Smith v. Lewis , 211 Cal. 294 ( 1930 )

I am unable to agree with the views expressed in the majority opinion. The judgment in the original action was recovered in a suit instituted by a stockholder against the directors of said corporation for the illegal and unlawful payment of certain assets of the corporation contrary to the provisions of section 309 of the Civil Code. Said action was, therefore, not instituted nor maintained by the corporation but by a stockholder thereof. It is true that the general rule is that stockholders in suits of this nature brought under section 309 of the Civil Code, can maintain only such actions as the corporation could have maintained and prosecuted. This was so held in the case ofTurner v. Markham, 155 Cal. 562 [102 P. 272, 275], cited in the majority opinion and other cases relied upon in the text of 6 California Jurisprudence, p. 865, also cited. But these cases discussed and they involved merely the nature and character of the liability which the stockholders therein were seeking to enforce, and they do not in any way involve a case like the one now before us in which the nature and character of the action is such that the corporation could in the first instance have instituted the action but thereafter, by reason of its failure to pay its license tax, it was disabled from bringing such or any action whatever. This is made clear from the following language in the opinion of Turner v. Markham, supra:

"At the threshold of this inquiry, however, it is proper to pause to point out what is the exact nature of the action before us. In its essence, it is an action brought by the corporation itself to recover redress for some legal wrong which the corporation itself has suffered. To prevent a failure of justice, as where the governing board of directors or trustees of the corporation refuses to prosecute such an action, the law permits a stockholder to begin and maintain it on behalf of the corporation. But the fact that a stockholder is the nominal plaintiff in such an action, whether he prosecutes it as an individual stockholder or as a representative of a class of disaffected stockholders, does not in any manner, or to the slightest extent, enlarge the rights and remedies of the action. The action must still be founded upon some wrong which the corporation, as a corporation, has suffered, and for which, if itself were plaintiff, it could secure legal or equitable redress. Therefore, if the evidence shall establish that the corporation itself has suffered no wrong, cognizable either at law or in equity, it will matter not how just and how grievous may be the complaint of the individual stockholder, nor how complete may be the proof of his personal loss, damage, or injury. In this action on behalf of the corporation no recovery can be had, and the stockholder will be compelled to proceed by his individual action to obtain a personal recovery."

Nothing is said in the opinion in that case, nor in any of the other cases cited in California Jurisprudence, supra, nor in any case to which our attention has been called, which would justify the holding of the majority opinion that when the facts show that the corporation has sustained a loss under such circumstances that a cause of action to recover such loss is given to the corporation and to stockholders, and the corporation thereafter suffers a disability which would prevent it from recovering for said loss, that said disability to prosecute said action also attaches to the stockholders, and they are thereby prevented from recovering said loss.

The act of 1917 (Stats. 1917, p. 371) requiring domestic corporations to pay an annual license tax, and upon their failure to do so as required therein, providing that the rights, privileges and powers of such corporation shall be suspended and incapable of being exercised for any purpose, except as therein provided, does not purport to suspend or in any manner to deal with the rights of stockholders to act or to institute proper actions for the protection of the property of the corporation. To extend the provisions of this act to stockholders of a corporation whose directors have unlawfully and illegally disposed of corporate property, is not warranted by the provisions of said act nor by any rule of statutory construction. On the other hand, such rules of statutory construction hold directly to the contrary. The statute of 1917 above mentioned provides for a forfeiture and is penal in its application. It should, therefore, receive a strict construction and be held to be applicable only to include such subjects as are directly covered thereby.

A somewhat analogous situation was before the court when it was called upon to construe section 2468 of the Civil Code. This section when first enacted provided that no fictitious copartnership failing to comply with its provisions requiring the publication and filing of a certificate stating the name in full of the persons forming said copartnership, shall maintain any action upon or on account of any contract or transaction had in such fictitious name. The inhibition contained in said section did not apply at that time to assignees of such fictitious copartnership and it was held that an action could be maintained by such assignee. (Cheney v. Newberry Co., 67 Cal. 126 [7 P. 445], Wing Ho v. Baldwin, 70 Cal. 194 [11 P. 565], andQuan Wye v. Chin Lin Hee, 123 Cal. 185 [55 P. 783].) In the Wing Ho case the court said, "As the language of the statute (section 2468 of the Civil Code) does not include the latter (the assignees) we do not think it should by construction be extended to them." So with the statute of 1917. It does not purport to include stockholders, and to extend it to them would be against settled and approved rules of statutory construction.

Langdon, J., concurred.