Wilson v. Cherokee Drift Mining Co.

California Supreme Court Jul 21, 1939 No. Sac. 5219Published

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Holding. The court held that a corporation may constitutionally levy an assessment on stockholders to pay debts incurred prior to an amendment of the articles of incorporation, and that statutory notice requirements regarding assessments on stock certificates do not apply to stockholders who held their shares at the time the assessment power was adopted.

Issues

Whether an assessment on stockholders to pay corporate debts incurred prior to an amendment of the articles of incorporation violates due process or impairs the obligation of contract.
Whether a corporation's failure to state the power of assessment on a stock certificate renders the assessment void against a stockholder who held the shares when the power was adopted.

Disposition. affirmed

Quotations verified verbatim against the opinion

“No violation of his constitutional rights was involved in the making of that assessment.”

“Persons to whom stock is issued by the corporation cannot correctly be deemed “transferees".”

“The provision was therefore entirely inapplicable to him.”

THE COURT.

This is an action to cancel an assessment on shares of stock and enjoin the sale of stock for the enforcement thereof.

Defendant is a California corporation, with a capital stock of 500,000 shares of $1 par value. In 1935, plaintiff recovered a judgment against certain shareholders and acquired their stock in satisfaction thereof, new certificates being then issued to him in the amount of 46,666 shares. At that time the stock was nonassessable.

In May, 1,937, the articles were amended to permit the levy of assessments by the board of directors. At that time the corporation owed current accounts of over $3,000, and was liable to its president, Alexander Logie, on promissory notes given for cash advances in the sum of $13,312.32. Logie held 276,712 shares.

On July 9, 1937, the board levied an assessment of five cents per share on the outstanding stock. At the same time it adopted a resolution authorizing acceptance of any part of the promissory notes held by Logie as payment of his assessment. When enforcement of the assessment was attempted, plaintiff protested, and thereafter brought this action to annul it. It is conceded that Logie, the president, controlled the board of directors, but no fraud or. breach of trust was charged, and the validity of the debts was not questioned. The lower court gave judgment for defendant corporation and plaintiff appealed.

The first and principal contention of plaintiff is that the assessment in this ease involves a denial of due process

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of law, and an impairment of the obligation of contract. The right of the corporation to amend its articles to provide for the power of assessment is o£ course conceded, and it is likewise conceded that one who becomes a stockholder makes his contract in anticipation of any possible changes in the law under the state’s reserved power (see, generally, Ballantine & Sterling, California Corporation Laws, 1938 ed., p.

5; Heller Inv. Co.

Southern T. & T. Co.,

17 Cal. App. (2d) 202 [61 Pac. (2d) 807]); but it is asserted that to assess the stockholder for debts existing prior to the amendment of the articles is an unconstitutional application of the law.

Wilson v. Cherokee Drift Mining Co.

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THE COURT.

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