Huey v. Patterson

This is an action to recover judgment upon the statutory liability of certain stockholders of the Growers’ Home Canneries Company, a corporation, which will hereafter, for convenience, be referred to as Second Company. That company was, under an arrangement which later will be stated more fully, the successor in business of the Growers’ Home Canning Company, a corporation, which will be called, henceforth, First Company. The plaintiff sued as assignee of various holders of claims against Second Company, consisting of seven promissory notes, aggregating a total principal sum of $5,229, and a further claim for $750 principal, money loaned but for which no promissory note was given, or, in all, the principal sum of $5,979. Judgment was rendered against the defendants for their proportionate shares of this amount. The appeal is from the judgment.

One of the. contentions of the appellants is that the arrangement by which Second Company succeeded to First Company was void. That arrangement is set forth in an agreed statement of facts found in the record and was, in effect, as fol- ■ lows: At a meeting of the stockholders of First Company there was passed a resolution providing that Second Company be organized with a certain capitalization; that the president and secretary of First Company be instructed to incur the expense necessary for the incorporation of Second Company; that the stockholders of First Company be asked to consent to the transfer of its assets to Second Company and to accept stock ih the new company in lieu of their stock in the old in the proportion of ten shares for one, on account of the difference in the par value of the shares; and that all of the stockholders of First Company be given stock in Second Company in proportion to their holdings. All the appellants were holders of stock in First Company, were present at the meeting, and voted in favor of the resolution. At the same meeting it was voted that First Company offer to sell its plants, business, and all its property and to transfer its cash on hand and outstanding accounts to Second Company, the latter to assume the liabilities of First Company, all in consideration

The contention that this arrangement was invalid is based upon section 309 of the Civil Code and sections 1227-1232 of the Code of Civil Procedure. Speaking generally, but yet in terms sufficient for our present purpose, the section of the Civil Code forbids directors of corporations to make dividends on stock except from surplus profits, or to divide, withdraw, or pay to the stockholders any part of capital stock; and the sections of the Code of Civil Procedure provide a scheme for the dissolution of corporations upon notice and by a special proceeding instituted in the superior court.

Dealing with the question of the validity of the transaction between the corporations as measured by the provisions of both section 309 of the Civil Code and sections 1227-1232 of

The obligations which are the basis of this action were incurred by Second Company in January and September, 1913, and in May, 1915. Under the language of section 322 of the Civil Code, relating to the liability of stockholders for corporate debts, the burden of proof was upon the respondent to show the number of shares of the stock of the corporation held by each stockholder “at the time the debt or liability was incurred.” The agreed statement of facts shows who were the stockholders on or about December 11, 1912, and shows the number of shares owned by each, but it does not make such a showing as of any other time. The appellants contend that this condition of the agreed statement does not sustain the burden cast upon the respondent; but the rule is established in a number of cases that where the state of the title to property is shown as of a particular time, the same condition is presumed to exist until the contrary appears. Under this rule there appears to be no distinction between the different classes of property, as some of the cases relate to realty (Hohenshell v. South Riverside L. & W. Co., 128 Cal. 627 , 631, [ 61 Pac. 371 ]; Jennings v. Jordan, 31 Cal. App. 335 , 339, [ 160 Pac. 576 ]), while others apply the doctrjne in the case of personal property (Fredericks v. Tracy, 98 Cal. 658 , [ 33 Pac. 750 ]; Newlove v. Pond, 130 Cal. 342 , [ 62 Pac. 561 ].) We are satisfied that the showing in the agreed statement of

Several of the notes sued on were executed by Second Company for the purpose of reimbursing the payees, who were stockholders in the corporation, in amounts paid by them into the corporate treasury upon a certain invalid assessment upon the corporate stock. The appellants contend that there can be no recovery upon these notes for the reason that the stockholders who advanced their respective portions of the void assessments had no cause of action against the corporation for the recovery of their money, antecedent to the execution of the notes; and it is of course true that the liability of stockholders, in such an action as this, must be measured by the question whether an original obligation of their corporation is enforceable by its holder. The liability of stockholders is not primarily predicable upon notes, the execution of which is based upon pre-existing obligations. (Hunt v. Ward, 99 Cal. 612 , [ 37 Am. St. Rep. 87 , 34 Pac. 335 ]; Santa Rosa Nat. Bank v. Barnett, 125 Cal. 407 , [ 58 Pac. 85 ]; Gardiner v. Royer, 167 Cal. 238 , [ 139 Pac. 75 ]), but upon the pre-existing obligations themselves. Was there, then, a legal liability upon the corporation to return the amounts advanced on account of the void assessment? It appears that this specific question has never been answered in California, nor have we, despite the fact that appellants cite cases from other states to the point, been able to ascertain that it has been passed upon elsewhere, even after some research of our own. There are principles of law, however, announced in decisions of the California courts, which furnish an analogy giving us much aid in the determination of the question. For instance, it is well settled that a corporation which receives and retains the fruits of a contract ultra vires cannot be heard to assert the invalidity of the contract in an action brought to recover upon it. (Main v. Casserly, 67 Cal. 127 , [ 7 Pac. 426 ]. See, also, Standard Oil Co. v. Slye, 164 Cal. 435 , 445, [ 129 Pac. 589 ].) Also, there is a long line of cases beginning as early as Argent i v. San Francisco, 16 Cal. 255 , laying down the very just rule that a municipal corporation which has obtained the money or property of another through mistake or without legal right may be compelled to return it as upon an implied contract. Some of these eases are on principle closely allied to the one now before us. (County of Los Angeles v. City of

It is objected by appellants that a liability against them as stockholders does not exist in the ease of certain other promissory notes upon which respondent sues. These notes were originally given to stockholders of the company for advances made by them, and the question arises, upon the point made by appellants, as to whether the advances were loans or were voluntary assessments by the stockholders against their own stock. The appellants make much of the fact that the advances were in amounts equal to five per cent of the par value of the holdings of the stockholders, and they cite cases to the effect that a voluntary contribution by stockholders to the funds of a corporation, to tide it over financial difficulties, is for the betterment of their stock and does not create a debt

It is contended by the appellants that the claim for $750, not evidenced by a promissory note, is barred by the statute of limitations, section 338 of the Code of Civil Procedure fixing a limitation of three years for the commencement of a certain class of actions, which includes those like the present one. The question arises under the following facts: Second Company was indebted upon a certain promissory note executed by First Company, which Second Company had assumed, and on which one of the stockholders of both corporations, E. B. Rivers, was an accommodation indorser and guarantor. This note was dated more than three years before the commencement of the action. The note was for $1,750 and one thousand dollars had been paid upon it at a certain time. At a date within three years before the commencement of the action, demand was made upon Second Company for payment

There are two or three other points presented by the appellants but they do not merit a specific consideration.

The judgment is affirmed.

Conrey, P. J., and James, J., concurred.

A petition to have the cause heard in the supreme court, after .judgment in the district court of appeal, was denied by the supreme court on July 18, 1918.