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


Civ. 10388.

Decided: September 25, 1935

Edmund Nelson, Howard Waterman, Freston & Files, and Ralph E. Lewis, all of Los Angeles (Louis Ferrari, of San Francisco, of counsel), for appellant Bank of America Nat. Trust & Savings Ass'n. George E. Cryer and R. Alston Jones, both of Los Angeles, for defendants Cryer and Mullaney. John A. Jorgenson, of Los Angeles, for defendant Waite. Nichols, Cooper & Hickson, of Pomona, for defendant Norwood. Hurt, Farner & Hurt, of Los Angeles, for defendant Page.

Plaintiff bank commenced this action against various stockholders of Blue Bird Furniture Manufacturing Company to enforce payment of the respective amounts due on their liability as such stockholders for the debts of the corporation. On the first cause of action judgment went for defendants and plaintiff appeals. On the second cause of action plaintiff recovered and certain defendants appeal.

A mortgage was executed by one Erma Blacksmith in favor of the predecessor in interest of plaintiff, dated May 29, 1923, to secure a loan of $125,000 and a loan subsequently to be made. At a later date an additional sum of $50,000 was loaned on the security of the mortgage. The property mortgaged was in fact owned by the Blue Bird corporation, and Erma Blacksmith was the secretary to the president of the corporation, all parties agreeing that she was what is commonly called a “dummy” in transactions of this kind. Immediately upon the execution of the mortgage the property was deeded by Erma Blacksmith to the corporation. On April 23, 1930, the Blue Bird corporation requested of plaintiff an extension of one year on the notes for which the security was given. In the communication to plaintiff the corporation reviewed the facts of the execution of the Blacksmith notes and mortgage, recited that title had been vested in Erma Blacksmith “for the purposes of convenience” and promised to pay the amount of the notes in this language: “The undersigned corporation also covenants and agrees to pay or cause to be paid by or in the name of the mortgagor in said mortgage named, the principal and interest of the promissory notes secured thereby on or before the date of the extended maturity thereof.” The extension was granted by plaintiff, and the notes not having been paid within the extended period, this action was commenced.

It is contended that the action was prematurely commenced, since the mortgage had not been foreclosed when the complaint was filed. This contention cannot be upheld. A stockholder's liability is enforceable independently of proceedings against the corporation. It was not necessary to first foreclose the mortgage in order to recover against the stockholders. Aronson & Co. v. Pearson, 199 Cal. 286, 249 P. 188, 51 A. L. R. 1380; Chambers v. Farnham, 182 Cal. 191, 187 P. 732; Fry v. Baltimore Hotel Co., 80 Cal. App. 415, 252 P. 752; 6 Cal. Jur. 995. Respondent stockholders argue that the corporation guaranteed only the amount to be found due by a deficiency judgment. We cannot take this view. The language used in the instrument is clearly a promise to pay the obligation as a whole, without qualification and without limitation to a possible deficiency. Although the right to sue is not affected thereby, it might be added that the mortgage was in fact foreclosed before the present action was brought to trial, and the judgment rendered against defendants is for the respective amounts due on the deficiency after sale of the property. These matters are set forth in a supplemental complaint.

It is next contended that the corporation was not bound by the instrument signed by its vice president and secretary. On March 27, 1928, the board of directors of the corporation passed a resolution authorizing these same officers, specifically naming them, to borrow $200,000 from the predecessor in interest of plaintiff bank upon the security of the property of the corporation. No meeting of the board was held between June 27, 1929, and July 22, 1930, at which last-mentioned date a resolution was passed authorizing the same two officers to borrow a certain sum from another bank. Erma Blacksmith was the agent of the corporation in the transaction. The corporation owned the mortgaged property, received and used the proceeds of the loan and paid interest on the loan, with knowledge of all the facts, for a period of nearly ten months after the execution of the instrument. The corporation made no effort to repudiate the action of its officers. Manifestly, the two officers had at least ostensible authority to enter into the agreement on behalf of the corporation. Fairbanks v. Crump Irr., etc., Co., 108 Cal. App. 197, 291 P. 629, 292 P. 529. The finding of the trial court that the officers of the corporation had no authority to bind the corporation is without support in the evidence and is inconsistent with other findings. Moreover, the corporation, by paying interest over a considerable period of time after the execution of the instrument, with knowledge of the facts, must be held to have ratified the action of its officers. Tierney & Lawford, Inc., v. Wilshire Café Co., Inc., 209 Cal. 605, 289 P. 621; Pan-American Bank v. Crawford, 108 Cal. App. 1, 291 P. 220.

The communication addressed to plaintiff proposing the extension bears the name “Blue Bird Manufacturing Co.,” by its vice president and secretary. It is now argued that the stockholders of the Blue Bird Furniture Manufacturing Company are not bound by the instrument. There is no merit in this contention. The omission of the word “Furniture” evidently resulted from an error by the typist. It is not disputed that the instrument was executed by the officers of the corporation of which defendants were stockholders, or that such corporation acted upon the instrument as its own and received the benefits therefrom.

Those defendants who have appealed from the judgment in favor of the plaintiff on the second cause of action contend that the superior court was without jurisdiction to enter judgment in amounts less than $2,000. The complaint names nine stockholders as defendants and asks judgments against them in sums varying from $108,359.49 and interest to $2,167.70 and interest. The sums asked are made up by adding the amounts claimed in the two causes of action. It has been held that the court has jurisdiction to entertain an action where the sum total of the amounts claimed in several counts is sufficient to bring the action within the jurisdiction of the court. Burke v. Maguire, 154 Cal. 456, 98 P. 21; Ventura County v. Clay, 114 Cal. 242, 46 P. 9. The fact that plaintiff ultimately recovered less than $2,000 against one or more of the individual defendants does not deprive the court of jurisdiction. The ad damnum clause in the complaint is the test of jurisdiction. Bailey v. Sloan, 65 Cal. 387, 388, 4 P. 349.

Appellant stockholders contend that plaintiff must necessarily include interest on the sum alleged to be due in order to bring the demand within the jurisdiction of the court. This contention is resisted by respondent bank, but it is not necessary to pass upon the point. It cannot be said that under the circumstances of this case the plaintiff acted in bad faith in making allegations sufficient to give jurisdiction to the superior court. Rodley v. Curry, 120 Cal. 541, 52 P. 999.

The judgment is reversed as to the first cause of action and affirmed as to the second cause of action.

WOOD, Justice.

We concur: CRAIL, P. J.; GOULD, Justice pro tem.

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