Regan

The above-entitled actions were brought to enforce stockholders’ liability for debts of a corporation, under the law existing prior to 1931. They were consolidated and tried under an agreed statement of facts.

Pasadena Milling Company, Inc., incorporated in California, had on November 30, 1925, an indebtedness of $146,241.92. On that date it secured a permit from the corporation commissioner to sell stock. The conditions of the permit were that it could (1) sell one share of common stock to each of five directors at $100 per share for cash; (2) sell 760 shares of common stock to Pasadena Milling Company for its assets, subject to the above-stated indebtedness; and (3) sell 500 shares of preferred and 235 shares of common stock at par, for cash, but not until sale and receipt of the consideration for the shares to be issued under provisions (1) and (2), supra. The permit also read: “This permit is issued itptm the condition that a true copy of said permit be exhibited and delivered to each prospective subscriber for or purchaser of said securities before his subscription therefor shall be taken or any sale thereof made.” Included in the document were figures showing the financial…

I dissent.

I cannot indorse the doctrine pronounced in the foregoing opinion. I do, however, realize that to hold otherwise would require a disapproval of several cases, principally opinions of the District Court of Appeal, and also differentiation of some of the eases decided by this court.

The theory of the present holding seems to be based on the postulate that the corporation would have no standing in a suit on the stock subscription agreement nor any defense to an action for rescission of the sale of stock under such conditions; hence a creditor of the corporation would have no better standing. This conclusion, I think, is unsound and does not follow from the premises.

The liability of the stockholder to the creditor is a primary one. The creditor has not been a party to violation of any of the terms of the permit. The alleged violations of the permit offend no rule of public policy and violate no mandate of statute. The conditions imposed by the permit were such as sprang only from the exercise of a discretionary power by the commissioner who issued it. .The stockholder may have condoned or even participated in the violation of the terms of the permit. Estoppel should…