7 Cal. 2d 24 | Cal. | 1936
Plaintiff appeals from a judgment entered for defendants upon the sustaining of a demurrer to the complaint without leave to amend. This case presents a
By an amended complaint a count was added, not present in the Fox-Woodsum Lumber Company case, supra, wherein it was alleged that the participating certificates were void as having been issued in contravention of section 11 of article XII of our state Constitution and of section 359 of the Civil Code, as these laws then read, to the effect that the bonded indebtedness of a corporation shall not be increased without the consent of the persons holding at least two-thirds of the amount in value of the stock. At the time of granting a hearing herein after decision in the District Court of Appeal of the Second Appellate District, Division Two, we were satisfied with that court’s disposition of this phase of the litigation and took the cause over solely because of the issue first above mentioned and here decided upon the authority of the Fox-Woodsum Lumber Company case.
As to the “bonded indebtedness” issue, we therefore adopt as a part of our decision herein that portion of the opinion prepared by Mr. Presiding Justice Grail, reading as follows:
“The . . . count alleges that no such consent was obtained and that no meeting of the stockholders was held as required by said section 359. Defendants, on the other hand, contend the certificates do not constitute ‘bonded indebtedness’ within the purview of the Constitution, and that even if the certificates did represent bonded indebtedness they would not be either void or voidable.
“ The law is meager in California as to what constitutes ‘bonded indebtedness’ . . . plaintiff takes it for granted, largely, that the certificates before us constitute bonded indebtedness and contents itself with the following assertion in that behalf: ‘The rules of law, as to what constitutes a bonded indebtedness of a corporation, are so generally known and settled that we feel justified in referring to,
“In the case of Underhill v. Santa Barbara etc. Co., 93 Cal. 300 [28 Pac. 1049, 1050], the contention was made that certain notes issued by a corporation and secured by mortgages in consideration of labor and material furnished to the corporation constituted a bonded indebtedness within the meaning of said constitutional provision. The court said: ‘If the Constitution does not prohibit a corporation from securing every kind of indebtedness by mortgage, it follows that the mere fact that a corporation debt is secured by mortgage does not show that it is of the kind prohibited, and that the prohibited kind must be distinguished by some other attribute than that of mortgaged security. It will hardly be contended that section 11 of article XII of the Constitution was intended to prohibit all increase of indebtedness not authorized by a general law and consent of a majority of the stockholders; much less that it was intended to prohibit mortgage security for any kind of indebtedness which a corporation may lawfully incur. Conceding that to constitute “bonded indebtedness”, in the constitutional sense, it must be secured by mortgage, it does not follow, as contended by counsel, that all indebtedness secured by mortgage is “bonded indebtedness” in that sense.’
“In the case of Bank of Newman v. Monterey County etc.Co., 48 Cal. App. 263 [191 Pac. 970], the defendant corpora
“While it would be difficult and perhaps unwise to attempt to accurately define the term ‘bonded indebtedness’, it is apparent that some regard must be had to the questions: Was the paper which is in controversy formally issued as a bond 1; and, Was it of such nature as to be recognized and accepted as such by the business and financial world?
“The so-called beneficial certificates which we have under consideration were issued in the first instance only to contractors, subcontractors and materialmen who had furnished labor and material to Arcady in its regular course of business and had agreed with Arcady to accept a portion of then-compensation in the form of an undivided interest in a $600,000 note and trust deed. When such contractor or materialman performed his services or furnished the material agreed upon, he became entitled to an undivided interest in that promissory note and trust deed. His certificate when issued merely provided him a convenient evidence of his ownership of such an undivided interest. This case was
However, even if the certificates were bonds, the appellant is not the proper party to question their validity on the ground here urged. (McKee v. Title Ins. Go., 159 Cal. 206, 223 [113 Pac. 140].)
Judgment affirmed.
Curtis, J., Shenk, J., Seawell, J., and Thompson, J., concurred.