Case Name: SANTA CRUZ RAILROAD COMPANY, Appellant, v. CLAUS SPRECKLES, Respondent
Court: Supreme Court of California
Jurisdiction: California
Decision Date: 1884-04-30
Citations: 65 Cal. 193
Docket Number: No. 7,453
Parties: SANTA CRUZ RAILROAD COMPANY, Appellant, v. CLAUS SPRECKLES, Respondent.
Judges: 
Reporter: California Reports
Volume: 65
Pages: 193–211

Head Matter:
[No. 7,453.
In Bank
April 30,1884.]
SANTA CRUZ RAILROAD COMPANY, Appellant, v. CLAUS SPRECKLES, Respondent.
Corporation—Assessment—Paid up Stock. — Corporations formed and existing under the laws of this State may levy and collect assessments for corporate purposes on shares of stock upon which the subscriptions have been fully paid.
Id. —Advances by a Director—Money advanced to a corporation by a director, in good faith, and which is received and used for necessary corporate purposes, is a valid claim against the corporation.
Appeal from a judgment of the Superior Court of the county of Santa Cruz.
The facts are stated in the opinions.
Charles B. Younger, Taylor & Haight, Carber, Thornton & Bishop, and Stewart & Herrin, for Appellant,
Jarboe & Harrison, and A. Craig, for Respondent.

Opinion:
Ross, J.
The important question in this case is, to what extent corporations organized and existing under the laws of this State may levy and collect assessments.
On the part of the respondent it is contended that no assessment can be levied upon any stock for which the subscription price has been fully paid.
The matter of assessments is regulated by our statute, and the question is therefore to be determined by its provisions. Section 331 of the Civil Code provides: " The directors of any corporation formed or existing under the laws of the State, after one fourth of its capital stock has been subscribed, may, for the purpose of paying expenses, conducting business, or paying debts, levy and collect assessments upon the subscribed capital stock thereof^ in the manner and form, and to the extent provided herein."
From this section these things at least are clear: (1) That no assessment for any purpose can be levied until at least one fourth of the capital stock of the corporation has been subscribed; (2) that assessments may be levied in the manner and form and to the extent provided by the statute, for the purpose of paying the expenses, conducting the business, or paying the debts of the corporation; and (3) that the assessment authorized to be levied shall be levied only upon the subscribed capital stock.
The authority thus conferred on the directors of any corporation formed or existing under the laws of this State to levy and collect assessments, for the purposes stated, is thus limited by the next section.
" Section 332: Ko one assessment must exceed ten per cent of the amount of the capital stock named in the articles of incorporation, except in the cases in this section otherwise provided for, as follows: —
"1. If the whole capital of a corporation has not been paid up, and the corporation is unable to meet its liabilities or to satisfy the claims of its creditors, the assessment may be for the full amount unpaid upon the capital stock; or if a less amount is sufficient, then it may be for such a percentage as will raise that amount.
"2. The directors of railroad corporations may assess the capital stock in installments of not more than ten per cent per month, unless in the articles of incorporation it is otherwise provided.
" 3. The directors of fire or marine insurance corporations may assess such a percentage of the capital stock as they deem proper."
It is further limited by section 333, which reads:— "Section 333: Ho assessment must be levied while any portion of a previous one remains unpaid, unless:-—
"1. The power of the corporation has been exercised in accordance with the provisions of this article, for the purpose of collecting such previous assessment;
"2. The collection of the previous assessment has been enjoined; or,
"3. The assessment falls within the provisions of either the first, second,.or third subdivision of section 332."
We perceive, therefore, but two limitations to the power conferred by section 331 —the first being that no one assessment must exceed ten per cent of the amount of the capital stock named in the articles of incorporation, and the second, that no assessment must be levied while any portion of a previous one remains unpaid. But to each of these limitations certain exceptions are made. One of the exceptions to the first limitation is, that if the whole capital of a corporation has not been paid up and the corporation is unable to meet its liabilities or to satisfy the claims of its creditors, one assessment may be for the full amount unpaid upon the capital stock even though it exceed ten per cent of the amount of the capital stock named in the articles of incorporation; or if a less amount is sufficient, then it may be for such a percentage as will raise that amount. And one of the exceptions to the second limitation, which prohibits the levy of any assessment while any portion of a previous one remains unpaid, is when the previous assessment " falls within the provisions of either the first, second, or third subdivision of section 332." In other words, when the previous assessment falls within the provisions of either the first, second, or third subdivision of section 332, another assessment may he levied while the previous one remains unpaid.
How, the first subdivision of section 332 in terms declares that if the whole capital has not been paid up, and the corporation is unable to meet its liabilities or to satisfy the claims of its creditors, the assessment may be for the full amount unpaid upon the capital stoek. Of course when such an assessment is collected, the stock upon which it is levied becomes fully paid for; yet, according to section 333 another assessment may neverthe less be levied. And the reason for the rule thus prescribed by the legislature seems plain; for one of the purposes for which the directors of a corporation are, by section 331, authorized to levy an assessment, is the conducting of the business of the corporation. And when the full amount unpaid upon the subscribed capital stock is required to meet the liabilities of the corporation, if the business is to be further conducted, it would seem very reasonable to authorize another assessment. So, too, does it seem reasonable that other assessments should be authorized when, for instance, the assessment which, by the first subdivision of section 332 is authorized to be levied for the full amount unpaid upon the capital stock subscribed, is insufficient to satisfy the claims of the creditors of the corporation. But whether reasonable or unreasonable, the law is so written, as we understand it.
Bor is it easy to believe that, had the legislative intended by the provisions of the Code in question to authorize assessments only to the extent of the par value of the stock subscribed for, in other words, to provide only for the calling in of the sums subscribed, it would not have expressed that intention in appropriate language. It would have been an easy matter to have done so, and, as we shall presently see, when the Codes were adopted there was standing upon the statute books an old act providing for that very thing. " There are two classes of assessments," says Potter on Corporations, vol. 1, 323, "made by corporations or by the directors thereof, one of which is more properly distinguished as 'calls,' made upon the subscriptions for shares within the amount of the unpaid sums upon the number of shares subscribed, the other, an assessment made upon the corporators not merely as a part of their subscriptions, but to raise a sum of money beyond the amount of subscription for the use of the corporation to sustain its existence, to carry into use its corporate powers and to enable it to exercise its corporate duties." The power to call in the par value of the stock actually subscribed and agreed to be taken was a power incident to the corporation at common law; and the subscriber was liable to an action therefor. But, by the common law, the stock of the subscriber could not be forfeited or sold for the amount of the assessment levied for the unpaid portion of the subscrip tion price. To authorize a sale of the stock even for that purpose statutory authority was necessary. Accordingly the legislature of this State, by the Act approved April 14,1853 (Hittell, art. 932, et seq.), empowered the trustees "to call in and demand from the stockholders the sums by them subscribed, at such times and in such payments or installments as they may deem proper." (§ 10.) Notice of each assessment was required to be given in a prescribed way, and provision was then made for the sale of the stock of such of the stockholders as should make default in the payment of the assessments upon the shares held by them.
But in the year 1864 the legislature went further, and by Act approved April 4, 1864 (Stats. 1863-64, 402), provided that " the trustees of any corporation formed under the general laws of this State shall have power to levy and collect, for the purpose of paying the proper and legal expenses of such corporation, assessments upon the capital stock thereof, in the manner and form and to the extent hereinafter provided, and not otherwise." The next section contained the limitations, and reads: "No assessments-shall exceed five per cent of the capital stock of the corporation, and none shall be levied while any portion of any previous assessment shall remain unpaid or uncollected, except in cases where all the powers of the corporation shall have been exercised in accordance with the terms of this act for the purpose of collecting such previous assessment, and except, also, the collection of a previous assessment against one or more stockholders restrained by injunction or otherwise, in which case further assessment may be levied and collected according to this act." Subsequent sections of the act provided for notice and for a sale of the stock in default of payment of the assessment.
This act was superseded by that of March 26, 1866 (Stats. 1865-66, 458), but in the particulars in which we are considering the Act of 1864, was similar to it.
The Act of 1864 was under consideration by the Supreme Court of this State in the case of Sullivan v. Triunfo Mining Co. 39 Cal. 465, and it was there held that it was, as it purported to be, applicable to all corporations "formed under the general laws of this'State." In that case the court did not pass upon the question whether the provisions of the act were applicable to assessments for subscriptions to the capital stock, but it treated the assessment then in question as having been levied upon fully-paid up stock, and it sustained the assessment. The court said: "We express no opinion as to whether the provisions of the act are applicable to calls or assessments for subscription to the capital stock. The question does not arise in this case, for we infer from the complaint that the stock was issued in the usual mode in mining corporations; that is, the stock was issued to the owners of the mine in proportion to their several interests therein."
We have no doubt of the correctness of the construction thus put in the year 1870 upon the Act of April 4,1864, but whether right or wrong, it is too late now, after the lapse of thirteen years, for the court to change it.
We know, then, that the legislature did first provide only for the calling in by assessment of the full amount of the subscribed stock, and for the sale of the stock, after notice, in default of the jjayment of the subscription price. We know, also, that the legislature next went further and provided for assessments for certain purposes and within certain limits, upon stock which had been fully paid for; and that thus the law stood when the Codes were adopted. If, in enacting the Codes, the legislature had intended to return to the rule prevailing in this State prior to the passage of the Act of April 4,1864, and to provide for assessments only for the amount unpaid upon the capital stock, would it not have employed some such language as it had previously employed when it had that purpose in view and have empowered the trustees, as it did by the Act of April 14, 1853, "to call in and demand from the stockholders the sums by them subscribed"? Some such language as that would so easily and so naturally have expressed that intent, that any substantial departure from it naturally suggests the inquiry whether it did not intend something by the change. And when we find, as we do by comparing the respective provisions, that the legislature, in enacting the Codes, adopted substantially and almost literally the very language employed in the Acts of 1864 and 1866 — language which, as this court more than thirteen years ago decided, authorized assessments upon stock that had been fully paid for —and also made specific provision in regard to the assessment of the sums actually subscribed, the conclusion is to our minds irresistible that, in enacting the sections of the Code in question, it not only did, but clearly intended to authorize, for the purposes and subject to the limitations prescribed, assessments upon stock fully paid for, as well as assessments for the amount unpaid thereon. Indeed, the sections of the Code as first enacted were but a compilation, with certain modifications and alterations, of the pre-existing statutes on the subject. This is further shown by the provisions of section 332 in relation to railroad and fire and insurance corporations, which were taken from the pre-existing statutes in relation to the same subjects. The change made in the Code by the amendment of July 1,1874, does not alter the case. It has already been referred to. Since the amendment, no assessment can be levied for any purpose until after one fourth of the capital stock has been subscribed, and now it is only upon the subscribed capital stock that any assessment at all can be levied. In other respects the limitations and provisions remain as before.
It is hardly necessary to add that with the policy of the law in question we have nothing to do.
With respect to the indebtedness of the corporation at the time of the levy of the assessment in question, it is sufficient to say that even if it be conceded that, under the circumstances set forth in the agreed statement of facts, a portion of the indebtedness to Hihn is invalid, we think there can be no question as to the validity of the item of cash advanced by him to the corporation; and this added to the other indebtedness of the corporation, is more than the aggregate of the assessment. The money was advanced to and received by the corporation at a time when it was out of money and in debt, and when it was unable to obtain money from any other source than from Hihn. Where a director under such circumstances advances the corporation the needed money, which it receives and uses, there surely would be no justice, and we think no law, in holding that the corporation could not repay the amount. The authorities cited by respondent do not sustain him, and there are abundant authorities to the contrary. We cite Seeley v. The San Jose Independent Mill and Mining Co. 59 Cal. 22, and The Twin Lick Oil Co. v. Marbury, 1 Otto, 587.
As the facts were agreed to by the respective parties, it is useless to order a new trial.
Judgment reversed and case remanded with directions to the court below to enter judgment for the plaintiff on the findings.
Sharpstein, J., concurred.
Morrison, C. J., concurred in the judgment.