Potter v. Dear

Paterson, J.

Many of the questions discussed by counsel were considered in Baines v. Babcock, post, p. 583, this day filed, and upon the authority of that case must be determined adversely to the contentions of appellant herein.

In this case the corporation was not made a party. No objection on the ground of non-joinder of the corporation as a party defendant was made in the court below by demurrer or by answer. The defect was therefore waived. (Code Civ. Proc., sec. 434.) Doubtless the corporation should always be made a party to the suit; but it is not an indispensable party, unless the object of the action is to secure an adjudication of the rights and liabilities of all the parties, and a final settlement of the affairs of the company. When the purpose of a suit is to compel payment of a debt out of the unpaid subscription of a single stockholder, the corporation if not made a party cannot be prejudiced by a judgment against the stockholder, and if he sees fit to go to trial and judgment without objecting to the non-joinder of the corporation, he will not thereafter be heard to complain. It is not claimed in this case, as it was in Baines v. Babcock, that all the stockholders were necessary parties defendant.

It is contended by appellant that the Santa Rosa Laud and Improvement Company is similar in its nature to the South Mountain Consolidated Mining Company, the mining corporation considered by Judge Sawyer in 8 Saw. 366. It is a sufficient answer to this contention to state the purposes for which the corporation under consideration was organized, viz., “ for the purpose of acquiring real property by purchase or otherwise in the county of San Diego, state of California, buying and selling the same, building hotels, street-railroads, and otherwise developing lands.” It stands upon the same basis as the “ banking, railroad, insurance, and like commercial corporations having a subscribed capital stock,” referred to by Judge Sawyer.

It is claimed that there is another distinction between this case and the case of Baines v. Babcock. It is said that the complaint in the latter case showed that some of the stockholders of the corporation were either insolvent or absent from the state, and that no such claim is made in this case; that there is no necessity shown, therefore, for invoking the powers of a court of equity, plaintiff having a complete and adequate legal remedy under section 322 of the Civil Code; that the decisions cited by respondent “ were all rendered at places or in times when there was no legal remedy available to the creditor except one against the corporation itself and that there is no authority for holding that “ an equitable remedy can be pursued by a creditor before he has exhausted his legal remedies, both against the corporation and the stockholders,” unless by reason of the insolvency or absence from the state of some of the stockholders, as in the case of Baines v. Babcock, the legal remedy afforded by the statute would not be adequate.

We do not think there is any materiality in the distinction pointed out, or any merit in the contention made thereon. It is true, in Baines v. Babcock the complaint alleged that some of the stockholders were “non-residents or insolvent persons,” which allegation was denied, but the court treated the issue as an immaterial one, and found that the stockholders referred to were not necessary parties to the action, and this view was sustained here. In Morawetz on Private Corporations, it is said that a judgment creditor, after the return of his execution nulla bona, may maintain an action “ to compel the share-holders to contribute so much of the capital subscribed by them as will be sufficient to satisfy the claims of the plaintiff and other creditors who may come in for payment. Such a proceeding may be maintained, although the creditors have a statutory right to proceed against the share-holders directly at law.” (Sec. 866.) The error of the appellant arises from his failure to consider the unpaid subscriptions as a corporate asset, which a creditor has the undoubted right in equity to follow wherever the same may be found, when his remedy at law against the corporation ^has been exhausted. The corporation and the stockholder are as distinct and separate debtors with different undertakings as if they had never had any business relations with each other, and we know of no rule which requires a creditor to exhaust his legal remedies against all his debtors before he can, in equity, pursue the assets of one of them against whom he has exhausted his legal remedy. Mr. Thompson, in his chapter on “ The Forum: Law or Equity,” says: “ The' elemental rule of equity jurisprudence that a court of this character will deny its aid to a suitor who has an adequate remedy at law, except in cases of concurrent jurisdiction, applies to this subject only so far as that these courts withhold their aid to a judgment creditor of a corporation in respect to the liabilities of share-holders, when there are legal assets of the corporation within reach of his execution. The general rule is, that although a creditor has a concurrent remedy against a share-holder at law, this does not oust the jurisdiction of the courts of equity.” (Thompson on Stockholders, sec. 265.)

Judgment and order affirmed.

De Haven, J., Sharpstein, J., and McFarland, J. concurred.

Harrison, J., dissented.