Miller v. Hellam Distilling Co.
| Citation | 57 Pa.Super. 183 |
| Decision Date | 04 May 1914 |
| Docket Number | 6-1914 |
| Parties | Miller v. Hellam Distilling Company (No. 1) |
| Court | Superior Court of Pennsylvania |
Argued March 11, 1914
Appeal by E. T. Eyster, from decree of C.P. York Co.-1908, No. 2 dismissing exceptions to report of auditor in case of Wolf Miller et al. v. Hellam Distilling Company.
Exceptions to report of Donald H. Yost, Esq., auditor.
The facts are stated in the opinion of the Superior Court.
Error assigned was in dismissing exceptions to auditor's report.
Frank M. Bortner, with him Spencer D. Wareheim, for appellant. -- It was error for the auditor to permit the pledgees of these bonds to share pro rata on the face of the bonds with the purchasers of bonds for cash, in the proceeds of the sale of the real estate covered by the corporation mortgage Rice's App., 79 Pa. 168.
H. C Niles, with him M. S. Niles, C. A. May and Geo. E. Neff, for the First National Bank of York, __ Pa. __, appellee.
W. F. Bay Stewart, with him W. A. Miller and Frederick B. Gerber, for Henry Weigle and Charles H. Stark, appellees.
Before Rice, P. J., Henderson, Orlady, Head, Porter, Kephart and Trexler, JJ.
This is an appeal from the order of the court below dismissing appellant's exceptions to the report of the auditor, who was appointed to distribute the funds in the hands of the receiver arising from the sale of the property of the Hellam Distilling Company. By proper corporate action this company authorized the execution of a mortgage securing an issue of bonds to the amount of $ 50,000. Of this issue, bonds were sold for cash to the amount of $ 14,500, and some time after the sale of these bonds for cash but prior to the appointment of the receiver, bonds of the par value of $ 18,000 of this same issue, secured by the same mortgage, were pledged by the company as collateral security for a debt owed and money borrowed by the company and were issued on the basis of from fifty to sixty per cent of their par value. This collateral was held by certain individuals and the First National Bank of York. The fund realized by the receiver was not sufficient to pay all of the outstanding bonds sold for cash and the full amount of the money borrowed, with interest, and for which the bonds were pledged as collateral. The appellant contends that the bonds sold for cash should have a preference in the distribution over the bonds pledged as collateral and assigns as a reason that the pledging of these bonds as collateral was in violation of art. 16, sec. 7, of the constitution of this state, which provides as follows: " No corporation shall issue stock or bonds except for labor done or money or property actually received and all fictitious increase of stock or indebtedness shall be void." He further contends that if the holders of the collateral security are entitled to participate in the distribution they should be limited in their pro rata distribution to the face of their notes, with interest, and not on the face of the bonds, with interest, which they held as collateral.
The auditor's finding of fact, which was not excepted to in the court below nor assigned as error in this court, aids materially in determining this question. His finding is as follows: " That in every instance the company actually received the money, and that the pledging of the bonds as collateral for the company's various promissory notes was duly authorized by resolution of the board of directors as appears from the minutes of the meetings of the company and the testimony taken by the auditor." The questions here raised have never been passed upon by the courts of our state and in considering them, the question of a sale of bonds, under this article, of necessity enters into the discussion. The constitutional provision was intended to prevent the jeopardizing of corporate property by an incumbrance placed upon it where no return, either in money or property, had been received by the corporation; to stop frauds upon stockholders, which would result through the postponement of their equities in favor of those of the bondholders and in diminishing or destroying the return due to the stockholders; and, as a bond is generally negotiable, to prevent a fraud upon an innocent purchaser who would take them believing a real consideration passed for their issue; and generally such issue without value would be against public policy. The primary object of this provision was to secure a fair consideration to the company before the bonds passed from its control. Where a corporation requires money to prosecute or extend its business and an effort is made to finance its requirements by a sale or pledge of bonds, it is not the intention of this constitutional provision that the corporate life should be throttled or severely impaired by holding the corporate officers to the duty of securing full value for the sale or pledge of the bonds. To so hold would not only cause serious financial difficulties to the corporation but would be contrary to a settled business policy which has been recognized by the profession as being in accordance with the law and in no wise violating constitutional restrictions. The officers of the corporation are charged with the duty of securing the best price for their bonds as the circumstances under which they labor will admit of. This question as to price (and dealing solely with the question of an issue for money) must be determined as of the time when the bonds are issued. Into this question will enter the urgency of the need for money, the condition of the money market as it affects the particular corporation, the credit and confidence of the corporation desiring to sell the bonds, and numerous other details. A corporation which has just been launched into active life will not be able to sell its bonds at as good a price as it could later on when it had secured the confidence of the public.
In Peoria & Springfield Railroad Co. v. Thompson, 103 Ill. 187, the supreme court of Illinois, in discussing a provision of the constitution of that state similar to our own, say: " The object was, doubtless, to prevent reckless and unscrupulous speculators, under the guise or pretense of building a railroad or of accomplishing some other legitimate corporate purpose, from fraudulently issuing and putting upon the market bonds or stocks that do not and are not intended to represent money or property of any kind, either in possession or expectancy, the stock or bond in such case being entirely fictitious."
In Memphis, etc., Railroad v. Dow, 120 U.S. 287 Justice Harlan quotes this language with approval and states: ...
To continue reading
Request your trial
-
In re Mifflinburg Body Co.
...are valid unless they were issued in violation of the constitutional provision above quoted. The case of Miller v. Hellam Distilling Company, 57 Pa.Super. 183, 191, has been relied upon by both sides as supporting their respective positions as to the proper construction of the constitutiona......
-
In re Mifflinburg Body Co., 7876.
...attached by the court to the fact that the debt for which the bonds were issued was a preexisting debt. In Miller v. Hellam Distilling Co. (No. 1), 1914, 57 Pa. Super. 183, 191, the Superior Court of Pennsylvania held that bonds pledged for a loan less than their face value were not issued ......