DRAPEAU v. FULLERTON SECURITIES CORPORATION

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District Court of Appeal, Second District, Division 1, California.

DRAPEAU, Building and Loan Commissioner, v. FULLERTON SECURITIES CORPORATION, Limited.*

Civ. 9609.

Decided: April 15, 1936

Roland Tognazzini, of San Francisco, and Roscoe C. Andrews, of Los Angeles, for appellant. Elliott & Aberle, of Los Angeles, for respondent.

This is an appeal from a judgment in favor of the defendant in an action brought by appellant, as building and loan commissioner of the state of California, to recover the amount of an assessment levied by the building and loan commissioner on the stockholders of Pan American Building-Loan Association while the latter was in process of liquidation under the provisions of the Building and Loan Association Act of 1931 (St. 1931, p. 483).

Section 7.01 of the 1931 Building and Loan Association Act (St.1931, p. 509), with which we are concerned, provides that stockholders of building and loan associations “shall be held individually liable, equally and ratably, and not one for another, for all contracts, debts and engagements of such association, including investment certificates and shares, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such stock.”

Section 7.02 of the act (St.1931, p. 509) provides as follows: “The liability of stockholders pursuant to section 7.01 of this act shall be enforced exclusively pursuant to this section and the next succeeding three sections of this act. Whenever the commissioner, or a receiver or trustee of any association appointed by any court, being in lawful possession of the property, business and assets of such association, shall determine that it is necessary to do so for the purpose of paying the contracts, debts and engagements of such association, such officer may enforce the said individual liability of the stockholders, and for such purpose may levy a ratable assessment upon the stockholders of such association without previous judicial ascertainment of the necessity for such action and the action of such officer in levying such assessment shall be conclusive on the stockholders as to the necessity for such assessment.”

Section 7.03 of the act (St.1931, p. 510) reads: “If any stockholder of such association shall fail to pay said assessment in full upon the date specified in said order as the date on which said assessment shall be due and payable, a right of action shall immediately accrue to the commissioner or receiver or trustee in possession of the property, business and assets of such association to recover the amount of said assessment or the amount remaining unpaid thereon from the stockholder or stockholders failing to pay said assessment in full. Such officer shall have full power to maintain an action or actions in this state, or in any other state or country, to enforce and collect any sum or amounts due and payable and remaining unpaid upon any such assessment from any stockholder or stockholders failing to pay the same in full.”

The complaint alleges the matters and things necessary to show compliance with the provisions of the statute above set forth, including the due levy of an assessment of $100 per share upon the stockholders of said Pan American Building-Loan Association, and the refusal of the defendant to pay. Defendant demurred to the complaint. The demurrer was sustained, and upon failure of plaintiff to amend, a judgment was entered in favor of defendant.

Several grounds are urged by appellant for reversal, and it is the position of the trial court and of respondent here, which appellant concedes, that defendant acquired its stock on June 24, 1929; that on this date section 3 of article 12 of the Constitution of this state, declaring the liability of corporation stockholders, and also section 634 of the Civil Code and the Building and Loan Commission Act of 1911 (St.1911, p. 607), were still in force. The act of 1911 purported to authorize the building and loan commissioner to enforce the liability of holders of guarantee stock in a building and loan association for its debts, but did not attempt to define that liability. Our Supreme Court, however, in the case of Wood v. Hamaguchi, 207 Cal. 79, 277 P. 113, 63 A.L.R. 861, held that a provision of the Bank Act, empowering the superintendent of banks to levy and collect assessments on the stockholders of a bank for the purpose of paying the bank's debts, was in violation of section 3, article 12, of the State Constitution, and therefore void. For the same reasons it is our opinion that the above-mentioned similar provisions of the Building and Loan Commission Act of 1911 were in conflict with the Constitution, and, therefore, of no force or effect. It follows, therefore, that the liability of defendant as a stockholder for the debts of the Pan American Building-Loan Association, at the time defendant acquired its stock therein, was limited to that imposed by the then existing section 3, article 12, of our Constitution; that is to say, a liability directly to the creditor for a part of each debt, proportioned to the stock held by the defendant.

In 1930, section 3, article 12, of the Constitution, was repealed, and section 1 thereof was amended so as to commit the whole matter of stockholders' liability to the Legislature. In 1931 (St.1931, p. 444), section 322 of the Civil Code, which was substantially the same as section 3, article 12, of the Constitution, was repealed, and the existing law, under which this litigation was commenced, was adopted. This act of 1931 is the only provision to be found in the present Constitution or statutes of this state concerning the liability of stockholders in a building and loan association.

It is true that section 7.01 of the Building and Loan Association Act of 1931 imposes upon stockholders of such an association a liability such as plaintiff seeks to enforce in this proceeding, while the succeeding sections, 7.02 and 7.03, authorize the building and loan commissioner to enforce that liability by assessment and suit. However, section 14.04 of the same act (St.1931, p. 548), contains several very general saving clauses, among which we find the following: “Nothing in this act is intended or shall be construed to impair in any manner the rights of those who have heretofore become investors in any association.” The definition of “investors” appearing in section 1.01 of the act (St.1931, p. 483) includes a stockholder such as defendant was, thereby bringing the defendant within the protection of the saving clause. It is therefore apparent that in June, 1929, when defendant acquired its stock, and up to August, 1931, when the present Building and Loan Association Act became effective, defendant's liability was only to each creditor for a pro rata part of such creditor's claim. A reading of the above-mentioned saving clause impresses us that if this exemption and limitation of liability were “rights” of the defendant as a stockholder, then the saving clause in the 1931 act prevented any impairment of such rights. We find ourselves in accord with the holding in Close v. Noye, 147 N.Y. 597, 603, 41 N.E. 570, that a stockholder's exemption from liability for the debts of a corporation is a “right,” and therefore preserved to him by the saving clause contained in an act repealing such exemption.

Concluding as we do that at the time defendant acquired its stock it was, under the then existing laws, exempt from assessment and suit by the building and loan commissioner, and its liability was limited to each creditor for a pro rata part of such creditor's claim, and that such exemption and limitation were preserved to defendant by the saving clause in section 14.04 of the present act, makes it unnecessary for us to consider the additional grounds urged on this appeal. The defendant's demurrer was properly sustained.

The judgment is affirmed.

WHITE, Justice pro tem.

We concur: YORK, Acting P. J.; DORAN, J.