any money paid on account of them was lost, although the customer could recover stocks owned and pledged by him on other void contracts with the broker, as such stocks were so held without authority of law.

This section of the constitution, amended as it now stands, makes dealings with stock brokers and transactions on stock exchanges quite safe, so far as their legality is concerned. The intentions not to take, and not to deliver, the stock must both exist; if either party had no such intention, but the other did intend to perform his part of the transaction, the contract is valid.

8 Willcox v. Edwards, 162 Cal. 455, Ann. Cas. 1913C, 1392, 123 Pac. 276. A still later case came up, but the pleadings not raising any question of the invalidity of the contract, and, there being no findings by the lower court on the question, the supreme court declined to consider it, Potts v. Paxton, 171 Cal. —, 153 Pac, 957.

CHAPTER XVI

STOCKHOLDER'S LIABILITY

Article 12, section 3, of the constitution is as follows:

§3. 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.

The directors or trustees of corporations and jointstock associations shall be jointly and severally liable to the creditors and stockholders for all moneys embezzled or misappropriated by the officers of such corporation or joint-stock association, during the term of office of such director or trustee.

Nothing in the preceding paragraph of this section shall be held to apply to any exposition company organized to promote and carry on any international exposition or world's fair within the state of California, and the liability of stockholders in any such exposition company shall be and the same is hereby limited to an amount not exceeding the par value of the stock of said corporation subscribed for by such stockholders. (Amendment adopted November 3, 1908.)

The above provision of the constitution "refers to the direct personal liability of the stockholder to the creditor, and not to the relations existing between the corporation and its stockholders"; said in a case where the corporation sold its stock upon an agreement that it should be non-assessable.

1 Lum v. American Wheel etc. Co., 165 Cal. 657, 661, Ann Cas. 1915A, 816, 133 Pac. 303.

Section 322 of the Civil Code is as follows:

§ 322. 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.

If any stockholder pays his proportion of any debt due from the corporation, incurred while he was such stockholder, he is relieved from any further personal liability for such debt, and if an action has been brought against him upon such debt, it must be dismissed, as to him, upon his paying the costs, or such proportion thereof as may be properly chargeable against him.

The liability of each stockholder is determined by the amount of stock or shares owned by him at the time the debt or liability was incurred; and such liability is not released by any subsequent transfer of stock.

The term stockholder, as used in this section, applies not only to such persons as appear by the books of the corporation to be such, but also to every equitable owner of stock, although the same appears on the books in the name of another; and also to every person who has advanced the installments or purchase money of stock in the name of a minor, so long as the latter remains a minor; and also to every guardian, or other trustee, who voluntarily invests any trust funds in the stock.

Trust funds in the hands of a guardian, or trustee, are not liable under the provisions of this section, by

reason of any such investment; nor must the person for whose benefit the investment is made be responsible in respect to the stock until he becomes competent and able to control the same; but the responsibility of the guardian or trustee making the investment continues until that period.

Stock held as collateral security, or by a trustee, or in any other representative capacity, does not make the holder thereof a stockholder within the meaning of this section, except in the cases above mentioned, so as to charge him with any proportion of the debts or liabilities of the corporation; but the pledgor, or person or estate represented, is to be deemed the stockholder, as respects such liability.

In a corporation having no capital stock, each member is individually and personally liable for an equal share of its debts and liabilities, and similar actions may be brought against him, either alone or jointly with other members, to enforce such liability as by this section may be brought against one or more stockholders, and similar judgments may be rendered.

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, is the same as the liability of a stockholder of a corporation created under the constitution and laws of this state. (Amended March 20, 1905, Stats. 1905, p. 396.)

The proviso contained in the sixth subdivision of section 290 of the Civil Code, to the effect that no distinction as to stockholder's liability shall be created between preferred and common stock, is as follows:

Provided, however, that no preference shall be granted nor shall any distinction be made between the classes of stock either as to voting power or as to the statutory or constitutional liability of the holders thereof to the creditors of the corporation.

The stockholder's liability under the code is substantially the same as under the constitution, and the legislature can not exempt the stockholder of any corporation (in this case savings banks) from this constitutional liability.3

A liability of stockholders for the debts of a corporation organized under the laws of the state of California, independent of the liability of the stockholder upon his stock subscription, has existed in this state from the beginning to this day. The first constitution of the state (of 1849, article 4, section 36) declaring such a liability, was identical with article 12, section 3, of the present constitution down to and including the word "liabilities." The remainder of the present section of the constitution was added in 1879.

Neither is it within the power of the courts to declare any exemption from this liability.*

The Civil Code, section 322, follows the language of the constitution in declaring the liability and concludes with provisions which have been interpreted as a procedure for enforcing that liability, and not as shifting the same about as between stockholders and creditors, which has been contended was its effect. This will be made more clear by the perusal of the case of Gardiner v. Bank of Napa, 160 Cal. 577, 117 Pac. 667.

At and before the adoption of the constitution of 1849, similar provisions were not uncommon in many other states, but states having such liability laws began repealing them (the last being Kansas and Ohio, which imposed no general liability, but only what was called

2 Bidwell v. Babcock, 87 Cal. 29, 32, 25 Pac. 752; Harmon v. Page, 62 Cal. 448.

8 McGowan v. McDonald, 111 Cal. 57, 66, 52 Am. St. Rep. 149, 43 Pac. 418.

4 McGowan v. McDonald, 111 Cal. 57, 67, 52 Am. St. Rep. 149, 43 Pac.