value. As to the defend-. ant Lord, it is found that the stock held by him was not paid for, in whole or in part. Upon these findings judgment was entered in favor of the plaintiff and the intervener against each of the defendants for the sum of $1.000, the par value of the stock.

The following are the points urged by the appellant for reversal: First. The court erred in refusing to allow the defendants to show the contract between the corporators as to how the stock was to be issued. and for what consideration. Second. It was also error to exclude the question to Raymund: "What was the market value of that stock at the time it was transferred to Mr. Widaman?" Third. The evidence was insufficient to support the findings in various particulars. But the only specifications that need be considered are those referring to the alleged indebtedness of the defendants, and the nonpayment thereof, and to the parts of finding 10 unitalicized. Fourth. (a) The resolution of September 4, 1900, was valid and effectual to authorize the issuance of the stock to the stockholders for the consideration agreed upon; (b) it was duly passed: (c) nor can it be attacked on account of the interest of the directors, except by the corporation or a stockholder. (d) The evidence offered and excluded was admissible to explain it. Fifth. In the case of the defendant Widaman there is a material variance between the case alleged and found and the proofs.

The points principally discussed by the respondent's counsel relate to the due passage, the construction, and the validity of the resolution of September 4, 1900. It is claimed also, that these are the only questions involved; but this proposition is, we think, clearly untenable for several reasons. First.

Widaman testifies that the corporation was indebted to him, at the time of the trial, for money loaned; and this seems to be confirmed 83 P.-5

by the ledger of the company, put in evidence by the plaintiff, which, as we understand it, shows two credits of $250 each, of dates February 21, and 28, 1901; as to one of which, at least, we can find no debit. Besides, it is found by the court that the value of the services rendered by Widaman was in excess of the value of the stock received by him; and from the only evidence in the case on the point, it appears that his services "were worth twice the face value of the stock." It is, indeed, claimed by the respondents that no "offset" or "quantum meruit" is pleaded by this defendant. But as to the first item, the evidence of Widaman was admitted without objection, and the amount of the indebtedness was brought to the attention of the court by the plaintiff, himself; and we are not prepared to say that in an equitable proceeding of this character, it was not the duty of the court to render equity in this particular to the defendant. Code Civ. Proc. § 440. But, however this may be, the facts showing the indebtedness of the corporation to Widaman for his services are pleaded; and we are of the opinion of the appellants' counsel that (if the theory of the court be assumed) the actual plea "includes all the elements of a plea of the quantum meruit and more." We are of the opinion, therefore, that, on this account, as well as on account of the bearing of the fact on the other issues, the court should have found the value of the services of Widaman, and given the fact due effect. But we are of opinion, also, that the objections of the respondent to the due enactment of the resolution of September 4, 1900, as well as of the previous resolution of August 25th, are untenable. On this point it is unnecessary to dwell on the fact that the resolution was ratified by Rowan and Bingham (who, with the others, were the only stockholders) by their acceptance of the stock; nor need we enter at length upon the question as to proof of notice of the meeting of the former date. The record of the meeting recites that the directors were notified, and it is sufficient that the contrary does not appear. Granger v. Original Empire M. & M. Co.. 59 Cal. 679: Stockton C. H. & A. Works v. Houser, 109 Cal. 9-11, 41 Pac. 809. It is also to be observed that, were the point well taken, the result would seem to follow that the certificates were issued without authority and were void; and consequently the grounds for plaintiff's action, at least as against Lord, would seem to be lacking. We have to consider, therefore, only the questions of the construction and of the validity of the resolutions of the board; and on both these questions we think the evidence as to the agreement of the incorporators should have been admitted. For not only would the excluded evidence have an important bearing upon the question of construction, but it is clear from the evidence (whatever construction we may put upon the resolutions) that the agreement between the corporators

(whatever it may have been) was adopted by the corporation; and, indeed, otherwise the plaintiff's suit against Widaman would be without foundation to rest on.

As to the construction of the resolution, reading it in connection with the previous resolution of August 25th, and the evidence introduced and offered, we think there can be no doubt it must be construed as claimed by the appellants, and that the stock was issued as paid-up stock; and, it may be added, this construction is confirmed by the consideration that otherwise the issue of the certificates would have been illegal (Const. art. 12, § 11; Civ. Code, §§ 323, 359; Kellerman v. Maier, 116 Cal. 424, 48 Pac. 377; Ewing v. O. Mining Co., 56 Cal. 652), which is not to be presumed.

As to the validity of the transaction, the question is to be considered from two points of view, namely, with regard to the corporation, and with regard to subsequent creditors. As to the corporation no serious question can arise. By the adoption of the incorporators' agreement, that agreement became the agreement of the corporation. San Joaquin L. & W. Co. v. Beecher, 101 Cal. 70, 35 Pac. 349; Scadden Flat Co. v. Scadden, 121 Cal. 33, 53 Pac. 440, and cases cited infra. Nor can any objection be urged to the resolution on the score of the interest of the directors. For here the directors, though trustees, were the sole beneficiaries, and in this double capacity were fully empowered to act. Chater v. S. F. Refining Co., 19 Cal. 246; Shorb v. Beaudry, 56 Cal. 450; Cornell v. Corbin, 64 Cal. 200, 30 Pac. 629; Kohl v. Lilienthal, 81 Cal. 397, 20 Pac. 401, 22 Pac. 689, 6 L. R. A. 520; Behlow v. Fischer, 102 Cal. 214, 215, 36 Pac. 509; Kellerman v. Maier, 116 Cal. 416, 48 Pac. 377; Hunt v. Davis, 135 Cal. 34, 66 Pac. 957; Civ. Code, §§ 323, 324. As to the creditors of the corporation, the principles by which their rights are to be determined are sufficiently simple, though, it must be confessed, they are somewhat obscured by the immense multiplicity and varying character of the authorities. The relation of the judgment debtor to the creditors of a corporation is simply a particular case of the general case of a creditor seeking to collect his debt from the debtor of his debtor by attachment or other proceeding authorized by law. In no case is there any privity between the creditor and the debtor's debtor (Matteson, etc., Mfg. Co. v. Conley, 144 Cal. 483, 77 Pac. 1042); but whatever rights the former may have come to him through the intermediate debtor, and the general principle is that they cannot be other or greater than his. In this the case differs from that of the statutory liability of the stockholder, where the direct relation of debtor and creditor is established between the stockholder and the creditor by the statute. Civ. Code, § 322. There are exceptions, or apparent exceptions, to the general

rule in cases of fraud, actual or constructive, as to creditors, and there are cases where the stockholder may be estopped from showing the real nature of the contract or agreement between him and the corporation; and, it may be admitted, the latter principle and that of constructive fraud have been extended in their application with extreme liberality in favor of creditors, and, perhaps, with some disregard of the rights of innocent individuals. Hence, it may be said of “unpaid subscriptions to stock" that "these may sometimes be collected by creditors when the corporation itself has released them, or in some way deprived itself of that right." Vermont Co. v. Declez Co., 135 Cal. 583, 67 Pac. 1057, 56 L. R. A. 728, 87 Am. St. Rep. 143. But we see nothing in the agreement between the corporation and the defendants here to take the case from the application of the general rule, or to give to the creditors of the corporation any greater rights than the corporation itself had. Here, from the circumstances of the case, it may be inferred that the principal parties to the transaction were Raymund and O'Bryan, and the relation of the others to them merely that of employés. Nor do we see anything in the nature of fraud in the terms of their employment. As to Widaman, especially, it affirmatively appears that the consideration rendered by him was in excess of the value of his stock, and, upon the evidence, that it was even in excess of its par value. To such a transaction no possible objection can be made. As to Bingham, if this cannot be said, at least the contrary does not appear, and until the contrary is shown the presumption is that the transaction was fair. Code Civ. Proc. § 1963, subds. 1, 19, 20, 33, 39. Here also the general presumption was confirmed by the consideration that otherwise the issue of the certificate would have been in contravention of constitutional and statutory provisions (authorities, supra), and, in the absence of circumstances tending to inform him better, his assignee might justly rely on this presumption. The case, therefore-as to both defendants-comes within the application of what is said in Kellerman v. Maier, 116 Cal. 422, 423, 48 Pac. 377, which is to the effect that it is legitimate for the corporation to dispose of its stock for full value received in land or property, or, as in this case, in services. Nor is there anything in the decision in Vermont Co. v. Declez Co., supra, affecting this position. All that is there held is that the issue of stock for part of its nominal value, or, in other words, the sale of stock at less than par, is not permissible. But, assuming this to be the law, the case considered in Kellerman v. Maier in the passage quoted, and the present case, come within the distinction expressed on page 586 of 135 Cal., page 1059 of 67 Pac. (56 L. R. A. 728, 87 Am. St. Rep. 143), where it is said: "Had the case been the usual one where a

road is constructed for a fixed sum of money and a definite amount of stock, it might, perhaps, have been held that the stock was fully paid; but the stock was given for a definite sum of money, and it was contended that it was the usual case of selling stock below par, and that no contract with the corporation could release the stockholder from his liability to creditors." The decision, therefore, does not affect the case of Widaman; nor, in the case of Bingham, does it appear "that the transaction was not fair, and that a reasonable equivalent was not given for the stock"; nor is there anything here to show or to lead us to suspect that there was a mere "simulated payment of such subscription," or that there was "any device short of an actual payment in good faith."

This disposes of the various points made by the appellants' counsel, except the last point of the appellant Widaman, which is that there is a material variance between the case alleged and found, and the proofs. This point--though perhaps by itself insufficient for reversal-is well taken. The action against Widaman is based upon the subscription, and from the findings and the evidence it appears that the contract of subscription (whatever may have been its terms) was executed. The judgment, therefore (if it could be otherwise supported), would have to rest simply, as in the case of Lord, upon the contract implied (as held in Vermont Co. v. Declez Co.) to pay the full par value of the stock.

For these reasons, the judgment and order appealed from must be reversed. But there are other questions involved, antecedent to those discussed by the counsel, which must be determined with a view to the further proceedings in the case. These are: (1) Can an action be maintained by a creditor of a corporation upon a stockholder's liability otherwise than through the medium of an assessment by the corporation, or by the court itself in the suit? (2) Assuming this question to be answered in the negative, will it be necessary in a creditors' bill against a corporation to make the stockholders parties? (3) Or, assuming the first question to be answered in the affirmative, can a suit be maintained by a creditor against a stockholder on his subscription liability without making all the stockholders parties, or excusing the absence of missing stockholders?

The first and second of these questions will be considered together: Under the Constitution and statutes of this state, it is settled that there are two methods of proceeding by creditors of a corporation to collect their debts, to wit: (1) "Each stockholder may be compelled to pay to the corporation assessments to the full amount of his subscription to the capital stock of the corporation for the payment of creditors;" and (2) he will "be individually liable to each creditor for such

proportion of his claim as the amount of stock held by such stockholder bears to the whole of the capital stock." Sacramento Bank v. Pacific Bank, 124 Cal. 150, 56 Pac. 787, 45 L. R. A. 863, 71 Am. St. Rep. 36; Kimball v. Richardson-Kimball Co., 111 Cal. 395, 43 Pac. 1111. With regard to the latter remedy, it is expressly provided by section 322 of the Civil Code that the action can be maintained by a creditor against a stockholder for his proportion of the debt "only." This seems clearly to imply that no action can be maintained by a creditor against a stockholder on his subscription liability directly; and hence, the right of a creditor to maintain an action of the kind now before us would seem to be denied by the express provision of the statute cited. This conclusion, we think, would be right, and the first question might very well be thus disposed of; but there are grounds upon which it may be rested independent of the statute.

As to the equitable remedy, until recent times the principles governing it and the mode of procedure were equally well defined: A suit may be maintained by the creditor of a corporation on behalf of himself and other creditors against the corporation to subject its assets to the creditors' lien.

Wood

v. Dumner, 3 Mason, 308, Fed. Cas. No. 17,944; 2 Story's Eq. Jur. § 1252. Among these assets the unpaid subscriptions of stockholders are to be regarded as part, and with reference to these the court will either compel the corporation to assess the stock in the amount necessary for the payment of its liabilities, or it will itself make the assessment; and in this proceeding unless a personal judgment against a stockholder be sought-it will be unnecessary to make all the stockholders parties, the assessment, whether by the corporation or by the court, being conclusive upon them. Salmon v. The Hamborough Co., 1 Cases in Chancery, 204, cited, Thompson on Liability of Stockholders, § 16; Glenn v. Saxton, 68 Cal. 353, 9 Pac. 420; Glenn v. Williams, 60 Md. 93. Stockholders, however, under the ordinary rules of equity procedure, may be made parties, and as to those who have been served, or who appear, several judgments may be entered against them for the amounts for which they are assessed. Code Civ. Proc. §§ 379, 382, 387, 389; Story's Eq. Jur. §§ 64k, 65; Harmon v. Page, 62 Cal. 448. The leading case on this subject was decided in the reign of Charles II, and it seems to be agreed that the doctrine has never been extended in England beyond the rule as above stated. Nor, until recent times, has it been extended in this country. There are, indeed, some cases in which it has been held that a suit may be maintained by a single creditor directly against one or several stockholders; but this is confessedly an innovation in equity practice, and seems to have grown out of a misapprehension of the resources of the exist ing practice, rather than from any necessity