Court Opinion

ID: 9418745
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:37:56.830568+00
Date Added: 2024-06-11T17:22:09.365499
License: Public Domain

Mr. Justice Cardozo,
dissenting.
I am unable to concur in the reversal of this judgment.
“ The directors or trustees of corporations and joint-stock associations shall be jointly and severally liable to the creditors and stockholders for all moneys embezzled *449or misappropriated by the officers, of such corporation or joint stock association during the term of office of such director or trustee ” (Constitution of California, Art. XII, section 3, repealed Nov. 4, 1930).
The Supreme Court of California has said that the liability thus created is contractual (Dean v. Shingle, 198 Cal. 652; 246 Pac. 1049); but only in a qualified sense,’ as the expression of a legal fiction, is the statement true, nor did the court that made it intend otherwise. The liability would not be destroyed though the directors when assuming office and repeatedly thereafter were to repudiate the obligation utterly. They would be held for.all their protestations upon a liability imposed by law. Indeed, they would have to .answer' to the creditors though they had ceased to be directors before the debts were in existence. If we put aside deceptive labels, borrowed from the law of quasi-contracts, the tangle is unraveled. The petitioner had a contract with the corporation and not with any one else (Crane v. Hahlo, 258 U. S. 142, 146), but annexed by law to the obligation of that contract was a liability purely statutory imposed on the directors (compare Christopher v. Norvell, 201 U. S. 216, 225; Bernheimer v. Converse, 206 U. S. 516, 529). ‘The decisions in California, when analyzed, will be found to hold nothing to the contrary. They amount merely to this, that the liability created by the statute, which is enforcible also by the shareholders, is not penal but remedial, and is limited to the damage resulting to the corporation from the loss of the embezzled moneys as if the director were a surety to the corporation for the acts of its defaulting officer (Dean v. Shingle, supra; compare, Winchester v. Howard, 136 Cal. 432; 64 Pac. 692; 69 Pac. 77). In any event, this Court is not controlled by the label which the state court ■ may affix to a liability growing out of a given state of facts. It determines for itself whether within the meaning of the Constitution the product is a contract to be pro*450tected by the power of the nation (Appleby v. New York, 271 U. S. 364, 380; Coolidge v. Long, 282 U. S. 582, 597). As to this, its judgment is guided by realities and not by words. The section of the Constitution whereby contracts are secured against impairment is aimed at true agreements, and not at quasi-contracts as distinguished from agreements implied in fact (Crane v. Hahlo, 258 U. S. 142, 146; Louisiana v. New Orleans, 109 U. S. 285, 288). Here whatever duty was assumed by a director through the acceptance of his office, was one that he owed in the first instance to the corporation itself, though the creditors and shareholders were privileged to enforce it {Dean v. Shingle, supra). Payment to the corporation before action brought would establish a defense, and even after action brought, any surplus remaining would go into the treasury. A distinction may exist between a liability cast upon directors and one cast upon the shareholders, who are quasi-partners in the venture (Corning v. McCullough, 1 N. Y. 47). .To develop the implications of the distinction is unnecessary now.
I start then with the assumption that the petitioner had a contract with a corporation-secured in certain contingencies by a statutory liability. I add the assumption that the State of California was not at liberty, after the contract had been made and a cause of action had accrued thereunder, to make the security defeasible if it was indefeasible in its origin. Either the article of the Constitution prohibiting the impairment of contracts (U. S. Constitution, Art. I, sec. 10) or the Fourteenth Amendment (which, however, is not invoked) might then stand in the way (Hawthorne v. Calef, 2 Wall. 10; Steamship Co. v. Joliffe, 2 Wall. 450; Ettor v. Tacoma, 228 U. S. 148; Forbes Pioneer Boat Line v. Board of Commissioners, 258 U. S. 338). The difficulty with the petitioner’s case is this, that his security in its origin was not vested, but contingent. The meaning of the California constitution *451is whatever the courts of California declare it to be. The obligation of the petitioner’s contract is whatever the law of California attached to the contract at the hour of its making. Long before that time, the Supreme Court of that State had held that under the law of California ■ a statutory cause of action, whether penal or remedial, may be canceled or modified by repeal or amendment until it has ripened into a judgment (Moss v. Smith, 171 Cal. 777, 788; 155 Pac. 90; Napa State Hospital v. Flaherty, 134 Cal. 315; 66 Pac. 322; Willcox v. Edwards, 162 Cal. 455, 466; 123 Pac. 276; compare Coombes v. Franklin, 1 P. (2d) 992; 4 P. (2d) 157, the decision under review). Consistent with these decisions is a provision of the Political Code: “Any statute may be repealed at any time, except when it is otherwise provided therein. Persons acting under any statute are deemed to have acted in contemplation of this power of repeal ” (California Political Code, § 327, quoted in Moss v. Smith, supra, at p. 787). I assume for present purposes that the rule thus announced would be held of no effect if the statute and decisions declaring it had been made after Coombes became a creditor. Made as they were before that time, they were reservations or conditions limiting the statutory liability, and to be read into the statute, and hence into any contract to which the statute was an incident, as if written there in words (Citizens’ Savings Bank v. Owensboro, 173 U. S. 636, 644; Farmers Bank v. Fed. Reserve Bank, 262 U. S. 649, 660). “ The claim of an irrepealable contract cannot be predicated upon a contract which is repealable ” (Hammond Packing Co. v. Arkansas, 212 U. S. 322, 346). Either the petitioner took his cause of action subject to such infirmities or contingencies as were attáched to it by the law of the State of its creation, or he did not take anything.
This view of the case puts aside as irrelevant the provision of the California constitution permitting the *452amendment of corporate charters, and sustains the repeal upon the ground that the liability by the law of its creation was defeasible in its origin.
Me. Justice Brandéis and Mr. Justice Stone join in this dissent.