Union Sav. Bank of San Jose v. Leiter

was insolvent. The proceedings and judgment were had under the provisions of the act creating a board of bank commissioners and prescribing their duties, approved March 30, 1878, as amended in 1887 and 1895. The nature and effect of this amended act have been so fully discussed in comparatively recent opinions of this court as to render further statement in that regard unnecessary. (See Argues v. Union Savings Bank, 133 Cal. 139 ; Bank of National City v. Johnston, 133 Cal. 185 ; Union Savings Bank v. Dunlap, 135 Cal. 628 .)

Ever since the judgment of the superior court was given the directors of the plaintiff corporation, appointed in the manner provided by the act, have been in the possession and control of the corporation and its assets, for the purpose of closing its affairs and liquidating its indebtedness in accordance with the provisions of said act. The capital stock of such corporation was one million dollars, divided into ten thousand shares of the par value of one hundred dollars each. On this only thirty dollars per share had been paid at the time of the adjudication in insolvency. On May 22, 1899, the directors in liquidation levied an assessment of ten dollars per share, which was collected so far as it could be, this defendant, among others, paying the assessment on his shares. On June 7, 1901, solely for the purpose of satisfying the claims of the creditors of the corporation, and it being necessary to so do in order to satisfy such claims, the directors in liquidation, acting strictly in accord with the provisions of the Civil Code relative to assessments (see. 331 et seq.), levied the assessment in suit of fifty dollars per share, and the same not having been paid, elected to proceed by suit to recover the amount of the same. (Civ. Code, sec. 349.)

Defendant is the owner of fifty-two shares, upon which only forty dollars per share has been paid, leaving sixty dollars unpaid on the capital stock.

It is of course unnecessary to cite authorities in support of the proposition that unpaid subscriptions upon the capital stock constitute assets of the corporation available to its creditors. In a ease arising under the provisions of this banking act, Mr. Justice Temple, speaking for the court, after stating this universally recognized proposition, said: “I have no doubt but that in some form the liquidators may, in case of necessity, resort to this fund.” (Bank of National City v.

Johnston, 133 Cal. 185 .) The question as to whether they could do so by the assessment proceedings provided by the Civil Code was not involved in that case and was not decided therein. That question was, however, presented and decided in the later case of Union Savings Bank v. Dunlap, 135 Cal. 628 , which was an action brought against a stockholder upon the same assessment that is here involved. It was there held that the provisions of the Civil Code relative to assessments furnished a mode for the collection of unpaid subscriptions which might be followed. This was but following the general views announced in prior decisions as to the status and powers cf the directors in liquidation,—viz., that they are trustees invested with all the powers theretofore possessed by the corporation, so far as the same are appropriate in effecting “an equitable and economical distribution of the assets of the insolvent bank among its creditors,” and that they can exercise such powers in the name of the corporation. They are therefore expressly authorized by the provisions of the Civil Code to levy an assessment for such a percentage of the amount unpaid upon the capital stock as will raise an amount sufficient to satisfy the claims of the creditors of the corporation (Civ. Code, secs. 331, 332) and, so electing to do (Civ. Code, sec. 349), enforce the collection thereof by suit in the name of the corporation. This much is apparently established by the Dunlap case, and is not seriously disputed by learned counsel for defendant. The record in this ease, however, presents several questions that were not presented in that case.

1. Section 1 of the by-laws of the plaintiff corporation was as follows, viz.:—■

“The name of this corporation is and shall be ‘Union Savings Bank of San Jose’; the capital stock is and shall be $1,000,000, divided into 10,000 shares of $100 each, 30 per cent of which shall be paid up; no further call for payments upon the capital stock shall be made except by a two-third vote of all stock issued and outstanding.”

There has never been any call for the unpaid capital by a ■“two-third vote” of the stockholders.

It is urged that this by-law is a complete bar to a recovery in this action, the .contention being that this action can be maintained only upon the theory of an unpaid subscription which defendant has expressly or impliedly agreed to pay,

This action, was commenced on April 2, 1902. The assessment in suit was levied on June 7, 1901, and the election to-proceed by action to recover the amount thereof was made on July 12, 1901. Whether the liability of a stockholder to pay an assessment on stock on account of unpaid capital be a’ liability created by statute within the meaning of subdivision 1 of section 338 of the Code of Civil Procedure, or a liability created by law within the meaning of section 359 of the Code of Civil Procedure, and the limitation thereof three years, or is a liability arising from contract, within the meaning of subdivision 1 of section 339 of the Code of Civil Procedure, and the limitation, therefore, two years, it will be seen that this action was brought within the statutory time after the levy of the assessment here involved.

But the decree of the superior court determining plaintiff corporation to be insolvent, restraining it from further carrying on business, and requiring the bank commissioners to surrender the property of the corporation to the directors thereof for the purpose of liquidation, was made on March 13, 1899, more than three years prior to the commencement of this action.

It is urged that the liability of the stockholder in this case rested upon his implied contract to pay calls made for unpaid subscriptions, and was purely a liability arising upon a contract not in writing, and that the statute requiring actions on such contract to be brought within two years after the cause of action accrues is applicable. It is further urged that while such a cause of action would ordinarily accrue only upon a call made by the directors of the corporation for the unpaid capital, when the corporation was decreed to be insolvent and put into process of liquidation by the superior court, the liability of the stockholders to pay so much of the unpaid capital as was necessary to satisfy the claims of creditors at once became fixed, and the cause of action therefor accrued, and became barred upon the expiration of two years. Upon the general question as to whether in the event of the insolvency of a corporation and its ceasing to be a going concern a cause of action for unpaid capital payable upon call accrues immediately upon insolvency, without any call therefor having been made, there is, it must be conceded, some conflict in the opinions of the federal and state courts that have had

occasion to discuss the proposition. There has, however, been no expression of opinion by this court thereon, except in the case of Glenn v. Saxton, 68 Cal. 358 , which was an action upon what was called an assessment for unpaid capital for the purpose of paying debts, levied upon stock of an insolvent corporation by a Virginia court. The law of Virginia, the ¡state wherein the corporation was organized, provided that a portion of the capital should be paid at the time of subscription, “and the residue thereof as required by the president and directors,” and that if the same was not paid as required it- might be recovered by action. It was held by this court, •quoting from and adopting and assenting to the views of the court of appeals of Maryland in Glenn v. Williams, 60 Md. 93 , 122, that the terms of the statute became a part of the contract of subscription; that the subscriber undertook to pay the residue as required by the president and directors; that the call made by the court was the same, in effect, as if it had been made by such president and directors, and that when made, the contract of the defendant to pay became absolute, and the cause of action accrued. In the portion of the opinion of the Maryland court quoted in Glenn v. Saxton, and as to which this court said, “In this we entirely agree,” is the following, viz.: “After the payment of the two dollars per share, there was nothing due from the subscriber to stock until an authorized call was made for the residue. The contract contemplated the exercise of judgment and discretion on the part of the president and directors as to the times and amounts of future payments on the stock, and there was nothing due from the stockholders until such amounts were determined on and regularly called for. Until a regular call made, there was no unconditional liability on the part of the •stockholder to pay. Until then he could not know when to pay or how much he would be required to pay. The subscription, therefore, was conditional, as to the times and amounts •of payment; and consequently, there was no fixed obligation •of the stockholder to pay, and no right of action against him, until an assessment and call made, either by the president and directors, or by the order of a court of competent jurisdiction. It is for the amount of the assessment made that the right of action accrues, and not for. the whole balance of the unpaid subscription, unless the whole amount be called for; and it is

only from the time of the assessment and call made that the statute [of limitations] runs in favor of the defendant.” There is nothing opposed to these views in any California case that has been brought to our attention. Kohler v. Agassiz, 99 Cal. 9 , specially relied upon by defendant, was a case decided upon the peculiar language of the contract of subscription, whereby the defendant had agreed to pay “in such installments and at such times as said defendant might under and according to the laws of the said state of California be lawfully called upon and required by said corporation to pay the same,” and it was pointed out in the opinion in that case, the question being as to whether the action had been prematurely brought, that this provision did not say anything about the manner in which the corporation should call upon the subscribers. Whether the distinction made by the court in that case was well founded or not is immaterial here, for clearly it was not intended therein to hold that a cause of action for money due only on proper call could accrue before such call was made. The rule stated in Glenn v. Saxton, 68 Cal. 358 , is eoncededly the rule of the United States supreme court and the appellate courts of several of the states. As to banking corporations in process of liquidation under the provisions of the Banking Act of 1887, as amended in 1895, and the provisions of our code, we have no doubt that it is. the true rule, at least so far as assessments levied under the provisions of the Civil Code for such amount of the unpaid capital as may be necessary to satisfy the claims of creditors; are concerned. The reasoning of the Maryland court approved by this court in Glenn v. Saxton, 68 Cal. 358 , is peculiarly applicable to such case. As was pointed out in Union Savings Bank v. Dunlap, 135 Cal. 628 , such a corporation, after a decree adjudging it insolvent, while restrained from continuing the banking business, continues to be a corporation until its affairs are closed, and is a going concern for all purposes of liquidation. Subject to certain rights in the court as to the removal and appointment of directors, the management of the affairs of the corporation in liquidation is in the-hands of the directors of such corporation, under the direction of the bank commission. These directors are invested with all the powers of the corporation, so far as the same are essential to liquidation, including the power to assess the

stock, so far as is necessary to satisfy the claims of creditors, to the full amount unpaid upon the par value thereof, and .collect the amount from the stockholder. The obligation of the stockholder as to this unpaid capital is not to pay the whole amount thereof in any event, but only to pay such portion thereof as such directors, in the management of the affairs of the corporation, may find necessary to satisfy the claims of creditors, and call for in such mode as may be required by the law. Such an obligation involves, as was said in the Maryland case, the exercise of judgment and discretion on the part of the directors as to the times and amounts of payments on account of unpaid capital, and there can be no amount actually due until the amounts are determined on and regularly called for. The directors in the exercise of the powers confided to them are acting not only in the interest of the creditors, but also in the interest of the stockholders, and the act provided a summary process by which the court might remove any director found by it to have been guilty of fraud or negligence, and not a proper person “to be intrusted with the closing of the affairs and business of such corporation in the interest of the depositors, creditors, and stockholders thereof.” This provision apparently afforded full remedy to any stockholder who might be aggrieved by any unnecessary delay on the part of the directors in determining upon and calling for such amount of the unpaid capital as might be necessary. The act further provided that the affairs of such a corporation must be closed within four years, unless further time was allowed by the bank commissioners.

We are unable to see how it can be held, under our statutory provisions, that the power of the directors to levy the assessments mentioned in subdivision 1 of section 332 of the Civil Code can be impaired by lapse of time, so long as the corporation is a going concern for purposes of liquidation, or how any provision of our statute of limitations can commence to run as to the amount of any such assessment until the levy thereof.

Much reliance is placed by learned counsel for defendant upon expressions of this court in the opinion in Harrigan v. Home Life Ins. Co., 128 Cal. 531 , in support of their contention, that it was within the power of the directors in liqui

at the outset that there was a deficiency of at least two hundred thousand dollars.

Some reliance is placed by defendant upon the fact that on October 27, 1899, the directors in liquidation did by resolution order and levy an assessment of sixty dollars per share, and give notice thereof by mail to this defendant. No further proceeding appears to have been taken thereon. On January 26, 1901, this resolution was by another resolution of the directors declared rescinded, vacated, and set aside, and the right to collect the same waived. Nothing was ever paid thereon by any stockholder. It is urged that the statute of limitations commenced to run in favor of defendant at the date of this levy, if it had not commenced before. As to that assessment, it may be conceded that this contention is well founded. But the assessment not being paid, the amount theretofore unpaid upon the capital stock still remained unpaid, and the power of the directors in liquidation to levy assessments under subdivision 1 of section 332 of the Civil Code was not exhausted. If the board of directors had the power to levy another assessment, as it clearly did under our views as to the law, the statute of limitations as to such new assessment did not commence to run prior to such levy.

On January 26, 1901, the directors again adopted a resolution levying an assessment of sixty dollars per share, which resolution was rescinded on June 7, 1901. There was never any attempt to enforce this assessment. This resolution is entirely immaterial to the controversy as to the statute of limitations, for this action was commenced within two years thereafter, but what has been said as to the resolution of October 27,1899, is also applicable to this. Defendant’s claim as to the statute of limitations is based upon the theory that the liability of the stockhalder finds no support in the statute, but comes entirely, if at all, from his implied promise to pay upon call. When it is once established that there also existed an implied promise on his part, imported into his contract by reason of the provisions of our statute, to pay such assessments as might from time to time be levied by the directors in the manner provided by law to meet the claims of the creditors of the corporation, up to the full amount of the unpaid capital, if necessary, the force of his argument is much impaired.

There is much force in the argument that the directors should be required to move promptly in the closing up of the affairs of the bank, both on account of the interests of the creditors and those of the stockholders, but, as we have attempted to show, the remedy for any party desirous of such speedy adjustment is in his own hands. We are satisfied that the trial court was correct in the conclusions reached upon the defense of the statute of limitations.

3. We do not understand it to be contended that payments made by defendant to creditors of the plaintiff, upon judgments obtained against him by such creditors, upon defendant’s liability to them under section 322 of the Civil Code, can be considered as payments made upon the capital stock. The law would not sustain such a contention.

4. On March 2, 1903, which was nearly a year after this action was commenced, but prior to judgment, the Bank Commission Act of 1878, as amended in 1887 and 1895, was repealed by an act of the legislature, which act contained no saving clause as to any pending litigation. (Stats. 1903, P- 73.)

It is urged that the effect of this repeal was to destroy the cause of action sued on and abate this action.

We are satisfied that the repeal of this act could not affect the judgment theretofore given in pursuance of its provisions, decreeing the plaintiff corporation insolvent, and requiring it to proceed, under the management of its directors, to close up its affairs and liquidate its indebtedness. The judgment had become final, and had fixed the rights of all parties interested. Thenceforth the directors of the corporation were trustees, charged by the judgment with the performance of such duties as were essential to a closing of the affairs of the corporation in the interests of the creditors and stockholders, and invested by the judgment with all the powers of the corporation necessary therefor. It is true that the Bank Commission Act gave the bank commissioners certain supervisory authority over them, but their status as trustees, having all the powers conferred by law upon directors of corporations so far as such powers were necessary to liquidation, was fixed by the judgment.

As such trustees, they levied the assessment in suit, and are proceeding to collect the same by action, not acting under any

authority conferred by thé Bank Commission Act, but as directors of the corporation, under authority conferred by certain provisions of the Civil Code relative to corporations, which provisions have not been amended or repealed since the levy. If the right to levy this assessment had been given by the act that has been repealed, or if the effect of the repeal •of such act had been to remove the directors from the office of trustee, a case would be presented which might call for the application of the-authorities cited by counsel for defendant. It may be suggested that if it be conceded that the repealing act has the sweeping effect of annulling all that has been done under the act repealed, relative to plaintiff, the judgment of the superior court decreeing it insolvent would fall with the rest, and we would have the plaintiff corporation a going concern for all purposes, with all the powers of a going concern, including the power to levy and collect this assessment to satisfy the claims of its creditors, notwithstanding the by-law relied on.

We are then forced to the conclusion that if the repeal did not affect the judgment of the superior court the power of the directors to collect the assessment levied under the provisions of the Civil Code was not impaired by such repeal; ■and if, on the other hand, such repeal did operate to vacate said judgment and all proceedings had under the act, the ■corporation continued a going concern, with the power to levy and collect the assessment in suit.

As already stated, however, we are satisfied that such repeal •did not affect the judgment of the superior court.

This disposes of all the points made by defendant on this .appeal.

The judgment is affirmed.

Van Dyke, J., and Shaw, J., concurred.

I concur in the judgment ■and generally in the opinion of the court. As to the effect of the call or assessment of October 27, 1899, if a cause of action had accrued to the corporation by reason of the call alone, I think the statute of limitations would have commenced runming at the date of delinquency fixed by the resolution, and if it had once commenced running I do not think the subse■quent rescission of the call would have extended the time for

commencing the action. But it requires something more than, a mere call to establish a right of action under the statute. The call must be followed by a resolution to proceed by action regularly adopted after the assessments have become delinquent. Until the adoption of such a resolution no stockholder-can be sued. This was the point, and the only point decided, in Bank of National City v. Johnston, 133 Cal. 185 , as will more clearly appear from the Department decision reported in 60 Pac. 776 , where the facts are more clearly stated. Until, the resolution to proceed by action is adopted the whole matter remains, as it was before, in the discretion of the trustees, and they may either rescind the first call and afterwards-, adopt another, or complete their right of action under the first call by resolving to enforce it by that method.

It may be added that if the statute had been set in motion at the date of the first call in October, 1899, the action was, not barred by subdivision 1 of section 338 of the Code of Civil Procedure, and it is by no means clear that this is not an action upon a statutory liability within the meaning of that section.

Besides what is said in the opinion of the court in regard to. the effect of the repeal of the Bank Commission Act, I am of the opinion that it was beyond the power of the legislature-by the repeal of that act to destroy the only remedy available to the creditors of the corporation for the enforcement of their contract rights.

Henshaw, J., concurred.

Rehearing denied.