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District Court of Appeal, Second District, Division 2, California.


Civ. 10861.

Decided: March 30, 1936

Bettin, Painter & Wait and Conant Wait, all of Los Angeles, for appellant. Mathes & Sheppard and Robert A. Cushman, all of Los Angeles (Joseph S. Dubin, of Los Angeles, of counsel), for respondent.

This is an appeal by defendant from a judgment in favor of plaintiff after trial before the court without a jury.

The conceded facts are:

Plaintiff, the owner of 455 shares of the common capital stock of defendant, a California corporation, instituted this action to recover assessments alleged to have been illegally levied and collected by defendant. The assessments were levied subsequent to the 1929 amendment of section 331 of the Civil Code (St.1929, p. 1268), which reads in part as follows: “Shares are not assessable except as provided in this article. If the articles expressly confer such authority, and subject to any limitations therein contained the directors of any corporation may in their discretion, levy and collect assessments upon all shares of any or all classes made subject to assessment by the articles.”

The articles of incorporation of defendant did not contain a provision authorizin, or empowering the board of directors to levy assessments.

This is the sole question presented for determination: Is the 1929 amendment to section 331 of the Civil Code, providing that shares of stock issued by a corporation are not assessable unless the articles of incorporation so state, retroactive, thereby depriving a corporation of the right to levy assessments upon stock issued prior to the amendment of said section, if its articles of incorporation do not expressly confer authority to levy assessments upon shares of its stock?

The relationship existing between a corporation and its stockholder is one of contract (Shattuck & Desmond Warehouse Co. v. Gillelen, 154 Cal. 778, 783, 99 P. 348), in which the charter and by-laws of the corporation and pertinent statutes of the state are embodied (Jones v. Missouri-Edison Electric Co. [C.C.A.] 144 F. 765, 770). In the instant case, when the stock in question was issued, one of the implied terms of the contract was that the directors of the corporation could levy valid assessments, even though the articles of incorporation were silent upon the subject. To hold the 1929 amendment to section 331 of the Civil Code retroactive would result in an impairment of the obligation of a contract entered into between the corporation and its stockholder, which is prohibited by the contract impairment clause in article 1, § 10, of the Constitution of the United States.

A similar question to the one before this court arose in the case of Coombes v. Getz, 285 U.S. 434, 52 S.Ct. 435, 76 L. Ed. 866, in which it was contended that an amendment to section 3, article 12, of the California Constitution of 1879, which relieved directors of theretofore existing liability, was retroactive in view of section 1, article 12, of the Constitution of California, which reads as follows: “All laws now in force in this State concerning corporations, and all laws that may be hereafter passed pursuant to this section, may be altered from time to time or repealed.”

The Supreme Court of the United States in deciding the amendment was not retroactive held the power reserved to the state by section 1 of article 12 was not unlimited, but was subject to the protection of the contract impairment clause in article 1, section 10, of the Federal Constitution.

For the foregoing reasons, the assessments levied upon the shares of stock owned by plaintiff were valid.

The judgment appealed from is reversed.

McCOMB, Justice pro tem.

We concur: CRAIL, P. J.; WOOD, J.

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