Altenberg v. Grant
| Decision Date | 08 February 1898 |
| Docket Number | 466. |
| Citation | 85 F. 345 |
| Parties | ALTENBERG et al. v. GRANT et al. |
| Court | U.S. Court of Appeals — Sixth Circuit |
L. J Crawford, for plaintiffs in error.
W. O Harris and Humphrey & Davie, for defendants in error.
Before TAFT and LURTON, Circuit Judges, and CLARK, District Judge.
This is a writ of error to a judgment of the circuit court for the district of Kentucky. The action was for damages for a breach of a contract. After the plaintiffs had introduced their evidence, the court directed a verdict for the defendants, on the ground that the contract was for an illegal purpose, and could not give rise to a cause of action for its breach. The contract was between the owners of a majority of the stock of the Citizens Electric Light & Power Company of Louisville Ky., of the one part, and the plaintiffs, stockbrokers of Cincinnati and promoters, of the other part, and provided for the reorganization of the company, or the organization of a new company, upon a plan set forth in the agreement. The new company was to issue $200,000 in mortgage bonds, $65,000 in preferred stock, and $235,000 in common stock. The assets of the old company were to be turned over to the new company in consideration of the delivery to its stockholders of the whole issue of preferred stock in the new company, and to its bondholders of $50,000 of the bonds of the new company. The plaintiffs agreed to sell $100,000 of the remaining bonds for $90,000. The $235,000 of common stock was to be issued to the plaintiffs for their services in the reorganization and in the sale of bonds. The defendants were unable to procure the consent of their fellow stockholders in the old company to proceed under the plan, and so notified the plaintiffs, who at once brought suit for breach of contract, and fixed their damages at $101,500. This sum included $1,500 of disbursements made by plaintiffs on the faith of the contract. One of the plaintiffs testified that their services, if performed under the contract, would have been worth $20,000 in cash.
Section 193 of the constitution of Kentucky provides that:
'No corporation shall issue stock or bonds except for an equivalent in money paid, or labor done, or property actually received and applied to the purposes for which such corporation was created, and neither labor nor property shall be received in payment of stock or bonds at a greater value than the market price at the time the said labor was done or property delivered and all fictitious increase of stock or indebtedness shall be void.'
The learned judge at the circuit held that the contract in this case was for an illegal purpose, because an execution of it would be in violation of this section. We concur in this view. The obvious meaning of the section is that stock and bonds shall only be issued in exchange for work or property when the market price of the labor or property shall be equal to the par value of the bonds or stock exchanged. It has been contended that the market price referred to in the section is the market price of the stock to be issued, and that, if it appears that the work done or property delivered is equal to this market price, the purpose of the section is fulfilled. This would be to render the section nugatory, and would justify a corporation in issuing stock for nothing, if it appeared to have no value in the market. It would thus defeat the plain intent of the section, which was to make the stock and bonds of a corporation worth their face value. The great abuses which have been perpetrated, and the deceits which have been practiced upon the public, in the organization of corporations by the issue of stock and bonds, the par value of which has been grossly in excess of the real capital embarked in their business, are too well known to require comment. The framers of this section, and the people, who adopted it, proposed to remedy these abuses by a specific requirement that no one should acquire stock or bonds from the corporation without having contributed to the...
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...their face value. Peoria Railroad Co. v. Thompson, 103 Ill. 187; Mayfield W. & L. Co. v. Graves County B. & T. Co., 170 Ky. 86; Altenberg v. Grant, 85 F. 345. (b) constitutional and statutory provisions being one and the same as to stocks and bonds, what this court has said as to stocks is ......
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Webster v. Webster Refining Co. of Okmulgee
...against a corporation for breach of its contract to issue stock in violation of a similar constitutional provision. In Altenberg v. Grant, 85 F. 345, 29 C. C. A. 185, in the opinion is written by Circuit Judge Taft, and concurred in by Judge Lurton, now a member of the Supreme Court, a very......
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Webster v. Webster Ref. Co. of Okmulgee
...lie against a corporation for breach of its contract to issue stock in violation of a similar constitutional provision. In Altenberg v. Grant, 85 F. 345, 29 C.C.A. 185, in which the opinion is written by Circuit Judge Taft, and concurred in by Judge Lurton, now a member of the Supreme Court......