Geary Street, Park & Ocean Railroad v. Rolph

This is an action by the plaintiff to recover of defendants the amount due from them upon an assessment or call for a portion of the unpaid subscription price of its corporate stock, amounting to $54,876 upon 1,614 shares of the stock. The action was begun in 1916, in the lifetime of Robert F. Morrow, against James Rolph, as trustee, and said Robert F. Morrow. On June 3, 1918, Morrow died. Thereupon his executors were substituted as defendants in his stead and a claim for that amount was duly presented to them for allowance and was, by them, rejected. Whereupon, the action proceeded to trial and judgment for the defendants. The plaintiff appeals.

The complaint alleges the number and value of the shares of the plaintiff’s capital stock; that its par value is $100 per share; that only $37.50 had been paid thereon; that a call had been regularly made on the stockholders for the payment of an additional sum of $34 per share thereon for the purpose of raising money wherewith to pay its debts; that it has no assets with which to do so other than the liability of the stockholders for the unpaid balance of the stock value, and that it had duly elected to collect the amount called for by action instead of by sales of the stock. It then alleged that Robert F. Morrow was, at the date of the call, and had been ever since July 17, 1902, the owner of 1,614 shares of said stock, which shares at all times mentioned had stood, and still stood, in the name of James Rolph, trustee, on the books of said corporation, and for which, prior to July 17, 1902, certificates had been issued in the name of James Rolph, trustee, by plaintiff at the request of said Morrow, which certificates were by plaintiff delivered to Morrow and which he accepted and which he at all times thereafter owned; that said Rolph never had any interest in or title to the stock, and that Morrow, as such

The court made findings showing that the plaintiff had issued the amount of stock aforesaid; that only $37.50 had been paid on the par value of ninety per cent thereof; that $47.50 had been paid on the remaining ten per cent, and that the call had been regularly made, as alleged, for $34 on each share of the entire stock. The findings also state that the 1614 shares of stock in controversy were issued to James Rolph, trustee, and at all times stood on plaintiff’s books in that name. No findings in response to the allegations of ownership by Morrow were made. The findings merely state that the shares were not issued in the name of James Rolph, trustee, at the request of Morrow, and that they were not delivered by plaintiff to Morrow or accepted by him. The failure of the court below to find upon the allegation of ownership was evidently based on the theory that Morrow could not be the owner of stock, so as to become liable to the corporation or its creditors for calls thereon for unpaid subscriptions, unless it stood on the corporate books in his name, or unless the corporation had in some manner and with his consent recognized him as the holder thereof, and that the facts that he was the beneficial owner and the record holder his agent or trustee to hold the stock in that manner for his use and benefit, were immaterial.

It was further found that it is not true “that said Robert F. Morrow, otherwise than as the agent or representative of said James Rolph, Trustee, demanded or received from plaintiff any dividend or dividends on said stock or any thereof.” Technically the finding that the dividends were not received “from plaintiff,” except as to one or two of them, is correct. But if it was intended as a finding that Morrow had never received for his own use and benefit any of the dividends declared and paid by plaintiff on the stock, it is directly contrary to the undisputed evidence. The evidence shows that 116 dividends were declared and paid

The plaintiff assigns as error the failure to find the facts in regard to the allegations of ownership. An examination of the record shows that there was abundant evidence to justify a finding that Morrow was at all times after its issuance the real and actual owner of this stock and that in taking and holding it in his own name Rolph was acting solely as agent for Morrow and for the exclusive use and benefit of Morrow. In addition to the testimony of Rolph, as aforesaid, the testimony of Morrow himself, although evasive in the extreme, was sufficient to warrant the conclusion, beyond doubt, that he was the real owner. It follows that if such ownership and agency are material to the right of the plaintiff to recover, or if the facts show such relations between Morrow and the corporation as to make him liable for calls for unpaid subscriptions, the failure to find such facts was error which requires a reversal of the judgment. Two questions are thus presented: 1. Whether or not a call for unpaid subscriptions of stock, made for the purpose of obtaining money necessary to pay the debts of an insolvent corporation, can be recovered by the corporation from one who is the real owner of stock which stands on the books of the corporation in the name of another as trustee or agent, the trust or agency being for the sole purpose of holding the stock for the use and benefit of the real owner; 2. Whether or not the conduct of Morrow with respect to this stock and the corporation put him in such relation or privity with the corporation as to make him directly liable to it for such calls.

It will not be necessary to consider the second question. We are of the opinion that under the facts of this case Morrow became liable to the corporation for the call in question.

[1] It is a settled rule of the law of agency that a principal is responsible to third persons for the ordinary contracts and obligations of his agent with third persons made in the course of the business of the agency and within the scope of the agent’s powers as such, although made in the name of the agent and not purporting to be other than his own personal obligation or contract. “It is thoroughly well settled in the law of agency that when a simple contract, oral or in writing, other than a negotiable instrument, is in fact entered into by one of the parties as the authorized agent of another, but in his own name, and without disclosing to the other party the name of the principal, or even the fact that he is contracting as agent at all, the other party to the contract, while he has a right to sue the agent on the contract, may, at his option, maintain an action against the undisclosed principal, when discovered.” (1 Clark & Skyles on Agency, see. 457, p. 1006. See, also, Story on Agency, sec. 446; 2 Mechem on Agency, sec. 1710.) The following eases in this state enforce or announce this rule: Ellis v. Crawford, 39 Cal. 526 ; Thomas v. Moody, 57 Cal. 219 ; Goss v. Helbing, 77 Cal. 190 [ 19 Pac. 277 ]; Puget S. L. Co. v. Krug, 89 Cal. 244 [ 26 Pac. 902 ] ; Ferguson v. McBean, 91 Cal. 72 [ 14 L. R. A. 65 , 27 Pac. 518 ] ; Bergtholdt v. Porter B. Co., 114 Cal. 689 [ 46 Pac. 738 ] ; Schader v. White, 173 Cal. 445 [ 160 Pac. 557 ]; McKee v. Cunningham, 2 Cal. App. 688 [ 84 Pac. 260 ]; Walton v. Davis, 22 Cal. App. 459 [ 134 Pac. 795 ] ; Eldridge v. Mowry, 24 Cal. App. 186 [ 140 Pac. 978 ].

It has been said in some cases that this rule does not prevail when, at the time the contract is entered into, the principal is known. In Ferguson v. McBeam, supra, the court, in the course of its discussion, said: “It is undoubtedly

In this case the exception stated in some cases, that the rule cannot be applied when the contract is in writing, is of no importance, for the liability of Rolph for the unpaid subscription is not evidenced by a written agreement to that effect, but arises from his relation with the company as a stockholder. (Rhode v. Dock Hop Co., 184 Cal. 376 [ 12 A. L. R. 437 , 194 Pac. 11 ].) It does not appear that the corporation was informed, at the time Rolph became the holder of the stock, that he was holding it for Morrow, as agent or otherwise, nor that it has ever endeavored to enforce the obligation against Rolph, instead of Morrow, or otherwise elected to hold Rolph liable therefor in place of Morrow.

[3] We are also of the opinion that the better reason, as well as the weight of authority, is against the proposition that the mere fact that the principal is known to the third person at the time he contracts with the agent prevents such third person from holding the principal liable on the contract made in the name of the agent. We treat this

The authorities fully support this conclusion. Mr. Story says: “The liability of the principal to third persons upon contracts made by his agent, within the scope of his authority, is not varied by the mere fact, that the agent contracts in his own name, whether he discloses his agency or not, provided the circumstances of the case do not show that an exclusive credit is given to the agent.” And he extends this doctrine to written contracts. (Secs. 446, 446a.) And as to the exceptions, he says: “The exceptions to this liability of the principal may easily be gathered from what

An examination of the decisions of the subject show that the idea that the principal cannot be held liable in cases where the third person, at the time of contracting, knew the principal and his relation to the transaction, arises from the unfounded assumption that, since the decisions holding the principal liable when the contract does not disclose his name or interest, refer to him as the “undisclosed principal,” the doctrine does not prevail when he is known. But this language is used because the principal was insisting, not that he is not liable when he is known, but that he is not liable when the contract does not on its face purport to bind him, or to be for his behoof or benefit. It is this circumstance that is referred to by the word “undisclosed.”

[4] It is not necessary to the enforcement of this liability that the insolvency of the plaintiff corporation or its inability to pay its debts should appear, for the liability exists under the general principles of law. In this case, however, the insolvency does not appear and these liabilities for calls are not only part of the corporate assets, but they constitute the whole thereof. It is the duty of the corporation to resort to them for the payment of its debts, and if it fails in that respect, its creditors may do so. (Sanger v. Upton, 91 U. S. 60 [ 23 L. Ed. 220 , see, also, Rose’s U. S. Notes]; Baines v. Babcock, 95 Cal. 581 [ 29 Am. St. Rep. 158 , 27 Pac. 674 , 30 Pac. 776 ]; Rhode v. Dock Hop Co., 184 Cal. 378 , 379 [ 12 A. L. R. 437 , 194 Pac. 11 ].) There are many cases holding that where the corporation is insolvent, the creditors have the benefit of the liability of the real owner of stock held on the books of the corporation in the name of an agent, disclosed or undisclosed, but really for the benefit of the real owner. Among them are the following: Brown v. Artman, 166 Fed. 485 ; Brown v. Huey, 166 Fed. 483 ; Kurtz v. Brown, 152 Fed. 374 [11 Ann. Cas. 576, 81 C. C. A. 498 ]; American etc. Co. v. Kurtz, 134 Fed. 665 ; White v. Marquardt, 105 Iowa, 147 [ 74 N. W. 930 ]; Fell v. Securities Co., 11 Del. Ch. 234 [ 100 Atl. 788 ]; Gordon v. Cummings, 78 Wash. 519 [ 139 Pac. 493 ] ; State ex rel. v. Superior Court, 44 Wash. 108 [ 87 Pac. 40 ]; Cole v. Satsop, 9 Wash. 487 [ 43 Am. St. Rep. 858 , 37 Pac. 700 ]; Ohio

In opposition to this conclusion, the defendants rely on section 324 of the Civil Code and on the decisions of this court in People’s Home Sav. Bank v. Stadtmuller, 150 Cal. 106 [ 88 Pac. 280 ] , Geary Street etc. Co. v. Bradbury, 179 Cal. 46 [ 175 Pac. 457 ], and Visalia etc. Co. v. Hyde, 110 Cal. 632 [ 52 Am. St. Rep. 136 , 43 Pac. 10 ], which, they claim, prevent the application of such rule in this state.

The provisions of section 324 relating to the question are as follows:

“Whenever the capital stock of any corporation is divided into shares, and certificates therefor are issued, such shares of stock, . . . are personal property, and may be transferred by indorsement by signature of the proprietor . . . and the delivery of the certificate; but such transfer is not valid, except ate to the parties thereto, until the same is so entered on the books of the corporation as to show the names of the parties by whom and to whom transferred, the number of the certificate, the number or designation of the shares, and the date of the transfer.”

It is claimed by the defendants that this provision forbids and prevents the existence of any liability for calls upon unpaid stock in favor of the corporation against anyone except the registered owner. It will be seen from the language of the section that it does not purport to declare anything concerning the liability of a stockholder for the unpaid part of the subscription price. It relates exclusively to transfers of shares of stock and to the things necessary to make such transfers valid as to other persons than the transferor and the transferee. We are not here concerned with the validity of the transfer of the stock to James Rolph, trustee, as between him and the person who transferred it to him. The record does not show how or from whom Rolph received the stock. The theory upon which the plaintiff here is allowed to choose to resort to the liability of the principal for the obligations of his agent is not based upon the proposition that the transfer of this stock to Rolph as trustee for Morrow was invalid. [5] On the contrary, it assumes the validity thereof, and places the liability of Morrow upon the doctrine already stated, that the principal is liable to such third person on any valid obligation

[7] We find nothing in the decisions cited by the defendants which gives to section 324 the effect claimed for it, or which impairs or destroys the plaintiff’s right to pursue Morrow for the amount of the call formally and technically made upon Rolph as holder of this stock.

People’s Home Sav. Bank v. Stadtmuller, supra, is the leading case in this state on the subject. In that case the plaintiff attempted to enforce an unpaid call by action against Anna Stadtmuller. The stock had been subscribed for and had been issued to F. D. Stadtmuller, her husband, in his lifetime, and he died the owner thereof. Upon the settlement of his estate the certificates and title thereto were distributed to said widow. She accepted the certificates and retained the same, but never caused the transfer thereof to her to be entered on the books of the corporation, nor otherwise assumed the relation of a stockholder with the plaintiff. The corporation about that time became insolvent and shortly afterward duly made a call for the unpaid portion of the subscription price of the stock. The court said that where stock had been transferred from the record holder to another who does not cause the transfer to be registered, “or in some way equivalent in the eye of the law, establishes the relationship of stockholder between

In Visalia R. R. Co. v. Hyde, supra, the stock was entered on the corporate books in the name of Hyde, but before the making of the call thereon he had sold it to another person .and had indorsed and delivered the certificate to that person. That transfer, however, had not been entered on the corporate books. It was held that the defendant was liable for the call, notwithstanding the previous sale and the fact that he was not the owner thereof when the call was made. The mere statement of the facts shows that the right of the corporation to sue the principal for an obligation assumed in Ms behalf by his authorized agent was not involved in the case. In Geary Street etc. Co. v. Bradbury, supra, it is said incidentally in the course of the argument that a purchaser of stock not fully paid up does not become liable to the corporation for calls thereon until in some manner he comes into privity with it as a stockholder. But the defendant in that case was the registered owner of the stock at the time the call was made, wMch, it may be remarked, was the same call as is here involved, and no question of the character here involved and urged was presented or could be presented. These cases, therefore, do not conflict with our conclusion that Morrow became liable as principal.

[8] Upon the foregoing principles we are of the opinion that Morrow became liable to the plaintiff for calls regularly made on the subscription price of this stock, that his ownership of the stock and Rolph’s agency were facts material to

The respondent contends that the assessment is invalid because it is unequal in operation. The point is based on the findings that in 1915, when the assessment was made, there were outstanding 10,000 shares of stock of the par value of $100 each, upon ninety per cent of which $37.50 a share was paid up and upon the other ten per cent $47.50 a share was paid up. This would mean that 9,000 shares were paid up to $37.50 a share and 1,000 shares up to $47.50 a share. [9] The prevailing rule, with regard to calls made by the corporation itself on unpaid subscriptions, for additions to its working capital, is that they must be equal, so that when all have paid the call, all the stockholders included in the call will have paid the same amount on each share of their stock subjected to the call. (4 Thompson on Corporations, see. 3713; 1 Cook on Corporations, see. 114; 1 Clark & M. on Corporations, sec. 499f; O’Dea v. Hollywood, 154 Cal. 70 [ 97 Pac. 1 ].) [10] Where creditors proceed by bill in equity to apply the unpaid stock subscription to the payment of corporate debts, this rule does not prevail; each is liable for the full amount unpaid on his subscription and any inequality resulting from the proceeding is adjustable only by suits for contribution between the respective stockholders. (Kaye v. Metz, 186 Cal. 42 [ 198 Pac. 1049 ] ; 1 Cook on Corporations, see. 211; Pentz v. Hawley, 1 Barb. Ch. 123 .) While this call and the action to enforce it is really for the benefit of creditors, it is nevertheless a statutory proceeding, and, so far as we are advised, it is uniformly held that such a call by the corporation pursuant to statutory authority is void -unless it is made in such manner as to produce no inequality between stockholders. To apply this rule to the present case, for illustration, a call for $34 a share could not be lawfully made on all the shares, if some of them are only $37.50 paid up and others are $47.50 paid up. Hence, under this rule, if the facts are as stated, the call would be invalid.

The only basis for the finding that 1,000 shares were paid up to the amount of $47.50 a share is the statement in the plaintiff’s articles of incorporation, dated November 5, 1878, that the amount of the capital stock is $1,000,000, divided into 10,000 shares of $100 each, that the amount thereof actually

The effect on the validity of the assessment might perhaps be the same, the inequality would still be manifest, if $38.50 instead of $47.50 per share had been paid on part of the stock assessed and only $37.50 on the remainder. There is evidence, however, showing that the inequality did not exist. The books and records of the corporation were partly destroyed by the great fire of April, 1906. There was uncontradicted evidence, partly secondary and partly derived from books not destroyed, to the effect that the boobs showed that on May 30, 1879, an assessment was made for $5 a share on the whole 10,000 shares of capital stock and that it was on that day paid to the treasurer and credited thereon to the respective stockholders, amounting to $50,000, and that the next credit entry on the book was “June 4, 1879, Franchise (S. C. Bigelow) $1,000.” Bigelow was the treasurer. It was also shown by like evidence that thereafter on the same books follow credits to the respective holders of all the stock for payments of seven other assessments, made at monthly intervals thereafter, six for $5 a share and one for $2.50 a share, the whole amounting to $375,000, or $37.50 on each of the 10,000 shares; that neither the $1,000, nor any part thereof, was credited to the original subscribers, or to any stockholder, as a payment on Ms stock, nor credited as a payment on account of capital stock at all, but only as “Franchise.” This evidently refers to the franchise obtained by filing the articles of incorporation, for the recital in the articles was obviously made to show compliance with the provisions of the Civil Code requiring that before such articles are filed by any railroad corporation stock must be subscribed to the amount of $1,000 for each mile of road (section 293), and that “there must be paid for the benefit of the corporation, to a treasurer elected by the subscribers, ten per cent of

There is also a finding that ever since its issuance the whole of the capital stock of the corporation plaintiff has been and “is now fully paid up as between plaintiff corporation and its stockholders.” Upon this finding the defendant contends that, under section 332 of the Civil Code, no assessment thereon could exceed ten per cent, and, therefore, that the assessment of thirty-four per cent, or $34 a share, is invalid. The finding by its terms implies that the stock is not paid up as between the corporation and its creditors, for whose benefit this assessment was levied, and hence it may be doubtful if it affects that assessment. But we do not think it is sustained by the evidence. The only support for it is an inference drawn from the by-laws adopted in 1878. These by-laws are contradictory on the subject so far as they relate to it all. Section 29 declares that ‘ ‘ certificates of stock shall be issued only for fully paid stock.” This, it is said, implies that no certificates were afterward issued except for stock that was fully paid up. Section 31 declares that stock shall be transferable on the company books, on proper assignment and delivery to the assignee of “the receipts for the installments paid on such

For the foregoing reasons we conclude that the judgment of the court below was not in accordance with the law and the facts and that it cannot stand.

The judgment is reversed.

Wilbur, J., Lennon, J., Sloane, J., Lawlor, J., Shurtleff, J., and Waste, J., concurred.

Rehearing denied.

All the Justices concurred, except Lawlor, J., and Wilbur, J., who were absent.

Shurtleff, J., was also absent, and Richards, J., pro tem., was acting.