894
FEDERAL REPORTER,
vol. 37.
'11. (OirCfJit Court, No ,
HAVEN et ale December 1'7, 1888 1 LIABILITY CONSTITUTIONAL
n. California. ,
1.
CollPORATIONS -
B.
LAw. Section 822 of the Civil Code of California, fixing the liability of stockhold. ers of corporations, adopted in 1876. is not in conflict with article 12, § 8. of the constitution of California of 1879, and was by it expressly continued in force. ' ," ,
STOCKHOLDERS -
STATUTORY
SAME-COURTs-NATIONAL JURISDICTION.
8.
New remedies afforded by state statutes will be applied, and new rights given, enforced, in the national courts. Held, accordingly, that an action at law, to enforce the individual liability of stockholders, under provisions of the Civil Code of California, may be maintained in the circuit court of the United States. SAME-ENFOROEMENT OF LIABILITY-EVIDENCE.
In suits to enforce the statutory liabilities of a stockholder for his proportionate share of a debt of the corporation, under the Civil Code of California, testimony that would be competent in a suit against the corporation to recover such debt, to establish the demand against the corporation, is competent to establish the same against the stockholder.
.. SAME-ExTENT OF LIABILITY-ASSIGNMENT OF STOCK.
e. SAME-BAl'lKS AND
Under the Civil Code of California the liability of an owner of stock of a corporation continues untUa transfer of the shares once held by him has been entered upon the records of the corporation, and this whether the ,: stock stood on the books of the corporation in the name of such owner, or in the name of some other person. as trustee,without disclosing the name of the " true owner. ' G. SAME-DIRECTOR AS CREDITOR. A stockholder, and even a director, may become a creditor of a corporation where the action is not tainted with fraud or other improper act. Where a bank advances money to a corporation upon a director's bl:lcoming security, 'and the form of the security is a promissory note of the corporation made payable to the order of one of its directors, and indorsed by him to the bank, the transaction is between the corporation and the bank, and not between the corporation and the nominal pa,yee of the note. In such case. when the note goes to protest, and is afterwards paid by the director, who is the nominal payee and the indorser, a liability accrues against the corpora- ' tion for the amount paid in favor of the party so paying. Where two corporations make a valid agreement. whereby an indebtedness of one corporation is extinguished, or assumed by the other, it is competent for said corporations. by mutual agreement duly made, to rescind such agreement, reinstate the liability of the corporation so discharged, and place the parties in 8tatu quo,' and the stockholders of the debtor corporation in such case will become personally liable for their respective proportionate shares of the liabilities so created or reinstated. BANKING-LoANS TO DIRECTORS.
'7.
SAME-REINSTATING' RESCINDim CONTRACT.
&
SAME-DIRECTORS.
Where the directors of a corporation, acting in good faith, upon the reports and representatioDs of the duly-authorized agents of the corporation, believing them to be correct, borrow money for the purposes of the corporation, it is not necessary to show that the money so borrowed was all actually appropriated to the legitimate uses of the corporation, in order to establish an indebtedness agaiDst it, or a personal liability of its stockholders in favor of the lender of the mOHey, or of the sureties who pay the loan. The plea of the statute of limitations impliedly admits the existence of the demand, and the burden of proving a bar by the statute is on the party pleading it, as in the case of a plea of payment. Held, accordingly, that where a
9.
LIMITATION OF ACTIONS-PLEADING AND PROOF.
BORLAI\D V. HAVEN.
395
portion of a demand is claimed to have been the party so c1aimitlg. must prove the specific amount; mere proof that some portion is barred, not, showing the amount. is not sufficient to establish that the bar of the statute applies to any. In the case of a running account, embracing only one entire' transaction or liability, the bar only attaches from the date of the last item. . 10. PLEADING-TRIAL.
Where a demurrer to a complaint is by the court overruled, its sufficiency will not ordinarily be reconsidered at the trial.
(S1Jllabus bl1 eM Oourt.)
At Law. This is a suit brought by plaintiff against defendants, to recover the shares, for which the defendants are respectively alleged to be personally liable, as stockholders of the Wyoming & Dakota. Water Company, for moneys advanced by plaintiff to, and for the benefit of, said corporation. The answer admitS that the defendant, Nichols, separately but not jointly with Haven, held 2,500 shares of the stock of said company on May 27, 1879, and from that time till the day of June, 1880" without specifying the day in June, and that defendant Haven;,in severaltyand not jointly with Nich,ols, owned 2,500 shares of said· stock from May 27, 1879, up to November, 1880. From the evidence"the following additional facts are found: The Wyoming & Dakota Water Company is a corporation, organized and existing under the laws of the state of California, having its office, and principal place of transacting business at San Francisco, in (laid state, but its field of operations in constructing, purchasing, owning, and maintaining water-ditches for supplying towns and cities with pure water and for mining and for other purposes,is in the territories of Wyoming and Its capital stock is $5,000,000, divided into 100,000 shares of $50 each. Of these, on May 27, 1879, 5,000 shares were issued and stood upon the books of the corporation in the name of the' defendant Haven, trustee, but defendant Nichols owned 2,500 of these shares, and defendant Haven 2,500, each in severalty. Afterwards, on April 6, 1880, this certificate was surrendered and canceled on the books, and the stock reissued in two certificates of 2,500 shareseach,in the name of said defendant Haven, trustee, but the shares, so issued,. were owned respectively by said defendants, Haven and Nichols, in sev-' eralty, eaoh owning 2,500. The said shares were never afterwards transferred on the books of said corporation; but, at the time of the commencement of this suit, the said stock represented by said two certificates of 2,500 shares each, still stood in the name of said Haven, trustee, . upon the boqks of said corporation. In the month of November, 1881, .' Haven delivered the certificate for 2,500 shares held by himeself to one Roberts, with directions to have 100 shares transferred on the books to one Clay, for the purpose of making said Clay, who was an expert in matters of book-keeping, a stockholder, and giving him a right I as such to examine the books and affairs of said company. Roberts, : for his services in the matter, was to have an interest, but no definite' amount was specified. Said Roberts presented said eertificate·to the: secretary of said corporation to thus divide said certifidate,' ,and ·.thesec'; i
396
retary having been recently appointed, and not being familiar with his duties, made an entry in the books with the view of transferring 100 shares to Clay, and leaving the other 2,400 shares still on the books in the name 'of said Haven, and of issuing two c!3rtificates in accordance therewith; but there was an unpaid assessment of one dollar per share upon the stock, and under the statute and by-laws of the corporation, no transfer could be made on the books of the company while there was an unpaid assessment upon it; and the president called the secretary's attention to the assessment and by-laws, and on that ground declined to sign the tt:snsfer or issue the new certificates to Clay and Haven. The incomplete attempted entry and transfer on the books was thereupon canceled, and the certificate for 2,500 sharfls returned to the party presenting it for division and transfer as aforesaid, thus leaving the stock standing in the name of Haven upon the books, as when first issued. What became of the certificate afterwards is not shown by the evidence. There never was any other transfer on the books of the company, and no other was ever attempted or demanded. Nichols, some time in 1880, delivered. his certificate for 2,500 shares to a Mr. Honore in New York with, cer.tificatesof stock in three other companies, the whole to be sold for $20 per four shares; that is to say, $20 for four shares, embracing <)De-in each. company. That is the last known of those shares, so far as the evidenCe shows. They were never transferred on the books of the oOl'poration, or presented for transfer; and the fact of the delivery to Honore, as stated, and sale, if sale there was, was not brought in any wayta the knowledge of the corporation. The plaintiff was a large stockholder, originally having 20,000 shares of the stock, and a director in the corporation from its organization til August 12,1880, and on August 12, 1880, he was president of the board of directors. On said August 12, 1880, he resigned his position, both as president and director, .and Jules P. Cavallier was elected director in his place, and Thomas Barr as president of the board. Plaintiff was never afterwards a director or officer of said corporation. On said Augnat 12,1880, several directors resigned and others were elected in their place. Those elected were elected in plaintiff Borland's interest and through influence, he having furnished them with the stock neces-sary to qualify them to be directors. Prior to the creation of the second and .subsequent indebtedness hereinafter set out, to-wit, on June 30, 1880,15,552 shares of the stock of said corporation were duly sold for n,npaid, assessrpents, and purchased in at said sale by the corporation, so thaMllere thereafter remained of the stock of said corporation outstand" ing)n the hands of the shareholders, but 84,448 shares upon which to <UIlWibutethe.liability for any indebtedness thereafter accruing. The Qorporation had no funds for carrying on its operations other than Qlpneyraised from assessments on its capital stock. On June 10,1880, the duly-authorized superintendent of the Wyoming & Dakota ,Water 09lPpany,al1. Golden Gate, D. T., drew a draft at three days'sight on corporation at San Francisco, in favor of .the Mer. Bank at Deadwood, for $25,000, being for alleged in-
BORLA::>D t:. HAVEN.
397
debtedness incurred in the of the corporation in the construction of its works, and for the other purposes of the corporation, etc., in Dakota territory, which draft was sent by the payee to the Bank of California at San Francisco, for collection, and was duly presented to the drawee for acceptance, and accepted on June 18, and payable on June 21,1880. A draft similar in all respects was drawn by said superintendent at the same place, payable at the same time in favor of the First National Bank of Dakota, for $20,000, which was sent to Wells, Fargo & Co., in San Francisco, for collection, and which was in like manner on the same day presented for acceptance, and accepted payable on June 21,1880. The corporation was without funds to meet these drafts, and was compelled to borrow. Upon application made, the Bank of California agreed to advance the money, if plaintiff, Borland, would indorse not otherwise. Thereupon the note, or guaranty its payment, tiff promised to guaranty the payment upon,being paid 10 per cent. per annum interest upon the money he should be required to pay upon his guaranty. A meeting of the board of directors was called to act upon the matter, and met on June 21, 1880. At this meeting a resolution was adopted in pursuance of .the previous understanding between the plaintiff and the directors individually, authorizing the president and secretary to execute a note for $45,000, the amount of the two drafts, to the order of A. Borland, A. Hemme, and R. N. Graves, at the Bank of California; the resolution reciting. that it was "in order to settle the indebtedness of the company tathe Bank of California." The note was accordingly executed and the money obtained with which the drafts were paid. This note went to protest, and was afterwards paid, with interest, by plaintiff, Borland, on August 31, 1880, the amount of interest being $887.50. Notarial fees for protest, $5. At the time of this payment, plaintiff, Borland, had ceased to be a director in the corporation.. On or about September 26, 1880, plaintiff, Borland, paid and took up in like manner on behalf of said corporation a draIV of the superintendent of the Wyoming & Dakota Water Company, dated Golden Gate, Dak., September 10, 1880, in favor of the First National Bank of Deadwood, on the president of said company at San Francisco for $6;000; and on or about November 1, 1880, another similar draft drawn at the same place, in favorof the same party, dated Oct{)ber 1,.1880, for $3,500, These drafts were .drawn for moneys represented by the superintendent and believed to be used in the business and for the purposes of the corporation,and they were afterwards recognized by the board of directors as properly drawn and paid. Plaintiff, Borland, also pairl, on behalf of the said corporation to Messrs. Garber & Thornton, for legal services rendered to said corporation, Wyoming & Dakota Water Company, in the latter part of 1879, and fore part of 1880,ln litigating the right and title of said corporation to the waters of certain. streams appropriated to their use as hereinafter stated, and for otherlegal. services relating to the business of the corporation, the sum of $6,854.15. .The moneys so ad.. vanced by plaintiff and paid on behalf of said corporation to Messrs; Garrer & ThOi'llton, were paid .at differenttiroesas theirservices.were
398
FEDERALREPOI:TER)
rendered from August or Septeniber, 18,79, to August, 1880. The Father de Smet Consolidated Gold Mining Company was a corporation organized and existing under the laws of the state of California, having its principal business office in San Francisco, in the state of California. Its object and its business was to carry on gold mining operations in the said territories of Dakota and Wyoming. "It was the first organized of the two corporations herein mentioned, and was a successful and dividend-paying corporation. The plaintiff, Borland, owned 48,000 of the 100,000 shares of the stock of the Father de Smet Company, purchased mostly from the defendants, Haven a.nd Nichols. From the organization of the Wyoming & Dakota Company, the stockholders were identical or nearly so with those in the Father de Smet Company, until the stock in the latter became somewhat scattered. The offices of the two corporations were in the same place in San Francisco, and the same party, Theodore Widman, was secretary for both corporations from the beginning until after the occurrence of the transactions which constitute the matter of thill suit. Plaintiff, Borland, was a director in the Wyoming & Dakota Company until he resigned on August 12, 1880, as·hereinbefore stated. At the same time he was also a director in the Father de Bmet Company till August 12, 1880, when he resigned his position as a director in that company, and another in his interest was elected in his place. On the same day one other director resigned and another was elected in his place, through fiorland's'influence and in his interest, Borland having furnished the stock necessary to qualify both parties so elected to be directors. Before and on August 20,,1880, defendant George D. Haven was a director in the Wyoming & Dakota Water Company, and he so continued a director in said company till he resigned said pO!$ition at a meeting of said board of directors, held on November 12, 1880, at which meeting he resigned his position as director, and Charles H. Cook was duly elected'in his stead. Said defendant Haven was also, during the same period, and longer, a director in the Father de Smet Consolidated Gold Mining Company. The two companies, having common stockholders, and in part, at least, common directors and officers, worked in harmony. The Wyoming & Dakota Water Company was without funds or resources to ('.(Jnstrnct its canals or carryon its business except such as were derived from assessments upon its stock, and the Father de Smet Companyadvanced large sums of money from time to time to said company, which were expended in constr.ucting the water-ditches or canals and other works of said Wyoming & Dakota Water Company; and when the first two assessments of the stock of the latter company were paid, the moneys so paid on assessments were paid over to the Father de Smet Company uP90 the advances made as aforesaid, but the assessments col.; lected weJ;e insufficient,to paya;!l the advances so made from time to time. Early in the month of August, 1880, or before, the Father de Smet Company refused 'to advance any more money, and dem8nded a. repayment oithe balanoe due on prior advances, which then amounted to about $90,000. A plan of settlement was suggested, and in pur-
BORLAND V. HAVEK.
.399
suance thereof, at a meeting of the directors of the Wyoming & Water Oompany, held Oll:. August 12, 1880, after the resignation of plaintiff as director, as aforesaid, a resolutiun was unanimously adopted providing for conveying to the Father de Smet Company all the property of said Dakota Water Company upon the terms that, upon the execution of such conveyance, the Father de Smet Company should sume and agree to discharge all the liabilities of the said Wyoming & Dakota Water Company, amounting to $150,000, whether the Same should be more or less, and mllke and deliver to said latter company the negotiable promissory notes of said Father de Smet Company able in 90 duys after August 13, 1880, for $100,000 gold coin,.and the other, for a like amount, payable 6 months after August 13, 1880; and should further discharge said water company from all claims, demll,nds, and liabilities by reason of any indebtedness arising from ad· vancesand payments already made by the Father de Smet Company to or qn account of said water company, and authorizing the president and secretll,ry to execute and deliver such conveyance on the the Father de Smet Company of the conditions indicated. On the same day, August 12, 1880, the directors of the Father de Smet Compa,ny met, an4 after the resignation of plaintiff, Borland, as director, and the ,of his successor, as hereinbefore stated, said board mously a resolution, the counterpart of that hereinbefore cited, authorizing the purchase and acceptance of the conveyance of the entire· property.of the Wyoming & Dakota Water Company, and the execution of the notes and discharge ofthe latter of all of its prior liabilities, and di. its president and secretary to receive the conveyance and execute ver the proper notes and .other acquittances and papers. .In purj;uance of these resolutions the corporations, respectively, by their presidents and secretaries, executed and duly delivered and exchanged thecQDyeyances, notes, releases, acquittances, and papers provided for. Eight days thereafter, on August 20, 1880, the board of diredtorsof theWyoming& Dakota Water ,Company held another meeting at whichtbe fendall:LGeorge D. Haven, being a director, was present and actedas.a director,1at wbich meeting a resolution was, on motion of said defendant Haven, unanimously adopted, which, after reciting that the said" purchase and conveyance of the property of the Wyoming & Dakota Water Company, and assumption of the debts and discharge of th!iJliabilities f()r advances to said company by the Father De Smet Cc;>mpany, ,And the execution of the several notes and discharges by the latter corporation to the former, as provided by the said resolutions of said corporations, respectively, passed August 12, 1880, were not satisfactory to the stockholders of the Father de Smet Company, rescinded'andannulled the said several resolutions of August 12th and the transactions had in pursuance thereof, and placed th!iJ·said parties inBtatu quo. It authorjzed the president and secretlitry to receive a reconveyance of the prop.erty before conveyed as af()resaid, and upon, such receipt to deliver up . the notes and other papers received uuder the arrangement provided for ,in said prior resolutions. On the same day, August 20, 18801 the board ,oQf direptoll's of thE> Father de Smet Company-met,' the defendant George
400
FEDERAL REPORTER, vol. 37.
D. Haven being a director, and present and acting as one of the directors, and at said meeting, on motion of Jobn McGillivray, seconded by said defendant George D. Haven, a corresponding resolution was passed rescinding and annulling the said resolutions of August 12th and all action had under them; and, on motion of said defendant Haven, a further resolution was unanimously adopted to the effect that the reconveyances, exchange of documents, rescinding said action, and canceling the said notes be conducted in accordance with the advice of John Garber, attorney at law. In accordance with these resolutions the Father de Smet Company, on the sanie day, said August 20, 1880, reconveyed to the Wyoming & Dakota Water, Company all the said property before conveyed by the latter to the former, and the Wyoming & Dakota Water Company, in consideration thereof, and of its promise, surrendered to the Father de Smet Company all the notes, releases, acquittances, and papers recei ved from it, and all were canceled, and the whole transactions were thereby rescinded and annulled, and the parties by mutual agreement, placed in statu quo. Afterwards, on November 12, 1880, there was held another meeting of the board of directors of the Wyoming & Dakota Water Company. At said meeting, after receiving and accepting the resignation of defendant George D. Haven, and the election of his successor, the saidbo'ard passed unanimously a resolution that said company execute and deliver to tbeFather de SmetMining Company, a negotiable promissory note, for the sum of $90,787.03, said resolution containing the recitation, "said sum being tbeamount of the existing indebtedness due from the company to the Father de Smet ConsolidatedGoldMiningCompany," saidnote to be made payable to said company, or order, 24 days after date, without grace. The president and secretary were thereby dUly authorized to execute said note in the name of the corporation, affix the corporation seal thereto, and deliver it to said Fatherde Bmet Company. This note was for advances made to the said corporation before the" said transactions under the said resolutionsof August 12, 1880. In pursuance of this resolution a note was .afterwards duly executed in the name of the Wyoming & Dakota Water · Company and delivered to the Father de Smet Consolidated Gold Mining Company, which note is in the words and figures following: "$9,0,787':0 SAN FRANCISCO, Nov. 12th, 1880. ".F()r value received, twenty-four days after date, without grace,' the Wyonling and Dakota Water Company promises to pay to the Father de Bmet COllsolidated Gold Mining Company or order, the sum of ninety thousand se.ven hundred and'eighty-seYen and ,:. dollars. [8i'gned] "WYOMING AND DAKOTA WATER COMPANY, 5. Seal of t "By THOMAS BARR, President, 1Company. I "THEODORE WIDMAN, Secretary." Ata meeting of the boal'dof directors of the Father de Smet Gold Mining Company, also held on the 12th day of November, 1880, a resolution was unanimously passed authorizing the sale; indorsement and transfer of said note and any and all right of action arising thereon in favor orthe said payee, to said Borland, in consideration of the payment of the amount named in the note by plaintiff Borland; and in pursuance
BORLAND t'. HAVEN.
401
of said resolution, the said Borland having paid the said sum named therein to the said Father de Smet Company, the said note was duly indorsed, assigned and delivered to said Borland in pursuance of the provisions of said resolutions. Said Borland paid this money and took the assignment of the note November 15, 1880. Said payment was made by said Borland on behalf of said Wyoming & Dakota Water Company, in pursuance of an understanding before that time had with the trustees of said company, that he should advance the money for the purpose, and receive 10 per cent. interest for the money so advanced. Before the payment of said money so advanced, but after the indebtedness had accrued said Borland had sold to Mr. J. B. Haggin all his interest in both the said Wyoming U:: Dakota Water Company, and the Father de Smet Consolidated Gold Mining Company. The right to the water of certain streams taken up and appropriated by the Wyoming & Dakota Water Company for the purposes of the corporation and for the conveyance of which to the place of sale and use, it constructed ditches at large expense, was disputed by other parties, and in a suit vigorously litigated to determine the right and title ,to those waters, a judgment was rendered against the said corporation time in August, 1880, which greatly reduced the value of its property, and rendered the stock nearly or quite worthless. Had the corporation been successful in this suit, and sustained its title to the water, it would have possessed one of the most val-· uable' properties in that region of country. After this judgment no furtherassessments were paid, and no further advances of money made by the Father de Smet Company. At a meeting of the board of directors of the Wyoming & Dakota Water Company held at the office of the company on February 1, 1881, a resolution was unanimously and duly passed in'the words and figures following, to-wit: "Whereas, the Wyoming and Dakota Water Company is indebted to A. Borland'as. follows, to-wit: First, upon a note made by said company to the Father de Smet Consolidated Gold Mining Company, dated November 12, A. D. 18l:l0, payable 24 days after date, for the sum of $\:10,787. (ninety thousand seven hundred and eighty-seven lifo dollars,) by said Father de Smet Mining lJompany without recourse, upon which there is this day due principal and interest $92,365.77. Second, for moneys heretofore paid by said A. Borland for legal services rendered said company, the further sum of $6,854.16. Third, for the overdrafts of said company upon the Bank of California for the sum of $9,829.83, which said Borland has agreed to pay and this day pays. Said three several sums amounting this day to $10\:1,049.76. Now therefore, resolved, that this day the said Wyoming and Dakota Water Company execute and deliver to said Borland, its promissory note, due and payable ten days after date for the sum of $109,049.76, with interest thereon from date until paid at the rate of ten (10%) per cent. per annum and the president and secretary of this company are hereby authorized and directed to execute said notein the name of, and for and on behalf of this company, and the secretary to affix the official seal of the company thereto." The said sum of $109,049.76, indebtedness of said corporation to said Borland mentioned' in said resolution is made up of the several sums paid and advanced on the drafts for $6,000, the draft of $3,500, the sum of $6,854.16 attorney's fees paid to Messrs. Garber & Thornton, hereinbe'.' y.37F.no.8-26
40S
vQl. 37.
fore mentioned, and thenotefroIIl the Wyoming & Dakotl;L Water Com·pany to the Father de SIllet ,Consolidated Gold Mining Company for $90,787.03, paid by plaintiff Borland as hereinbefore in the finding of facts stated, and the interest due. on said several sums so paid. In pursuance of the authority conferred by the foregoing resolution, a nE'gotiahIe note for the amount spedfied as being due was duly executed and delivered to plaintiff, Borland, on said 1st day of February, 1881. The indebtedness from the Wyoming & Dakota Water Company to the Father de Smet Company for moneys advanoed as hereinbefore stated, the balance of which is included in thi;s note, arose and accrued while said Borland was a stockholder in said Wyoming & Dakota Water Company. Prior to said February 1, 1881, and to the passing of said resolution and making of said note, said plaintiff Borland had disposed of all his interest in both corporations to J. B. Raggin. On May 17, 1881, the sum of $11,219.13 was paid and credited on said sum 0[$109,049.76 due as aforesaid on February 1, 1881, apd on August 18, 1881, the further sum of $27,455.90 was paid and credited on said sum and duly applied in part payment thereof. No other or further sums have been paid upon the indebtedness hereinbefore set out, and the balance thereof is now due, together with intere!:it 011 said sum of $45,000 at the rate of fivesixths of 1 per cent. per month and interest on the balance of said second sum of $109,049.76 at the rate of 10 per cent per annum, saId sums now due to said plaintiff from the Wyoming & Daketa Water Company, aggregating the sum of $214,855.46 in United States gold coin, on this 31st day of December, 1888. Said plaintiff Borland, before the maturity thereof, indorsed, transferred and delivered said note for $109,049.76 to Qne Samuel McMasters, and the said McMasters as such indorsee and assignee on the 17th tlay of March, 1881, commenced a suit thereon in the district court of Lawrence county, territory of Dakota, against the said Wyoming & Dakota Water Company, the maker thereof, to recover the amount dUe on said note, in which suit a judgment was duly (In.'tered on April 23, 1881, for the sum of $111,506.71. Executions were subsequently issued upon said judgment, and the property of said defendant sold and the net proceeds thereof at said sale applied on said judgment in part satisfaction thereof, the said two several payments of $11,219.13 and $27,455.90 hereinbefore mentioned as credited as payments on said note, being the said net proceeds of the sales of the prop.erty of said company hereinbefore set forth. The said note was held by said McMasters and said brotlght in his name for the use aLd benefit of said plaintiff, Borland, as the real owner thereof, and after said .judgment and executions, judgment and the balance remaining Jue.thereon were duly assigned to said Borlandhy said McMasters and at the commencement of this suit, said Borland was the reltland bona fide thereof, and entitled to the moneys due thereon. During all ,the time while the transactions here in question were occurring, the said Wyoming & Dakota Water, Company had superinte\ldents in charge of its works and operations.in the said territories of Wyoming and Dakota, who were.severally duly authorized by resolutions of the board oftru!:itees duly passed, to act as its agent ia the construction of its works, and the
BORLAND V. HAVEN.
'.
403
management of its affairs in said territories, and said agents in acoordance with their prescribed duties, reported monthly to the board of trustees of said corporaJtion at San Francisco the work performed, the character and amount of expenditures on behalf of the corporation, the liabilities incurred, etc., and as authorized, drew their drafts from time to time on the president of the corporation at San Francisco for moneys to meet the expenses thus incurred, in the manner hereinbefore indicated with respect to the several drafts in question, and these reports were accepted as correct and acted upon by the board of directors, and formed the basis of the entries in the books of the corporation upon this subject, the said directors having made no actual personal inspection and having no actual personal knowledge of the operations of their superintendents, except that upon one occasion plaintiff, Borland, visited the region olthe operations of the corporation, and made a general, extensive inspection of the works, passing over and examining 10 or 12 miles on each end of the ditch or canal of the corporation; and the transactions now in question and all other transactions by the board of directors of said corporation respecting the affairs of the corporation in said territories were based upon the said reports and other information ceived from their said superintendents and agents and such information as said Borland obtained in his said tour of inspection. There was due and owing to plaintiff, Borland, from said corporation the Wyoming & Dakota Water Company upon the indebtedness alleged in the cause of action in the complaint herein first stated, on the 31st day of December, 1888, principal and interest, the SUlD of $132,351.36 in United States gold coin, and there was due and owing to plaintiff, Borland, from said corporation on said 31st day of December, 1888, upon the indebtedness alleged in the cause of action second in the complaint herein stated, principal and interest, the sum of $82,504.10 in United States gold coin, and the total indebtedness of said corporation to plaintiff on said 31st day of December, 1888, was, .and is, the sum of $:H4,855.46 in United States gold coin. At the time when the indebtedness first in said complaint stated was incurred by said corporation the Wyoming & Dakota Water Company, the total number of shares of the capital stock of said corporation issued to and held by stockholders of said corporation liable to contribute for and on account of the debts of said cOl'poration and for said indebtedness was 84,448, and at the time me indebtedness second in said complaint stated was incurred by said corporation the Wyoming & Dakota Water Company, the total number of shares of the capital stock of said corporation issued to and held by stockholders liable to contribute for and on account of the debts of said corporation and for said last-mentioned indebtedness was 100,000 shartls. Geo.W. Pawk and John Garber, for plaintiff. McAUister & Bergin, for defendant. Before SAWYER, Circuit Judge. SAWYER, J., (after stating the facts as above.) The principal question presented on the facts all found in this case, is, whether the defendants Havel) and Niohols ,are personally liable to plaintiff,respectively"for
404
share of the indebtedness of the Wyoming & Dakota Water Company paid by said plaintiff in the manner stated, proportionate to the amount of stock held by them in severalty, as compared with the whole amount of stock liable to contribute. Section 322 of the Civil Code of California, as amended in 1876, provides that"Each stockholder of a corporation is individually and personally liable for such proportion of its debts and liabilities. as the amount o.f his stock, or shares owned by him, bears to the whole of the subscribed capital stock. or shares of the corporation, and. for.8 like proportion only of each debt or claim against the C'orporation. * *- * If any stockholder pays his proportion of any debt due from the corporation, incurrE'd while he was such stockholder, he is relieved from any further personal liability for such debt, and if an action has been bronght against him upon such debt. it shall be dismissed. as to him, upon .his paying the costs, or such portion thereof as maybe properly chargeable against him. The liability of each stockholder is determined by the amount of stock or shares owned by him at the time the debt or liability was incurred. and such liability is not released by any subsequent transfer of
stock."
Thus, taJ>.ing tbe several provisions together, a stockholder is personally liable for his proportionate share of each debt of the corporation and of each debt, only,contracted while he is a stockholder. This section was in force at the time of the adoption of the amended constitution in 1879, and it has never since been changed. Article 12, § 2, of the constitution of 1879 is as follows: "Dues from corporations shall be secured by such individual liability of the corporators, and otber means as may be prescribed by law." And section 3 of the same. article, provides, that "each stockholder of a corporation * * * shall be individually and personally liable for such proportion of all its debts and liabilities contracted or incurred during the time he was a stockholder, as the amount of stock or shares owned by him, bears to the whole of the subscribed capital stock or shares of the corporation." Thus the section of the Civil Code, taking its provisions together, is precisely like this provis- . ion of the constitution, except by express provision, no one creditor can collect more than the share of his own particular debt of the stockholder, whether he has paid his share of the debts to other creditors.or not; but the liabqity in the aggregate of the stockholdets is precisely the same under each, since the aggregate of the stockholder's share of liabilities to each creditor is equal to his share of the liabilities upon the whole debt or liabilities of the corporation. It is urged that the constitution on this subject is not self-executing, but that it requires legislation to give it effect; that section 322 of the Civil Code, is inconsistent with section 3 of article 12 of the constitution of 1879, and is, therefore, under section 1, art. 22, repealed by it; and, since there has been no. other legislation on the subject, since the adoption of the new constitution, to give the constitutional provision effect, that this right of creditors to enforce the personal liability of stockholders has lapsed. Section 1, art. 22, referred to provides "that all laws in force at the adoption of this constitution, not inconsistent therewith, shall remain in .f-uU force·and l'lffect until altered or· repealed by the legislature." If, . therefore,' the ,pro\(isi9nS .of s,ecti(;m322 quoted are not inco.nsistent withtl:te PNv:is-
405
ions of article 12, § 3, they are, in express terms, continued in force. As we have already seen, they are clearly not inconsistent, but in all respects in harmony. Under both, the stockholder is liable in the aggregate for his proportion of all debts and liabilities of the corporation contracted while he was a stockholder, and no more. The constitution does not provide how the liability shall be enforced, whether against each stockholder separately, or all jointly, while the statute goes further, and does so provide for its enforcement, and that provision is not inconsistent with the provision of the constitution, but in the end it reaches the same result. Larrabee v. Baldwin, 35 Cal. 156, and other cases affirming it, establish this point. Were section 322 to be formally re-enacted now by the legislature, would anybody pretend that it would be inconsistent with the constitutional provision now in question in such sense as to render it unconstitutional and void? I apprehend not. If it would not be inconsistent, and, therefore, unconstitutional, and void, if formally re-enacted, it cannot be,-inconsistent, and, therefore, repealed now. If it could stand with the constitution upon re-enactment, it can stand with it 'now. Not being inconsistent, as we have seen, it is in express terms continued in force. Section 36. of the old constitution pro-· vided, that "each stockholder of a corporation shall * * * be in-. dividuallyand personally liable for his proportion of all its debts and liabilities." This, as construed in Larrabee v. Baldwin, supra, and other· cases affirming it, although couched in somewhatdifferent language from that of section. 3, art. 12, of the new constitution, is in effect identical with the old,except that the new, in terms limits the liability of the stockholders to those debts contracted while he is a stockholder, and t];le ' dd does not. Yet in the case cited and in other cases the courts so construed the old, although there were no such express terms of limitation. Section 322 of the Civil Code, was, certainly. not in conflict £lection 36 of the old constitution. If its provisions are not in conflict with the old constitution on this point, they ,certainly, are not inconsist.ent with those of the new. They sim ply provide for carrying the CODprovisions into effect-for executing them. The defendants are, therefore, liable, personally for their respective shares of the indebt.edness unless exonerated or discharged therefrom, on some other ground. It is insisted, that the only remedy in this case is, necessarily, in eq., . '\lity, as all the stockholders are interested and personally liable for their respective shares, and are necessary parties, and numerous authorities are cited on the point. But the cases cited arose where there was no" statute expressly giving a remedy at law. Section 322 of the Civil Code .of California, still in force, as we have seen, provides,"that any creditor of the cprporation may institute joint or several actions against any of its stockholders for the proportion of his claim, payable by each, and in such action. thEl court must ascertain the proportion of the claim or debt for which each defendant is liable,and a several judgment must be ente,red against each in conformity therewith," This is mere procedure, in an action at law, especially given by the statute. It is not an equity or. and is general in its application so section 914, Rev. Bt! ..u. S. f. or if it confers a ,!lew right and affords. ll.new remedy.
