a 'debt' and a 'liability' as the section makes it, less difficulty in solving the question under consideration is presented. This court, in Hunt v. Ward, 99 Cal. 612, 34 Pac. 335, 37 Am. St. Rep. 87, referring to section 359 of the Code of Civil Procedure, which fixes the time within which actions of this kind must be brought after the liability was created, and expressing the opinion of the meaning of the word 'liability' as used in that section, said: 'Of course, there is a clear and wide distinction between the creation of a liability and the accruing of a cause of action thereon; and section 359 ex industria emphasizes that distinction. A liability may be absolute or contingent; it may be unconditional or limited; it may be presently enforceable by action, or there may be time given for its performance; but, whatever its character, it is created by the consummation of the contract, act, or omission by which the liability is incurred.' "In Rapalje's Law Dictionary, in speaking of 'liability' in contradistinction to 'debt, it is said that: Liability is the condition of being actually or potentially subject to an obligation; is used either generally as including every kind of obligation, or in a more special sense to denote inchoate, uncertain, or imperfect obligations as opposed to debts, the essence of which is that they are ascertained and certain.' Within these definitions it is quite apparent that the word liability' was used in our Constitution and section of the Code in a much more comprehensive sense than the word 'debt.' While in a comprehensive sense 'liability' would include a debt, it is quite clear that this is not the sense in which it was used in the provision of the Constitution and section of the Code. The 'liability' referred to there was not such as would arise from the existence of obligations of a corporation which were then due and payable or presently enforceable-'debts contracted'—but to such legal obligations or liabilities' as might be incurred' by the corporation, although such liabilities might not be capable of enforcement except upon some contingency or in the future. Such liability may, of course, exist without right of immediate enforcement against the corporation. Within this view of what constitutes 'liability,' as distinguishable from the creation of a 'debt, it is apparent that under the provisions of the Constitution and section a liability' is created when a contract binding on it is made by a corporation and independent of any question as to whether that liability' is absolute or contingent or as to when the right to enforce it may accrue, and therefore that those who are stockholders when the 'liability' is created or incurred are alone liable in any actions arising from its breach. Testing by this rule the contract entered into between the corporation and the plaintiff made in June, 1906, whereby the corporation bound itself to receive and pay for the goods which the latter contracted to deliver to it, there can be no question but that the making of this contract created a 'liability' on the part of the corporation to perform its part of it. It is true that no debt would exist against the corporation until the goods were delivered. But the responsibility of stockholders is by the provisions of our law made broader than a responsibility for debts. It embraces all liabilities' as well. When the plaintiff, pursuant to the terms of the contract, delivered and the corporation accepted the goods, an indebtedness arose in favor of the plaintiff enforceable in an action. But this was simply the accrual to plaintiff of a right to enforce payment on compliance by it with the terms of the contract previously entered into between the parties under which the corporation then obligated itself and incurred the liability to do so. The making of the contract would necessarily have to be relied on and proven in any action proceeding from an alleged breach of it. The right of action for a failure to perform according to its terms would result from the obligation or liability to perform which was created and incurred at the time when the contract was entered into. In the instant case the breach of the contract arose from a failure of the corporation to pay for the goods when delivered, and this gave a cause of action to the plaintiff under the contract for the debt. But under the provisions of the Constitution and Code the responsibility of the stockholder is not solely for the debts of the corporation, but also for its liabilities created while they are such. Here a debt was to arise subsequent to the making of the contract. But the liability of the corporation to pay it when it should arise was created when the contract was made under which it was incurred. Within the definition of Hunt v.-Ward the liability was created by the consummation of the contract by which it was incurred. As bearing on this question the citation of a couple of authorities may be made. In the state of Kentucky a statute similar to our Code provided that stockholders of a corporation should be responsible for all contracts and liabilities' of such corporation to the extent of their stock, and that no transfer of stock should operate as a release of any such liability existing at the time of the transfer, providing suit was brought to enforce such liability within two years from the date of transfer. In Hyatt v. Anderson's Trustees, 74 S. W. 1094, 25 Ky. Law Rep. 132, a corporation made a contract leasing a store for five years at a certain monthly rental. The corporation failed. Hyatt was a stockholder when the lease was made, but subsequently sold his stock. The action was to charge him with a proportionate share of the rental accruing under the lease a year or so after he had parted with his stock. The question was whether this claim for rent was a liability' existing at the time Hyatt transferred his stock. It was held that it was, and that Hyatt being a stockholder at the time the contract of lease was made was responsible. The court said: "The corporation became liable by that contract for the monthly payment of rent from the making of the contract until its expiration, five years later. This liability_existed at the time appellant sold his stock. It is true the installments had not matured for the time that is now in controversy. Still the liability existed. The word "liability" is a very broad one, and the words "liability existing at the time of such transfer" refer to the previous part of the section, and mean the same thing as the words "all contracts and liabilities of such corporation," used just above. In Benge's Adm'r v. Bowling, 106 Ky. 575, 51 S. W. 151, it was held, under section 1702 Ky. St. 1899, providing that the homestead exemption shall not apply if the debt or liability existed prior to the purchase of the land, that where the defendant conveyed land, with warranty, and afterwards purchased other land, which he occupied as a home, he was entitled to no exemption in the latter tract as against a judgment against him on his warranty, although the eviction was had after he purchased the. homestead. So, under the Iowa statute, providing that transfers of shares in corporations should not exempt the stockholders from any corporate liability created prior thereto, it was held, in White v. Green, 105 Iowa. 181, 74 N. W. 929, that the word "liability" was much more comprehensive than the term "debt." The court said: "The liabilities contemplated by the statute are not merely obligations which are due and payable when the transfer is made. Liability, in a legal sense, is the state or condition of one who is under obligation to do at once or at some future time something which may be enforced by action. It may exist with out the right of immediate enforcement." See, also, Fisse v. Einstein, 5 Mo. App. 78; Home Ins. Co. v. Peoria, etc., R. Co., 178 Ill. 64, 52 N. E. 862; Pittsburgh, etc., R. Co. v. Clarke, 29 Pa. 146; Cochran v. United States, 167 U. S. 296, 15 Sup. Ct. 628, 39 L. Ed. 704. This seems | "Under a section of the Revised Statutes of milk. * * claimed that the evidence shows that goods of the value of $879 were not included in that contract, but were added and delivered about the time the other goods ordered under the contract were delivered, and while respondents are conceded to have been stockholders. There is, however, no evidence of when any of these goods in question were ordered. It appears only that they were delivered at about the time appellant claims they were. Nor is it clear that the claim of appellant is sustained by the evidence, even if it was in a position to make it, which we think it is not. We think it is concluded by its pleading and the finding of the court made in harmony with its allegations from doing so, because it alleged in its complaint, in effect, as is pointed out heretofore in dealing with a point of appellant with reference to the statute of frauds, that all the goods delivered to the hotel company by it were delivered under the contract of June, 1906. It further expressly enumerated the particular goods here in question as being a portion thereof, and agreeable to its pleading the court found this to be a fact. "The judgment and order appealed from are affirmed." In the quotation just made we have omitted a portion of the former opinion dealing with the decision in Johnson v. Bank of Lake, 125 Cal. 6, 57 Pac. 664, 73 Am. St. Rep. 17, and undertaking to distinguish that case from the one before us. The rehearing was ordered for the reason, primarily, that we entertained a doubt regarding the validity of the attempted discrimination. This doubt has not been removed by our further examination of the earlier decision. The facts, so far at least as they appear on the face of the opinion, present a situation not substantially different from that which confronts us here. At any rate, the opinion itself treats the question involved from this point of view. In the Johnson Case there was a contract of employment under which services were to be and were rendered. Here there was a contract of purchase and sale under which goods were to be, and were, delivered. In the Johnson Case the services were to be paid for when rendered. Here payment for the goods was to be made upon delivery. If the liability of the corporation in the Johnson Case did not arise until the services were rendered (and such was the holding), it did not arise in the present case until the goods were delivered. [2, 3] "It is further insisted by appellant that this contract of June 6, 1906, for the sale and purchase of the goods, being at a price exceeding $200 and in parol (as it was), was invalid as within the statute of frauds. Subdivision 4, 8 1973, Code Civ. Proc. But this claim, were it otherwise meritorious, is not available to the appellant, because in its complaint it alleged that all the goods furnished to the hotel company by plaintiff were delivered to said company in the latter part of 1906 and the early part of 1907 in pursuance of a contract theretofore entered into between the plaintiff and the said Wentworth Hotel Company by which it agreed to sell to said Wentworth Hotel Company and said company agreed to purchase from plaintiff said goods,' followed by a detailed list of the goods purchased and delivered with the prices and dates of deliveries. The contract of June 6, 1906, was the only contract ever made between plaintiff and the hotel company for the sale and purchase of the goods, and the trial court so found. Hence, as the appellant expressly pleaded and relied on that contract, it is in no posiBut, notwithstanding the decision in Johntion to now question its validity. Aside from son v. Bank of Lake, we are satisfied, upon this, however, there is no merit in this claim of further reflection, that the views expressed the invalidity of the contract upon the ground in the former opinion filed herein are in asserted because a contract for the purchase and accord with a sound construction of the sale of goods which may be within the statute when made is taken out of the statute where the provisions of our Constitution and statute buyer accepts or receives part of the goods, and declaring the individual liability of stockhere all the goods specified in the contract were holders, and that they also have the support delivered and accepted. This delivery and acceptance had the effect of confirming and validat- of the adjudicated cases on the subject, with ing the oral contract of June 6, 1906, according the exception of Johnson v. Bank of Lake. to its terms, and related back to and operated Under the Constitution and section 322 of upon the contract so as to validate it as of the the Civil Code, each stockholder is individudate it was originally entered into. Riley et al. v. H. O. Bancroft's Estate, 51 Neb. 868, 71 N. ally liable for a given proportion of the "debts and liabilities" of the corporation "contracted or incurred during the time he As is pointed out in was a stockholder." W. 745. [4] "It is finally insisted by appellant that the finding of the trial court that all the goods delivered to the hotel company by plaintiff were delivered to it pursuant to the contract of June, the opinion of Mr. Justice Lorigan, "liabili1906, is not sustained by the evidence. It is ties" is a term of much broader import than garded the object of the constitutional provision, and gave to it a construction which would carry out that object without unduly hampering the municipality in the exercise of its functions. It does not follow, however, that the word "liability" is to be given the same meaning in a provision dealing with an entirely different subject "debts." Under elementary rules of construction, the courts would not be justified in denying effect to the word "liabilities" by interpreting the provisions of the Constitution and statute as if they referred to "debts" alone. Herein is the vital distinction between the case at bar and some of the decisions from other jurisdictions to which reference is made in the briefs. In Garrison matter. In construing the provisions which v. Howe, 17 N. Y. 458, the court was dealing define the individual liability of stockholdwith a statute making officers of a corpora- ers, we are to consider the purpose of those tion liable for all the "debts of the compa- provisions, just as the court gave heed to the ny" in the event of their failure to file a purpose of the provision construed in the certain report. Likewise, in Bordman v. McBean Case. Any one who enters into Osborn, 23 Pick. (Mass.) 295, the statute in- business relations with a corporation organvolved made the stockholders liable for the ized in this state may well be presumed to "debts" contracted during their holding of contract with a view to the individual liabilstock. A similar statute was under con-ity of stockholders. If he relies, as he has sideration in Wing v. Slater, 19 R. I. 597, a right to do, upon the solvency and the 35 Atl. 302, 33 L. R. A. 566. credit of the stockholders of the corpora On the other hand, such cases as Herrick | tion, he must necessarily look to those who v. Wardwell, 58 Ohio St. 294, 50 N. E. 903, are stockholders at the time he makes the and Hyatt v. Anderson's Trustees, 74 S. W. contract, and not to those who may become 1094, 25 Ky. Law Rep. 132 (both referred stockholders thereafter... When the Wentto in the former opinion in this case), are worth Hotel Company made its contract with directly in point, since the statutes construed the plaintiff to purchase and pay for certain in these cases, like our own constitutional goods, it undoubtedly assumed a liability to and statutory provisions, make stockholders the plaintiff. Under the law of this state, liable for "debts and liabilities" of the cor- it was the agent of its stockholders to make poration. This distinction was perhaps over- such contract and incur a liability thereunlooked by the learned author of the opinion der. Kennedy v. California Saving Bank, in the case of Johnson v. Bank of Lake, 97 Cal. 93, 31 Pac. 846, 33 Am. St. Rep. 163. where Garrison v. Howe, supra, is cited as The corporation incurred a liability for any supporting the view declared by the court. breach of the contract which it might comIn the opinion in the Johnson Case refer- mit, and its stockholders were equally liaence is also made to McBean v. Fresno, 112 ble for such breach. The present action Cal. 159, 44 Pac. 358, 31 L. R. A. 794, 53 to recover the amount agreed to be paid for Am. St. Rep. 191, where the court had held the goods is an action on the contract just that a contract whereby a city agreed to as much as would have been an action to repay a given sum annually in consideration cover damages for the refusal to accept the of the disposal of sewage for five years did goods. The stockholders who were such not violate the constitutional provision pro- when the contract was made are therefore hibiting a city from "incurring indebtedness bound under the Constitution, which holds or liability in any manner, or for any pur- them for the "liability" incurred by the corpose, exceeding in any year the income and poration during the time that they were revenue provided for it for such year." The stockholders. conclusion reached in the McBean Case was that "the sole debt or liability created was that which arose from year to year in separate amounts as the work was performed." State v. McCauley, 15 Cal. 429, a decision of like effect, was also cited in the Johnson Case. These conclusions are in no wise inconsistent with the decision of this court in Yule v. Bishop, 133 Cal. 574, 62 Pac. 68, 65 Pac. 1094. It was there held that an accommodation indorser of a corporation note, who had been compelled to meet the note on default of the corporation, was entitled to We have no disposition to question the recover from those who were stockholders, soundness of the rule declared in McBean v. not when the note was given, but when the Fresno and similar cases. We think, how- obligation of the indorsement was met. The ever, that there is no true analogy between decision was based upon the ground that the the situation considered in those cases and liability sued upon was not that which the that presented in Johnson v. Bank of Lake corporation incurred when it signed the and the case at bar. In McBean v. Fresno note-this liability having been extinguished the court was construing a provision design- by payment-but that it was upon a new ed to prevent public officers from imposing liability arising at the time of the payment upon the public treasury obligations in ex- of the note by the indorser. Here, however, cess of revenues provided. In ascertaining as we have already pointed out, the liability the scope of the restriction, the court (see sued upon is one arising under the original page 164 of 112 Cal., page 358 of 44 Pac. contract made by the Wentworth Hotel Com31 L. R. A. 794, 53 Am. St. Rep. 191) re-pany with the plaintiff. In all other respects we are entirely satisfied with the opinion heretofore filed. contract, but it could not be enforced during the period of the execution of the contract, The judgment and the order denying a the stockholders at the time the contract was new trial are affirmed. entered into have escaped liability, and the more recent stockholders have incurred none. We concur: ANGELLOTTI, C. J.; SHAW, Certainty in the law is at times of more imJ.; LAWLOR, J. LORIGAN, J. (concurring). I am still of the opinion that the case of Johnson v. Bank of Lake, 125 Cal. 6, 57 Pac. 664, 73 Am. St. Rep. 17, is to be distinguished from the case at bar for the reasons set forth in the opinion written by me referred to in the present prevailing opinion, but, as the majority of the court are of a different view, believing that there is no substantial difference between the John son Case and this case, and concluding that the Johnson Case should be overruled, the matter of discrimination ceases to be of any practical importance, and I deem it unnecessary to burden my concurrence herein with a reiteration of my views or quotations from my opinion on that subject. I concur in the affirmance of the judgment and order. portance than a correct declaration of the law, and particularly is this so in commercial matters, because commercial activities adjust themselves in accordance with any declaration of the law. They ask for positive law, rather than good law. To all these interests stability and fixity is of the utmost importance, and for 16 years they have been told by this court that the law was as declared in Johnson v. Bank of Lake. ion does not discredit the opinion of this Singularly enough, too, the prevailing opincourt in McBean v. Fresno, 112 Cal. 159, 44 Pac. 358, 31 L. R. A. 794, 53 Am. St. Rep. 191. It must be that McBean v. Fresno has to render it immune from the attack so sucbeen so repeatedly approved and followed as Bank of Lake. Yet the language of the processfully made upon the case of Johnson v. vision of the Constitution interpreted and expounded in the McBean Case was much broader than the provisions here under review. In the McBean Case article 11, § 18, of the Constitution forbade cities from incurring "indebtedness or liability in any manner or for any purpose exceeding in any year the income and revenue." Yet under this extremely broad language it was declared that a liability which could not become a debt within a given year was not a liabil the reasoning of the prevailing opinion which supports the construction declared in the Me Bean Case persuasive; for it could justly be said that it is quite as important and was quite as much in contemplation of the Constitution that one city council should not be able to mortgage the revenues of succeeding councils, and so check the development of a city, as to say that the sole design of the law was to prevent a particular council from incurring debts in excess of the revenue of the year. Again, Yule v. Bishop, 133 Cal. 574, 62 Pac. 68, 65 Pac. 1094, declares upon the existence of a liability as arising at the time it becomes fixed, precisely as does Johnson v. Bank of Lake. Yet Yule v. Bishop is affirmed in the prevailing opinion. Logically, however, if the definition of liability giv HENSHAW, J. I dissent. Nothing that has been said shakes my conviction that “liability" is used as importing a fixed contractual obligation in the nature of a debt, (noscitur a sociis), and not an indefinite, inchoate right which may never ripen into a légal demand. This was the decision of Johnson v. Bank of Lake, decided in 1899, after review by this court in bank. For 16 years this has been the construction of our Constitution and our statute upon the sub-ity contemplated by the Constitution. Nor is ject. Contracts, rights of stockholders, and rights of those dealing with corporations have arisen and attached under this construction. All succeeding Legislatures have acquiesced in it. Why it should be subverted and the question thrown into confusion at this late date, or what purposes are served thereby, except to enable stockholders to escape liability, I am unable to perceive. It is said that one contracting with a corporation is entitled to know upon what stockholders liability is cast, and that this is accomplished by giving the word this infinitely broad meaning and holding that the liability is created at the time the contract is entered into, regardless of the time of performance; in fact, we know this amounts to little or nothing. But let us see further: An attorney engages to conduct litigation upon be-en in the prevailing opinion is to obtain, the half of a corporation; a contractor agrees to pump out a mine; each to receive a compensation contingent upon success. The litigation is brought to a successful end after more than 3 years of strife in the courts, the contractor succeeds in pumping out the minɔ after long disappointments and delays, and both the lawyer and the contractor find themselves denied any recourse against the stockholders. The stockholders' liability has liability of the stockholders of the corporation arose when the corporation accepted the indorsement of the surety. The liability in the present case did not become fixed until the goods were delivered. In Yule v. Bishop it did not become fixed until the surety was obliged to and did pay. This court in bank held in the Yule Case that, within the contemplation of the law, liability arose not when the contract was entered into, but The resultant benefit to stockholders of corporations, enabling them to escape liability, may justify this reversal of the law, but, if it finds no justification in this, there can be no other. I concur: MELVIN, J. (171 Cal. 559) ERVING v. JAS. H. GOODMAN & CO. BANK 1. LANDLORD AND TENANT 96 RIGHT TO RENTS-MERGER OF ESTATES-STATUTE. Although by Civ. Code, § 1463, a covenant to pay rent runs with the land, where the fee to leased realty vested in the lessee's assignee, the lesser estate merged with the greater, and the covenant to pay rent became of no effect, since an interest in the reversion is necessary to the relation of landlord and tenant. [Ed. Note.-For other cases, see Landlord and Tenant, Cent. Dig. §§ 307, 308; Dec. Dig. 96.] ASSIGN 3. LANDLORD AND TENANT 79 [Ed. Note.-For other cases, see Landlord and Tenant, Cent. Dig. §§ 235, 244-253; Dec. Dig. ~79.1 4. JUDGMENT 720 CONCLUSIVENESS JUDGMENT IN REPLEVIN SUIT. that he should receive nothing from defend- F. E. Johnston, H. L. Johnston, and L. E. ent Jas. H. Goodman & Co. Bank, MELVIN, J. Plaintiff sued to recover damages for a failure by the alleged assignee of a leasehold estate to pay rents reserved in a certain lease. Judgment was given against plaintiff and in favor of Jas. H. Goodman & Co. Bank, but in favor of plaintiff as against Napa Valley Brewing Company. Two appeals were taken; one by plaintiff from that part of the judgment which was in favor of the bank and the other (based upon the judgment roll alone) by the Napa Valley Brewing Company from that part of the judgment which is against it and in favor of plaintiff. The findings of the court are, in substance, as follows: On August 21, 1906, the Napa Manufacturing Company (a corporation) owned and possessed the real personal property which is the subject of this litigation, and on that date the said corporation leased said real and personal property to one Block for the term of five years beginning SeptemWhere plaintiff, suing for rentals of leased ber 15, 1906. This indenture was duly repersonalty, had previously brought a replevin corded. On November 30, 1906, the Napa suit in which one of the parties sued for rent Manufacturing Company by a written inwas made a defendant, and the other intervened, asserting title, the judgment, awarding the strument sold and transferred to one Carter personalty to plaintiff, in accordance with his all of its right, title, and interest in and to complaint that possession was unlawfully with- the personal property mentioned in the held from him and that he was entitled to pos- lease, subject to the provisions of the said session, there being also judgment in nominal damages for the unlawful retention of the prop- lease and the right to collect and retain erty, was conclusive upon the question of title the rents stipulated in the lease. This into the personalty, and also in the matter of dam-strument was also recorded. On November ages for withholding it, and precluded plaintiff's recovery for rentals, since a judgment is conclusive between the parties, not only upon the matters actually litigated, but upon those that might have been. [Ed. Note.-For other cases, see Judgment, Cent. Dig. § 1251; Dec. Dig. 720.] 30, 1906, Block, by a writing, transferred 5. ELECTION OF REMEDIES 3-REPLEVIN―ing Company. This assignment was also WAIVER OF LEASE OF PERSONALTY. Where damages and possession of personalty are both sought in an action of replevin, such a suit will be regarded as a waiver by plaintiff of any claim that he might assert under a lease. recorded. Thereafter on the said 30th day of November, 1906, the Napa Manufacturing Company executed its grant, bargain, and sale deed by which it sold all of the real property described in the lease to Block (except a portion thereof transferred on the same day to the Ambrosia Cream Company) to the said California Brewing Association of Washington. This deed was delivered in escrow to E. W. Churchill, to be by him Action by W. F. Erving against the delivered to the California Brewing AssociaJames H. Goodman & Co. Bank and the Napa tion upon certain conditions, which were Valley Brewing Company. Judgment for fulfilled; and on the 27th of March, 1908, plaintiff against the brewing company, but the deed was delivered to the said corpora [Ed. Note.-For other cases, see Election of Remedies, Cent. Dig. §§ 3, 4; Dec. Dig. 3.] Department 2. Appeal from Superior Court, Napa County; Henry C. Gesford, Judge. For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes 153 P.-60 1 |