tions shall be jointly and severally liable to the creditors and stockholders for all moneys embezzled or misappropriated by the officers of such corporation, or joint-stock association, during the term of office of such director or trustee.

For stockholder's liability, see, further, section 322, Civil Code, post.

Director's liability, see, further, sections 300, 309, 316, Civil Code, and sections 504 and 560, Penal Code.

Legislative History.

The provision of the Constitution of 1849, respecting stockholder's liability is section 36 of article IV, 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.

The provisions of the Constitution of 1849 were held to be not self-executing in French v. Teschemaker, 24 Cal. 518, and to need legislation to make it effective. The deficiencies of the Constitution were not supplied by the common law, for the common law imposed no individual liability upon the stockholders, and the Constitution did not contemplate the common-law liability of partnerships. The supplemental legislation necessary was enacted in the corporation acts of 1850 and 1853, and in section 322 of the Civil Code, which was frequently amended. The section as adopted in the Constitution of 1879 was intended to remedy the deficiencies of the provisions of the Constitution of 1849, and to furnish a full and sufficient rule for the fixing of a stockholder's liability. (Constitutional Debates, p. 382, et seq.) The provision as to the director's liability has no parallel in the Constitution of 1849, and was adopted principally to protect bank depositors, because of some serious bank losses which had cccurred recently before the constitutional convention. (Constitutional Debates, p. 396, et seq.)

Section Cited.

Constitution, 1849: French v. Teschemaker, 24 Cal. 538; Larrabee v. Baldwin, 35 Cal. 166; Harmon v. Page, 62 Cal. 461; McGowan v. McDonald, 111 Cal. 62, 52 Am. St. Rep. 149, 43 Pac. 418. Constitution, 1879: Faymonville v. McCollough, 59 Cal. 286; Harmon v. Page, 62 Cal. 461; Bidwell v. Babcock, 87 Cal. 32, 25 Pac. 752; Kennedy v. California Saving Bank, 97 Cal. 95, 33 Am. St. Rep. 163, 31 Pac. 846; Fox v. Hale & Norcross S. M. Co., 108 Cal. 369, 41 Pac. 308; M'Gowan v. McDonald, 111 Cal. 63, 52 Am. St. Rep. 149, 43 Pac. 418; Danielson v. Yoakum, 116 Cal. 384, 48 Pace 322; Winchester v. Mabury, 122 Cal. 523, 55 Pac. 393; Sacramento Bank v. Pacific Bank, 124 Cal. 150, 56 Pac. 787, 71 Am. St. Rep. 36, note; Santa Rosa Nat. Bank v. Barnett, 125 Cal. 410, 58 Pac 85; Winchester v. Howard, 136 Cal. 449, 89 Am. St. Rep. 153, 64 Pac. 692, 69 Pac. 77.

Corporation Laws-3

Annotation.

Stockholders' Liability-In General.-Under this section a stockholder cannot be exempted by law from his individual liability. (McGowan v. McDonald, 111 Cal. 57, 52 Am. St. Rep. 149, 43 Pac. 418.)

A somewhat similar provision of the former Constitution was held not to be self-executing. (French v. Teschemaker, 24 Cal. 518.)

The former Constitution left it to the legislature to prescribe the rule by which each stockholder's proportion should be ascertained. (Larrabee v. Baldwin, 35 Cal. 155.)

Under the former Constitution, it was held that any one creditor, whose debt was sufficient, might collect from one particular stockholder the entire amount of his liability on all the corporate debts, leaving him to seek contribution out of his costockholders. rabee v. Baldwin, 35 Cal. 155.)

(Lar

While it has never been decided whether or not this rule applies under the present Constitution, it has been said that "all" the debts means every debt of the company; and, therefore, every creditor is entitled to sue any stockholder for his proportion of the indebtedness of the company to such creditor, without reference to the other debts of the corporation. (Morrow v. Superior Court, 64 Cal. 383. 1 Pac. 354.)

An act authorizing the formation of corporations, without attaching to the stockholders an individual liability would be unconstitutional, and the persons organized under such an act would acquire none of the rights of a corporation. (French v. Teschemaker, 21 Cal. 518.)

But the creditors of a corporation may waive the personal liability of the stockholders at the time of contracting with the corporation. (French v. Teschemaker, 24 Cal. 518.)

A depositor in a savings bank does not waive the personal liability of the stockholders by an unsigned agreement printed in the book of each depositor, nor by a printed release of liability inserted in the signature-book, to which no special subscription was made by the depositors. (Wells v. Black, 117 Cal. 157, 59 Am. St. Rep. 162, 43 Pac. 1090.)

A by-law of a corporation that the stockholders shall not be personally liable for the debts of the corporation is void. (Wells v. Black, 117 Cal. 157, 59 Am. St. Rep. 162, 48 Pac. 1090.)

A law limiting the time within which an action can be brought under this section to three years from the creation of the liability is valid. (Santa Rosa Nat. Bank v. Barnett, 125 Cal. 407, 58 Pac. $5.)

An act authorizing a city to subscribe to the stock of a corporation, provided the corporation should make it a condition of all contracts entered into by it that the city should not be liable as a

stockholder, is not invalid, as taking away the liability fixed by the constitution. (French v. Teschemaker, 24 Cal. 518.)

One stockholder may enforce the personal liability of other stockholders in the corporation for a debt due such stockholder from the corporation. (Brown v. Merrill, 107 Cal. 446, 48 Am. St. Rep. 145, 40 Pac. 557; Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047.) This provision applies to corporations formed before as well as after the adoption of the new Constitution. (McGowan v. McDonald, 111 Cal. 57, 52 Am. St. Rep. 149, 43 Pac. 418.)

Under a like provision in the Constitution of Kansas, it was held that it was enforceable in this state against California stockholders in a Kansas corporation. (Ferguson v. Sherman, 116 Cal. 169, 47 Pac. 1023.)

When It Attaches.-This section has no application to liabilities of stockholders which accrued prior to its adoption. (Harmon v. Page, 62 Cal. 448.)

A subscriber for shares is responsible as a stockholder, although he has not paid for his stock or received a certificate therefor. (Mitchell v. Beckman, 64 Cal. 117, 28 Pac. 110.)

A pledgee of stock is not a stockholder within the meaning of this section. (Borland v. Nevada Bank, 99 Cal. 89, 37 Am. St. Rep. 32, 33 Pac. 737.)

The liability of the stockholder is dependent upon the fact that he is a stockholder at the time the debt is created, and such liability cannot be extended by the corporation by a note given for an indebtedness not created while he was a stockholder, by suffering a judgment to be recovered on such indebtedness, or in any other manner. (Winona Wagon Co. v. Bull, 108 Cal. 1, 40 Pac. 1077; Larrabee v. Baldwin, 35 Cal. 155; Danielson v. Yoakum, 116 Cal. 382, 48 Fac. 322; Partridge v. Butler, 113 Cal. 326, 45 Pac. 678; Santa Rosa Nat. Bank v. Barnett, 125 Cal. 407, 58 Pac. 35.)

The liability of a stockholder in a savings bank accrues at the time of the acceptance of the deposit. (Wells v. Black, 117 Cal. 157,

50 Am. St. Rep. 162, 48 Pac. 1090.)

A stockholder in a savings bank is liable for his proportion of a deposit in such bank. (Wells v. Black, 117 Cal. 157, 59 Am. St. Rep. 162, 48 Pac. 1090.)

A liability for overdrafts to a bank is created upon the daily balances against the corporation shown by the account. (Santa Rosa Nat. Bank v. Barnett, 125 Cal. 407, 58 Pac. 85.)

The liability of a corporation for the services of an attorney is not created until the rendition of the services. (Johnson v. Bank of Lake, 125 Cal. 6, 73 Am. St. Rep. 17, 57 Pac. 664.)

Where an accommodation indorser of the note of a corporation pays the same, the debt is extinguished, and the stockholders' liability upon the debt comes to an end, and neither under the doctrine

of equitable assignment nor of subrogation can it be transferred as a live and subsisting obligation, but at the time of payment by the indorser a new liability springs up against the corporation and its stockholders, a liability upon an implied contract to reimburse what has been expended, including costs and expenses. (Yule v. Bishop, 133 Cal. 574, 62 Pac. 68, 65 Pac. 1094.)

Nature of. An action to recover upon the liability of a stockholder is an action at law. (Morrow v. Superior Court, 61 Cal. 383,

1 Pac. 354.)

A stockholder's liability is a "liability created by law."'

(Moore

/v. Boyd, 74 Cal. 167, 15 Pac. 670; Hunt v. Ward, 99 Cal. 612, 37 Am. St. Rep. 87, 34 Pac. 335.)

It is also a liability created by statute. (Bank v. Pacific Coast S. S. Co., 103 Cal. 594, 37 Pac. 499.)

It is also an obligation arising upon contract. (Dennis v. Superior Court, 91 Cal. 548, 27 Pac. 1031; Kennedy v. California Sav. Eank, 97 Cal. 93, 33 Am. St. Rep. 163, 31 Pac. 846.)

The obligation of stockholders is direct and primary. They are principal debtors, and not sureties of the corporation, and their liability is not contingent upon a recovery against the corporation, nor is it affected by a suspension or renewal as to the corporation. (Faymonville v. McCollough, 59 Cal. 285; Davidson v. Rankin, 34 Cal. 503; Hyman v. Coleman, 82 Cal. 650, 16 Am. St. Rep. 178, 23 Pac. 62; Mitchell v. Beckman, 64 Cal. 117, 28 Pac. 110.)

Stockholders are not jointly and severally liable, but each stockholder is severally liable for his proportion of the indebtedness, and when he has paid his portion of any debt, or of all the debts of the corporation, he is freed from all liability, and has no cause of action against any other stockholder for money so paid. (Brown v. Merrill, 107 Cal. 446, 48 Am. St. Rep. 145, 40 Pac. 557; Derby v. Stevens, 64 Cal. 287, 30 Pac. 820.)

The mere fact that the corporation has pledged to the debtor certain property as security for the debt does not prevent the debtor from suing the stockholders. (Sonoma Valley Bank v. Hill, 59 Cal. 107.)

A judgment against the corporation does not extinguish, suspend, or merge the liability of the stockholders. (Young v. Rosenbaum, 39 Cal. 646.)

Nor does such a judgment prolong the time within which an action may be maintained against the stockholders. (Stilphen v. Ware, 45 Cal. 110.)

An action may be maintained against the stockholders, although the debt is secured by a mortgage of the corporation which has not been foreclosed. (Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047.)

Stockholders are liable for interest as well as principal. (Wells, Fargo & Co. v. Enright, 127 Cal. 669, 60 Pac. 439.)

A stockholder of an insolvent bank has no right to share in the dividends of the bank by way of subrogation to the rights of a creditor to whom he has paid his proportionate share of his claim. (Sacramento Bank v. Pacific Bank, 124 Cal. 147, 71 Am. St. Rep. 36, and note, 56 Pac. 787.)

Release of. Whenever a debt of a corporation is satisfied in part, there is also pro tanto a discharge of the liability of the stockholders. (San Jose Sav. Bank v. Pharis, 58 Cal. 380.)

Where a creditor of a corporation releases a stockholder from all personal liability, he thereby discharges the corporation and other stockholders to the same extent as the one to whom the release is executed. If the release is for the releasee's proportion, the company and other stockholders are only released pro tanto. (Prince v. Lynch, 38 Cal. 528, 99 Am. Dec. 427, and note.)

Practice.-A complaint to recover on the stockholder's liability must state the amount of the whole number of shares subscribed for. (Bidwell v. Babcock, 87 Cal. 29, 25 Pac. 752; Roebling's Sons Co. v. Butler, 112 Cal. 677, 45 Pac. 6.)

As to the form of the complaint generally, see Duke v. Huntington, 130 Cal. 272, 62 Pac. 510; Whitehurst v. Stuart, 129 Cal. 194, 61 Pac. 963.

The complaint must show affirmatively that the defendant was a stockholder when the debt was incurred, and a mere allegation that he was a stockholder when the note was executed is insufficient. (Case Plow Works v. Montgomery, 115 Cal. 380, 47 Pac. 108.)

A creditor is not bound to exhaust the remedies against the corporation before proceeding against the stockholder. (Morrow v. Superior Court, 64 Cal. 383, 1 Pac. 354.)

The provisions of this section do not oust a court of equity of jurisdiction to compel stockholders to pay for the benefit of creditors the amount of the capital stock subscribed for by them. (Harmon v. Page, 62 Cal. 448.)

Although the liability of the stockholder is that of an original debtor, it is proper to plead the debt as that of the corporation. (Knowles v. Sandercock, 107 Cal. 629, 40 Pac. 1047.)

Where one stockholder pays a note of the corporation, and sues the other stockholders for contribution, the superior court has no jurisdiction, if the several amounts asked against each stockholder are less than three hundred dollars. (Myers v. Sierra Valley etc. Co., 122 Cal. 669, 55 Pac. 689.)

Liability of Directors.-This provision only applies to such misappropriations of moneys as are similar to embezzlement, consisting of the misappropriations of funds intrusted to an officer for a particular purpose, by devoting them to some unauthorized purpose, and does not apply to the payment of an extravagant price for services or materials properly appertaining to the business of the cor