Boyd v. Heron

HENSHAW, J. Plaintiffs brought this action against defendants as stockholders of the Consolidated Piedmont Cable Company, a street railroad corporation, for the purpose of enforcing their liability as stockholders for an indebtedness arising [454]upon ten bonds for a thousand dollars each, issued in part payment for the construction of the company’s road. Plaintiffs suffered nonsuit and from the judgment which followed they appeal.

The bonds were issued under authority of sections 456 and 457 of the Civil Code. These sections are under the subtitle of ’‘Railroad Corporations,” but by section 510 of the same code their provisions are applicable to street railway corporations.

It was urged with other grounds of nonsuit that no liability was cast upon the stockholders by the issuance of these bonds because the mode of their issuance was unauthorized by law. The contention of the appellants upon this point is that the bonds were duly issued in compliance with the provisions of sections 456 and 457, were issued for a purpose recognized by those sections, and that, though issued in payment of the work of construction, by their issuance a new and original liability was created against the corporation and against those who were stockholders at that time. By respondents it is insisted that the bonds could only be legally issued after compliance with the provisions of section 359 of the Civil Code, that these bonds were not so issued, that the stockholders never assented to the issuance, and that therefore the bonds are void, or that, at the least, no liability against the stockholders on account of the bonds has been created.

This position of respondents we think is sound. The issuance of these bonds was not an increase, but the creation of a bonded indebtedness. Under the provisions of section 359 of the Civil Code the bonded indebtedness of a corporation may be created or increased by a vote of the stockholders representing at least two-thirds of the entire capital stock, at a meeting called by the directors, et cetera. Section 456 of the Civil Code declares that railroad corporations may issue bonds in payment of any debts or contracts for constructing and completing their road, and further authorizes the directors to impose regulations and restrictions upon the issuance. Section 359 is a general section applicable to all corporations, one of the most important provisions of which is to give the stockholders a voice in saying whether or not a bonded indebtedness shall be created or increased. No reason is perceived why railroad corporations