KAYSSER v. McNAUGHTON (1935)

Appeal from judgment following sustaining of demurrers without leave to amend.

Appellant sued respondents upon their statutory liability as stockholders for corporate debts, moneys loaned the corporation by appellant's assignors subsequent to November 4, 1930, but prior to August 14, 1931. November 4, 1930, is the date of the repeal of section 3, article 12, of the State Constitution, providing for stockholders' liability for debts; August 14, 1931, is the date when section 322 of the Civil Code, relating to the same subject, ceased to exist by reason of its repeal by the Legislature (St. 1931, p. 444). This appeal involves the question as to whether respondents, as stockholders, were liable for corporate debts incurred between those two dates.

Section 3 of article 12 of the Constitution, as it read prior to its repeal, provided that, “Each stockholder of a corporation * * * shall be individually and personally liable for such proportion of all its debts and liabilities contracted or incurred, during the time he was a stockholder.” Section 322 of the Civil Code uses the same phraseology in its initial paragraph, except that it employs the word “is” where the Constitution uses the words “shall be,” and then continues with procedural provisions for enforcement of the liability. The effect of the employment of the words “shall be” in the repealed section 3 of article 12 was to make of this constitutional provision a declaration of the law of this state applicable to the liability of stockholders; and the employment of the word “is” in the first paragraph of the now repealed section 322 of the Civil Code evidences the fact that this paragraph is merely a recital of the law as created by the provisions of section 3, article 12, and not the enactment of a statute creating a stockholders' liability which otherwise would not exist. The further provisions of section 322 provide for the method of applying and enforcing the stockholders' liability existing by virtue of the constitutional provision. When that constitutional provision was repealed on November 4, 1930, the liability of stockholders for debts thereafter contracted ceased, and section 322 remained merely as a recital of what had been the law and was operative only as a means of enforcing such causes of action for stockholders' liability which had already accrued.

Cases cited by appellant and which contain language to the effect that the statutory stockholders' liability was imposed by both the Constitution (art. 12, § 3) and the statute (section 322, Civ. Code) are not in conflict with the views here expressed. Those decisions did not involve the point now before us, and were in effect merely declarations that the law governing such liability and the manner of its enforcement was contained in the Constitution and statute. As stated in Gardiner v. Bank of Napa, 160 Cal. 577, at page 580, 117 P. 667, 668: “The constitutional provision fixes the liability, while the legislative enactment prescribes the manner of enforcing the rights of a creditor of the corporation as against a stockholder.”

The judgment is affirmed.

FRICKE, Justice pro tem.

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