Court Opinion

ID: 9851919
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:21:40.500262+00
Date Added: 2024-06-11T09:22:19.460412
License: Public Domain

DORAN, J., Dissenting.
I am in accord with the views expressed and the conclusions reached in the prevailing opinion, except as to those phases pertaining to the statute of limitations. As to that portion thereof, I dissent. In that regard, summarizing the events briefly, it will be remembered that the directors of the corporation adopted the resolution to create the debt on December 13, 1929. On December 15th, the indenture and security for the loan was deposited with the trustee. On December 18,1929, the contract was executed between the corporation and the bankers, by the terms of which the corporation agreed to sell and the bank agreed to buy the notes which represented the debt created by the above-mentioned resolution of December 13th. On December 26th the stockholders approved and ratified the action of the board of directors. Thereafter the notes, which were dated December 15th, were delivered by the corporation to the bankers and the consideration received by the corporation therefor.
It is my opinion that, for the purpose of determining when the statute of limitations commenced to run, the prevailing opinion attributes erroneous legal effect to the act of the corporation in issuing the notes, as well as to the time when the same were issued, and to the contract of December 18th, between the corporation and the bankers.
The liability of the stockholders for the debts of the corporation was statutory and arose by operation of law when the debt was created by the corporation. On December 13th the corporation duly resolved to increase its debt by $1,000,-000. All action taken by the corporation thereafter was the product of this resolution and, in my opinion, when such action was completed, it followed as a matter of law that so far as the liability of the stockholders for the debts of the corporation was concerned, that liability attached as of December 13th. The contract of December 18th was merely a *178step in the process by which the loan, representing the debt, was obtained. The issuing of and the delivery of the notes was another step by which the money, representing the loan, was obtained. Neither act had any legal effect upon the action of the corporation in resolving to create the debt in the first instance.
Although the contract of December 18th determined the duties and liabilities of the parties thereto, and as well vested the rights of the parties to the contract as of that day, nevertheless neither such contract nor the date of the execution thereof determined when the statute of limitations commenced to run against the personal liability of the stockholders. That contract merely provided in effect that, subject to the fulfillment of certain conditions, the corporation bound itself to borrow and the bankers bound themselves to lend the amount representing the debt the corporation had theretofore resolved to create. Nor, in my opinion, did the physical issuing of the notes representing the debt by the corporation have any bearing on such question. This act on the part of the corporation, in my judgment, was merely clerical. The execution of the contract and the issuing of the notes were merely the mechanics of the process of performing the practical details necessarily required to complete the transaction and thereby accomplish the purpose of the resolution of December 13th.
There was but one debt and that debt was qreated- but once. It is true that the liability of the corporation in that connection was contingent upon the performance of certain acts and the fulfillment of certain conditions. But the performance of those acts and the fulfillment of those conditions subsequent, when complete, merely concluded the process. They in no sense fixed the time of the creation of the corporation debt.
The prevailing opinion in effect relies upon the argument that as long as the notes were not issued and delivered and the money received therefor, there was no corporation liability ; therefore, the notes having been issued in ten different instalments, the statute of limitations commenced to run at ten different times. If this argument is sound, then, carried to its logical conclusion, there were ten different debts created at ten different times. It is my opinion that the notes were evidence of but one debt and that their issue in *179instalments is only incidental and of no legal consequence or effect whatever as to the issue herein considered.
It may be conceded, as argued in support of the prevailing opinion, that if the notes had not been issued there would have been no liability, but it is just as logical to assert that if the corporation had never adopted the first resolution, there would have been no liability. The fact remains that the notes were issued, and from the standpoint of logic it is but idle speculation to give consideration to that which does not exist. Such argument is regarded as beside the issue.
The notes refer the holders thereof to the indenture of December 15, 1929, for a description of the rights of the bearers thereof, and further provide as follows: “Reference is made to the indenture to all of the terms and provisions of which indenture the holder thereof, by acceptance of this note, assents.” There is nothing either in said indenture, the minutes of the resolutions of the directors or stockholders or in the agreement of December 18th, which provides in substance or effect that the corporation debt shall not accrue until the notes are issued and delivered. To the contrary, as heretofore noted, the notes bore date of December 15th and the bankers agreed to buy the notes for 94 per cent of the par value and accrued interest from the date of the notes to the date of delivery.
The reasoning upon which the prevailing opinion is based, if my understanding thereof is correct, is in substance to the effect that there was no liability of the corporation to pay any amount until the notes were issued, delivered and the consideration received therefor. Hence there could be no liability of the stockholders until that time. The flaw in such argument, in my judgment, results from taking into account the time the incident occurred, when the incident alone is material. It must be remembered that the question herein under consideration deals with the liability of the stockholders for the debt of the corporation and the time when that liability accrued. The stockholders, by subsequent approval, authorized only the debt created by the resolution of December 13th. The notes are dated December 15th and it must be assumed that the corporation executed them on that date. Questions as to when the liability might have become enforceable against the corporation are beside the issue.
California Jurisprudence notes the following: “The liability of a stockholder being one created by law, the statute *180runs three years after the creation of that liability, and not three years from the time the liability becomes enforceable against the corporation,—that is, the liability of the stockholder accrues at the inception of the corporation’s liability, and the statute commences to run from that date. Under the statute a ‘liability’ is created when a contract binding on it is made by the corporation, independently of whether the liability is absolute or contingent or of when the right to enforce it may accrue. Of course, the liability of the corporation and that of the stockholders may become enforceable at the same time. ...” (6 Cal. Jur., p. 1014.) As pointed out in the prevailing opinion, there is a distinction between the creation of a liability and the accruing of a cause of action thereon. And, as further noted in California Jurisprudence, “The effect of this rule, together with the fact that the liability of the corporation and that of the stockholder are separate and distinct with different periods of limitation in most cases, is that a stockholder may be liable for his proportion of a debt of the corporation even after the cause of action against the corporation itself is barred; and the statute of limitations may have run against the stockholders’ liability before it has run against the corporation, or even before it has accrued against the corporation.” (6 Cal. Jur., supra.)
Based upon a different premise, there is one other conclusion which may be reached. Assuming that the resolution of December' 13th, in legal effect, was merely a proposal to create the debt, then that proposal ripened into a debt when the contract of December 18th was executed, for beyond question that contract, having been fully performed, created the relation of debtor and creditor as of the date of its execution.
For the foregoing reasons, in my opinion, the judgment should be reversed.
A petition by appellants to have the cause heard in the Supreme Court, after judgment in the Distinct Court of Appeal, was denied by the Supreme Court on ¿fanuary 12, 1939.