The San Francisco call., 1899-06-05

lHCilOSi ~ -
daon and the condition OF the stock OF that company
bare Of vital nubIic interest Both the bonds and he
stock are now bought and sold in this city and posi-
bv elsewhere and their value depends upon facts and
unon law that are Dresumptively within the range OF
ordinary inquiry
The general law in relation the issue OF bonds by
corporations and therefore applicable to street rai-
way companies is qualified by constitutional reSulc-
tons and bv corresponding statutory amphhca'lon'
Article XII section H. of the Constitution OF TINS
State nrovdes: mo corporation shall issue stock or
bonds except for money paid, labor done or property
actually received and all fictitious increase OF STOCK OF
Indebtedness shall be void, This distinct hmlfatio"
followed in section $50 OF the Civil Code was held 10
be prohibitory in the case OF Ewing VS. OroWle ii-
mo ComDanv reported in volume 50 OF the California
Reports pages 652-6s3 and the ruling was reattlrmed
in Oakland Paving Company Hilton, 90 Callfor-
MIA REPORTS page ass Subject this stringent rule
there can be no doubt OF the right OF the Market
Street Railway Company TO guarantee the outstand-
ing Indebtedness OF the various corporations OF which
it became the successor we'll to contract ndept
edness of its own 1t has been expressly decided that
consultations of that character in the issue OF bondS
are entitled to exercise the powers OF the original
companies whose property franchises and DEBTS II
takes and assumes And in the OF Low vs. the
Central Pacific Railroad Company, 81 California Re-
ports. pages 5000, in which, however Mr. justice
McKinstry dissented, our Supreme Court sustained
the power to guarantee bonds. The doctrine OF ac-
cession or the extension OF liens created by trust
deeds given TO secure the payment OF railway bonds
50 as to include after-acqured property although to
some extent doubted was upheld in two noted cases
in New Hampshire and Pennsylvania, and is widely
accented as the prevailing law. This OF course is an
important element in estimating railroad securities,
where the money they represent is largely applied to
the construction OF additional track and the enlarge
ment OF existing systems.
But in this State, especially in the Federal courts,
the plan OF the Constitution for the protection OF
investments in corporate bonds, aided by numerous
subsidiary and pre-existng rules, has been rgidly
enforced An example OF this kind, somewhat de
pendent upon the language OF legislative enactment,
was the decision under the Wright Irrigation Act in
the case OF Hughson VS.. Crane to be found in us
California Reports, at page 4I8 In the case OF the
Illinois Savings Bank vs., Pacific Railway Company,
IL California Reports, pages 332-334, an issue OF
street railway bonds justified, and the opinion IS
interesting exposition OF the law on that subject.
Even when an original issue OF bonds was of ques-
tionable legality but a number OF them were trans
ferred to bona de purchaser after he had received
satisfactory assurances from the vice president the
secretary and the attorney OF the company that had
put them in circulation. the corporation was bound
under the decision OF the United States Circuit Court
for the Southern District OF California in the case
Of the Union Loan and Trust Company vs. The
Southern California Motor Company, published in
volume 81 OF the Federal Reporter, page $40 There
are many authorities in support OF the right OF bona
hde purchasers Of railway bonds in open market and
nice distinctions and qualifications affecting those
rights where there palpable nvadity in the issue
where there were overssues OF bonds frequent
While the judicial inclination to maintain the inter
eets OF honest purchasers is manifest there are in
stances in which that tendency is controlled by plain
law The same Federal tribunal already mentioned
in the case OF the Farmers Loan and Trust Company
vs.. The San Diego Car Company, 45 Federal Re
porter, page 5GS, was compelled to throw out bonds
which were not sold but used by way OF pledge to Sc
cure antecedent Indebtedness In Texas where there
are some constitutional features peculiar that State
an issue OF bonds was invadated because no sinking
fund had been provided for their redemption. This
decision has important bearing upon some OF the
facts to which we are about to allude
1t is manifestly impossible in a newspaper article
to elaborate legal propositions and authorities But
enough may be concisely presented to suggest eau
tious inquiry and consideration 1t is obvious, apart
from the personal liability Of stockholders and the
equitable remedies by which irregular corporate pro-
ceedings may often be corrected, that the available
practical security for their liquidation and that the
franchises which vitalze the security the most
important elements for accurate judgment 1t is to
be carefully noted also that the charter OF street
railway corporation, through which its powers are
conferred by the State is always be distinguished
from the municipal franchises that, while they last
constitute the chief factors in the actual value OF its
property.
Tie Market Street Railway Company was ncor-
porated October I3, 1898, for general street railway
business in San Francisco and in San Mateo County.
It consolidated eleven other corporations, among
which the Geary street line was not included 1t has
since acquired about 90 per of the stock in the
corporation owning that line the franchise of which
will expire November O. 1908 and is thus interested
in the bonds to the amount of $67I that will ma
when the present charter has for years been dead
But OF the eleven corporations embraced in the CON
solidaton six had outstanding bonds secured by trust
mortgages, and in relation to this Indebtedness the
! condensed facts are very significant We will en-