The plaintiffs, creditors of a Maine corporation, having obtained a judgment against it in a California court upon an obligation incurred in that State in the conduct of business therein carried on by it, and having, upon execution issued upon that judgment, failed to secure satisfaction of it, seek such satisfaction against the estate of one who, during the last few years of his life, was the owner of a block of its capital stock purchased by him from another person to whom, at the time of the organization of the corporation, it was originally issued in return for property given and received as having a value equal to the par value of the stock. It is conceded that the law of Maine does not authorize the maintenance of the action under the conditions here presented. The plaintiffs' appeal is to the California law and to that alone. The basis of that appeal is that the provision in the corporation's charter expressive of its purpose to engage in business in California, together with the fact that the plaintiffs' claim upon which they obtained their California judgment was created in the conduct of such business, brings the situation within the reach of the law of that State. If this contention of the plaintiffs, made upon the claimed authority of Pinney v. Nelson, 183 U.S. 144, 22 Sup. Ct. 52, and Thomas v. Matthiessen, 232 U.S. 221, 34 Sup. Ct. 312, is well founded, as we may assume that it is, without deciding, we are next met by the question, fundamental to the plaintiffs' right of recovery, whether or not the conditions presented by this record are such as to meet the requirements of the law of California governing a stockholder's liability for corporate debts, where his stock was issued for property less in actual value at the time of issue than the amount of the par value of the stock, or which proved to be of less value than such par value. *Page 556
Fortunately for us the law of California, in so far at least as it has present pertinence, is neither obscure nor doubtful. An owner and holder of stock by transfer is subject to the same liability as he would be were he the person to whom the stock was originally issued.Vermont Marble Co. v. DeClez Granite Co., 135 Cal. 579,587, 67 P. 1057. It is legitimate for a corporation to dispose of its stock for full value received, whether in cash, property or services. Turner v.Fidelity Loan Concern, 2 Cal.App. 122, 132,83 P. 62, 70; Kellerman v. Maier, 116 Cal. 416, 422, 423,48 P. 377; Civil Code of California, § 359. Such a transaction is presumed to be fair until the contrary is shown. Turner v. Fidelity Loan Concern, 2 Cal.App. 122,132, 83 P. 62, 70.
Where stock is issued for property or services and not for cash, the rule governing the liability of stockholders to creditors is that defined in the so-called "good faith rule," as distinguished from the "true value rule" prevailing in some jurisdictions. "By this rule [i. e. the good faith rule] the good faith of the valuation and not the true value of the property, labor, or services, determines whether the stock is fully paid as against creditors. If the directors have acted in good faith and without actual fraud or intentional overvaluation, the stock is to be deemed fully paid up, even as against creditors, although it may afterward appear that, through mistake, accident, or error of judgment, there has in fact been an overvaluation." 14 Corpus Juris, § 1489. The adhesion of the California courts to this rule has been unequivocally declared in several recent cases. Hasson v.Koeberle (Cal.), 181 Pacific Rep. 387, 388; Harrison v. Armour, 169 Cal. 787, 790, 147 P. 1166; HerronCo. v. Shaw, 165 Cal. 668, 672, et seq., 133 P. 488. The decision in the first named of these cases, not *Page 557 yet officially reported, has been handed down since the judgment below was rendered, and removes any possibility of doubt as to the attitude of that court by its restatement of principle as follows: "Looking, therefore, to the California law, we find it undisputed that, where stock is sold for money and the purchase price is less than the par value of the stock, the difference between the par value and the amount actually paid is the measure of the stockholders' liability to creditors, and that in cases where the stock is not sold for cash, but it is issued for real or personal property having no generally defined `value, the rule is that where the corporation and stockholder have agreed upon a given valuation for the property transferred, such valuation is binding and conclusive unless it is fraudulent in purpose or effect. But if the parties have put upon the property, a valuation in excess of what they knew or believed to be the true value, this is a constructive fraud upon the creditors, and the stock would be deemed paid only to the extent of the actual value of the property received in exchange for it.'" p. 388.
It thus appears that under the California law neither the Huntoons nor Milner, their transferee, could have been held responsible to the company's creditors for nonpayment in full for the stock issued to the former in the event that it should appear, either (1) that the stock was paid for in property having a value equal to the par value of the stock, or (2) that the parties to the transaction of issue acted in good faith and without fraud or intentional overvaluation of the property received in return for the issue.
The court has found that both of these conditions were satisfied. It has found that the property was of the market value of $500,000 at the time it was conveyed to the company by those to whom its stock *Page 558 was issued, and has further found that the acceptance of the property in full payment for the stock issue was made in the utmost good faith and in the belief on the part of the participants, entertained after reasonable investigation and inquiry, that it possessed a value at least equal to the par value of the stock. The plaintiffs, however, have asked that the finding be corrected in respect to both these matters, as well as in other particulars unrelated to the aspect of the case under present consideration. Whatever may be said as to what the evidence on the question of value fairly established or did not establish, there can be no manner of doubt that the finding of good faith, which was to be prima facie presumed, was amply justified. And if it be so, as the plaintiffs claim, that the existence of good faith implies the exercise of reasonable investigation and inquiry as its foundation, the finding that such investigation and inquiry was made is not without reasonable support in the evidence. As the finding of good faith must stand, all foundation for a plaintiffs' judgment is gone, and all the other questions raised by the appeal, whether they relate to corrections of the finding or to the disposition of the case upon the facts found, are rendered unimportant.
There is no error.
In this opinion the other judges concurred.