Pinney v. Nelson

• Decision Date: 02 December 1901
• Docket Number: No. 65,65
• Citation: 22 S.Ct. 52,183 U.S. 144,46 L.Ed. 125
• Parties: H. L. PINNEY, C. L. Pinney, W. C. Patterson, and Thomas Brooks, Plffs. in Err. , v. R. T. NELSON
• Court: U.S. Supreme Court

183 U.S. 144

22 S.Ct. 52

46 L.Ed. 125

H. L. PINNEY, C. L. Pinney, W. C. Patterson, and Thomas Brooks, Plffs. in Err.,

v R. T. NELSON.

No. 65.

Submitted April 26, 1901.

Decided December 2, 1901.

This was an action to enforce a personal liability of stockholders. It was commenced in a justice's court of Los Angeles city, Los Angeles county, California, on September 30, 1898, by the defendant in error against the plaintiffs in error. It was subsequently transferred to the superior court of the county, where a trial was had on January 17, 1900, before the court without a jury. A stipulation was signed as to the truth of various averments in the complaint and answer, which concluded as follows:

'And it is stipulated that the only question in this case is as to whether § 322 of the Civil Code of California is in violation of the provisions of the Constitution of the United States; and if it is in violation of such provisions defendants are entitled to judgment; but if said section is not in violation of said provisions, then plaintiff is entitled to judgment as prayed for in his complaint.'

Findings of fact were also made, among which were the following:

'2. That the Los Angeles Iron & Steel Company was a corporation organized on the 8th day of March, 1893, and incorporated under the laws of the state of Colorado; that the seventh provision of its articles of incorporation is as follows, to wit: The said company is created for the purpose of carrying on part of its business beyond the limits of the state of Colorado, and the principal office of said company in the state shall be kept at the city of Denver, Arapahoe county, and the principal plant and principal operations of said company, beyond the limits of the state, shall be in Los Angeles county, state of California, and such other places in the state of California as may be decided upon by the board of directors. The principal business of said company in the state of Colorado shall be carried on in Arapahoe county.

'3. That the defendants are and were at all times herein mentioned residents and citizens of the state of California.

'4. That all the indebtedness of said Los Angeles Iron & Steel Company to plaintiff and to plaintiff's assignors was created by contracts made, executed, and to be performed in the state of California.'

'6. That at the time the said indebtedness was created and incurred by the said company there were issued of the capital stock thereof the number of 1,311 shares, and that the defendants were at said times the owners respectively of the number of said shares as set opposite their respective names, as follows, to wit: H. L. Pinney, 50 shares; C. L. Pinney, 42 shares; W. C. Patterson, 35 shares; C. W. Damerel, 91 shares; F. E. Little, 22 shares; Thomas Brooks, 38 shares.'

Upon the stipulation and findings a judgment was rendered in favor of the plaintiff. A writ of error was subsequently sued out from this to that court, it being the highest court in the state to which the action could be taken.

Article 12, § 15, of the Constitution of California, adopted in 1879, reads:

'No corporation organized outside the limits of this state shall be allowed to transact business within this state on more favorable conditions than are prescribed by law to similar corporations organized under the laws of this state.'

Section 322 of the Civil Code of California, as amended March 15, 1876, provides as follows:

'Each stockholder of a corporation is individually and personally liable for such proportion of its debts and liabilities as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock or shares of the corporation, and for a like proportion only of each debt or claim against the corporation. Any creditor of the corporation may institute joint or several actions against any of its stockholders, for the proportion of his claim payable by each, and in such action the court must ascertain the proportion of the claim or debt for which each defendant is liable, and a several judgment must be rendered against each, in conformity therewith. . . .

'The liability of each stockholder of a corporation formed under the laws of any other state or territory of the United States, or of any foreign country, and doing business within this state, shall be the same as the liability of a stockholder of a corporation created under the Constitution and laws of this state.'

By the stipulation above referred to, the truthfulness of the following averment in the answer was admitted:

'Defendants allege that there is no statute of the state of Colorado providing that stockholders shall be liable for any portion of the indebtedness of a corporation, and allege that under the laws of the state of Colorado a stockholder in a corporation is not liable for any portion of the indebtedness of said corporation.'

Mr. M. L. Graff submitted the cause for plaintiffs in error.

Mr. J. W. McKinley was with him on the brief.

Mr. J. A. Anderson submitted the cause for defendant in error.

Messrs. W. S. Taylor and Edward W. Forgy were with him on the brief.

Mr. Justice Brewer delivered the opinion of the court:

The plaintiffs in error rely upon the proposition that the liability of a stockholder is determined by the charter of the corporation and the laws of the state in which the incorporation is had. 'If the constitution to which a corporator has agreed does not provide for individual liability to creditors, he cannot be charged with individual liability anywhere.' 2 Morawetz, Priv. Corp. 2d ed. § 874. They invoke the lex loci contractus, and say that the stockholders' contract was made in Colorado, that being the state in which the Los Angeles Iron & Steel Company was incorporated; that by the laws of that state there is no personal liability of stockholders; that it is not within the power of California to change the terms of that contract, the Federal Constitution (art. 1, § 10) forbidding a state to pass a law impairing the obligation of contracts; that while California, which prescribes an individual liability of stockholders, may if it sees fit exclude every corporation of another state whose stockholders do not assent to such liability, yet if it fails to do so, and such Colorado corporation actually comes into California to transact business, such coming into the state and the transaction of business therein do not change the terms of the stockholders' contracts, or impose a personal liability; and also that in such a case an attempt to enforce the statutory provisions of California so far as to change the personal liability of corporators in the foreign corporation is in conflict with the due process and equal protection clauses of the 1st section of the 14th Amendment.

With reference to the contention that the law of California impairs the obligation of the contract of the stockholders, it is enough to say that that law, both constitutional and statutory, was enacted long before the incorporation of the Los Angeles Iron & Steel Company, and that therefore § 10 of article 1 of the Federal Constitution has no application. 'It is equally clear that the law of the state to which the Constitution refers in that clause must be one enacted after the making of the contract, the obligation of which is claimed to be impaired.' Lehigh Water Co. v. Easton, 121 U. S. 388, 391, 30 L. ed. 1059, 1060, 7 Sup. Ct. Rep. 916, 918. See also Central...