Mudge v. Black, Sheridan & Wilson

• Decision Date: 12 May 1915
• Docket Number: 4229,4234.,4233,4230
• Citation: 224 F. 919
• Parties: MUDGE v. BLACK, SHERIDAN & WILSON et al.
• Court: U.S. Court of Appeals — Eighth Circuit

224 F. 919

MUDGE v. BLACK, SHERIDAN & WILSON et al.

Nos. 4229, 4230, 4233, 4234.

United States Court of Appeals, Eighth Circuit.

May 12, 1915

Frank Y. Gladney, of St. Louis, Mo., Edwin C. Luedde and Leo M Grace, of St. Louis, Mo. (Augustus L. Abbott and John B Edwards, both of St. Louis, Mo., on the briefs), for appellants.

William G. Pettus, of St. Louis, Mo., for appellees.

Before SANBORN and SMITH, Circuit Judges.

SANBORN Circuit Judge.

In Kemmerer v. St. Louis Blast Furnace Co., 212 F. 63 128 C.C.A. 519, this court held that the pledge of the bonds of a Missouri corporation to secure an antecedent debt without the receipt by the corporation of any consideration except the former consideration for the old debt and the extension of the time of payment of that debt was a violation of the provisions of the Constitution and statutes of Missouri which rendered the bonds void. Those provisions are:

'No corporation shall issue stock or bonds, except for money paid, labor done or property actually received, and all fictitious increase of stock or indebtedness shall be void. ' Constitution of Missouri, art. 12, Sec. 8.

'The stock or bonds of a corporation shall be issued only for money paid, labor done or property actually received. ' Revised Stat. of Missouri 1909, Sec. 2981.

The appellants present this question again in the same foreclosure proceeding upon facts so nearly identical with those in Kemmerer's Case that it is unnecessary to state them. Reference to the opinion in that case is made for the material facts. If our decision in that case was right, the decision of the court below in the cases of the appellants was also right. Their counsel contend that our former decision was erroneous, and they have presented briefs so exhaustive and have argued the issue with such marked ability and evident candor that they have persuaded us to examine it again. The authorities they have cited, their oral arguments, and their briefs have received consideration and meditation. But our examination has served only to confirm and strengthen our former conviction. Our conclusion and the reasons for it were so clearly and forcibly stated in Judge Carland's opinion in Kemmerer's Case that any general discussion of the question would be futile. Accordingly, this opinion will be confined to a brief statement of a few reasons why some of the arguments of counsel for appellants have failed to satisfy that our former decision was a mistake.

They contend that the indebtedness of the corporation was not increased by the pledges of the bonds. But the pledges of the bonds unquestionably created, at the times they were respectively made, legal liabilities of the corporation to increase its indebtedness by the difference between the amounts that should eventually be realized from the enforcement of the pledges and the par value of the bonds pledged. It is knowledge too common to escape judicial cognizance that these differences are ordinarily great, often more than 75 per cent. of the par value of the bonds. In Kemmerer's Case bonds of this corporation of the par value of $4,000 sold under the collateral agreement for only $100 so that the pledge of those bonds increased the debt of the corporation $3,900. Suppose a corporation gives its note for $10,000 for a just antecedent debt and pledges its mortgage bonds for $50,000 to secure it, and the pledge is foreclosed by decree of court, and thereafter the bonds are sold for $5,000 to a third party. There then remains a debt of the corporation of $5,000 to the original creditor and a debt of $50,000 to the purchaser of the bonds, and the cause of the increase of the indebtedness of the corporation from $10,000 to $55,000, of which $45,000 would be without any valuable consideration and fictitious, would be the original pledge of the bonds. A decision that the provisions of the Constitution and the statute could be evaded by such pledges would have the practical effect of nullifying them.

Again the prohibition of the Constitution and of the statute is not against a fictitious increase of the indebtedness of the corporation only; it is first and chiefly against the issue of stock or bonds except for money paid, labor done, or property actually received-- that is to say, unless the corporation actually receives an amount equal to the par value of the bonds in money, labor, or property. Counsel insist nevertheless that their clients escape the ban of this inhibition because long before the bonds were issued, when the antecedent debts they were pledged to secure were incurred, the corporation actually received property equivalent in value to the amounts of those debts and the Constitution and the statute fail to specify when the money, labor, or property which conditions the lawful issue of the bonds must be received, and they contend that these bonds were issued and pledged within the meaning of the Constitution and the statute for the property which formed the consideration of the antecedent debts. If that were the true interpretation of the provisions of the Constitution and the statute, a corporation which had incurred a just debt of $10,000 for property actually received might thereafter successively issue and pledge its stock or its bonds to secure that debt to the amount of $10,000 and permit them to be sold under the pledge for $100, or some small amount, and it might thereby increase its outstanding stock or bonds on account of its antecedent debt of $10,000 to many times that amount. These interpretations of the terms of the Constitution and the statute for which counsel argue seem strained, unnatural, and inconsistent with these familiar canons of construction; the plain, obvious, natural meaning should be preferred to any curious, hidden sense suggested by the meditation and ingenuity of able and acute minds and the exigencies of the case. The object which the enacting body sought to attain and the evil which that body sought to remedy may always be considered for the purpose of ascertaining its intention, and that intention should be given effect if the terms of the enactment do not render that result impossible. A rational, sensible construction, one that will advance the remedy and repress the wrong, must be given if consonant with the terms of the...