Court Opinion

ID: 8783387
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:26:28.376394+00
Date Added: 2024-06-11T17:02:57.099093
License: Public Domain

ROSS. Circuit Judge
(dissenting). By the Constitution as well as* a statute of California, the holders of stock in the corporations of the state are made liable for the corporate debts contracted or incurred while they were stockholders, in the proportion that the number of shares owned by such stockholder bears to the whole of the subscribed capital stock or shares of the corporation. Article 12, § 3, Constitution; Civil Code, § 322.
The Supreme Court of the state has in a number of cases construed these constitutional and statutory provisions to mean that the lia*650bility thus fixed upon such stockholders is primary in its character and not one of surety. In the case of Knowles v. Sandercock, 107 Cal. 629, 637, 40 Pac. 1047, 1048, relied on in the opinion of the court, it is said:
“Tlie statute expressly makes the stockholder liable for the Sebts of the corporation, and it would not he good pleading/to aver that the stockholder borrowed the money or bought the goods for which the indebtedness arose. The debt to be alleged is the debt of the corporation.”
By the construction placed by the highest court of the state upon the constitutional and statutory provisions referred to, the federal courts are of course bound. But the construction of the statute is one thing, and the proper deduction to be drawn, in a given case, from the meaning thereby fixed, is an entirely different thing. The latter is more or less persuasive only, depending upon its soundness or unsoundness. I am unable to agree with the conclusion drawn by the court in .the case of Knowles v. Sandercock, 107 Cal. 641, 642, 40 Pac. 1047, that, because the stockholder is primarily liable for his proportion of the debts of the corporation, the terms andl conditions controlling the indebtedness are no concern of his; that “he is not injured nor is he benefited by the fact that the corporation has given security.” The previous decision of the same court (Sonoma Valley Bank v. Hill, 59 Cal. 107), cited in support of that view, I submit, with all respect, does not all support it, for, as will be readily seen by a reference to it the security givén by the corporation in that case for the debt was a mere pledge of personal property concerning which there was no such statute as section 726 of the Code of Civil Procedure of California.
In the present case we have to consider the plaintiff in error primarily liable for his proportion of the debts of the corporation in which he held the stock referred to in the record. But it is for his proportion of those debts only that he is liable. He owed his proportion of what the corporation owed, nothing more and nothing less. And he owed it upon precisely the same terms and conditions that the corporation owed the debts. The character of the burden was precisely the same; the corporation was primarily liable for the whole of its dlebts, and each stockholder primarily liable for his proportion of them. All of the debts in question in this case, excepting an indebtedness of $4,000, being-secured by a mortgage given upon real estate by the corporation to the defendant in error, that portion of the debts of the corporation for which the plaintiff in error was primarily liable falls, therefore, within that other provision of the statutes of California which provides that there can be but one action for the recovery of a debt so secured. Code Civil Procedure, § 726.
The meaning of that section of ’the statute has also" been often declared by the Supreme Court of the state. In a comparatively .late case (Crisman v. Lanterman, 149 Cal. 647-651, 87 Pac. 89, 90 [117 Am. St. Rep. 167]) it is said:
“By the judgment in such action, the land is subjected to a sale for the purpose of sfitisfying the plaintiffs demand, and, if the proceeds be insufficient, a judgment for the balance is then docketed against the defendants personally liable for the debt. Until there shall be a deficiency on such sale, *651there can be no personal judgment'against the mortgagor, who is entitled to have his debt paid out of the land so far as the proceeds realized on foreclosure saie may render payment possible. The land is thus made primarily liable for the payment of the obligation, and the mortgagor can be called on to pay only where the proceeds of a sale of the land are insufficient. He is therefore entitled to insist that the mortgagee shall not, by releasing the land, which should be made to pay the debt, throw upon him a personal liability therefor. Bartlett v. Cottle, 63 Cal. 366; Biddel v. Brizzolara, 64 Cal. 354, 362 [30 Pac. 609]; Bull v. Coe, 77 Cal. 54 [18 Pac. 808, 11 Am. St. Rep. 235]; Porter v. Muller, 65 Cal. 512 [4 Pac. 531]; Barbieri v. Ramelli, 81 Cal. 154 [23 Pac. 1086]; McKean v. German American Sav. Bank, 118 Cal. 334 [50 Pac. 656]; Woodward v. Brown, 119 Cal. 283 [51 Pac. 2, 542, 63 Am. St. Rep. 108].”
If, as we are bound to hold (following the decisions of the Supreme Court of the state in construing the state statutes) that the corporation cannot he called on to pay the debt thus secured until the proceeds of a sale of the mortgaged property prove insufficient for that purpose, it is perfectly manifest that the stockholder cannot be compelled to pay his proportion of the secured debt until the same time, without placing upon the stockholder a greater and further burden than rests upon the corporation itself; for, if the stockholder may be compelled to pay his proportion of such secured debt the instant it becomes due, he may well be put to the cost and uncertainty of litigation in the effort to recover such excess payment as may be shown, after disposal of the mortgaged property, to have been made by him. Such a result would far exceed the liability of the stockholder under the provisions of the Constitution and statute of California as construed by the Supreme Court of the state.
I therefore think that the judgment of the court below should be modified by limiting the recovery of the plaintiff in the court below to the defendant’s proportion of the California Trona Company’s indebtedness not included in the mortgage, with a provision to the effect that the judgment should be without prejudice to any future action for the recovery of any other or further sums for which the defendant may be shown to be liable.