Thomas v. Matthiessen

Background

A California citizen who held two promissory notes made in California sued to collect from a New York resident who owned stock in the Wentworth Hotel Company. The company was incorporated under Arizona law to build and run a hotel near Pasadena, California, and the shareholder signed a written statement supporting that plan and later bought shares. He also wrote that he expected to be exempt from personal liability, and the company’s charter echoed that exemption. California law, however, makes each stockholder personally liable for a proportion of corporate debts when the corporation does business in California.

Reasoning

The Court asked whether a stockholder who agreed the corporation would do business in California could avoid the state’s statute exempting him from liability. The majority said a corporation cannot bind a person beyond the charter without the person’s assent, but where a stockholder clearly assents to the company doing business in California he accepts the risk of California’s laws. Because the shareholder in writing authorized the hotel project in California, the Court treated him as having made himself a party to debts incurred there and therefore personally liable for his share.

Real world impact

The ruling lets a creditor who holds California-made notes pursue an out‑of‑state stockholder for his share of corporate debts when that shareholder consented to the company’s California operations. The Court reversed the lower court and entered judgment for the noteholder on the agreed facts.

Dissents or concurrances

The Chief Justice dissented from the majority’s conclusion. Justice Hughes took no part in the decision.