Willamette Iron & Steel Works vs. A.H. Muzzal

A Philippine court may enforce a foreign statute imposing proportionate personal liability on stockholders for corporate debts where the foreign law is properly proved as a fact, and a stockholder who was an incorporator of the foreign corporation and remained a stockholder when the obligations were incurred is chargeable with notice of that law and cannot escape liability merely because it differs from the Philippine Corporation Law.

Willamette Iron & Steel Works sought to recover from A.H. Muzzal, a former California resident then residing in the Philippine Islands, obligations contracted by Meyer-Muzzal Company, a California corporation in which Muzzal held stock. California Civil Code section 322 imposed on each stockholder individual and personal liability for such proportion of corporate debts contracted while he was a stockholder as his shares bore to the subscribed capital stock, a regime that differed from the Philippine Corporation Law. The case thus required the Philippine courts to determine how foreign law is proved and whether it may be enforced against a Philippine resident who was a stockholder of a California corporation.

Willamette Iron & Steel Works, plaintiff-appellee, sought recovery from A.H. Muzzal, defendant-appellant, for obligations contracted by Meyer-Muzzal Company, a California corporation. Muzzal, a former resident of California then residing in the Philippine Islands, was a stockholder in that corporation when the obligations were contracted. The company had been incorporated on August 22, 1924, with Muzzal, Leo W. Meyer, and James Rolph, Jr. as incorporators, all residents and citizens of California. The obligations at issue were incurred on November 5, 1928 and December 22, 1928. Plaintiff invoked section 322 of the California Civil Code, which imposed on each stockholder individual and personal liability for such proportion of corporate debts contracted while he was a stockholder as his shares bore to the subscribed capital stock.

At trial, Stanley H. Hermann, a certified public accountant, testified that he had examined Meyer-Muzzal Company’s books, stock, and other records in October, November, and December 1929 for the purpose of certifying the company’s financial condition as of March 31, 1929. From his working papers, he stated that A.H. Muzzal was a stockholder on November 5, 1928 and December 22, 1928, and that 1,433 shares of capital stock, each with a par value of $10, were subscribed and owned by Muzzal and stood in his name on the company’s books on those dates. The subscribed capital stock of the company on those dates was 5,000 shares with a par value of $10 each. The appellant assigned as error the lower court’s holding that he held 1,432 shares, but the reviewing court found the evidence established ownership of 1,433 shares.

To prove California law, Arthur W. Bolton, an attorney-at-law of San Francisco, California, since 1918, testified under oath, quoted section 322 of the California Civil Code verbatim, and stated that the section was in force when the obligations were incurred on November 5, 1928 and December 22, 1928. Ragland’s Annotated Civil Code of California was also presented as evidence; it contained California’s Civil Code as adopted March 21, 1872, with subsequent official statute amendments to and including 1929.

Muzzal contended that the California law differed from the Philippine Corporation Law and should not be applied to him. The record showed that he was an incorporator of Meyer-Muzzal Company in 1924 and was still a stockholder in 1928. Exhibit 10, a certified copy of the articles of incorporation, showed that the company was incorporated on August 22, 1924, and that the incorporators were A.H. Muzzal, Leo W. Meyer, and James Rolph, Jr., all residents and citizens of California. The trial court found the plaintiff had established its claims against Muzzal; on review, the evidence was found sufficient to establish Muzzal’s ownership of 1,433 shares and the existence and force of the California statute.

• Ownership of Shares: Muzzal, defendant-appellant, assigned as error the lower court’s holding that he was the holder of 1,432 shares of Meyer-Muzzal Company.
• Proof of Foreign Law: Muzzal assigned as error the lower court’s finding that the plaintiff had proven the existence of the foreign law involved in the action.
• Enforcement of California Law: Muzzal argued that because California law on stockholder liability was different from and inconsistent with the Philippine Corporation Law, Philippine courts should not impose liability under that law upon a resident of the Islands who was a stockholder of a California corporation.
• Judgment Against Defendant: Muzzal assigned as error the lower court’s rendition of judgment against him.

• Ownership of Shares: Whether the lower court erred in holding that Muzzal was the holder of 1,432 shares of Meyer-Muzzal Company.
• Proof of Foreign Law: Whether the plaintiff sufficiently proved the existence of the foreign law invoked.
• Enforcement of California Law: Whether the lower court erred in enforcing the California law on stockholder liability against Muzzal.
• Judgment Against Defendant: Whether the lower court erred in rendering judgment against Muzzal.

• Ownership of Shares: Not reversible. The evidence sufficiently established that Muzzal was a stockholder and owned 1,433 shares when the obligations were contracted; the assignment does not defeat liability.
• Proof of Foreign Law: No. The testimony of Attorney Bolton, who quoted section 322 verbatim and stated it was in force when the obligations were incurred, together with Ragland’s Annotated Civil Code, sufficiently proved the foreign law; sections 300 and 301 of the Code of Civil Procedure do not exclude other competent evidence.
• Enforcement of California Law: No. Muzzal, as an incorporator and stockholder of a California corporation, was chargeable with notice of California law on stockholders’ liability and could not escape liability merely because it differed from the Philippine Corporation Law.
• Judgment Against Defendant: No. The judgment of the trial court was affirmed, with costs in both instances against Muzzal.

• Ownership of Shares: The Court relied on the testimony of Stanley H. Hermann, a certified public accountant who examined Meyer-Muzzal Company’s books, stock, and records in October, November, and December 1929. Hermann testified from his working papers that Muzzal was a stockholder on November 5, 1928 and December 22, 1928, and that 1,433 shares of the corporation’s capital stock, each with a par value of $10, were subscribed and owned by Muzzal and stood in his name on the company’s books on those dates. The subscribed capital stock on those dates was 5,000 shares with a par value of $10 each. The Court concluded that this evidence sufficiently established that Muzzal owned 1,433 shares when the corporation contracted the obligations alleged in the complaint. Although the appellant assigned error to the lower court’s holding of 1,432 shares, the Court’s finding of 1,433 shares did not disturb the judgment.
• Proof of Foreign Law: The Court held that foreign law is a matter of fact and may be proved by competent evidence. Arthur W. Bolton, an attorney-at-law of San Francisco, California, since 1918, testified under oath, quoted section 322 of the California Civil Code verbatim, and stated that the section was in force when the obligations were incurred on November 5, 1928 and December 22, 1928. Ragland’s Annotated Civil Code of California was also presented as evidence, containing California’s Civil Code as adopted March 21, 1872, with subsequent official statute amendments to and including 1929. Sections 300 and 301 of the Code of Civil Procedure do not exclude the presentation of other competent evidence to prove the existence of a foreign law. The Court thus found the foreign law sufficiently established.
• Enforcement of California Law: The Court reasoned that Muzzal was chargeable with notice of California law on stockholders’ liability because he was one of the incorporators of Meyer-Muzzal Company in 1924 and was still a stockholder in 1928. Exhibit 10, a certified copy of the articles of incorporation, showed that the company was incorporated on August 22, 1924, and that the incorporators were A.H. Muzzal, Leo W. Meyer, and James Rolph, Jr., all residents and citizens of California. The Court held that Muzzal could not escape liability by alleging that the California law was unjust and different from or inconsistent with the Philippine Corporation Law.
• Judgment Against Defendant: Because the evidence established Muzzal’s stock ownership and the foreign law was sufficiently proved and enforceable, the trial court’s judgment against him was affirmed, with costs in both instances.

• Foreign Law as a Matter of Fact — Foreign law must be proved as a fact in Philippine courts. It may be established by competent evidence, including the testimony of an attorney-at-law who quotes the foreign statute and states that it was in force when the obligations were incurred, and by an annotated code containing the statute. Sections 300 and 301 of the Code of Civil Procedure do not exclude other competent evidence. Applied: Bolton’s testimony and Ragland’s Annotated Civil Code sufficiently proved California Civil Code section 322.
• Stockholder Liability Under Foreign Corporation Law — A stockholder of a foreign corporation who was an incorporator and remained a stockholder when corporate obligations were incurred is chargeable with notice of the foreign law governing stockholders’ liability for corporate debts. He cannot escape proportionate personal liability merely because that law differs from or is inconsistent with the Philippine Corporation Law. Applied: Muzzal, an incorporator of Meyer-Muzzal Company in 1924 and a stockholder in 1928, was held liable under California Civil Code section 322.
• Proportionate Stockholder Liability — Under California Civil Code section 322, each stockholder is individually and personally liable for such proportion of corporate debts contracted while he was a stockholder as his shares bear to the subscribed capital stock. Liability is determined by the shares owned at the time the debt was incurred and is not released by subsequent transfer. Applied: Muzzal owned 1,433 of 5,000 subscribed shares when the obligations were incurred.

• "The foreign law is a matter of fact ... You ask the witness what the law is; he may from his recollection, or on producing and referring to books, say what it is." — States the rule that foreign law is proved as a fact and identifies competent testimonial means of proof, which the Court applied to Attorney Bolton’s testimony.
• "A reading of sections 300 and 301 of our Code of Civil Procedure will convince one that these sections do not exclude the presentation of other competent evidence to prove the existence of a foreign law." — Clarifies that the Code of Civil Procedure does not restrict proof of foreign law to the modes therein, supporting admission of Bolton’s testimony and Ragland’s Annotated Civil Code.
• "The above sufficiently establishes the fact that the defendant was the owner of 1,433 shares of stock of the corporation Meyer-Muzzal Company when it contracted the obligations alleged in the complaint." — Records the Court’s factual finding on Muzzal’s stock ownership, the basis for his proportionate liability.
• "The defendant cannot now escape liability by alleging that the California law is unjust and different from the inconsistent with the Philippine Corporation Law." — States the ratio on enforceability: a stockholder who was an incorporator and remained a stockholder is chargeable with notice of the foreign law and cannot avoid liability merely because it differs from Philippine law.

• Section 322, California Civil Code — Each stockholder of a corporation is individually and personally liable for such proportion of all 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 subscribed capital stock. Any creditor may institute joint or several actions; the court must ascertain each defendant’s proportion and render a several judgment; payment of his proportion relieves the stockholder; liability is determined by shares owned when the debt was incurred and is not released by subsequent transfer. Applied: Muzzal was held liable for his proportionate share of Meyer-Muzzal Company’s obligations to Willamette Iron & Steel Works.
• Sections 300 and 301, Code of Civil Procedure — Cited by the Court as not excluding the presentation of other competent evidence to prove the existence of a foreign law. Applied: these provisions did not bar the testimony of Attorney Bolton or the admission of Ragland’s Annotated Civil Code of California to prove section 322.

Malcolm, Abad Santos, Hull, Vickers, and Diaz, JJ., concurred.

• Justice Butte — Dissented, stating that the appellant’s first assignment of error was well taken and citing sections 284 and 321 of the Code of Civil Procedure. The text provides no further explanation of his disagreement.