92 F. 428 | 8th Cir. | 1899
after stating the case as above, delivered the opinion of the court.
It is manifest, we think, that the appeals which were taken in this case are without merit, in so far as they are predicated upon the action of the lower court in refusing to permit ■ E. H. Hubbard, assignee of the Union Loan & Trust Company, to intervene in the case, and in so far as they are predicated upon the action of the lower court in striking out those allegations of the defendant’s answer which attempted to show that the assignee above named had a better title to the bonds in controversy than J. Kennedy Tod & Co., who claimed- to own them. The facts alleged in the motion for affirmance which has recently been filed in this court by the appellee are not disputed, and must be taken as conceded. From this source it appears that the assignee of the trust company has not exercised his right to redeem the bonds in controversy from the superior lien of J. Kennedy Tod & Co. by the payment of $1,500,000 and interest, which right of redemption was secured to him by the decree rendered in the Iowa case (Manhattan Trust Co. v. Sioux City & N. R. Co., 65
Moreover, we are of opinion that the lower court properly expunged that part of the defendant’s answer, and that its order to that effect was a proper one when, the same was made. The issue sought to be raised by the defendant company concerning tlie ownership of the bonds was one which, in the orderly progress of the cause, would necessarily have been tried and determined as between the rival claimants of the bonds, when the trustee in the mortgage was called upon to distribute the proceeds of the foreclosure sale, and it was wholly unnecessary to consider it until that time had arrived. For this reason, therefore, the lower court properly rejected the proposed issue at the time it was tendered by the answer, as well as for the reason that the same issue was being tried in a proceeding between the proper parties in another jurisdiction.
This leaves for consideration the single question whether the lower court erred in expunging that part of the defendant’s answer in which it sought to show that: the bonds in controversy were void under section 5, art. 11, of the Nebraska constitution, quoted above in the statement; and there was no error in this regard, unless the answer was clearly sufficient to establish such invalidity. It is a notable fact that, on the first submission of the case to this court, little or no attention was paid to the constitutional question, either in the brief or on the oral argument of appellant’s counsel; but, on the last hearing, it was given great prominence, and becomes the question of chief importance.
In view of the premises, we are of the opinion that the answer of the defendant company was insufficient to establish the invalidity of its mortgage indebtedness, and that no error was committed in expunging' that part of its answer in which it undertook to plead such a defense. The case does not differ in any of its essential features from a case decided by the supreme court (Railroad Co. v. Dow, 120 U. S. 287, 7 Sup. Ct. 482), in. which case it was said, in substance, that such a provision as is found in the Nebraska constitution is not necessarily indicative of a purpose to make the validity of every issue of stock or bonds by a corporation depend upon the inquiry whether the property received therefor was of equal value in the market with the stock or bonds, and in which it was.further held that such provisions are not designed to prevent corporations from exchanging their stock or bonds for money, property, or labor, upon such terms as they think proper, provided the transaction is a real one, based upon a. present consideration which is deemed adequate, and is entered info for a legitimate corporate purpose, and is not a mere device to evade the law, and accomplish what is forbidden. In that case, as in the one at bar, the owners of a certain railroad who had bought the same at a foreclosure sale, in trust for mortgage bondholders, conveyed it to a new company that had been formed in pursuance of a plan of reorganization, and received in exchange all the stock of the new company as full paid, and also mortgage bonds of the new company to the amount of ¡§>2,(500,000, which were distributed among the holder’s of the bonds of the old company, and were taken by them in exchange for the old securities. The transaction in question took place in Arkansas, under a provision of the constitution of that state (section 8, art. 12), which provided that “no private corporation shall issue stock or bonds, except for money or property actually received or labor done; and all fictitious increase of stock or indebtedness shall be void.” It also appeared in that case, from admissions contained in the pleadings, that the property which had been acquired by the new company did not exceed the par value of its stock. The transaction was sustained notwithstanding these facts, the court saying, in substance, that it did not fall within the prohibition of the constitution; that the owners of the property and franchises, when they conveyed the same to the reorganized company, had the right to fix the terms upon which they would so convey it; that all that was done was to form a new company in lien o? the old, with substantially the same amount of stock and bonds which the old company had lawfully issued; and that, in so far as the pleadings disclosed, there had been no fictitious increase or issue of either stock or bonds, within the true intent and meaning of the constitution. (See, also, Continental Trust Co. v. Toledo, St. L. & K. C. R. Co., 82 Fed. 642-656. These observations in Railroad Co. v. Dow are strictly applicable to the case in hand, and should be decisive of the present controversy, in view of what has already been said concerning the averments contained in the defendant’s answer, and the conditions which appear to have existed when the reorgani-
It results from what has been said that the orders and the decree from which the appeals were taken should be affirmed, and it is so ordered; but inasmuch as counsel for the appellee has suggested in this court that it is considered desirable to make some changes in the provision of the final decree relative to the appointment of appraisers, to make the decree more nearly comply with the requirements of the local law regulating judicial sales in the state of Nebraska, the order of affirmance will be accompanied with leave to the circuit court to modify or amend its decree in the respect last stated in such manner as it may deem necessary or advisable.