Smith v. Pillsbury

BEASLY, J.,

pro

tem.

This is an appeal on the judgment-roll alone from a judgment in favor of the defendants in an action brought to recover from them, as stockholders in a corporation, their proportionate liability for an indebtedness of the corporation upon certain bonds owned by the plaintiff, the corporation having failed to meet the payments of interest thereon.

The sole question presented by the record for determination is whether or not the cause of action pleaded is barred by the provisions of section 359 of the Code of Civil Procedure, limiting to three years the time within which an action may be commenced.

There is no dispute about the facts. Each of the defendants was the owner and holder of shares of stock in the Ocean Shore Railway Company, a corporation organized pursuant to the laws of this state. Subsequent to its organization, at a meeting called and held for the purpose, its stockholders regularly ordered and created a bonded indebtedness in a large amount, to be represented by bonds, which were to be issued by the corporation as funds should be required for payment of construction, equipment, and maintenance of the railroad. The bonds were for the sum of one thousand dollars each, payable thirty years from November 1, 1905, with interest at the rate of five per cent per annum. They were secured by a mortgage and deed of trust of all property owned by the railroad corporation, which provided that in case default should be made in the payment of interest on any of such bonds for a period of ninety days, then the principal should become immediately due and payable. On the second day of April, 1908, the railroad corporation, in payment of certain electrical machinery theretofore purchased by it, gave to the General Electric Company its promissory note, and deposited with that company as a pledge for the payment of the note 150 of said bonds; and the railroad company agreed that should the note or any interest due thereon remain unpaid according to

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its terms, the General Electric Company might sell the bonds and apply the net proceeds thereof in satisfaction of the note. The railroad corporation being in default in the payment of certain interest on its said bonds, the trustee, pursuant to the terms of the deed of trust, sold at public auction on January 7, 1911, all the property held by it as security, and applied the sum of money thus realized to the equal and proportionate payment of all of said bonds. In the meantime default had also been made in the payment of interest on its note of April 2, 1908, and on July 28, 1910, the payee of the note sold the bonds pledged with it, and at that sale the plaintiff became the owner of twelve of such bonds.