Opinion
Rehearing Denied Nov. 21, 1928.
Hearing Granted by Supreme Court Dec. 20, 1928.
Appeal from Superior Court, City and County of San Francisco; Daniel O. Deasy, Judge.
Action for damages for personal injuries by Mildred Muller against the Coast Counties Gas & Electric Company. From the judgment, plaintiff appeals. Reversed and remanded.
Ford, Johnson & Bourquin, of San Francisco, for appellant.
Leo. H. Susman, Thos. J. Straub, and Robert Duncan, all of San Francisco, for respondent.
OPINION
CAMPBELL, Justice pro tem.
Appellant, Mildred Muller, on July 21, 1921, sustained a personal injury through the negligent operation of a street railway car in the city of Santa Cruz. This car at the time of the accident was operated by a corporation known as Union Traction Company. As a result of the accident appellant’s spinal cord was completely severed in the lumbar region, resulting in complete permanent paralysis of all the muscles and organs of the body below the point of severance.
Following the injury so sustained appellant brought suit against Union Traction Company for damages, and recovered judgment in the sum of $38,000. From this judgment defendant Union Traction Company appealed. Following such judgment plaintiff commenced the present action against Coast Counties Gas & Electric Company, which was and is the sole stockholder of Union Traction Company. The latter case was brought for trial before a jury, and resulted in a verdict in favor of plaintiff and against Coast Counties Gas & Electric Company in the sum of $118,000. Entry of judgment following the return of this verdict was stayed by the court. While this stay was effective, Union Traction Company dismissed the appeal in the prior action, and the judgment therein became final. Union Traction Company then made a written offer to pay the plaintiff the then amount owing on the first judgment, which amounted at the time to $44,275. Plaintiff refused the tender. The trial court directed that judgment be entered for the sum of $44,275, although its findings and order found that plaintiff sustained damage in the sum of $118,000. From this judgment, and particularly from the part thereof denying plaintiff judgment in the sum of $118,000 and limiting the liability of defendant to the sum of $44,275, plaintiff has appealed.
The appeal presents a single question of law, viz.: May a stockholder of a corporation in an action for tort be held to a greater liability than that found due from the corporation in a former action brought by the same plaintiff, which judgment in the former action remained unsatisfied; or, as stated by appellant, did the trial court err "in concluding that it was compelled to reduce plaintiff’s recovery in the present action from $118,000 to an amount not in excess of the judgment against the corporation in the earlier action"?
The court in its findings and order specifically finds that the plaintiff sustained damage in the sum of $118,000; that the sum of $118,000 was a reasonable amount to be awarded plaintiff for the injury sustained by her, and specifically found and so states that the sole reason for directing the entry of the judgment in the sum of $44,275 instead of $118,000 was that the liability of the stockholder could not exceed the amount of the prior adjudication against the corporation.
The liability of stockholders for the debts of the corporation did not exist at common law, and is a creation of the statutes and constitutional provisions. Bank of San Luis Obispo v. Pacific Coast S. S. Co., 103 Cal. 594, 37 P. 499. In California the stockholder’s liability is regulated by article 12, § 3, of the state Constitution and section 322 of the Civil Code. Article 12, § 3, so far as relevant to the present issue, reads:
"Each stockholder of a corporation, or joint-stock association, shall be individually and personally liable for such proportion of all its debts and liabilities contracted or incurred, during the time he was a stockholder, as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock, or shares of the corporation or association. ***"
Section 322 of the Civil Code provides in part:
"Each stockholder of a corporation is individually and personally liable for such proportion of all its debts and liabilities contracted or incurred during the time he was a stockholder as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock or shares of 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 California scheme of stockholder’s liability differs radically from that of practically all other states. Authorities from other states are therefore of no avail in determining questions arising under the California system. Ellsworth v. Bradford, 186 Cal. 316, 199 P. 335; Buttner v. Adams (C. C. A. 9th) 236 F. 105. In most of the other states the liability is secondary. The stockholder standing in the position of a surety or guarantor, a judgment must be obtained against the corporation and execution returned before the stockholder can be sued. In California, on the contrary, the Constitution makes the liability of the stockholder direct and primary, and the Civil Code provides that the stockholder may be sued upon his liability without joining the corporation as a party. It is not necessary that the creditor’s remedies against the corporation be exhausted before action is commenced against the stockholders. Morrow v. Superior Court, 64 Cal. 383, 1 P. 354; Dolbear v. Foreign Mines Dev. Co. (C. C. A. 9th) 196 F. 646. And this stockholder’s liability in California extends to torts. 6 Cal.Jur. 991; Damiano v. Bunting, 40 Cal.App. 566, 181 P. 232; Lininger v. Botsford, 32 Cal.App. 386, 163 P. 63. It is settled in this state that separate actions may be instituted independently against the corporation and stockholders, as the liability of each is original, direct and primary. Mokelumne Hill v. Woodbury, 14 Cal. 265; Faymonville v. McCullough, 59 Cal. 285; Sonoma Valley Bank v. Hill, 59 Cal. 107; Mitchell v. Beckman, 64 Cal. 117, 28 P. 110; Morrow v. Superior Court, 64 Cal. 383, 1 P. 354; Hyman v. Coleman, 82 Cal. 650, 23 P. 62, 16 Am. St. Rep. 178; Eva v. Andersen, 166 Cal. 420, 137 P. 16; Aronson v. Pearson, 199 Cal. 286, 249 P. 188, 51 A. L. R. 1380; Niles State Bank v. Jennings, 22 Cal.App. 66, 133 P. 329; Ellsworth v. Bradford, supra. It is also the settled rule that the plea of another action pending cannot be made in a later suit on a stockholder’s liability on account of the pending of an earlier action against the corporation, as the parties are not the same in the two proceedings. Each may proceed to trial and judgment. Herman v. Hecht, 116 Cal. 553, 48 P. 611; Union Trust Co. v. Journeay, 29 Cal.App. 502, 156 P. 999; Bridges v. Fisk, 53 Cal.App. 117, 200 P. 71; Chase v. Swain, 9 Cal. 130. There is no merger of the claim in the first judgment, so as to bar a judgment in the second suit, nor does the judgment constitute an estoppel. Ellsworth v. Bradford; Bridges v. Fisk, supra. A stockholder is not prevented by a prior judgment against the corporation from defending on the merits and proving that the corporation does not owe the debt asserted. 6 Cal.Jur. 1031; Wheatley v. Glover, 125 Ga. 710, 54 S.E. 626; Partridge v. Butler, 113 Cal. 326, 45 P. 678; Ellsworth v. Bradford; Bridges v. Fisk, supra. This conclusion follows naturally from the principle of constitutional law that every defendant is entitled to his day in court. Where the stockholder is not a party to the proceeding against the corporation, he is not bound by the judgment, but is still entitled to defend upon the merits of the claim asserted against him. A judgment binds only parties and privies, and a stockholder is not in privity with the corporation for this purpose. His liability is not derivative but direct. Since the judgment against the corporation does not conclusively fix the liability of the stockholders to pay anything, it would seem that neither does it fix the maximum of the liability. If the stockholder can claim that there is no indebtedness, the creditor can enforce the actual original indebtedness, whatever it may be, under the principle of mutuality. The liability of the stockholder is either the original debt to be fixed by appropriate proof in the suit against him to a sum certain, or it is that as provided and liquidated in the judgment against the corporation. If the former, and it has been so held (Partridge v. Butler, 113 Cal. 326, 45 P. 678; Bridges v. Fisk, 53 Cal.App. 117, 200 P. 71; Damiano v. Bunting, 40 Cal.App. 566, 181 P. 232; Ellsworth v. Bradford, supra; 6 Cal.Jur. 1018, 1019), the judgment against the corporation does not conclude either party. There can, of course, be but one payment; hence satisfaction clearly destroys the other judgment (Butler v. Ashworth, 110 Cal. 614, 618, 43 P. 4, 386; Young v. Rosenbaum, 39 Cal. 646, 654), but until the debt is paid, there is no such other extinction or even limitation by one proceeding upon the other.
In Buttner v. Adams, supra, the court holds that while the stockholders’ liability is contractual and they are not tort-feasors, they are liable as if they were. In Ellsworth v. Bradford, supra, the respective liabilities of stockholders are said to be comparable to the liabilities of partners, and it is settled that the liabilities of partners for torts are those of joint feasors. Rogers v. Ponet, 21 Cal.App. 577, 581, 132 P. 851; Murphy v. Coppieters, 136 Cal. 317, 320, 68 P. 970. A plaintiff may sue all the tort-feasors together, or may sue each or less than all separately. Grundel v. Union Iron Works, 127 Cal. 438, 59 P. 826, 47 L. R. A. 467, 78 Am. St. Rep. 75; Cole v. Roebling Co., 156 Cal. 443, 105 P. 255; Fowden v. Pacific Coast S. S. Co., 149 Cal. 151, 86 P. 178; Dawson v. Schloss, 93 Cal. 194, 29 P. 31. Separate judgments for different amounts may be obtained against each, and one judgment does not constitute a bar to a judgment against another joint tort-feasor until there has been satisfaction of one judgment. Cole v. Roebling; Grundel v. Union Iron Works, supra. It is further held that a claim for damages for a single tort against several tort-feasors is not merged in the judgment against one or more of them, but each judgment remains separate and independent until satisfaction (15 Cal.Jur. 170; Fisher v. L. A. P. Co., 21 Cal.App. 677, 132 P. 767; Cole v. Roebling, supra), and in Young v. Rosenbaum, 39 Cal. 646, the court says:
"A judgment against the corporation does not extinguish or suspend the liability of the stockholders, and it clearly does not merge it."
The only way in which two separate claims upon the same debt may be so brought into unity that a judgment upon one remaining unsatisfied could or would affect the other by way of bar, abatement or limitation as to the amount recoverable, would be by the application of one of the following doctrines: (1) Res adjudicata; (2) merger; (3) estoppel by judgment. The judgment against the corporation is not res adjudicata as to the liability of the stockholder, for the reason that neither the parties nor the law imposing the liability is the same in the two actions. This is so held in numerous cases already cited, as also is the doctrine of merger repudiated in the cases referred to, and estoppel by judgment is but another name for the application of the rule of res adjudicata and by virtue of the identical authorities does not apply. 15 Cal.Jur. 99.
The recent case of Ellsworth v. Bradford, supra, is the leading case in this state upon the question of stockholder’s liability and the effect of a prior judgment against the corporation. The learned and painstaking opinion in that case sets at rest the position of the courts of California with respect to the relationship between the two classes of judgments. The nature of the stockholder’s liability and the distinction between the California system and those of other states are fully discussed and the conclusion reached that the actions are independent of each other because they involve different parties, different liabilities, different statutes of limitation, and that the claim against the stockholder is enforceable independently of proceedings against the corporation, and further, in reiteration of the previously expressed opinions, holds that the action against the stockholders is always upon the original indebtedness, regardless of any judgment against the corporation, and that therefore a judgment against the corporation is not evidence conclusively fixing the liability of the stockholder. The three distinct viewpoints of the various jurisdictions are discussed and classified, and the middle course adopted, namely, that a prior judgment against the corporation is only prima facie evidence of liability subject to rebuttal. This being true, it follows that a higher verdict may be returned than the amount awarded in the first judgment, if the evidence warrants a higher verdict, or it might readily be that a verdict in favor of the defendant could be rendered. In Ellsworth v. Bradford, supra, the New York case of Assets Realization Co. v. Howard, 70 Misc. 651, 127 N.Y.S. 798 (affirmed 211 N.Y. 430, 105 N.E. 680) is referred to as authority in support of the California rule, which case holds that while a judgment against the corporation undoubtedly binds the assets and property of the corporation, yet it does not bind the stockholders. That case is the only one from other jurisdictions involving substantially similar constitutional and statutory provisions which has been brought to our attention. In that case it appears that the New York Banking Act provided, like the California Constitution and statutes, that the liability of the stockholder was direct and primary. In 1892 the New York statute was amended to provide that no action should be brought against a stockholder until judgment had been entered against the bank and execution returned unsatisfied. There the court uses this language:
"It is somewhat argued that the force of the foregoing authorities is destroyed by an amendment adopted in 1892. *** Previous to this amendment it was provided that no action should be brought against a stockholder for any debt of the corporation until judgment therefor had been rendered against the corporation and an execution issued thereon had been returned unsatisfied in whole or in part. The amendment then provided: ‘And the amount due on such execution shall be the amount recoverable, with costs against the stockholder.’ It is asserted that this amendment is equivalent to saying that the judgment and execution shall be all the evidence that is necessary to fix the amount recoverable from the stockholder. That interpretation does not appeal to us. The section now containing said amendment is entitled ‘Limitation of Stockholders’ Liability.’ It contains the requirement as limiting the stockholder’s liability that a judgment must be recovered and execution issued before such liability attaches. Under these circumstances, I think that the meaning of the amendment was that the amount due on the execution thus required to be issued should be a limitation of liability and not proof of an indebtedness for which the stockholder is liable."
In California the statutory limitation limiting the stockholder’s liability is absent from the statute, and, following the reasoning of the New York court as to the effect of the amendment, the amount in controversy under our statute is open to adjudication in the second suit against the stockholder in the same manner as is the question of liability.
Respondent urges that the judgment against the corporation is the debt of the corporation, and that therefore the judgment sets the upper limit to the corporate liability so far as appellant is concerned. The idea that the judgment is the debt is not expressly stated by respondent, but appears mostly through the fact that it uses the words "judgment" and "liability" interchangeably and that it refers to the judgment as the debt of the corporation. That the debt and the judgment are not one and the same is held in Hunt v. Ward, 99 Cal. 612, 613, 34 P. 335 (37 Am. St. Rep. 87) in which the court says:
"The complaint bases the right to recover on the making of the note and the judgment against the corporation; but, as the liability of a stockholder is a separate and independent one, commencing with and dependent upon the original indebtedness, it is doubtful if the averments of the complaint in the case at bar are sufficient."
And in Bridges v. Fisk, 53 Cal.App. 117, 120, 200 P. 71, 73, we find this language:
"The gist of appellant’s objection to the complaint is that it does not state a cause of action upon the original indebtedness, but that, instead, it attempts to state a cause of action upon the judgment against the corporation. If the averments of the complaint justified any such criticism, then unquestionably that pleading would fall short of a statement of a cause of action on appellant’s statutory liability as a stockholder; for the stockholder’s liability under our statute is a separate and independent one, commencing with and dependent upon the original indebtedness."
That is to say, the stockholders can be held only for the original liability of the corporation, not for a judgment against it. Again, the liability exists before the payment, and a judgment may be taken against the stockholders without previous suit against the corporation. 6 Cal.Jur. 995; Favorite v. Superior Court, 181 Cal. 261, 184 P. 15, 8 A. L. R. 290; Knowles v. Sandercock, 107 Cal. 629, 40 P. 1047; Ellsworth v. Bradford, supra. In short, the judgment against the corporation is not the debt or liability for which the stockholders are responsible.
In support of its claim that the judgment sets the upper limit of the corporation’s debt, respondent advances the argument that as the judgment limits the liability of the corporation it also limits the liability of the stockholders, and, furthermore, as the stockholders would be discharged by payment of the judgment, they cannot be held to a liability greater than the amount of the judgment.
We have already seen that the liability exists entirely independent of the judgment. It exists and may be measured whether there has been a judgment or not. This follows from the fact that the stockholder may be sued before the corporation. The debt exists without the judgment; its amount is determined by occurrences out of court, not by the judgment, where the question is not res adjudicata. Respondent is no doubt led to its conclusion by the fact that between plaintiff and the corporation neither one may question the correctness of the judgment. This does not mean that the judgment is necessarily correct, for as between the original parties it is none the less a bar by reason of its being erroneous. Curtis v. Upton, 175 Cal. 322, 331, 165 P. 935; Lamb v. Wahlenmaier, 144 Cal. 95, 77 P. 765, 103 Am. St. Rep. 66.
It is true that had the first judgment been paid, plaintiff would have been barred from bringing the second action. "The bar arises not from any particular form in which the action is brought, but arises from the fact that the party complainant has been compensated for his injury." Adams v. Southern Pacific Co. (Cal. Sup.) 266 P. 541.
The appeal presents a unique question so far as the adjudicated cases are concerned. Strangely, the question has never before been passed upon in this state; but, applying the well-settled principles of analogous cases, it is not difficult of solution. By way of recapitulation it may be said that the "liability" and the "judgment" are two different things. The stockholders can be held only on the original liability. The judgment against the corporation fixes the existence of this liability conclusively only as between the corporation and plaintiff. The liability of the corporation is an open question in the creditor’s suit against the stockholder, the former judgment being merely prima facie evidence. It remains an open question as long as there has been no satisfaction of the first judgment. Consequently, the creditor may enforce his verdict against the stockholder, even though the jury found the original liability against the corporation in the action against the stockholder to be greater than the judgment against it showed.
It has long been settled that the same matter may be litigated twice. In short the rule that before satisfaction a creditor may recover different judgments against the corporation and the stockholders in this state is the natural and logical conclusion from well-settled rules of law.
Here the single question presented is whether the liability of the stockholders of a corporation in an action against them is limited to the amount recovered in a former action against the corporation. Whether the verdict is excessive or is supported by the evidence is not involved on this appeal.
The verdict having been reduced for the sole reason that the liability of the stockholder could not exceed the amount of the prior adjudication against the corporation, it follows that the judgment must be reversed and the cause remanded for proceedings in accordance with the views here expressed.
We concur: TYLER, P. J.; CASHIN, J.