*1 432 Winchester received had and moneys
defendant was him for indebted to belong- lands plaintiff’s defendant for from the sale of use ing 1898, the year year to plaintiff, up from the 1882 nature defendant notice of would have had some kind of accordingly. claim, prepared and his answer could have special Plaintiff contract allowed set forth a will limitations, statute of the nature trust so as to avoid the object disclosed, then, and his when the real nature of case prevent While pleading from statute. defendant statute, very ingenious way avoiding the be a this would for the proper itself to us as a rule it does commend rules of adopt. courts to Statutes of limitation have become society property. They are vital to welfare of sys- “They approved in law. are found and all favored enlightened repose, jurisprudence; they promote tems of affairs; important giving security stability human ac- policy foundation; lies at their stimulate to public negligence. constantly de- tivity prevent time is While by a rights, they supply place its stroying the evidence of (Wood proof unnecessary.” which renders v. presumption 135, Sresovich, 104 Cal. 139; S. Shain v. Carpenter, U. necessary express our the evidence. views order should be reversed. Haynes, C., Gray, concurred. C., given foregoing opinion in the the order is the reasons For McFarland, J., Henshaw, J., Temple, J. reversed. May 28, In No. 768. A. 1902.] [L. Bank. Trustee, RICE, A. WINCHESTER, J. Substi
JOSEPH Appellants, etc., al., et BRYANT Trustee, tuted Respondents. al., et HOWARD ' Self-Executing — — Provisions Law Fundamental Constitutional Statutes—Presumption.—Under changed system introduced in people constitution have the. inserted state statutory character which changed cannot be laws of fundamental Howard. inserted statutory provisions legislature; and they can be self-executing, when presumed constitution must be unless given legislation, without the aid reasonable effect *2 contrary clearly appears. intent Id.—Liability Corporations—Self-Executing Pro- of Directors of constitu- part XII of the vision.—The latter of 3 of article section corporations tion, liability of regulating the directors trustees of joint-stock moneys misappro- and associations for all embezzled self-executing. priated by office,is during them their terms of several necessary to make constitu- Law.—It is not Id.—Procedure Fixed law, should provision self-executing tional as a fundamental if enforcement; sufficient procedure fix the method it is of for its but what is supply the Code of Civil remedial Procedure and other laws necessary. Id.—Remedy—Bill proper Equity—Rights of Creditors.—The remedy provision against for the enforcement of the constitutional defaulting equity, all of directors is bill in in which the creditors equally, corporation represented the are entitled to be and share preference stockholders, rights and in of also the who are against directors, entitled to recover the the subordination to rights of the creditors. Id.—Suretyship Directors—Compensation for Loss.—The consti- of tution makes the directors for their sureties fellow-directors for moneys the of officers the misappropriated so as to misappropriating make the officer them liable a violation of the liability imposed upon law. the directors is penal sense, recovery being technical no a punishment, allowed as but compensate for a loss misappropriation. occasioned provi- Constitution.—The Id.—Fourteenth Amendment of Federal of section of XII sion article of the state constitution is not in with the conflict fourteenth amendment of the Federal constitution, taking property corporate the of directors process without the due law, denying of and as equal to them the protection of the law. The knowing responsibilities directors took office of suretyship which they doing, eye assumed so and in the of the law freely did so as voluntarily signed as if had a bond agreeing to responsi- corporate ble for the officers. against Savings Id.—Action Directors of Bank—Unauthorized Mis- appropriation of Funds.—The savings directors aof bank are liable depositors to an action on behalf of the of the bank for loss caused misappropriation moneys of taken out of the bank applied illegal purposes to unauthorized and in the interest of the directors them. or of some of Depositors.—An by Assignee Id,—Action assignee of depositors maintain action can the directors of savings bank in all interest of creditors. depositor debt of a assign- Cal.—28 CXXXVI. action for right able assignment and does not constitute with fraud, go together but the therefor debt and the remedies fraud, assignment but grounded is not debt. action obligation suretyship
enforce the of the directors. Id.—Bights Subsequent Depositors.—Depositors become such who liability of after misappropriation may recover sue to depositor on faith of directors. The new becomes presumed creditors of assets, remedy of all and the is for'the benefit corporation. of all the stockholders Stockholders.—The consent Id.—Consent any creditor prevent creditors, would not bar liability from directors. instituting proceedings to enforce the bring does not right the suit Id.—Parties.—The creditor to in, depend necessary brought If are not parties others. brought them appear, that fact is made the court should order in; does dismissed, especially where it the suit should not be n appear The stockholders there are other creditors. they may represented proper parties, but, purposes, for most *3 the action corporation. . Id.—Judgment Bequired.—The of claim in Favor of not Creditor he can become creditor need not be reduced to before only in party Although action can be maintained the action. exhaust equity, it a creditor’s bill as must first court of suing in legal equity. all before remedies Negligence Id.—Pleading—Averments and Fraud.—The fact complaint negligence and fraud is allegations there are immaterial, only are an action if sufficient facts to sustain liability. constitutional Bequired.—A specific demand Id.—Accounting—Specific Demand not against required in action the directors accounting is not for an brought implies accounting, primarily for which, though it an is not required the fund accounting The to distribute purpose. creditors, accounting may by the and such would be recovered which matter by the as a of course. court be ordered Superior judgment of the Court San from a APPEAL Judge. Torrence, County. E. S. Diego opinion of the court. stated facts Withington Carter, Appellants. & Rippey, and H.C. the state XII of constitution is self- of article 3 Section rule for the a sufficient enforcement supplying executing, as (Cooley on directors. Constitutional liability obligation 55.) The rule which Limitations, p. 435 does bemay enforced not mean the proceeding, form of under existing provisions (Woodward of law. Co. Iron v. Cabaniss, 328; Ry. 87 Ala. Montgomery Southern Co. v. Sayre, 72 443; Parkersburg, Ala. v. 16 W. Va. Johnson 402; People City 41; McRoberts, v. 62 Ill. Householder v. 1 Kansas, Kansas, 83 City Mo. 120 Mo. 488; Hickman v. of 110;2 Mabury, 522.) remedy Winchester v. 122 Cal. (Willis liability. essential to the 48 Mabon, v. Minn. 140.3) assignment carried with .debt right liability (Thomp to enforce the the directors. Corporations, son on George, Pier Y. 4196; sec. v. 86 N. 613; Bolen Crosby, 183.) v. 49 N. Y. The action can assignee. be maintained (Wright an v. Oroville Min ing Co., 40 20; Co., Cal. Hopkins v. Contra Costa 106 566.) Cal. material complaint did not in terms pray for accounting, an for it would be general prayer allowed under a for relief when the facts stated (Dyckman will warrant it. Valiente, v. 42 N. Y. 549; Brown, Wood v. 34 337; N. Y. Taylor, Haworth v. 108 275; Ill. Bentley Cowman, 152; 6 Gill & J. alow v. Buff alow, Eq. 113.) Ired. Buff Leib, F. Mabury, S. for Hiram Respondent.
An accounting action an remedy. (Win Mabury, chester v. This is an negli action for gence alleged, (Fox and not for accounting. v. Hale & Co., 424.) Any Norcross 108 Cal. uncertainty in the action plaintiff. (Ah must be resolved Fong Sternes, *4 32; 79 Cal. etc. Co. v. Union etc. 122 Co. Cal. California 641; Griffis, 639.) 88 Y. Goodwin v. N. complaint does plaintiff judgment not show creditor, and fails to (Baines action. v. state cause of West Co., Coast Lumber 7; Co., 104 Hollins v. etc. Cal. 150 U. 378-379; S. Brierfield Ballou, Works 146 Tube v. S. 523-524; National U. Swan Land Frank, 609, 612.) 148 U. S. etc. Co. v. The constitutional self-executing. (French is not v. Teschemaker, 24 right A mere action to 540.) penalty enforce a Cal. cannot (Whitney Kelly, v. 94 assigned. 146.4) Cal. The action is 3 Rep. Rep. 31 Am. 779. St. 1 27 Am. 626. 4 2 Rep. Rep. 684. 28 Am. St. 41 Am. St. 106.
436 Cal. penal. v. (Carr Co. Rischer, Pub. 117; 119 N. Y. Globe Bank, State 41 alleged Neb. loans and investments were want alleged, not a for “misappropriation,” which is em statement showing conversion, of facts fraudulent Works bezzlement, Valley Water (Spring misdemeanor. Co., v. San Francisco, 321; 82 Cal. Fox v. Sale & Norcross Am 426; 237-238; 108 Winston, Van Weel v. 115 U. S. 530; Choteau, bler 590; 107 U. Law Dict. S. Sweet’s 344; Law, 419; Stephen’s Dig. Bouvier’s Law Dict. art. Crim. Britton, United States v. 666-667.) 107 U. S. Luce, Bryant
M. A. and John Howard, Howard, for Medna Ginty, Respondents. Morse, Respondent. E. Sloane,
Luce & for W. This appeal entered TEMPLE, J. is from a was complaint. plaintiff, who a demurrer to County, Savings Diego depositor in the Bank of San himself brings many assignee depositors, and of of himself savings bank for directors of the action alleged $127,570.29, be the amount which is sum of depositors in the first deposits bank between the made twenty-third 1893, day of day July, 1886, June, and the purports The action to have been interest added. with any other himself and creditors who brought on behalf of purpose him. The join action is choose money alleged to liability of the defendants enforce the defendants misappropriated while were have been savings bank. of such directors savings suspended payment on alleged bank day June, declared twenty-third officers, hands of its placed under the insolvent liquidation. Act, Banking alleged misappropriations
Twenty-seven different are set taking money All consisted complaint. in the out applying it to purposes, unauthorized bank out of directors, or of some of said them. It is interest time when misappropriations at no charged fifty per bank have cent of its did loans se- made were estate, on real mortgages real estate the cured *5 market loan value of which exceeded the amount sixty per savings bank was capital cent. nominal one dollars, only twenty hundred thousand dollars thousand paid misappropriations which was ever in. Most of the are to have Consoli- been made the benefit dated Bank, Mabury National which Howard were stockholders, directors. and of were All misappropriations charged made for to have been benefit of Mabury. charged such Howard and is that misappropriations were direction of made or under the Howard, Mabury who acted for well as himself. complaint grounds, but, was demurred to on various by stipulation, only grounds demurrer, certain out of more than one hundred demurrer, contained in the are in trans- cript. language stipulation light will throw some questions appeal. submitted on the It reads as follows:— hereby
“It stipulated that, is plaintiff whereas the herein has appealed judgment from sustaining herein de- murrer of Mabury, defendant Hiram on appeal appellant print shall 3d, 87th, 88th, 94th, 93d, 95th, 96th, grounds and 99th demurrer; and that if sustained, should be case; should end this but reversed, if it should be -then the demurrer the other grounds, printed, argument stand for should in the court below. is
“This course taken because it plaintiff claimed grounds can that-he avoid the of demurrer amend- complaint, ment of the even if well complaint taken to the Whereas, it now stands. it is conceded if the demurrer grounds sustained on above stated necessarily it would litigation. case end this without further plaintiff stipulated that “It must recover on the part the latter of section provisions of article 12, of con- California, or that he cannot stitution recover all. at stipulated grounds “It above fully demurrer following propositions raise contended for defendant, viz.:— That said constitutional
“1st. not effectual legislation. without *6 WlNCHESTEB V. HOWABD. constitution, by
“2d. That meant misappropriation, as complaint. is not by allegations shown And “3d. of action. That causes misjoinder there is a causes notwithstanding the point that this considered, can be of action separately are not stated. and give, purport to
“4th. not That the constitution does provision right such any hence does under give, of action assignee. to an ‘‘ assignable. 5th. is That no case such an action assign- his “6th. nor plaintiff That the was misappro- alleged alleged ors creditors be when priations place. took parties.
“7th. Defect of CaETEB, &
“WlTHINGTON “C. H. Repey, “Attorneys Plaintiff. Lee, “S. F.
“Attorney Mabury. for Defendant 23d, 1899.” “Filed June provision referred to as follows:— constitutional reads corporations joint-stock
“The trustees of directors or jointly severally cred- associations shall be liable to the misappro- nloneys for all or itors stockholders embezzled corporation joint-stock officers such priated during the term of director or association office such trustee.” agreed following parties questions seem appeal:— in this
involved self-executing provision 1. Is constitutional ? come it? misappropriations 2. Do the within assignee? an action be maintained 3. Can the maintained action be for a 4. Can the creditor who , alleged misappropriation? after such becomes necessary parties brought plain- been all the in as 5. Have case, this an defendants an action for tiffs or accounting ? action maintained mere contract
6. Can the claim creditor; must re- first ¡ ? duced contended on behalf further defendants' that provision being is void as constitutional conflict with the fourteenth constitution, and amendment to the Federal opposed because further, natural justice; and, fraud, action is damages negligence recover barred the statute of limitations.
1. As question whether self-execut- ing, it is note, well to outset, presumption at precisely as it would have been had been such matter presented for fifty ago. consideration years When the Fed- eral constitution and first formed, state constitutions were the idea of a was, merely constitution outlined a government, provided departments for certain and some *7 officers and functions, defined their secured some absolute rights citizens, inalienable but left all matters policy departments administration and to it the which law-making created. The power wholly was vested legislature. rights Save as to the assurances of individual government, the operation the direct of the constitu- upon government only. tion was And such assurances part upon governmental were themselves but limitations powers.
Latterly, however, changed. all this Through has been legislatures distrust of the and the power, natural love of people many have inserted their provis- constitutions statutory ions of character. These are in fact laws, but directly people made instead of legislature, enforced, are to be construed and in all respects, as though they (Winchester statutes. Mabury, were 122 Cal. It has held that section 16 been of article XII of the provisions constitution of the nature of code regard to n procedure, and to be construed as other provisions code except repealed that it cannot are, be amended or by the effect, In legislature. provisions these constitutional are but legislature repeal cannot or statutes amend. conditions it former was natural Under the court presume a constitutional was should addressed department of the government, some officer to that it legislature, power empowered, limited directed, legislation, certain carry to perhaps into effect a policy. constitutional is the Eecently adopted reverse. presumption
Now state codes laws, extensive contain intended oper- to constitutions v. Howard. say that these directly ate people do. To as statutes sovereign self-executing may refuse to execute be to different requires will of the people. policy different ruling. I say constitutional is, should the rule now such they can provisions self-executing be, must be held to be when unless given legislation, reasonable effect without the aid legisla- clearly If appears it that such not intended. executing must, may, provide ture or even for the mode some extent, and in laws, may great such constitutional to a. This having all. altogether, prevent their effect at cases policies precisely for here. The last effect what contended legis- narrowing increasing legislation constitutional legislature, powers whose power lative are correlative. seeking limit, would people are thus and functions the such opportunity to remove naturally be afforded the constitution-making indicates changed limits. The mode of power. In legislature is not to be trusted with such them, statutes, speak if I general such constitutional so legislating legislature from prevent intended were subjects provisions. covered otherwise our state constitution of remarked that has often been laws, evidently very intended extensive code contains placed in the directly upon people, and which are operate legisla- depriving express purpose of constitution modify must change or them. We submit power ture *8 law, fundamental and there- policy established this put can in force mandate which be every constitutional fore a self-executing, held to unless legislation must be be without is contrary intent shown. only expressly manifested not when intent would
Such general principle policy de- is stated, when but so Slaughter, 449, 15 it is Pet. when, as Groves clared, or prohibited, shall not be acts shall or certain that ordained prohibition, make when certain legislature can only the making or other means of penalties no forbidden, and acts are provided, like and in other have been effective prohibition self-executing supplies is “if it Cooley says it Judge cases. right given may enjoyed by which rule sufficient imposed be enforced.” The clause duty protected, liability upon corporations. the directors of fixes a question liable, whom, and for are what. The who clearly declares by the constitution if the provided Code not be need procedure 441 of Civil supply Procedure what and other remedial laws necessary. bar, This court at has determined in the case this same liability, re- parties, between it is to be the same garded as statute, in the same construed and enforced (Winchester manner. case, Mabury, In that also, I think, Mr. Justice all that McFarland answered material in the contention of respondent, point in his effort to out the respects in legislation which held is needed. It was proper remedy is a bill in all equity, “where th'e parties, creditors are represented, or are and in there can be an accounting equities adjusted all facts after have been ascertained.” The case of Henning, Horner v. S. to, quotation U. referred and a to the effect made recovery will constitute a fund for the benefit creditor, creditors. One said, cannot be allowed regard rights recover without to the of other creditors. easily
From this it is deduced the creditors and stock- holders are entitled to recover directors, as cred- itors and as equities stockholders. The are creditors superior to those of stockholders, and, among them- recovery selves, among according will be divided creditors general governing appropriation rules payments This in similar cases. no difficulty leaves further in the en- probably forcement of than would arise under passed statute which could be to aid its execution. And necessarily far as these rules so are deducible from the con- legislature change could not stitution them in material respect. subject quite numerous, eases and the collected have been learned counsel both
decisions on ably learnedly many sides, have discussed who constitu- passed upon way have been clauses which one or an- tional contrariety views, I find some apparent, more other. general trend, however, real. The particularly than decidedly the conclusion I cases, toward later have reached. yet concur the courts will in some I am confident such rule. that I justified clear to me do matter so not feel great temptation learning to use the mass of yielding *9 easily industry ability available of counsel. made so considering question whether the misappropria- 2. In attempted be, are alleged, or within the constitutional tions parties provision, stipulation in must be mind. borne necessarily in desire a upon decision points are which changing merely case, plaintiffs and which cannot avoid scrutinize allegation. the form of are not to Under this we charged the averments as to loss corporation. general language misappropria- loss resulted from stipulation regarded suffi- tions. Under the this must complaint is cient, although it must be admitted that singularly imperfect. matter capital charged of savings It is a nominal bank had re- $100,000, $20,000 paid up. of It had no which of fifty per deposits fund. or serve It never cent its had mortgages real its loans secured in or other liens first such Code By estate this state. section 571 of Civil money, expressly deposits banks authorized receive must on loan, invest, and collect the same. The loans security adequate personal property. on real or This direction qualified in money deposit disposition as to of the on “No (subd. 6), 574 of the Civil Code which declares: section hold, convey securities, bonds, corporation purchase, must or indebtedness, public private, except or bonds evidences States, California, the state and of the of the United of the counties, cities, counties, or cities and or towns state capital California, has stock unless in, less paid fund of not than three hundred thousand reserve dollars/’ powers to these limitations the cor-
In addition any 578 of declares that di- poration, section the Civil Code corporation, of the funds of borrows rector who ipso surety borrow, to enable them to others becomes facto his forfeits office. trustees stockholders and indirect- are-also
Directors always responsible .They have been held ly for the creditors. management property in their of the and affairs trustees trustees, they must deal corporation. Like with the advantage, for their own or be interested subject of the trust transaction, they nor can adversely trust undertake in its nature to the adverse interest of their trust another willfully théy property beneficiary. use the If purpose for an trust unauthorized loss subject good although loss, they good make must ensues, promote the interest their sought beneficiary, faith *10 Howard. were seeking ground an advantage for themselves. of the liability is the property. willful of the
It is alleged in general allegation, to each applicable made twenty-seven the misappropriations, that each was n interestof Howard or of benefit Mabury directly, or for the corpora- National Diego, Bank of San Consolidated tion, in Witherby which the Howard, defendants Mabury, and were largest all the stockholders, they and of which were time continuously and managers. They directors were also directors of savings corporations bank. Both at all were times entirely by Bank, controlled them. The Consolidated during period misappropriations made, which the were inwas insolvent, doing fact supply but was still business. To its pressing wants, prevent closing necessity to its doors, appropriated money savings Howard to bank by pretending use purchase its its discredited and unmer- Every paper. chantable purchase expressly prohib- was by ited by regard the charter of the bank and the laws in savings Every banks. misappropriation was made to advance personal interests Mabury. Howard one was No loan which banker any could have made in the interest savings bank, fully justified believing and we are good Plainly they were not made faith for that bank. could They not have been so made. were willful and deliberate mis- appropriations of, sustain, Howard in interest and to tottering bank, principally mercantile was owned entirely managed the defendants. This is shown not general allegations, but also facts stated. As Howard, well it be contended these acts constitute under section Penal embezzlement 506 of the Code. go necessary, however,
It is not so far. Directors and always trustees, corporations, officers of well as have been resulting for loss from- responsible misappropriations held made them with their consent. The property the trust misappropriations for which who" character of officers responsible corporation be held has been made them can liability many has cases. The existed since ever settled corporations equity courts of or trustees. been there have change liability, the nature does not The constitution misappro- purpose moneys its it is limited to for except officer, omitting suretyship, for nonce the No priated. greater act or to extent than he made liable Howabd. Westchesteb constitution liable before the constitutional amendment. merely for their fellow-directors makes the directors sureties moneys, when so and for the officers misappropriating misappropriated as to make the officer to sue. liable, authorizing stockholders the creditors and and familiar are, said, What such are old liabilities I have mis- questions, that such and, I'repeat, to me seems obvious *11 liable. appropriations are are those for the directors which & in v. Hale rely upon Both some remarks made Fox sides Nothing case, Co., 108 in that Norcross Cal. 369. decided announced, is these views. no doctrine at variance with clearly bring it allegations within complaint of the in this case like are misappropriations rule there down. The the laid embezzlements, “misappropriation of funds and there awas by special purpose, devoting for a them intrusted to an officer purpose.” to some unauthorized beyond
I that. do contend directors liable to rea- harsh, that limited for that Not the measure is be question importance I appreciate son. Nor do the of the penal penal whether law or not. is not techni- the sense, recovery punishment, as a but cal as it allows no liability compensate to for a loss. But the created that always guilty, for the suretyship, in which the innocent suffers always surety may very the stand therefore language unambigu- of the of his bond. But law letter meaning have used have well-defined ous, and the words in species courts relation to same frequently used been liability centuries. for damages suretyship to one contends extends No negligence resulting resulting misap in some from mere through management or incom nor loss bad propriation, mistake, I and have no criticism to make petency Co., 108 in Fox Hale & Norcross
language used language plain an unless there intimation supposition unusual construction on the some receive law good policy law. Whether is a harsh and unwise legislature. design plainly nor for us is not corporate funds speculating directors and prevent for their beneficiaries. vigilant them make n respondents subject general counsel states Upon evidently thinks a difficult Supposing he one. case personal interest misappropria- no had Howard 445 . Winchester tions, but was animated only by promote inter- desire to savings est of the bank, question very would test the matter says well. He estate; national banks loan cannot on real savings banks, exceptions, with some can loan on no other security. If loans were made each bank violation of this rule, solely in but bank, interest of the loan would the misappropriation constitute a for which the directors would be ensued, liable ? If loss unquestionably the directors would Code, each case be liable. sec. {Civ.
The rule of noscitur a sociis further illustrated. Section 17 of article XI of the constitution declares that the using public money by having charge officer it for any purpose felony. authorized shall law be a Section effect, of article IV is of similar was in former Code, constitution. Section Penal which was present force when the constitution was adopted, makes it felony having custody in an officer public money to use any purpose the same for not authorized law. These are examples of trust funds. I think it clear an officer knowingly that when appro- *12 priates him, funds intrusted to for unlawful and unauthorized purposes, loss corporation, ensues to the the directors are liable under this clause of the constitution.
Upon subject following this authorities will be found of Greeley, Thompson 577; interest: v. 107 Mo. Buell Warner, v. Wilkinson, 570; Eq.
33 Vt. Dodd v. 42 N. 647. J. Banking Numerous cases under the U. S. Act are cited Britton, these States 655, the briefs. Of United v. 107 U. S. by respondents upon as favorable to them. relied That was and it that an proceeding, was held actual intent a criminal to convert the funds to the use himself defraud and charged. must be It was not in that The of another case. materially from Congress differs the clause of the con act of think, however, I here. the averments here stitution involved Congress, (See, also, under the act of make a case would ;1 224 Smith, Paige, Bostwick, 3 v. 88 Robinson v. Brinckerhoff Dixon, 273; Mabry, 24 Ga. Schley v. Shea v. 1 Lea 52; Y.N. ) (Tenn.), 342. assignee depositor can maintain action I 3. That assignable right debt is and carries the doubt. cannot 212. Am. Dec. 1 24
446 Cal. WlNCHESTEB V. HOWABD. action. assignment right It is action not the mere fraud. go together, and cannot debt and the remedies Tl>e ' - separated. . relieving liability depend upon does assignor obligations from the of a contract obtained fraud, conveyed by recovery property actually As owner, conveyance but which fraudulent. claimed is surety. Ownership I have shown, obligation is that of a Co., (Wright debts carries all Min. remedies. v. Oroville 20; 40 v. Hopkins Co., 66; Cal. 106 Rued Contra Costa Cal. 465; Cooper, Overstolz, Rep. 109 692; Stephens v. 43 Fed. Cal. Wilcox, Barton, 662; Emmons v. 109 Oakland Bank Cal. 60 Cal. misappro depositor
4. I think a who becomes such after the liability. priation may The consent sue to recover misappropriation- of all the not bar stockholders to a would Sup. Y. (Halpin Brewing Co., creditors. v. Mutual 47 N. Corporations, Corporations, 628; Thompson Wait on sec. 413; on Hill, 152; Wright 4565; c. Neall v. 16 v. Oroville Cal. se Byers, 40 Co., 20; 626; Min. 40 Parrott v. Cal. Broder v. Cal. Conklin, 287; Co., Elkins v. Camden etc. R. Cal. R. Eq. 5.) N. J. right resort
It is creditor of a like subscriptions. unpaid It was held Winchester v. Ma recovery bury, 122 constitutes a fund for. the presumption always is, of creditors. the cor benefit assets, if not wasted its the directors and poration has so, duty done officers have directors something defaulters. And loss from the it counts recover the depositor remedy is-for creditors. The new becomes presumed faith of such on assets. pro- there is statute of limitations which can
Whether discussed. need now be the director tect *13 right gives a of constitution action to cor- Whether may brought suit be on of 'and whether a behalf poration, not, bring when the directors or refuse to necessary here, defendants, the directors are when, suit, or The bank is in liquidation, determined. -the be not need go custody into any, if will the court for recovery, dis- gone have as it would a creditor’s bill precisely tribution n analogous proceeding. in some Any may upon 5. creditor proceedings liabil- institute this ity. necessary parties If the fact brought in, that is brought made to appear, the order court should them to be right in. The depend the individual does not creditor where, others. The suit dismissed, especially should not be case, as in appear this does not that there are other creditors. The certainly proper parties. stockholders are pur- For most poses, however, they may if for all, represented in this corporation. action
6. Must the claim a creditor reduced to a before he can a party Certainly to the action? it need become not be. As all joined, requirement must be would necessi- great tate delay. useless It is bill, not a creditor’s which' only legal can be maintained after all remedies ex- have been This hausted. action could be maintained in a court of equity, jurisdiction and reason for resort to that is shown the nature of the reality action itself. This was in settled at the case law. (Winchester Mabury, Conceding ‘7. many allegations that there are com- plaint negligence which seem to indicate an action for fraud, quite that is immaterial. Necessarily, case, in such a there would be such question averments. The is simply, Are alleged the facts sufficient an action the constitutional liability? charged complaint avers the loss to be of improperly
amounts invested in paper consolidated bank, and interest at according conventional rates terms of the various instruments pur- evidences of debts earnestly It is chased. contended that this is ratification purchases,- plaintiff estopped by own his charge pleading. This is true some of the mis- allegation of loss is appropriations. due amount including purchased, instruments interest agreed on the at rates. stop utterly to notice
We inconsistent with my associates, of some think the contention who the com- amount not show plaint all, does invested was lost at might been merely that more have money made had- the but used. otherwise been primarily to enforce accounting. action
accounting required purpose distribution *14 Winchester bringing may The
fund which be recovered for all creditors. accounting implies accounting, of such such an action an and would be ordered the court as a matter of course. specific accounting required. A demand an is prayer action, and part is no the statement of the cause of facts appears any where the defendant relief authorized proven may Bell, and 125 Cal. be awarded. Staake v. judgment case upon default, was a and in that entered nothing applicable which is case. decided to this respondent
It is contended that the constitutional provision conflict with the fourteenth amendment of corpo- constitution, property Federal because it takes the law, denies process rate directors without due and because it persons equal protection to such of the law. To hold the directors liable sureties for creditors and other officers as charge, suretyship to this if the has been volun- obnoxious tarily punishes If such assumed. is void because others, circumstances, for the fault of under such innocent then, whereby contract person we must hold that no one under- takes for the conduct of another As I said, is valid. have surety all such cases occurs the innocent when loss suffers fault; another’s There is no difference between this ease and ordinary surety, unless it can that this contract be said against Argu- liability placed the director his will. hardly required case. ment is to show not the grant corporate refuse to franchises alto- The state could right may grant gether, pleases. on such terms as-it corporation, director, may as a or to be a if I to do business right. right, as a is not a natural These directors speak of it responsibilities they knowing office assumed in so took eye did as doing, freely of the law so volunta- they signed agreeing have done rily as would had a bond corporate responsible for the officers. It to be seem heavily handicap state policy corporations, to so unwise organized in permit corporations states, then to burdened, so business within the as do state organized king freely wrong, those here. But the can do no sovereign has been declared. will and the reversed, superior court is directed demurrer and allow defendant to overrule reasonable complaint. answer the time to J.,
Harrison, Henshaw, J., and Beatty, J.,C. concurred. Howard. facts DYKE, VAN From J., concurring. I concur. alleged in -complaint,—and demurrer allegations true,—the case *15 complaint of the to be are deemed amounts to defined misappropriation criminal Penal Code. of the framers of And the evident intention provision misappro was, constitutional that such question priations only of cor or trustees should render the directors porations joint-stock liable, and and does not associations refer to such arising cases made from bad investments or directors, through judgment trustees good of business lack otherwise; or unaccompanied by any intention. criminal dissenting.
McFARLAND, J., I dissent,and adhere to the opinion. judgment think former I should be affirmed. following opinion is the rendered the court in Bank April 6, 1901, adopted by on Justice McFarland:—
THE This appeal COURT. is from the for the reviewing purpose sustaining of .the order respondent’s complaint. demurrer to the brought The action was by plain tiff, assignee depositors of certain Savings Bank of Diego County, respondent San to recover of and others the $376,359.46 sum of claimed to misappropriated have been proceeding bank. The the officers of the is under the latter of section 3 of XII clause article of the constitution, which reads as follows:— or corporations joint-stock
“The directors trustees of jointly severally shall be associations liable to the credi- moneys for all tors and stockholders embezzled or misappro- priated the officers joint-stock or during the term of such association director or trustee.” in his brief concedes plaintiff “that allegations Mabury Mr. not bim connect are claimed to hold fur- allegations impose the same ther than would a liability upon implicated.” As directors appeal other is for the reviewing sustaining the order purpose Mabury’s demurrer we need not complaint, allegations discuss complaint as to other defendant. stipulated It is that if recover, all, must at plaintiff on the provisions of the con- quoted. stitution Cal.—29
CXXXVI.
45O aiding or legislation purpose There has been no assisting The char carrying provision. into effect the said recovery brought, proportion acter action that stockholders, paid respectively the creditors and judg paid first, whether the are to be whether creditors meant, whether merely ment creditors or are contract creditors time at the or must been such creditors stockholders have before embezzlement or creditor, if bank complain complain, can whéther a can more case can recover solvent, whether a creditor him, be main than the amount an action can due or whether versa, stockholders, vice tained creditors without the many import, all matters questions similar self-executing. judicial provision is construction, if the complaint, But, it is neces under the view we take of sary is self- here to decide as to whether *16 executing. remedy given be The seems to “creditors stockholders,” liability or at least aim is to create a the not, ease, the action to. re their favor. Whether liability may by assignee, maintained an cover for such be being provision, a not named in the need not de person be provision termined. If it be is self-execut conceded the ing—which intimate to the an we do not be case—and that yet assignee action, a contract creditor can maintain of the Mabury. as to properly the demurrer was sustained liability imposes honest, a the faithful director provision by any embezzled for all amounts officer of cor trustee pay moneys is The honest official made to for the poration. by the dishonest or embezzled one. action there stolen penal (Carr a action. Rischer, in its nature 119 fore Publishing Co. Bank, Globe v. State 41 117; Y. Neb. N. Therefore, strictly must be 175.) construed . liability shown, by must impli claimed not unambiguous language. (Askew 22 by Ebberts, cation, but Sullivan, 62 etc. Assn. v. 264; Cal. Occidental “moneys liability misappropriated” embezzled or is for allegation In this there is no claim or case another. embezzled, attempt but the is to money show it was was What, then, meaning misappropriated. of word as used “misappropriated” constitution? It is used “embezzled,” merely does mean with connection money in a manner authorized law. applying 451 used in a criminal sense in II of the con section of article stitution, provided: person where it is hereafter “And no convicted of public misappropriation embezzlement or money privilege shall ever in this exercise the of an elector state.” (sec. 504) The Penal Code makes fraudulent appropriation purpose use or not in due and lawful of his trust, execution corporation, prop officer erty trust, he in his possession by has of his virtue speaking embezzlement. In “misappropriation,” of the word provision, as used in the this court in Fox v. & said Hale Co., my Norcross S. M. opinion Cal. 426: “But ‘misappropriation’ word maxim, to be construed sociis; something Noscitur a it or, means embezzlement, like words, misapplication it means the of funds intrusted particular to an for a purpose devoting officer them to some purpose, apply payment unauthorized and does not extravagant price for services or properly apper materials taining corporation.” to the business of the
It is therefore evident that unless complaint, in view definitions, alleges fully of the above corporation, by funds thereof, some officer while Mabury director, it no states cause of action complaint twenty-seven him. The separate contains state- ments as to the misappropriations. As are all general nature, necessary the same will to examine each in detail. One or two will suffice for the purposes of this case. twenty-ninth
The first as follows: “1. day On November, 1887, Bryant defendant Howard, *17 said who was attorney then Mabury, in fact of defendant Hiram direct- Ginty, secretary ed who then John was of and treasurer savings bank, said pay to to said Consolidated National Bank Diego, savings the funds bank, of San out of of said for the Mabury, $20,000 upon said Hiram the sum of benefit of by savings pretended purchase said bank from said Hiram Guión, Mabury Hartley, payable a note of Hamilton & to date, February of that Mabury, 29, 1888, said due Hiram per cent., $20,000, at 12 with interest for which note was not any way, $20,000 which sum of then secured said John treasurer, 29, Ginty, on said November did un- savings out of the funds of said lawfully pay bank said to Cal. Howard. Hiram said Bank, Consolidated National for the benefit pretended misappropriation Mabury; reason of which have suffered purchase depositors savings the said and its bank $54,236.65.” loss, amounting to including interest, specification We from the above eliminate “misappropriation.” “unlawfully,” and “pretended,” words sufficient they are not unpleasant, While the words are (Water Works facts. dispense necessary with the statement U. S. Choteau, 107 Francisco, 321; Ambler v. San 590; Hewitt, Pehrson v. 79 Cal. by the determined
The character must be of the transaction pleader. alleged, epithets used facts and not Ginty, treasurer of allegation, We, then, have the Howard, president, savings bank, under the direction of Bank National 29,1887, paid to the on November Consolidated purchase of Diego $20,000, upon the the sum of San Mabury, for Guión, Hartley, payable to note of Hamilton & cent, due per twelve $20,000, interest at the sum with any not secured in February 29, 1888; that said note was Mabury. As the paid for the benefit of way, and the sum was Mabury would of payable place, in the first note was price for payment purchase of the was course follow that alleged of the note were It is not that the makers his benefit. purchased. fact, In it is nowhere the time it was at solvent insolvent, nor note has alleged ever that the were alleged depos- as a conclusion that the paid. It not been consequence purchase, a loss itors have suffered amounting $54,236.65. including interest, Whether money, kept, if by the fact that could have caused loss was speculation higher rate or does not loaned at a used been alleged money It is not was embezzled appear. corporation. It is that it officer purpose by any unlawful converted officer used may be, probably is, use. true that the his own savings should not money of the bank have been loaned with- security, cannot think that but we a loan made out good faith, bank, the bank and his not for officer misappropriation meaning be a gain, would within the own provision. specification The fifth the constitutional facts to constitute a is as relied follows:— twenty-second on the day October, 1889, “5. That *18 ' Winchesteb Howabd. Bryant savings bank, said direct- Howard, president of said pay secretary treasurer, ed Ginty, said John and said $88,210, Consolidated National Bank the sum of pretended purchase of certain held notes said Consolidated National of then Waterman, Bank one R W. notes were which long any had overdue, manner, were not secured and large been in part trans- protested, which notes not were savings ferred said bank, to said pursuance of which Ginty did, 1889, John October, on twenty-second day said of secretary as such unlawfully pay of the treasurer, out funds of said bank to Bank the said Consolidated National $88,210, by sum of reason said of which savings including bank depositors loss, its have suffered a $23,696.52.” interest, of appears twenty-second October,
Here it that day on the 1889, bank, direction savings treasurer under president, paid $88,210, Bank, Consolidated National purchase of certain held notes the Consolidated Bank, National Waterman, overdue, made one which were in part which had been protested. alleged It is secured, notes were allegation not but there is no that or maker was then ever was insolvent. The of said amount notes is shown; neither is shown were not paid. savings It is purchase reason of the including loss, bank interest, $23,696.52. suffered Whether this loss was from the amount due on face of the money having or reason the bank loan *19 Rex Isom v. Crude Oil Co. misapplication, there
“To constitute the offense of willful else, use, must he a of some one conversion to his or use own party moneys and funds the association by the charged; . . . is no conversion there averment of a person, defendant to his use, own or the use of therefore, counts, purchase the funds of the shares. The charge hank, rather maladministration the affairs of misapplication than a of its funds.” or mis-
The central idea of is “embezzlement appropriation” by their use. It was the officers to own every responsible director a bank the intention to make Neither is it business mistakes of his associates. profit by policy an invest- of the law allow a stockholder good one, to hold proves ment if it to have been a a bad one. responsible proves if it to have been directors If, managed by agents their and directors. Corporations are judgment, should not using an investment after their best happens than to individuals prove profitable, is no more their financial every-day life. Banks have transactions of taken they time were that were at the crises, assets when officers In all cases the directors and ample become valueless. criminally honest held embezzlement should be to their own use. of funds held for the acts of directors should not be The individual ‘ way connected, unless under no others with In facts of the law. case the plain mandates for the acts of other officers. respondent liable not make do May 29, Department A. No. 1191. [L. Two. OIL Respondent, v. REX CRUDE COM ISOM, McG.
S. Appellant. PANY, Hearing Appeals—Motion after Disallowed. to Dismiss—Affidavit appeals, an application dismiss hearing of a motion to —After file an additional affidavit was refused. for leave to respondent Supe- appeals from a to dismiss MOTION Angeles County and from an order to Los Court rior Judge. Fitzgerald, P.W. receiver. notes purposes appear. savings or use for does bank may have received entire amount back and thousands interest, yet allegations dollars concerning all the allegation transaction be true. is no any There offi- appropriated embezzled cer of the bank to his own use single money. provided dollar It is section 5209 of the Revised Statutes United States:— “Every director, president, cashier, teller, agent clerk, or banking association,’ embezzles, ‘national who ab- willfully stracts, misapplies funds, money, association shall guilty credits of the . . . deemed ’’ misdemeanor. supreme This section came before the court of the United Britton, States v. 107 U. State United S. and the court section construing said:—