Court Opinion

ID: 3292367
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:08:35.305872+00
Date Added: 2024-06-11T12:18:27.789249
License: Public Domain

I dissent from the order denying a rehearing. The directors of the corporation had no authority to release any portion of its subscribed capital except by way of a bona fide compromise with an insolvent subscriber, and the recitals in their records are not competent evidence against either stockholders or creditors that Bachman or either of the Fleishhackers was insolvent or believed to be insolvent on the twenty-third day of August, 1906 — the date of the supposed compromise. Aside from these recitals there is no evidence that either of them was then or has been since insolvent or suspected of insolvency. If, therefore, as I have no doubt is true, the burden of proving these essential facts was on the defendants, the resolution or agreement of August 23, 1906, was properly held to be ultra vires and ineffectual until duly ratified by the stockholders, and there is not the slightest pretense of even an implied ratification prior to the date of the first loan, the loan of the First National Bank of Pasadena, made on October 5, 1906. Conceding, then, that the officers of that bank are chargeable with knowledge of what appeared upon the records of the corporation and of other existing conditions, all that they knew was that the directors had, without authority and contrary to law, attempted to release the obligation of solvent subscribers to the capital of the corporation. A subsequent ratification by the stockholders of a void release would not have the effect of impairing the rights of existing creditors. But even if it could be allowed that effect, there was no subsequent ratification by the stockholders. Certainly there was no express ratification, and the only pretense of an implied ratification is the fact that at a stockholders' meeting on October 10th Bachman and the Fleishhackers voted only one-half of the stock they had subscribed for. This would have been a very inconclusive circumstance if all the other stockholders had been present. But all the other stockholders were not present either in person or by proxy. The entire number of shares (3,500) had been subscribed, only 3,001 shares were represented at this meeting, leaving 499 shares unaccounted for, and excluding the 350 shares surrendered *Page 416 
by Bachman and the Fleishhackers there were 149 shares wholly unrepresented. This was fatal to a ratification even if it had been express in terms instead of having to rest upon a doubtful implication.
What is here said regarding the first attempted release applies equally to the subsequent attempted release of the Neustadters, of whose insolvency there is no evidence — a transaction never expressly ratified, nor ratified by any pretence of acquiescence until after the loan made in November by the Union Savings Bank.
As to the supposed estoppel of nonconsenting stockholders arising out of the fact that the directors were able to dispose of 150 out of the 350 shares surrendered by Bachman and the Fleishhackers at their par value, I do not understand the principle upon which it rests. This was but a partial restoration to the trust fund of a larger amount unlawfully diverted — it was at most a compensation pro tanto to the stockholders, and a reimbursement pro tanto of the trust fund for the benefit of creditors. Nor can I understand how an estoppel of the stockholders of a corporation can be held to impair the rights of creditors. The partial reimbursement of the fund, it is true, entitled the defendants to a proportional credit, and it was given that effect in the judgment of the superior court, which, in my opinion, should have been affirmed.
Melvin, J., concurred.