The San Francisco call., 1899-06-12
STREET RAILWAY BONDS.
Are Stockholders Liable for
Them2

Editor of The Call-Sir: Your editorial
headed Street Railway Bonds and
Stocks in The Call Of yesterday makes
strong and timely showing of the dubious
character of the securities upon which the
bond issue of the leading street railway
of San Francisco rests. AS the savings of
many who cannot afford to risk the loss
OF any part of their principal is likely to
be invested from time to time in these
bonds, the press of the city is doing
good work when it holds up to public in
spection the facts which show how made
ouate the security is upon which the ulti-
mate payment of these street railway
bonds depends.
NV attention has been challenged by one
statement in the editorial referred to
which shows that the writer has overlook
ed one important point as to the liability
of the stockholders of these corporations.
After calling attention to the fact that no
provision is made for an adequate sinking
fund for the payment of the authorized
issue of SIT 500 600 of bonds when they ma
ture and showing that the property
pledged for their payment will be of but
little value owing to the lives of the fran
chises of the corporation being near their
end when the time comes for payment of
the bonds the writer says: when the
securities have been divested of all value
except the property remnants that sur
Vve the existing franchises, the bulk of
the Indebtedness will have behind it only
the personal liability of stockholders and
agement of the monopoly may justify
Unfortunately, the bondholders will not
have even the slender security of per-
Sonal liability of the stockholders.
AS to the personal LIABILITY of the stock
holders upon these bonds when they ma
ture, there will be absolutely none. Sec
ton 359 of the Code of Civil Procedure of
California provides that actions to en-
force the liability of stockholders of a cor
poration must be brought within three
years after the liability was created This
provision of law has been successfully in
Voked in several cases, which have been
decided by our Supreme Court to protect
stockholders from liability for the obliga-
items of corporations which have matured
more than three years after their crea-
ticn. 1t would seem at first blush that
this is a hard rule of law, which deprives
a creditor of recourse against the stock
| holders of corporation upon claim on
which he cannot bring suit until after the
statutory Liability of the stockholders is
barred by limitation. But as was well said
by Judge Mcfarland in the decision of the
Supreme Court of California in the case
| of Hunt VS.. Ward (Vol. 99 Supreme Court
de Haven and Fitzgerald: Such a con-
dition of affairs would not be the neces-
sary outcome of the law, for the code
gives the creditor ample room and time to
subject stockholders to their independent
| liability for the Indebtedness of the cor
poration. But II he chooses to make a
contract with the corporation by which
Its payment of the Indebtedness is post
! pcned beyond the three years limitation
| in favor of the stockholders he simply
I does an act which practically valves his
right against the latter" The case of the
Bank of San Luis Obspo VS.. Pacific
Steamship Company (Vol. 103 Supreme
| Court Reports). is another California case
which denies the creditor of corporal ton
! recourse against it's stockholders under
! similar circumstances. In this case the
| court says: 1T must now be regarded as
settled law in this State that the liability
! of a stockholder of d corporation to pay
| his proportion of its corporate debts is
one created by statute, and an action to
enforce that liability must be brought
within three years after the cause of ac-
ton accrues. Later decisions of like I'M
| port have been given by our Supreme
| Court, and the same rule of law was ap-
| pied by the United States courts IN an
action brought to subject the Stanford es-
| tate to liability for the bonded debt of the
/ Central Pacific Railroad Company, in
| which action the court held that the eS-
! tate was not liable.
The statute of limitations In California
| gives three years after the discovery by
! the aggrieved party of the facts constt-
| tuting a fraud in which to bring an dc-
| ton for relief upon the ground of such
! fraud If some of the many rumors of
| bribery and venality in connection with
| the granting of street railway franchises
! in San Francisco could be traced down,
and definite legal proof of such frauds in
obtaining them should at any time here
after be had an action might be success
! fully brought in behalf of the people to
revoke or annul such franchises; This
| possibility is an added element of uncer-
| tainty and risk to be considered in ascer-
! tanning the value of the security for the
! payment of these street railway bonds
! F. w. VAN REYNEGOM
l San Francisco, June 8, 1893.