Pfister v. Milwaukee Electric Railway Co.

Lyon, C. J. The learned circuit judge held that the bonds in question were issued in violation of sec. 1753, R. S., and were therefore void. So much of the section as is applicable to this case is as follows: “ No corporation shall issue . . . any bonds . . except for money, labor, or property, estimated at its true money value, actually received by it, equal to seventy-five per cent, of the par value thereof; and all . . . bonds issued contrary to the provisions of this section . . . shall .be void.” We are clearly of the opinion that the circuit judge ruled correctly. The object of the statute is to protect stockholders and bona fide creditors from the improvident issue of its bonds by the corporation, which might, and if allowed probably would, result in the wrecking of the corporation. Hence the statute requires that no corporate bonds shall be issued unless the company shall actually receive therefor seventy-five per cent, of their par value. When a corporation puts its bonds beyond its control by hypothecating them as security for loans, or for any other purpose, or in any other manner, it issues them, within the meaning and intention of the statute. If it so hypothecates them without stipulating that they shall be accounted for at not less than seventy-five cents on the dollar of their par value, it violates the statute, and the bonds thus is [89] sued are void. Any other construction would render the statute a dead letter, thus defeating all the wise and salutary purposes it was intended to accomplish. Had the company sold Pfister the 250 bonds for $125,000, it would have been a safer transaction for stockholders and bona fide creditors of the corporation, for in that case nothing would have remained due to Pfister. But now, if this transaction is upheld, Pfister may' sell his remaining bonds for twenty-five cents on the dollar of their face- value, or less, and thus leave due him a large debt from the company, while the company would remain liable for the full face value of the bonds. No construction of the statute which would permit such an evasion of its provisions can be tolerated. The judgment of the circuit court is affirmed. A printed document was presented on the argument by counsel for defendants, denominated “ An appendix to the case,” 134 pages of which consist of the pleadings in the action of the defendants Hinckley and the electric railway company against the present plaintiffs and others, above mentioned, and the examination of certain of the parties thereto, under sec. 4096, E. S. These proceedings have no significance in the determination of the demurrer as a demurrer to the complaint, and should not have been printed. The clerk will make no allowance therefor in the taxation of costs. By the Court.— Judgment affirmed.