Mokelumne Hill Canal & Mining Co. v. Woodbury

Cope, J. delivered the opinion of the Court—Baldwin, J. and Field, C. J. concurring.

This is a suit by a corporation to recover damages for the diversion of water from a certain ditch or canal, belonging to the plaintiff. On the trial of the case, one of the witnesses examined on behalf of the plaintiff, stated on his voir dire, that he owned at the commencement of the suit a number of shares of the stock of the corporation, but had sold and transferred the same soon after the suit was commenced. The competency of this witness is the only question necessary to be considered. The objection to his competency is based upon the ground of his liability for costs. *■

Under the Constitution and laws of this State, each member of a private incorporated company is answerable personally for his proportion of the debts and liabilities of the company. It was decided by this Court in the case of McAuley v. The York Mining Company, (6 Cal. 80,) that certain witnesses, who were members of the corporation when the liability was incurred upon which the suit was brought, were incompetent to testify in its behalf, because of their interest. That case is directly in point as determining the effect of the liability upon the competency of the witness, if) in fact, any liability existed at the time of his examination, and the question is, therefore, whether at that time he was legally bound for any portion of the costs of the suit.

It would seem, from a just and reasonable construction of the constitutional and statutory provisions upon this subject, that an individual corporator, in respect to his personal liability for the debts of the corporation, does not occupy the position of a surety, but that of a principal debtor. His responsibility commences with that of the corporation, and continues during the existence of the indebtedness. It is not in any sense contingent, but is declared to be absolute and unconditional. The remedial effect of these provisions, in which consists their only value, should not be impaired by construction. Similar provisions in other States have generally been construed in the [267]same manner. It has frequently been decided that the members of a corporation, who are answerable personally for the corporate debts and liabilities, stand in the same position, in relation to the creditors of the corporation, as if they were conducting their business as a common partnership. In Allen v. Sewall, (2 Wend. 327,) the words of the statute were, that “the members of the company shall be liable individually,” and it was held that they were placed “ upon the same footing as to liability, as if they had not been incorporated.” The Court said: “ Individual liability in the act must be understood, in contradistinction to corporate liability; and the defendants must, therefore, be held responsible to the same extent, and in the same manner, as if there was no act of incorporation.” The same doctrine was afterwards affirmed in Moss v. Oakley, (2 Hill, 265,) in which case it was held that a provision in the act of incorporation, making it necessary to obtain a judgment against the corporation before proceeding to enforce the personal liability of its members, did not prevent such liability from attaching and becoming perfect at the moment of the accruing of the demand against the corporation. In Hager v. McCullough, (2 Denio, 119,) one of the questions was, whether stockholders, who were personally liable for the debts of the corporation, were to be regarded as principal debtors, or as sureties for the corporation; and it was held that they were principal debtors. Chief Justice Bronson, in delivering the opinion of the Court, said: “ I think the stockholders, in their individual, as well as their corporate, capacity, are principal debtors. Although they have been incorporated with many of the privileges usually granted to men associated in that form, yet the privilege of exemption from personal liability for the debts of the company, has been denied to them, and their personal liability has been expressly declared. They are thus placed, in relation to the creditors of the company, upon the same footing as though they were an unincorporated association or partnership.” In Marcy v. Clark, (17 Mass. 330,) the Supreme Court of Massachusetts, in speaking of a statute of that State, making the members of incorporated companies personally liable for the debts of the company, declared its effects to be, in respect to the rights and remedies of creditors, to continue in operation the principle of partnership.