Court Opinion

ID: 8655435
Source: CourtListenerOpinion
Date Created: 2022-11-24 21:15:28.90022+00
Date Added: 2024-06-11T16:56:41.284449
License: Public Domain

ON APPLICATION POR. REHEARING.
Counsel for appellant have filed a petition for rehearing. The principal grounds alleged in the application,' are: (1) That we erred in the interpretation given the constitutional provision set forth in the opinion respecting corporate indebtedness; and (2) in reversing the judgment for the second issue of bonds.
As to'the first ground, counsel vigorously contend that the last sentence of the section quoted by us from the Constitution, namely, “All fictitious increase of stock or indebtedness shall be void,” does not mean that bonds issued and delivered by a corporation to a stockholder for fifty cents on the dollar are for that reason fictitious to any extent. It is strenuously argued that if the indebtedness of the corporation is based upon any consideration whatever passing to the corporation, such indebtedness is not fictitious, and that the framers of the Constitution did not intend otherwise in adopting section 5 of article 12 of the Constitution which we have copied into the original opinion.
We cannot agree with this contention. If such a construction should be given to that section it might as well have been left out of the Constitution, because such a construction would rob the section of all force and effect. 5 Before the Constitution of this state was thought of a total want of consideration vitiated any corporate bond or other evidence of indebtedness, at least as between the parties and all those who could not claim to be innocent purchasers for value and without notice. If, therefore, we *563should bold as counsel contend, the constitutional provision would in legal effect amount to no more than a declaration of the law in force before the Constitution was adopted by the people of this state. We cannot adopt this view.
We are forced to the conclusion that in adopting the constitutional provision with respect to. corporate indebtedness both the framers of that instrument and the people who ratified it meant just what they said, namely, that all fictitious indebtedness should be void. By this they meant that corporations may not indirectly secure corporate subscribers by issuing bonds and delivering them to such subscribers ■ as a bonus, or to dispose of them to the stockholders for a mere fraction of their face value. Those who are related to the corporation no doubt, if acting in good faith, may advance money or property, or perform services for such corporation and may in cnsideration therefor receive its bonds or other evidence of indebtedness from it; but if they do so they must be limited in their claims to the amount or value of the consideration which they gave for the bonds or the other evidences of indebtedness. Whatever the corporation promised to pay in excess of this constitutes a fictitious indebtedness. If this is not so, why were corporations as artificial persons singled out in the Constitution ? Why not have left the subject of fictitious bonds or other evidences of indebtedness to be dealt with as the common law stood upon that subject, and which law applied to all indebtedness whether incurred by a natural or an artificial person? Since the Constitution refers only to artificial persons, namely, corporations, upon the subject of fictitious indebtedness, we must assume that it was intended to change the law upon that subject so far as such artificial persons are concerned, or the law would have been left as it was and would then have remained applicable to all persons alike, whether natural or artificial. We are well satisfied with, the conclusion reached in the opinion upon this point.
It is, however, suggested by counsel that since we intimate that the rule laid down in the opinion as applicable to stockholders may not be applied to other holders of corporate *564bonds or evidence of indebtedness, tbis distinction will be both unfair and difficult of application. A sufficient answer to this suggestion at this time is that we dealt only and could deal only with bond-holding stockholders in the original opinion. We excluded innocent purchasers of bonds for value and without notice from the opinion for obvious reasons. As to what shall constitute innocent purchasers of corporate bonds who purchase for value and without notice, and what the rights of such purchasers are under the constitutional provision referred to, can be best determined when that question is presented for decision. That good reasons may exist for making a distinction between stockholders as corporate creditors and others who in in no way are related to the corporation is obvious. We have not attempted to, nor are we laying down any rule upon that subject. We leave it just where we think the Constitution of this state has placed it. In passing we remark, however, that we cannot see wherein either right or justice will greatly suffer if a corporate creditor (who is not an innocent purchaser of corporate bonds) is required to receive from the corporation in payment for his claim the exact amount, with interest, that he advanced to the corporation. Nor can we see how business interests will be adversely affected if a particular subscriber to corporate stock is prevented from securing his subscription by a lien on the corporate property, to the prejudice of general creditors and other innocent stockholders. The doctrine announced in the opinion practically goes no farther than this.
With regard to the second ground urged by counsel, we are of the opinion that counsel have misconceived the effect of the conclusion reached'by us with respect to the priority of lien for the second installment of bonds. While it is true that we said that the second installment of bonds was valid only for fifty cents on the dollar, we nevertheless did not modify, nor attempt to modify, the judgment for the full amount of said installment, because that part of the judgment was not complained of by any one. In saying therefore that those bonds were invalid to the extent of fifty *565cents on tbe dollar we meant tbat tbis was tbe legal effect of tbe constitutional provision in question, but in view tbat no complaint was made of tbe judgment wbicb was for tbe full amount of tbe value of tbe bonds, tbe judgment would not be disturbed upon tbat branch. Tbe statement in tbe original opinion may not bave been as clear upon tbat point as it could bave been made, but with wbat we bave now said there can be no further misapprehension.
We cannot agree with counsel, however, tbat we erred in reversing tbe judgment for tbe reason tbat it was excessive. No other conclusion than tbe one reached in tbe original opinion is permissible. Tbe judgment in favor of appellant, in so far as tbe amount thereof is concerned, reads as follows: “Tbat tbe plaintiff to bave and recover of tbe defendant, tbe Ogden & Northwestern Railroad Company, tbe sum of seventy-five thousand, two hundred and fifty-three dollars ($75,253).” Tbis judgment is entered as an entirety and covers every bond tbat was issued and delivered by tbe railroad for any purpose, or to any one. Tbe other matters contained in tbe judgment almost entirely refer to tbe liens and to tbe priority of such liens. Tbe judgment, therefore, with respect to tbe amount for wbicb it was rendered, came before us as a whole and we bad to review it as such. Tbe only reason we did not review tbat portion of tbe judgment wbicb established a first lien in favor of ap>-pellant for tbe full amount of tbe second issue of bonds was because tbat part of tbe judgment was expressly excluded from tbe notice of appeal and no one who was interested or bad a right to complain complained of it in tbis court. Tbis, however, does not apply to that part of tbe judgment we bave herein set forth in full. As to tbat various exceptions were taken and urged upon us for consideration. We held tbe first issue of bonds as void in ioto as against respondent Smith, and void as against tbe Railroad Company in so far as it is not supported by a consideration other than wbat tbe holders thereof paid upon their stock subscription. There being no finding upon tbat particular question, and no proper finding being possible upon that point under tbe evi-*566deuce as it now stands, we reversed the judgment for $'75,253 as excessive and remanded the cause to. the district court, so that that court may ascertain the amount, if any, that the judgment should be upon the first bond issue, enter judgment therefor, and then order the judgment, execiited by ordering a sale of the property, and divide the proceeds of sale in the order herein suggested.
In view that the result reached in the former opinion is right, the judgment there entered with the foregoing explanations is adhered to.
No reasons appearing why a rehearing should be granted, the application is denied.
STEAUP, O. J., and McCANTT, J., concur.