119 Ga. 576 | Ga. | 1904
(after stating the foregoing facts.) The Gainesville, Jefferson and Southern Railroad Company was authorized to issue $250,000 of stock and $245,000 of first-mortgage bonds. It obtained subscriptions for $120,000 of stock, and sold $83,500 of bonds. With the proceeds it constructed about one half of its road. Its funds, being then exhausted, and it being unable to sell the remaining 'bonds or to secure subscriptions to the balance of the capital stock, its officers were advised to interest the lessees of the Georgia Railroad in the completion of the work. After many negotiations a contract was made, March 31, 1883, by which, in consideration of $145,350 to be paid in installments, it sold to the Georgia Railroad Company $130,000 of the Gainesville Company’s capital stock “fully paid up,” and $161,500 first-mortgage bonds to be left with a depositary until performance of the undertakings by the Georgia Railroad Company, but bonds to be delivered at the rate of $1,000 of bonds for $900 cash paid, “the payments to be applied first in payment in full of the stock and the overplus to be in full for the bonds.” On the $161,500- bonds thus acquired the Georgia Railroad Company placed an indorsement guaranteeing the payment of the principal and interest. Thus indorsed they were sold in open market. By virtue of the ownership of $130,000 of capital stock the Georgia Company elected the officers of the Gainesville Company and proceeded to build the road, advancing $107,000, in addition to the purchase-price under the contract of March 31,1883. During the fifteen years of its management the Georgia Company made advances aggregating $365,000, much of which went to pay the coupons on the mortgage bonds. Default was made in 1897. There were two bills, one by a bondholder and one by the trustees, to foreclose the first mortgage on the Gainesville road; another to foreclose the second mortgage; and still another to foreclose a mortgage of the Walton road, which had been merged with the Gainesville Company. These four cases were consolidated. There were interventions by a stockholder, and by the holders of $83,500 of unindorsed bonds, contending that the purchase of the majority of the Gainesville stock by the Georgia Company was ultra vires, and in restraint of. trade; attacking the contract of March 31, 1883; and
The construction of the Gainesville Railroad did not lessen or increase, but created competition where none previously existed. But if the geographical situation or character of business transacted had made the Georgia and the Gainesville competing roads, the State, the stockholders, or the parties alone could have attacked' the contract of March 31, 1883, as being ultra vires, or in restraint of trade. Bondholders are not authorized to act as guardians for the public or the parties, in having such a contract set aside or declared to have been illegal; certainly not in a case where the bondholder prays that the subscriber to the stock under such contract be held liable for the unpaid subscription. Civil 'Code, §§ 5800, 3668. The trustees under the mortgage represent all of the bondholders. And where bondholders are allowed to intervene pro interesse suo, the death of one of a class will not cause-the suit to abate, nor will it be necessary to have the representative bondholder made a party, her interest being represented by the trustee and the other bondholders making the same contention as that on which she relies. The fact that the trustee repre
The holders of the $83,500 unindorsed bonds insist that, on the doctrine of two funds, those holding the $161,500 of bonds indorsed by the Georgia Company, and the indorsement secured by the pledge of Atlanta & West Point stock, should be required to exhaust this source of payment before being allowed to participate in the proceeds of the sale of the mortgaged property. But the indorsement was not a lien, and was not equally accessible. The indorsement was not a liability, and the collateral was not the property of a common debtor. In no sense does the case come within the provisions of the Civil Code, §2691, that “a creditor having a lien on two funds of the debtor, equally accessible to him, will be compelled to pursue the one on which other creditors have no lien.”
The main contentions relate to the attack on the contract of March 31,1883, which recited that the Gainesville Company sold to the Georgia Company $161,500 of bonds, and $130,000 of fully paid-up stock for $145,350, payable in installments; the stock and bonds to be deposited in escrow and the Georgia Company to receive $1,000 in bonds for every $900 in cash paid; but the installments to be applied first to the payment of fully paid-up stock, and the balance to be in full payment for the bonds. There was no objection to the introduction of parol evidence seeking to show that the paper did not set forth the real consideration; and the holders of the unindorsed bonds, amounting to $83,500, insisted (a) that this was a sale of bonds at 90 with the stock as a bonus, and that therefore the Georgia Railroad Company was liable as for an unpaid subscription of $130,000. (5) The City of Gaines-ville, an intervening stockholder, insisted that it was a sale of stock at par, and of bonds at ten cents on the dollar, in consequence of which the bonds were infected with usury, (c) The Gainesville Company in its original answer contended that the stock and bonds had been sold in a “lumping trade,” and the
It is not necessary to elaborate the proposition that if the contract of March 31,1883, should be construed as a sale of bonds at 90 and the stock as a bonus, there was no usury. If so, then nothing which thereafter occurred rendered invalid that which was valid in its inception. If the Georgia Railroad Company improperly included the $107,000 advanced by it as a construction company as an item in the set-off, or if it took second-mortgage bonds for a part thereof, this might affect that company’s right under the second mortgage, and it might reduce the amount of the judgment to which it was entitled on the set-off; but it could not be effective to invalidate bonds now in the hands of innocent third persons. If the contract was a sale of bonds at 90 and the stock was a bonus, the liability on the unpaid subscription was
The auditor, however, did not predicate his finding that there was no usury upon the idea that the Georgia Company as a construction company had advanced a sum sufficient to remove any taint of usury. Nor did he sustain the contention of the plaintiff in error that the bonds had been sold at 90, with the stock as a bonus; but he put his decision squarely on the proposition that a corporation may lawfully sell its bonds at a discount greater than eight per cent. If this question were one between the Georgia Company and the Gainesville Company, the original parties to the transaction, we would be called upon to determine the point. But these bonds are in the hands of innocent third persons, who pur-' chased the same at 105 from the Georgia Railroad Company; and the contest is between bondholders over the proceeds of the road. The majority of the court are of the opinion that the question of usury and the effect thereof is not presented by any of the assignments of the plaintiff in error. The writer is of the opinion that it is' presented, because of the assignment on the court’s ruling that all of the bonds should share equally, and yet the result would not be changed. And, speaking for myself and not for the court, whether there was usury or no usury in the original sale of
Many courts in construing the statute of usury have recognized that if the instrument thus infected is declared to be void, it obtains no validity by being transferred to an innocent third person. If the contract is merely declared to be unlawful or illegal, and. the act is not made a crime, then an innocent purchaser takes the same free from the defense of usury. Thus Judge Story in Fleekner v. United States Bank, 8 Wheat 338, says, “Thestatutes of usury of the States, as_ well as of England, contain an express provision that usurious contracts shall be utterly void; and without such an enactment, the contract would be valid, at least in respect to persons who are strangers to the usury.” And in Converse v. Foster, 32 Vt. 828, cited and followed in the carefully considered case of Lynchburg National Bank v. Scott, 91 Va. 656, it was held tint: “The English statute against usury . . nob
The law is opposed to usury, but it favors bona fide holders of negotiable paper. In protecting such innocent holders, it is not considering solely the rights of the respective parties to the litigation, but serving public policy to protect the innocent purchaser on the one hand, and on the other to enable owners of a valid paper to sell the same without the delay which would be inevitable if the purchaser in each instance were required to make an investigation of the consideration on which the negotiable instrument issued. If there is no consideration whatever, and the paper thereafter comes into the hands of an innocent purchaser, he would be entitled to recover the face value. Why, then, should it be that he would be liable if he received nothing, and not liable when he received something, unless that something was both illegal and immoral, and therefore by statute unenforceable? Bonds like these are now universally held to be negotiable, and pass by delivery. As in the present instance, they may be sold by the company to one purchaser at one price, and to another at another price. Or, as appears here, they may be held in this country and in Europe. To require each separate purchaser at the point of issue, or at a distance, to make an' independent investigation as to the consideration for which each separate bond was originally put upon the market, would be to establish a rule which, if it did not absolutely prevent the sale of such security, would disastrously affect a borrower’s rights to use his credit. A subsequent purchaser would have to make the investigation where the bonds were issued at par, as well as when they were sold at á usurious rate. The innocent borrower would thus suffer with the guilty.
Cited by plaintiffs in error. Purchase of stock ultra vires: Collins v. Central R. Co., 40 Ga. 582; Nashville R. Co. v. Kentucky, 161 U. S. 677; 101 U. S. 71; 130 U. S. 1; 118 U. S. 290; 139 U. S. 24. Right of bondholders to sue: Cook on Corp. §§735, 816; Fouché v. Merchants Bank, 110 Ga. 839; 2 Elliott on R. §§378-9; 146 U. S. 631; 88 Ga. 471. Competition: Thomas v. Railroad Co., 101 U. S. 71, 82; Branch v. Jessup, 106 U. S. 468, 478; Pennsylvania R. Co. v. Pullman Palace Car Co., 139 U. S. 24, 48; Civil Code, § 2983; 85 Ga. 348; 88 Ga. 702; Guilmartin v. Middle Ga. R. Co., 101 Ga. 570; Wilkinson v. Bertock, 111 Ga. 187. Two funds: Citations supra, and 110 Ga. 697; 101 U. S. 292.
Cited by defendants in error. Embarrassed corporation may sell stock at less than par: Cook on Stock (3d ed.), 58; Vancolt v. Vanbrunt, 82 N. Y. 535; Clark v. Bever, 139 U. S. 96; Coit v. Gold Co., 119 U. S. 342; Handley v. Stultz, 139 U. S. 417; Morrow v. Nashville Co., 87 Tenn. 262; Railroad Co. v. Dow, 120 U. S. 287; Stein v. Howard, 65 Cal. 616. Two funds: Civil Code, § 2691; Carter v. Neal, 24 Ga. 346; Vance v. Roberts, 86 Ga. 457.
Judgment affirmed.