Argument for Appellant.

Matthews, and Dow equally distributed among the holders of the bonds secured by the mortgage of the Memphis and Little Rock Railway Company, of date December 1, 1873."

These terms were formally accepted by the stockholders, and on April 30, 1877, the trustees conveyed to the reorganized company the property, rights, and interests so purchased, subject to the terms, conditions, and trusts prescribed in its said Articles of Association.

Pursuant to the conditions upon which it received title, the appellant, on May 1, 1877, issued its bonds, amounting to $250,000, and, to secure their payment, conveyed the same property, rights, and interests to Pierson, Dow, and Matthews, as trustees. The proceeds of these bonds were applied in payment of the expenses of foreclosure and reorganization. In further compliance with these terms, the appellant issued its bonds for $2,600,000 for distribution among the holders of bonds secured by the mortgage of December 1, 1873, and, to secure their payment, executed the before-mentioned mortgage or deed of trust of May 2, 1877. The recitals in the deed disclosed all the foregoing circumstances connected with the organization of the appellant corporation, and with its acquisition of these properties.

[The provisions of § 8, art. 12, of the Constitution of Arkansas of 1877, and the provisions of § 5488 of the Revised Statutes of Arkansas, Mansfield's Digest, page 1057, which were supposed to apply to this reorganization, are stated below in the opinion of the court.]

Mr. Wager Swayne and Mr. B. C. Brown (Mr. John F. Dillon and Mr. J. C. Brown were with them on the brief), for appellant, cited: Root v. Godard, 3 McLean, 102; Hayden v. Davies, 3 McLean, 276; Root v. Wallace, 4 McLean, 8; Harris v. Runnels, 12 How. 79; Armstrong v. Toler, 11 Wheat. 258; Cincinnati Ins. Co. v. Rosenthal, 55 Ill. 85; Leavitt v. Palmer, 3 N. Y. 19; S. C. 51 Am. Dec. 333; Southern Loan Co. v. Morris, 2 Penn. St. 175; S. C. 44 Am. Dec. 188; Davidson v. Lanier, 4 Wall. 447; Bank of the United States v. Owens, 2 Pet. 527; Brown v. Tarkington, 3 Wall. 377; Peck

Mr. Rose's Argument for Appellees.

v. Burr, 10 N. Y. 294; Barton v. Port Jackson Co., 17 Barb. 397; Utica Ins. Co. v. Scott, 19 Johns. 1; Worthen v. Badgett, 32 Ark. 496; Eagle v. Beard, 33 Ark. 497; Valett v. Parker, 6 Wend. 615; Dewing v. Perdecaries, 96 U. S. 193; German Bank v. De Shon, 41 Ark. 331; Stanton v. Alabama & Chattanooga Railroad, 2 Woods, 523; Kerrison v. Stewart, 93 U.S. 155; Corcoran v. Chesapeake & Ohio Canal Co., 94 U. S. 741; Thomas v. Railroad Co., 101 U. S. 71; Coppell v. Hall, 7 Wall. 542; In re Comstock, 3 Sawyer, 218; Collins v. Blantern, 2 Wilson, 341, and notes in 1 Sm. Lead. Cas.; Pacific Railroad v. Missouri Pacific Railroad, 111 U. S. 505; Lloyd v. Scott, 4 Pet. 205; Jackson v. Dominick, 14 Johns. 435; De Wolf v. Johnson, 10 Wheat. 367; Weed Sewing Machine Co. v. Emerson, 115 Mass. 554; Memphis & Little Rock Railroad v. Berry, 41 Ark. 436; Shrewsbury, &c., Railway v. Northwestern Railway, 6 II. L. Cas. 113; Commonwealth v. Smith, 10 Allen, 448; Head v. Providence Ins. Co., 2 Cranch, 127; Chambers v. Manchester & Milford Railway, 5 B. & S. 588; Rockwell v. Elkhorn Bank, 13 Wis. 653; Kent Coast Railway v. London, Chatham & Dover Railway, 3 L. R. Ch. 656; Guckenheimer v. Angevine, 81 N. Y. 394; Wilkinson v. Babbit, 4 Dillon, 207; Railroad Co. v. Soutter, 13 Wall. 517.

Mr. U. M. Rose, for appellees, cited: Memphis & Little Rock Railroad v. Dow, 19 Fed. Rep. 388, and cases therein cited; Duncan v. Jaudon, 15 Wall. 165; Railroad Co. v. Howard, 7 Wall. 392; Mechanics' Bank v. New York Railroad, 13 N. Y. 599; Weaver v. Barden, 49 N. Y. 286; Shaw v. Spencer, 100 Mass. 382; Memphis, &c., Railroad v. Berry, 41 Ark. 436; Cordova v. Hood, 17 Wall. 1; Richardson v. Hamlett, 33 Ark. 237; Craig v. Leslie, 3 Wheat. 563; Miller v. Moore, 3 Jones N. C. Eq. 431; Zabriskie v. Cleveland, &c., Railroad, 23 How. 400; Pine Grove v. Talcott, 19 Wall. 666; Hough v. Cook County Land Co., 73 Ill. 23; Bradley v. Ballard, 55 Ill. 413; Houston Railroad v. Shirley, 54 Texas, 125; Bank v. IIammond, 1 Rich. S. C. Eq. 281; Grant v. Henry Clay Coal Co., 80 Penn. St. 208; Natoma Water Co. v. Clarkin, 14 Cal. 544; Darst v. Gale, 83 Ill. 136; Union Water Co. v. Murphy Co.,

Mr. Bowers' Argument for Appellees.

22 Cal. 620; Southern Ins. Co. v. Lanier, 5 Fla. 110; S. C. 58 Am. Dec. 448; Third Avenue Bank v. Dimock, 24 N. J. Eq. (9 C. E. Green) 26; Natchez v. Mallery, 54 Miss. 499; Chicago Building Society v. Crowell, 65 Ill. 453; Attleborough National Bank v. Rogers, 125 Mass. 339; Indiana v. Wòram, 6 Hill. 33; S. C. 40 Am. Dec. 378; Steam Nav. Co. v. Weed, 17 Barb. 378; Underwood v. Newport Lyceum, 5 B. Mon. 129; S. C. 41 Am. Dec. 260; State Board v. Citizens' Railway Co., 47 Ind. 407; Doyle v. Peerless Petroleum Co., 44 Barb. 239; Sturges v. Knapp, 31 Vt. 1; Whitman Mining Co. v. Baker, 3 Nevada, 386; Railway Co. v. McCarthy, 96 U. S. 258; Hotel Co. v. Wade, 97 U. S. 13; Hitchcock v. Galveston, 96 U. S. 341; Ex parte Chippendale, 4 De G. M. & G. 19; In re Cork & Yougal Railway Co., 4 L. R. Ch. 748; Troup's Case, 29 Beav. 353; Hoare's Case, 30 Beav. 225; Peck v. Gurney, 13 Eq. 79; Peabody v. Flint, 6 Allen, 52; Royal Bank v. Grand Junction Railway Co., 125 Mass. 490; In re Pinto Silver Mining Co., 8 Ch. Div. 273; Thompson v. Lambert, 44 Iowa, 239; Kent v. Quicksilver Mining Co., 78 N. Y. 159; Cozart v. Georgia Rairoad Co., 54 Geo. 379; Commissioners v. January, 94 U. S. 202; Twin-Lick Oil Co. v. Marbury, 91 U. S. 587; Andrews v. Hensler, 6 Wall. 254; National Bank v. Matthews, 98 U. S. 621; Benjamin v. Hobbs, 31 Ark. 151; Sheldon on Subrogation, $ 19, 30, 31, 33, 34, 38, 40, and cases there cited; Crosby v. Taylor, 15 Gray, 64; S. C. 77 Am. Dec. 352; Valle v. Fleming, 29 Mo. 152; S. C. 77 Am. Dec. 557; Davis v. Roosevelt, 53 Texas, 305; Johnson v. Robertson, 34 Maryland, 165; Payne v. Hathaway, 3 Vt. 212; Webb v. Williams, Walker (Mich.) 544; Howard v. North, 5 Texas, 290; S. C. 51 Am. Dec. 769; Selleck v. Phelps, 11 Wis. 380; Tompkins v. Sprout, 55 Cal. 31; McLaughlin v. Daniel, 8 Dana, 182; Porter v. Doe, 10 Ark. 186; West v. Waddill, 33 Ark. 575; Summers v. Howard, 33 Ark. 490; Waggoner v. Lyles, 29 Ark. 47; Oneida Bank v. Ontario Bank, 21 N. Y. 490; Shall v. Biscoe, 18 Ark. 142; Scott v. Orbison, 21 Ark. 202.

Mr. John M. Bowers, for appellees, cited, in addition to some cases cited by Mr. Rose, the following cases not cited on his

Opinion of the Court.

brief: Barnes v. Mott, 64 N. Y. 397; Pierce v. Emery, 32 N. H. 484; Stanley v. Chester & Birkenhead Railway, 3 Myl. & Cr. 773; Low v. Connecticut, &c., Railroad, 45 N. H. 370; Olcott v. Tioga Railroad, 27 N. Y. 546; Moss v. Averill, 10 N. Y. 449; Oregon Railway v. Oregon Railway & Nav. Co., 28 Fed. Rep. 505, and cases cited; Parish v. Wheeler, 22 N. Y. 494; Bissell v. Mich. Southern & Northern Ind. Railroad, 22 N. Y. 258; Williams v. Morgan, 111 U. S. 684; McCluer v. Manchester & Lawrence Railroad, 13 Gray, 124; S. C. 74 Am. Dec. 624.

MR. JUSTICE HARLAN, after stating the case as above reported, delivered the opinion of the court.

From these facts it appears that at the date of the mortgage of May 2, 1877, appellant's entire assets consisted of the property, rights, and privileges purchased by Pierson, Dow, and Matthews, trustees, at the sale under the decree foreclosing the mortgage of December 1, 1873, and by them conveyed to it, on the express condition that the beneficial owners should receive therefor, besides $1,300,000 in stock, its mortgage bonds for $2,600,000. That amount, in the stock and bonds of the appellant, was the valuation placed by such owners upon their interests, after taking into account, as well the amount previously expended in the construction and maintenance of the road, as the probable value, in the future, of the stock and bonds to be given for a surrender of those interests. The transaction was, in its essence, a purchase of said property, rights, and privileges by the appellant at an agreed price, to be paid in its stock and bonds. A part of the price was paid when the $1,300,000 of stock was issued. But appellant disputes its liability upon the bonds given for the balance, upon the theory that they were prohibited from issuing them by the eighth section of the twelfth article of the constitution of Arkansas, adopted in 1874. That section provides 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." In support

Opinion of the Court.

of this view our attention is called to the fact, admitted by the demurrer, that the full value of the property, rights, and privileges conveyed to appellant did not exceed $1,300,000, the amount at which the capital stock was fixed; and, consequently, it is argued, the $2,600,000 of bonds were is sued without any consideration received in money, property, or labor, and represented only a fictitious indebtedness. In other words, appellant's vendors were fully compensated for their interests by taking to themselves its entire stock.

We do not concur in this view of the case. It does not, we think, rest upon a sound interpretation of the state constitution. The prohibition against the issuing of stock or bonds, except for money or property actually received or labor done, and against the fictitious increase of stock or indebtedness, was intended to protect stockholders against spoliation, and to guard the public against securities that were absolutely worthless. One of the mischiefs sought to be remedied is the flooding of the market with stock and bonds that do not represent anything whatever of substantial value. In reference to a provision in the constitution of Illinois, adopted in 1870, containing a prohibition, as to railroad corporations, similar to that imposed by the Arkansas constitution upon all private corporations, the Supreme Court of the former state, in Peoria & Springfield Railroad Co. v. Thompson, 103 Ill. 187, 201, said: "The latter part of the clause of the constitution in question, which declares that 'all stocks, dividends, and other fictitious increase of the capital stock or indebtedness of such corporation shall be void,' we think, clearly points out the chief object which the constitutional convention sought to accomplish in adopting it; and to this we must look, in a large degree, for a solution of the language which precedes it. The object was, doubtless, to prevent reckless and unscrupulous speculators, under the guise or pretence 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 bonds in such case being entirely fictitious.