Larrabee v. Baldwin

By the Court, Sawyer, C. J.: Action against stockholders of the Pond Gold and Silver Mining Company, to recover against them personally a debt due from the corporation. Section sixteen of the Act authorizing the formation of mining corporations provides, that “'each stockholder shall be individually and personally liable for his proportion of all the debt's and liabilities of the company contracted or incurred during the time that he was a stockholder, for the recovery of which joint or several actions maybe instituted and prosecuted.” We have no doubt of the power of the Legislature, under sections thirty-two and thirty-six of Article IV of the Constitution, to adopt this limitation. The former is in these words: “Dues from corporations shall be secured by such individual liability of the corporators, and other means as may be prescribed by law.” And the latter reads as follows: “Each stockholder of a corporation or joint stock association shall be individually and personally liable for his proportion of all its debts and liabilities.” It was manifestly contemplated that the Legislature should regulate the liability, and prescribe the rule by which each stockholder’s proportion should be ascertained. (French v. Teschemaker, 24 Cal. 539.) The principle adopted by the Legislature makes every stockholder liable for his share of all debts contracted while he is a stockholder. The entire body of stockholders, for the time being, is personally liable for the entire debt contracted—an entire set of stockholders is liable for every debt. This is sufficient to answer all the requirements of the Constitution. There is nothing in the provision that requires each man, when he becomes a stockholder, to do so on the penalty of becoming responsible for all prior liabilities of the corporation that remain uncanceled. This would he to make several different sets of stockholders personally responsible for some debts, and only one set for others. There is nothing in the Constitution requiring such a result. There is nothing whatever in the testimony tending to — 167 — show when the indebtedness sued on was contracted, and, consequently, nothing to show whether it was contracted while the several defendants were stockholders or not. It is true, a page of the minute book of the company, which was incorporated February 9th, 1863, was read, to show that it “commenced business in July, 1863,” and “that the company did no business after July, 1864—had no property, and was doing nothing.” From this it must have been inferred by the Court that the debts were contracted some time between the 1st of July, 1863, and the last of July, 1864. If such inference was admissible from this evidence, it would not help the matter. The evidence also shows, that the several parties held different amounts of stock at different times, and consequently that their proportions varied at different times. For instance, the Court finds that Baldwin held thirty shares when the indebtedness was contracted. But the evidence shows that he had ten shares on the 4th of March, 1863; April 17th, 1863, seventeen shares; September 5th, five shares more. According to the testimony, he could at no time have had thirty shares before the 5th of September. Met the indebtedness may in part or wholly have been contracted before the latter date. Frank Johnson was found to have held twenty shares. The testimony shows that on April 17th, he had fifteen shares, and on July 24th, five shares more, making twenty. Admitting that the debt must have been contracted while the company was doing business, at what time was it incurred?—before or after the 24th of July? There is not a shadow of testimony tending to show, yet the extent of Johnson’s liability is materially affected by this important fact. Winans is found to have twenty shares, yet the testimony does not tend to show that he had any prior to the 7th of August. Lubeck, Meeker, Donohoe, Ralston & Co., and McHugh do not appear by the evidence to have had any stock till the 10th of August, 5th of September, 22d of August, and 31st of August, respectively, yet they are found to have had, respectively, eight, fifteen, thirty and forty-one shares, when such indebtedness — 168 — was contracted. If we are required to infer that the entire indebtedness must have been contracted while the company was doing business, it may still all have been contracted in the month of July, 1863; and it does not appear that these latter named parties are personally liable at all, for, so far as the evidence shows, they were not stockholders in the month of July. The fact is, there is nothing in the record which tends, in any degree, to show when the indebtedness was contracted; and the appellant is right in maintaining that the findings on this point are unsupported by the evidence, and that the judgment against the corporation goes for nothing, without other evidence to show when the debts upon which the recovery was had were contracted. In this respect there was a fatal error. The claim of the respondent that the judgment is itself a contract creating a new debt, within the meaning of the statute, for which all who were stockholders at the date of the rendition of the judgment are personally liable, is too absurd to require argument to refute it. That a judgment is a contract of record, in a certain legal sense, may be conceded, but it creates no such new liability as the statute in question contemplates. The judgment only merges and puts in a new form, against the will of both corporation and stockholders, an indebtedness which has already been contracted. If this is to be construed as the creation of a new liability, there would be no way for a stockholder to escape personal responsibility for all debts which had before been incurred; and the limitation provided for by section sixteen of the Act concerning corporations for mining companies would be utterly nugatory. We do not understand that the judgment in favor of plaintiff is for more than was due. In order to find out how much any one stockholder is liable to pay to the plaintiff of the amount due from the corporation, it is necessary to find the whole amount of the indebtedness of the corporation created while he is a stockholder. If his share of personal liability, upon the whole indebtedness, is sufficient — 169 — to pay the judgment of the plaintiff, we know of nothing to prevent the plaintiff from collecting the whole out of him, leaving the stockholder, who has paid more than his share of the particular debt, to seek contribution out of his co-stockholders. This is the reasonable construction of section sixteen. Of course when the judgment is once satisfied, the plaintiff can collect no more from the other stockholders, although his judgment may, before satisfaction, have authorized him to collect it out of several stockholders. This, if we understand it, disposes of appellant’s third point. The statute authorizes a joint action or several actions. It is not clear that any fatal defect exists in the certificate of incorporation. If so, it is cured by the Act of April 1st, 1864. (Laws 1864, p. 303.) On the point as to whether the judgments against the corporation were admissible in evidence, without putting in the entire judgment roll, each party appears to be equally confident, yet neither takes the trouble to cite any authority upon the precise point, and, as the case is decided upon another ground, we shall not perform the duties of counsel in investigating the question for them. If the question is raised again, we hope counsel will be prepared with the authorities to maintain their views. Judgment and order denying new trial reversed, and new trial granted. [The above opinion was delivered while Mr. Justice Shafter and Mr. Justice Currey were members of the Court. Ueither Mr. Justice Rhodes nor Mr. Justice Sanderson expressed any opinion. A rehearing having been granted, the following opinion was delivered after Mr. Justice Sprague and Mr. Justice Crockett had become Justices. Mr. Justice Sanderson and Mr. Justice Sprague concur in the opinion of the Chief Justice.] — 170 — By the Court, Sawyer, C. J.: We granted a rehearing upon the point as to whether, under section sixteen of the Act of 1853, for the formation of mining and certain other corporations, as amended in 1863, a creditor, in his recovery against an individual stockholder on his personal liability, is limited to the stockholder’s share of that particular debt, or whether he can recover the whole amount of his debt against such stockholder, provided the entire amount for which the stockholder is personally responsible upon the aggregate of the corporate debts, is sufficient to pay the debt in suit. Upon a careful re-examination of the question by the light of the arguments in the several petitions for rehearing, and further briefs, we are unable to find any ground of escape from the conclusion before attained. We can put no other construction upon the provisions of section sixteen, which, to our minds, appears reasonable. The whole section is as follows: “ Bach stockholder shall be individually and personally liable for his proportion of all the debts and liabilities of the company contracted or incurred during the time that he was a stockholder, for the recovery of which joint and several actions may be instituted and prosecuted. In any such action, whether joint or several, it shall be competent for the defendant or defendants, or any or either of them, on the trial of the same, to offer evidence of the payment by him, or them, or any or either of them, of any debts or liabilities of such corporations, and upon proof of such payment, the same shall be taken into account and credited to the party or parties making such payment, and j udgment shall not be rendered against the party or parties, defendant, proving such payment for a sum exceeding the amount of his or their proportion of the debts and liabilities of such incorporations, after deducting therefrom the sums proven to have been paid by him, them, or any or either of them, on account thereof.” (Laws 1863, p. 736.) It would be no strained construction to so hold upon the — 171 — first clause of the section down to the first period, if there had been nothing more. But, in that case the construction might be open to some doubt, whether it was contemplated that each creditor should be compelled to pursue each stockholder for his individual share of his debt, or whether he might make his money out of the first one he could find, whose liability is sufficient to cover the indebtedness, and where he could make it easiest. If there is any one, who, in a legal point of view could be injured by the latter construction, it would be other creditors, and not the stockholder. In contemplation of law, each stockholder ought to pay, and will pay, the whole amount of Ms liability to some party, and it is not of the slightest moment to Mm, to whom he pays it, for, when fully paid, he is discharged. The only benefit a stockholder could derive from the other view would be, the probability, or possibility, that owing to the expense and impracticability of pursuing each stockholder for Ms fraction of liability upon each debt, large and small, he might escape altogether a large portion of the liability for which he engages himself as a member of the corporation— a species of benefit at the expense of honest creditors, which the law in no way recognizes, or countenances. That the Legislature did not contemplate that each stockholder should be the debtor of each creditor for a share of his whole liability, corresponding to the creditor’s share of the whole debts of the corporation, and no more, or that one creditor, by his diligence, should get no advantage over another, in case of the insolvency of the corporation and a portion of the stockholders, seems plain to our minds from the remainder of the section. It provides, that “in such action, whether joint or several,” against a stockholder or stockholders to enforce the personal liability, “it shall be competent to show on the trial payment by Mm, or them, or any or either of them, of any debts or liabilities of such corporation, and upon proof of such payment the same shall be taken into account and credited to the party or parties making such payment, and judgment shall not be rendered against the — 172 — party or parties defendant proving such payment for a sum exceeding the amount of his or their proportion of the debts and liabilities of such incorporations, after deducting therefrom the sums proven to have been paid by him, or them, or any or either of them on account thereof.” This shows no intention to protect one creditor against the superior diligence of another, or to divide up the liability of the stockholder, giving a part to each creditor, but indicates a contrary purpose. It authorizes the payment of the wdiole liability to the first who comes with a demand sufficient to absorb it, and, by implication, at least, authorizes the creditor to make his money out of any party liable to pay the amount. It is not designed to give an option to the stockholder to prefer whom he will, for the law recognizes no personal favors as due to stockholders as such, but it is designed to protect them, when they have paid the full amount of their liability to a party duly entitled, whether he has collected it with or without suit. Besides, the latter clause provides, that, “ the judgment shall not be rendered against the party or parties defendant proving such payment for a sum exceeding the amount of his or their proportions of the debts and liabilities,” etc., and the provision that judgment “ in any such action, whether joint or several,” shall not be entered “ exceeding the amount,” etc., upon well settled rules of construction, implies that it may be entered “ in any such action,” up to “ the amount of his or their proportion of the debts and liabilities of such corporations.” The evident policy of the law with respect to creditors, in this, as in our Attachment Law, is, to give the preference to the vigilant rather than to the sleeping, in strict accordance with the time-hallowed maxim: vigilantibus, et non dormientibus, serval lex. And the party liable can, in contemplation of law, have no interest in the question as to which particular creditor shall receive the amount of his liability. He can have no legal concern beyond protection after his liability is discharged, and can, in no legal sense, be injured by payment to one, rather than to another. — 173 — It is said, however, that section thirtjrtwo of the general Act of 1850, concerning corporations, as also amended in 1863, must be read in connection with said section sixteen, under consideration; that the two sections must be so construed as to harmonize; and as the provisions of said section thirty-two are specific, and clearly limit the recovery of each creditor to a portion of the whole liability of each stockholder, corresponding to his share of the whole debts due from the corporation, section sixteen must bear the. same construction, or the two sections will not be in harmony, or if this view is not correct, that, then, we should look to those provisions upon a similar, or cognate subject matter, to ascertain what the Legislature probably intended by the less specific provisions of section sixteen, adopted on the same day. This argument, if we correctly apprehend the matter, proceeds upon a mistaken view, as to the applicability of said section thirty-two, of the Act of 1850, to the subject matter of this suit, and as to the relation to each other of the two Acts of 1850 and 1853. As we read these Acts, section thirty-two of the one, and sixteen of the other, apply to wholly different subjects matter; while the argument drawn from a comparison of the two sections appears to us to support the construction maintained in this opinion, rather than the other. The two Acts of 1850 and 1853, are two distinct and wholly independent Acts, each embracing a separate and distinct, not the same, subject matter. They both relate to corporations, but not to the same corporations. The Act of 1850, it is true, originally covered the whole field of corporations. It was divided into several chapters, each chapter providing for certain classes of corporations. The first chapter contained certain general provisions, applicable to all created under that Act, and said section thirty-two is found in said chapter. Chapter V of that Act provided for corporations for manufacturing, mining, mechanical or chemical purposes. (Stat. 1850, pp. 347, 365.) But in 1853 a new Act, “ to provide for the formation of corporations for certain purposes,” which included manufacturing, mining, — 174 — mechanical or chemical purposes, or for the purpose of engaging m any species ot trade or commerce, foreign or domestic, was passed; and Chapter V of the Act concerning corporations of 1850, was repealed, so that, thenceforth, the Act of 1850 had no application to corporations to be formed for these purposes. The old Act was not amended, but absolutely repealed, so far as these classes of corporations, thereafter to be formed, are concerned, and a new and independent Act, covering the whole subject matter of such corporations adopted. (Stat. 1853, p. 87, Secs. 1, 25, 27.) As to the corporations formed under this new Act, it is provided in express terms, “such corporations, and the members thereof, being subject to all the conditions and liabilities herein imposed, and none others.” (Ib. Sec. 1.) Again, “corporations formed under this Act, and the members thereof, shall not be subject to the conditions and liabilities contained in an Act entitled ‘ An Act concerning corporations,’ passed April 22d, 1850.” (Ib. p. 92, Sec. 27.) Thus by express enactment neither section thirty-two nor any other of the provisions, general or special, of the Act of 1850, either as it before stood, or as amended in 1863, has any connection with or application to corporations, like the one now in question, formed under the Act of 1853, which Act is complete within itself. Its construction, therefore, cannot affect the question at issue. Section sixteen of the latter Act is the only one touching the question, and the decision of the point now under consideration must depend alone upon the construction given to said section. As the two sections, then, are in different Acts, and have no application to the same subject matter, there is no occasion to give a construction that shall harmonize the two, for each can have a full and complete operation upon its own subject matter, however different the provisions, and their construction may be. Section sixteen of the Act of 1853, and section thirty-two of the Act of 1850, were both amended by two several Acts, passed on the same day, April 27th, 1863, but neither amend — 175 — ment ivas made applicable to any class of corporations, except those provided for in the particular Act to which it was an amendment. Section sixteen of the Act of 1853, as thus amended, has already been given. Section thirty-two of the Act of 1850, as amended on that day, reads as follows: “Each stockholder of any corporation shall be severally, individually, and personally liable for such proportion of all its debts and liabilities as the amount of stock owned by him in such corporation bears to the whole of the capital stock of the corporation, for the recovery of which joint and several actions may be instituted and prosecuted; and in any such action against any of the stockholders of a corporation, the Court shall ascertain and determine the proportion of the debt which is the subject of the suit for which each of the stockholders who are defendants in the action are severally liable, and judgment shall be given severally in conformity therewith. If any stockholder in a corporation shall pay his proportion of any debt due by such corporation he shall be released and discharged from any further individual or personal liability for such debt.” It will be seen by comparison that those two sections are wholly different; that they could not be made to apply to the same subject matter, and could not possibly be intended to accomplish the same object. Both provide for prosecuting joint or several suits to enforce the liability, but section thirty-two provides that in any such action against any of the stockholders “the Court shall ascertain and determine the proportion of the debt which is the subject of the suit, for which each of the stockholders who are defendants in the action are severally liable, and judgment shall be given severally in conformity therewith.” This provision expressly contemplates that each creditor shall recover a portion of the whole personal liability of the stockholder, corresponding to the portion of the whole indebtedness held by him, and no more, and directs the Court to ascertain the proportion of — 176 — the “ debt which is the subject of the suit,” each is severally liable for, and enter a several judgment in conformity therewith. There is no allowance for payment to other creditors. Section sixteen contains no provision of the kind, but, on the contrary, contains a provision authorizing the defendant or defendants “in any such action, whether joint or several,” to show that they have paid their full share of personal liability, or some part of it, to other creditors, and directs the amount so paid to be allowed to the party paying. Said section thirty-two provides that if any stockholder “ shall pay his proportion of any debt, he shall he released and discharged from any further individual or personal liability for such debt.” He is not to be discharged from paying his proportion of other debts, although he may pay the whole of some particular debt. Under section sixteen it is quite different, for in a suit upon one debt, he may show that he has paid the whole, or a part, of his liability to some other creditor or creditors, and “judgment shall not be rendered against him for a sum exceeding the amount of his or their proportion of the debts and liabilities, * * * after deducting therefrom the sums proven to have been paid,” etc. Thus the two sections, as to the rights of the creditors as against the individual stockholders, go upon different theories. One is based upon the theory that each creditor shall be entitled to hold each stockholder personally liable to himself for a portion of each stockholder’s entire liability, corresponding with the amount of the share of the whole debt due from the corporation held by such creditor; and the other upon the .theory that the vigilant creditor may reap the reward of his vigilance, by obtaining his money from any party whose liability is sufficient to cover his demand. It cannot he supposed that this difference is accidental, or that the Legislature, by adopting provisions so entirely diverse, intended to express the same idea, or confer the same rights. These two Acts were before the Legislature at the same time, and were passed on the same day. That body had no difficulty in finding language to express its intention clearly — 177 — in section thirty-two; and, if it had in contemplation a similar result in passing the amendment to section sixteen, it is reasonable to suppose it would have adopted similar language. When in two laws under consideration and passed at the same time, theories so diverse have been adopted, it must be presumed that it was with a design, and that the specific design in each section is in harmony with its own general theory. Why the Legislature applied a different rule to these different classes of corporations, they have not seen fit to inform us. Whether the policy is a wise one, or not, is no concern of ours. It is enough for us to know, if such be the fact, and so we think it to be, that thus the law is written. Under the view here taken, each section is consistent with itself in the general theory upon which it proceeds, and in the provisions general and specific for giving it effect; while under the other view, section sixteen would be inconsistent Avith itself in these respects. We are unable to give any other construction, which appears to us reasonable, to the statute in question, than that before adopted. Whichever view prevails, the result on this appeal is not changed, for the judgment must be reversed on other grounds. But the question is directly presented in the record, and it will necessarily arise on the next trial. For this reason, and as it has been fully argued, we deem it proper to determine it now. . The judgment and order denying a new trial are reversed, and a new trial granted, and the remittitur directed to issue forthwith.