The San Francisco call., 1899-06-12
STREET RAILWAY BONDS.

!
Ward be correct then as to the outstanding bonds Of
the Market Street Railway Company, amounting to
S4SI7ooo and OF the SIX consolidated street railways
aggregatng Szo35.ooo an additional element OF in
security exists beyond those already recaptulaed in
The Call II it be true that the statute OF limitations
runs in favor OF stockholders from the date OF any
obligation given by a corporation evidence OF
Indebtedness and that. under Hunt Ward, that IS
the latest date which sets the in motion then
the three years limitation would bar any action by
bondholders against the Ferries and Cliff House Rail
way Company the Market Street Gable Company the
Omnibus Cable Company the Powell Street Railway
Company, the Park and Cliff House Railway Com
pany and the Park and Ocean Railroad Company and
also against the Market Street Railway Company so
iar as every one OF its bonds not negotiated within
three years is concerned
But we hope the case is not quite so bad as ap-
pears to Judge Van Reynegom and that, notwith
standing his views OF Hunt Ward, the personal la
bity OF stockholders pay their pro OF street
railway bonds may survive That liability arises
der article Nil section 3, OF the State Constitution,
which IS not self-eXecuting but has been fully
forced by section 322 OF the Civil Code. If it be the
law, where the original Indebtedness and the oblga-
ton which extends the time for its payment for
term OF years exceeding three are coincident, that
stockholder is protected by limitation before right
OF action against him accrues, the constitutional safe
guard for bondholders is destroyed To hold that an
obligation which prevents corporation from being
sued coners against its stockholders right OF ac-
ton which is incapable OF actual enforcement would
equally Illustrate the intention OF the trainers OF our
fundamental law. In fact either hypothesis would be
absurd.
This case OF Hunt Ward, 90 California Reports,
p 6I2, has been widely interpreted as leading to
these nonsensical conclusions. About six months ago
eN-C Chief Justice Currey, who at great age retains
his full intellectual vigor and takes deep interest in
law questions affecting the welfare OF the people pub
shed very searching criticism upon the opinion in
the case, in which the widespread evil that would re-
suit from the literal enforcement OF some OF its propo-
sitions was cogently presented Some OF his Ian
guage has forcible application to the immediate
question in hand: 1t is common practice for great
corporations OF the State to borrow large sums of
money long terms OF years for which they issue
nterest-bearing bonds payable in ten fifteen, twenty
or more years after the date of their issue Are the
creditors in such cases presumed to have waived and
rellnqushed all right to look for payment to the
stockholders as a prospective indemnity against the
loss OF their money so invested?'
In the case OF French Teschemacher, "a Cali
ornia Reports, p. $50, it was early decided and it
has since been frequently held that the personal la
blllty OF stockholders could be waived but only by
contract. In the opinion OF some able lawyers Hunt
vs. Ward when restricted to the exact question it in
volved be easily construed so as to avoid an en-
forced waiver that would be an oblteration OF the
liability itself In that case after the foreclosure of
mortgage against the corporation and the applica-
ton OF the proceeds of the sale of the mortgaged
premises the payment OF a note. there was iudg-
ment for deficiency which it was sought to en-
force as primary liability Of the stockholders This
attempt cOnficted with the settled law Of the State
that the original Indebtedness fixed that liability
which could not aiterward be enlarged or extended
by contract or by litigation between a corporation
and its creditors The complaint also as Mr. Justice
Mcfarland stated did not attempt to aver the date
When the Indebtedness for which the stockholders
actually responsible accrued and there was moth
rg LETT for the Court do but to infer the fact from
the date OF the note Without discussing the ques-
ton, therefore, whether the grounds upon which the
decision placed transcribed the necessities OF the
situation, the decision itself harmonized with our
State precedents For example in Stphen VS. Ware
45 California Reports, pp 10, H. where iudg-
ment against corporation had been treated as the
original Indebtedness that the stockholders could be
compelled TO pay, it decided that this position
was unsOund and that the personal liability applied
exclusively to the Indebtedness upon which the udg-
ment was obtained, which in that instance was for
services rendered The injustice OF permitting the
duration OF the liability OF stockholders to be extended
without their consent by corporate acts or by pro
ceedngs against corporations is too papabe for argu-
ment 1t could only be paraeled by judicial deter
limitations that would accord to them total exemp-
ton.
The true rule, with which Hunt vs. Ward probably
may be reconced is that the personal liability OF
stockholders arises concurrently with the first exist
ence OF an Indebtedness against corporation that
be legally enforced, or, in other words that is
due Whenever right of action against corpora
ton is complete the three years OF limitations
IN favor OF individual stockholders begins to run This
Is the law as established by Davidson vs. Rankin a
California Reports, PIP. sos, 500, Mitchell VS. Beck
man, O. California Reports, p. I22 Hyman vs. Cole
man, OF California Reports, p 653 and by sew
eral other authorities in this State and it is scarcely
possible that it will be permanently overturned or OBJ
structed by Hunt vs.. Ward
Apart from equitable proceedings in cases of fraud
II