for the innovation. For the ordinary proceeding furnishes the most ample remedy to creditors that can be justly demanded; and at the same time-unlike the new practice-is free from being chargeable with a disregard of the rights of stockholders, and of the familiar principles upon which equity is commonly administered. This, I think, is a fair criticism of the cases alluded to, whose fault seems to be that they have left out of view the necessity of an assessment (required by every consideration of equity and common sense) to fix the liability of the stockholder; but it would be impracticable, with any due regard to brevity, to attempt to verify the criticism by a review of the cases. We will therefore confine our attention to the statutory provisions and authorities of this state, by which alone the case is to be determined.

By section 331 of the Civil Code, the directors of a corporation, after one-fourth of its capital stock has been subscribed, may levy and collect assessments upon the subscribed capital stock "in the manner and form and to the extent provided herein." By section 332 it is provided: "No one assessment must exceed ten per cent. of the amount of the capital stock," except in the cases mentioned in the section, of which one is that an assessment may be made "for the full amount unpaid upon the capital stock," or such percentage as may be necessary "to meet its liabilities, or to satisfy the claims of its creditors." And by section 349, upon delinquency in the payment of the assessment, the board may elect to waive further proceedings under the statute and "to proceed by action to recover the amount of the assessment," etc. These provisions of the code enter into and constitute the terms of the contract. Union Savings Bank v. Leiter, 145 Cal. 702, 79 Pac. 441. Hence, in the absence of an express agreement to the contrary, the promise of the stockholder is only to pay the amount of his subscription upon assessment, and until then no cause of action arises. Union Savings Bank v. Leiter, supra; Welch v. Sargent, 127 Cal. 81, 82, 59 Pac. 319; Shively v. Eureka Co., 129 Cal. 293, 61 Pac. 939; Ventura Ry. Co. v. Hartman, 116 Cal. 260, 48 Pac. 65; Glenn v. Saxton, 68 Cal. 357, 358, 9 Pac. 420; Harmon v. Page, 62 Cal. 463, 464; Cal. Sugar M. Co. v. Schafer, 57 Cal. 396. It would seem to follow, therefore, that until the levy of assessment, either by the directors of the corporation, or by the court in lieu of the directors, no cause of action can arise either in favor of the corporation or its creditors; and also that, except in the manner indicated that is to say, by an assessment either by the directors, or in the creditors' suit-no suit can be maintained by a creditor on the subscription liability directly against one or several stockholders. Nor is this an immaterial limitation upon his liability. For not only is the stockholder entitled to the interposition of the directors of the corporation, who are

trustees for him, as well as for creditors, and whose duty it is to see that unequal burdens are not imposed upon him (Union S. B. v. Leiter, supra), but he is also protected by the statutory provisions of the law, which forbid him to be assessed, without an assessment of the other stockholders. Nor is the case differenced where the court makes the assessment. For here the court simply performs the functions of the corporate officers, and becomes itself a trustee of the stockholders, as well as of the creditors. It would seem, therefore, even if the case be assumed to be otherwise for the plaintiff, that the judgment was nevertheless premature. There should have been an inquiry as to the amount necessary to be assessed, and an assessment against all the stockholders, whether present or absent.

On the other hand, there are some cases in this state in which it has apparently been held that a direct judgment in favor of creditors against several stockholders is admissible (Baines v. Babcock, 95 Cal. 581, 27 Pac. 674. 30 Pac. 776, 29 Am. St. Rep. 158; Potter v. Dear, 95 Cal. 578, 30 Pac. 777; Walter v. Merced Academy Ass'n, 126 Cal. 586, 59 Pac. 136; Welch v. Sargent, 127 Cal. 72, 59 Pac. 319; Tulare Savings Bank v. Talbot, 131 Cal. 45, 63 Pac. 172); and this, as we have seen, is correct provided there first be an assessment. But the actual decisions go further, and the judgments were affirmed, though there had been no assessment. But in none of these cases was the question as to the necessity of an assessment considered, nor was the attention of the court directed to the statutory provisions and the authorities above cited, nor was the question of their effect considered. In Baines v. Babcock, supra, indeed, the general question is discussed in the briefs, and, in the brief of counsel for the appellants Babcock and Collett, very elaborately and ably. But the question as to the proper mode of procedure and the necessity of an assessment was not considered by the court. Nor in the actual case was there any very pressing necessity that it should be. For, out of the 2.500 shares of the stock of the corporation, 2,317 were represented by the defendants, and it was alleged in the complaint that the remaining 183 shares were "mostly held in small amounts by nonresidents or insolvent persons." But, however this may be, the question actually considered by the court was whether the objection to the nonjoinder of the latter could be sustained, and it was held, in effect, that the nonjoinder was excused. Upon the question under consideration here, all that is said is: "It is well settled that a judgment creditor, who has exhausted his legal remedies against a corporation, may maintain an action against its stockholders to recover, for the benefit of all creditors who may desire to come in and be made parties, the amount due upon unpaid subscriptions for stock, when the corporation neglects or

refuses to collect the same." And it is futther said: "The contention of appellants that this equitable remedy is superseded in this state by section 322 of the Civil Code, and that the only personal liability of the stockholder is that fixed by that section, is not tenable, and was so held by this court in Harmon v. Page, 62 Cal. 448." But referring to the case cited, it appears that all that was held there was that the jurisdiction of equity to entertain a creditors' bill against the corporation and stockholders to subject the assets of the corporation to the lien of the creditors was not divested by the personal liability imposed upon the stockholder by statute, and that the question under consideration was not there in any way involved. Nor is the language of the court in the principal case to be considered as going beyond the authority cited.

See

The case of Hatch v. Dana, 101 U. S. 205, 25 L. Ed. 885, is also cited by the court, and, though not cited to the point now under consideration, it apparently goes beyond the point for which it was cited, and probably had some influence on the mind of the court. The case, however, was an Illinois case, where by statute it is expressly provided: "Each stockholder shall be liable for the debts of the corporation to the extent of the amount that may be unpaid upon the stock held by him, to be collected in the manner herein provided." And it is further provided: "Whenever any action is brought to recover any indebtedness against the corporation, it shall be competent to proceed against any one or more stockholders upon the stock owned by them respectively, whether called in or not, as in cases of garnishment." Alling v. Ward (111.) 24 N. E. 551, where the statute is cited, though not fully. Accordingly, though the statute is not expressly referred to, the decision is placed upon the ground that: "A creditors' bill merely subrogates the creditors to the place of the debtor and garnishees the debt due to the defendant corporation. It does not change the character of the debt attached or garnished." This was precisely in accord with the Illinois law, and must be considered as having reference to that only. And it is the more requisite thus to construe the decision, because, if the proposition should be regarded as asserted generally, it would not be supported by any of the authorities cited-unless, perhaps, by the Georgia case cited from Wood's Reports, which does not seem to have been very carefully considered. Nor, however construed, can the decision be regarded as authority in this state, where there are express statutory provisions covering the whole subject of attachment, which it is said are to be regarded as "a substitute for a creditors' bill." Matteson, etc., Mfg. Co. v. Conley, 144 Cal. 485, 77 Pac. 1042.

For these reasons we are satisfied that in this state creditors of a corporation can maintain a suit directly against a stockholder

for his statutory proportion of the corporation indebtedness, only; and that to enforce his subscription liability otherwise than by means of a suit against the corporation, and an assessment, would not only be an unnecessary, and therefore unwarranted innovation upon the established equity practice, but it would also be in direct contravention of the provisions of section 322 of the Civil Code, and of the decisions of the Supreme Court in Union Savings Bank v. Leiter, 145 Cal. 696, 79 Pac. 441, and the numerous other cases cited supra. This conclusion is also confirmed by the decision in Welch v. Sargent, 127 Cal. 73, 59 Pac. 319, where it is held that a stockholder cannot pay the debt of a corporation in discharge of his liability upon an unpaid subscription to the stock, which, it is said, "is an asset of the corporation" and "payable to the corporation and no one else." It can hardly be that a cause of action can exist against one which he is not at liberty to pay. And, as in this state, it seems, paid-up stock may be assessed by the corporation (Santa Cruz Ry. Co. v. Spreckles, 65 Cal. 193, 3 Pac. 661, 802; Vermont Co. v. Declez Co., supra), it is difficult to preceive, if such an action can be maintained, why it should be limited to the unpaid subscription.

On the other hand, reverting to the third question, if we could assume that a suit could be maintained by a creditor against a stockholder without the intervention of an assessment by the corporation, or by the court, then it would be clear that all the stockholders should be parties, "at least so far as they can be ascertained," or, as practicable (Hatch v. Dana, 101 U. S. 205, 25 L. Ed. 885, cited; Baines v. Babcock, 95 Cal. 590, 27 Pac. 674, 30 Pac. 776, 29 Am. St. Rep. 158, supra); and that none could be omit ed "unless some valid excuse is shown for not bringing them in" (Thompson on Liability of Stockholders, §§ 353 et seq.; Code Civ. Proc. §§ 379, 389). But assuming that the obvious necessity (in the absence of an assessment) of bringing in all the stockholders before judgment can be rendered against one (Code Civ. Proc. §§ 379, 382, 389) may be thus qualified, the rule can have no application to the present case. For here, though it appears that one of the stockholders (O'Bryan) absconded some four or five years ago, it does not appear that he cannot now be found; and it affirmatively appears that the other stockholders (Rowan and Raymund) were present. No reason appears, therefore, why they should not be joined, and under the provisions of the Code cited they should be. By joining Raymund only, the trust fund subject to the claims of the plaintiff and intervener would be increased by more than $24,000, or, in other words, would be multiplied 13 times, and a very small assessment upon each share would be sufficient to satisfy the claims sued on. And even should the judgment be against them jointly for the amount due, and the smaller stock

holders have to pay the judgment, they would be assured of their right to contribution from the others. Under these circumstances, to impose the whole debt on two small stockholders, to the exclusion of the principal debtors, would not be justified by any principle of equity with which we are acquainted. In this connection, it will be proper to say we are not satisfied of the correctness of the proposition of the court, in Hatch v. Dana, supra, that "the liability of a stockholder for the capital stock of the company is several, and not joint"-at least, as applicable to this state. After the assessment it is "several." But before that the liability is only contingent, and can hardly be said to be either joint or several; though in its characteristics it more nearly resembles obligations of the former kind.

For the reasons given, the judgment and order appealed from must be reversed, and further proceedings had in accordance with the views expressed in this opinion.

I concur: ALLEN, J.

GRAY, P. J. I concur specially in the reversal of the judgment and order. I do not think there is any analogy, however, between this case and the case of a creditor seeking to collect his debt from the debtor of his debtor by attachment. I am strongly of the opinion that the creditors may sue the stockholders of a bankrupt corporation directly and without any effort to compel an assessment by the corporation, and believe that the liability of the stockholders to such creditors is several as well as joint, and that it is not necessary to join all the stockholders in such a suit. Walter v. Merced Academy Association, 126 Cal. 582, 59 Pac. 136.

(2 Cal. App. 122)

TURNER v. FIDELITY LOAN CONCERN et al. (JAMES, Intervener). (L. A. 1.433.) (Supreme Court of California. Dec. 29, 1905.) APPEAL-DIVIDED COURT-LAW OF THE CASE.

The decision of certain questions by a District Court of Appeal, with a view to further proceedings in the case, only concurred in by two of the justices of such court, does not constitute "the law of the case" for further proceedings.

In Bank. Action by Stephen L. Turner and another against the Fidelity Loan Concern and others. A judgment against H. P. Lord and O. P. Widaman was affirmed in a District Court of Appeal (83 Pac. 62), and they apply for a transfer of the cause to the court in bank. Petition denied.

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

PER CURIAM. The petition for a transfer of the above-entitled cause to this court, after decision in the District Court of Appeal

of the Second Appellate District, is denied. In denying such petition, it is proper to say that such portions of the opinion of said Court of Appeal as are devoted to the discussion of such questions as, it is said in the opinion, "must be determined with a view to the further proceedings in the case," are concurred in by only two of the justices of said Court of Appeal, and, consequently, do not constitute "the law of the case" for further proceedings.

(2 Cal. App. 47)

FRUTIG v. TRAFTON. (Court of Appeal, First District, California. Oct. 20, 1905.)

FINDINGS CONFLICTING EVI

1. APPEAL DENCE. Findings of the trial court, based on conflicting evidence, will not be interfered with on appeal.

[Ed. Note.-For cases in point, see vol. 3, Cent. Dig. Appeal and Error, §§ 3983-3989.] 2. PAYMENT APPLICATION-STATUTES.

Under the express provisions of Civ. Code, § 1479, a debtor has the absolute right to direct at the time of payment the obligations to which he desires the same applied.

[Ed. Note. For cases in point, see vol. 39, Cent. Dig. Payment, § 99.]

3. SAME-EVIDENCE-PAYMENT ON ACCOUNT. Where defendant's merchandise account with plaintiff included not only an original indebtedness for goods sold, which was partially secured by mortgage, but also charges representing subsequent sales, remittances made by plaintiff "for credit," or "to apply on account," did not constitute a direction that the remittances should be applied in payment of the subsequent charges, as distinguished from the items secured. 4. APPEAL-NEW TRIAL-DENIAL-CONFLICTING EVIDENCE.

Where the evidence was substantially conflicting on an issue of the application of payments, the trial court's denial of a motion for a new trial on the ground that the findings were contrary to the evidence will not be interfered with on appeal.

5. MORTGAGES-SATISFACTION-JUDGMENT.

Where a mortgage was past due at the time suit was brought to compel satisfaction thereof on payment of an alleged balance, and the court found that the amount of the balance was as claimed by plaintiff, it was improper to render judgment requiring satisfaction on payment of the amount so found into court, without fixing a reasonable time for such payment.

Appeal from Superior Court, Santa Clara County; W. G. Lorigan, Judge.

Action by Harry Frutig against J. P. Trafton. He having died after judgment, Dola P. Trafton, his executrix, was substituted as defendant. From a judgment for plaintiff, and from an order denying defendant's motion for a new trial, she appeals. Modified and affirmed.

Rehearing denied November 16, 1905. Valentine & Newby and S. F. Leib, for appellant. H. W. McComas and Charles L. Witten, for respondent.

HALL, J. This is an action to compel the satisfaction of a note and mortgage given for

$1,000, upon the payment of the balance of $260 alleged to be unpaid. Plaintiff had judgment as prayed for. The appeal is from the judgment and order denying defendant's motion for a new trial. The original defendant, J. P. Trafton, died subsequently to the rendition of the judgment, and the executrix of his will has been substituted as defendant. Plaintiff was a retail dealer in jewelry, and bought a bill of goods amounting to $1,070.41, of defendant, a wholesale dealer, and with his wife gave a note and mortgage to defendant to secure the payment of $1,000 thereof. The note bore date November 4, 1896, and by its terms was payable on or before November 4, 1901, without interest. During the next 12 months plaintiff, from time to time, purchased additional goods of defendant to the amount of $638.10, and during the same time made payments of $735. The court found the payments to be $740, but no point seems to be made of this difference; for other payments were made by plaintiff of taxes on the mortgage which brought the total payments to a sum in excess of $740, and the court found the balance to be paid on the mortgage to be $260.

The controversy concerns the application of these payments. If credited to the note and mortgage, the findings of the court were right; but, if credited to the balance on the first bill, $70.41 and the succeeding purchases, the findings of the court are not sustained by the evidence. Testimony was given by plaintiff and by H. W. McComas to the effect that at the time of the execution of the note and mortgage it was distinctly agreed by defendant and plaintiff and his wife that the first moneys that should be paid by plaintiff to defendant should be credited on account of the note and mortgage, although it was contemplated at that time that defendant should continue to supply plaintiff with such goods as he might need from time to time. Much stress seems to have been put upon this question at the trial, and counsel have discussed the question at length in their briefs. It is sufficient for us to say that on this question there is an absolute conflict of testimony, and therefore, so far as the findings of the court depend upon this question, we cannot interfere with the action of the trial court. We do not think the question last discussed, however, very important, for every debtor has a right to direct at the time of payment the application of such payments as he makes to such obligations as he pleases (Civ. Code, § 1479). It is contended by appellant that the evidence shows without conflict that plaintiff directed the application of the payments to current or running account, and that the payments were so applied by defendant with the knowledge and acquiescence of plaintiff. This presents the real point upon which the determination of this case hinges.

We shall first consider the evidence as to the direction by plaintiff for the application of the payments. Plaintiff carried on his business at Gilroy, Santa Clara county, while defendant carried on business at Los Angeles, and all the payments were by check sent through the mail. There were 25 payments, varying in amount from $20 to $100, and each was inclosed in a letter containing a direction in substantially the following form: "Inclosed please find check for $25 [or whatever the amount] to apply on account," save the last payment, where the direction was: "Inclosed please find check for $25, for which give me credit." It is contended by appellant that the words "to apply on account" meant that the payment should be applied on the debt represented by the current account, as distinguished from the debt evidenced by the note and mortgage. But "the word 'account' has no inflexible technical meaning, being defined by Webster to mean a registry of pecuniary transactions, a written or printed statement of business dealings of debits and credits, and also of other things subjected to a reckoning or review." Preston Nat. Bank v. Purifier Co., 102 Mich. 462, 60 N. W. 981. "An account is a list or statement of monetary transactions, such as payments, losses, sales, debits, credits, etc., in most cases showing a balance or result of comparison between items of an opposite nature, e. g., receipts and payments." Purvis v. Kroner, 18 Or. 414, 23 Pac. 260. See, also, 1 Words and Phrases Judicially Defined, under subject "Accounts." shall see further on in this opinion, the very first item in the "account" kept in the books of defendant as to the monetary transactions between defendant and plaintiff was a debit item for $1,070.41, which included the $1,000 evidenced by the note and mortgage, and the same item appears in the statement of account furnished plaintiff by defendant before the beginning of this litigation. We think the import of the words "to apply on account," when referring to a remittance of a named sum, and not qualified by more definite terms, is simply that the payment made is a payment in part of a debt exceeding the amount then paid. The most that can be fairly claimed by defendant in regard to the direction contained in the words "to apply on account" is that plaintiff at the time of the payments gave no direction as to which obligation the payments should be applied to.

As we

This brings us to a consideration of the evidence in the record as to the application in point of fact by defendant of the payments as they were made. On this point we find a substantial conflict in the evidence. It is true that defendant testified that, "when these payments were made, I applied them on the goods he was buying on open account." As evidence of a mental process this testimony is not conclusive against other evidence showing what was in fact done.