Adam Roth Grocery Co. v. Hotel Monticello Co.

• Decision Date: 17 May 1910
• Citation: 128 S.W. 542,148 Mo. App. 513
• Parties: ADAM ROTH GROCERY CO. v. HOTEL MONTICELLO CO. et al.
• Court: Missouri Court of Appeals

128 S.W. 542

148 Mo. App. 513

ADAM ROTH GROCERY CO. v. HOTEL MONTICELLO CO. et al.

St. Louis Court of Appeals. Missouri.

May 17, 1910.

1. CORPORATIONS (§ 357)—MISAPPROPRIATION OF ASSETS—ACTION BY CREDITORS—PARTIES.

In a suit by a creditor of a corporation against its officers for misappropriation of assets, the trustee in a deed of trust executed by the corporation is a proper party only in case he joined with the officers in the misappropriation, and acceded to the execution of the deed of trust in furtherance of the fraudulent scheme.

2. CORPORATIONS (§ 550)—INSOLVENCY—ASSIGNMENT FOR BENEFIT OF CREDITORS—VALIDITY.

A failing corporation may transfer in good faith its assets to a trustee for the benefit of all its creditors, and may confer on the trustee the power to collect its assets and distribute the proceeds pro rata among the creditors.

3. CORPORATIONS (§ 506)—SUITS TO SET ASIDE TRUST DEEDS—PARTIES.

In a suit by a creditor of a corporation to set aside a deed of trust executed by the corporation, the corporate creditors named in the deed of trust are necessary parties, or at least enough of them fairly to represent the others.

4. CORPORATIONS (§ 550)—INSOLVENT CORPORATIONS—TRANSFERS—VALIDITY.

Where a failing corporation transferred its assets to a trustee for the benefit of all its creditors with power to collect and sell the assets and distribute the proceeds among the creditors, the court would not remove the trustee in the absence of fraud on his part in administering the trust by omitting to collect assets or otherwise.

5. CORPORATIONS (§ 361)—MISAPPROPRIATION OF ASSETS BY OFFICERS—ACTIONS—EVIDENCE.

In a suit by a creditor of a corporation against its officers for misappropriation of its assets based on their converting to their own use a specified sum of the assets, evidence held insufficient to show conversion.

6. CORPORATIONS (§ 361)—MISAPPROPRIATION OF ASSETS BY OFFICERS—ACTIONS—EVIDENCE.

In a suit by a creditor of a corporation against its officers for misappropriation of its assets in retiring preferred shares of stock, evidence held insufficient to show misappropriation in the retirement of the preferred shares.

Appeal from St. Louis Circuit Court; Geo. H. Williams, Judge.

Action by the Adam Roth Grocery Company against the Hotel Monticello Company and others. From a judgment for defendants, plaintiff appeals. Affirmed.

The Hotel Monticello Company was incorporated November 22, 1901, with a capital stock of $30,000, owned by three shareholders, as follows: One share each by Charles M. Hill and Louis C. Irvine, and 298 shares by Charles W. McFarland, the shares being $100 par value. On October 22, 1902, or 11 months later, the capital stock was increased to $150,000, of which $100,000 worth was common stock and $50,000 preferred. The certificate of increase showed the stockholders had provided these privileges for the preferred shares; they should be cumulative, dividend-bearing shares and draw a dividend of 8 per cent. per annum, payable quarterly, out of the net yearly income earned in any year and before a dividend was paid on the general stock; the holders of preferred shares, in case of dissolution or liquidation of the company, should have priority of payment over the holders of common stock, out of the assets after the payment of debts; a fund should be accumulated to retire the preferred stock after three years upon the payment of its par value to stockholders, together with an added amount of 10 per cent. of the par value. The certificate for the increase of the capital stock showed the assets of the company were $45,000, its liabilities $7,000, and that of the $150,000 capital stock $70,000, or seven-twelfths of the whole amount of the increase had been paid up in lawful money of the United States and was in the hands of the board of directors. We understand the statement of the assets at $45,000 meant assets held prior to the payment of the $70,000 in cash upon the increase of the capital stock. A lease executed by Hattye Lederer, Edmund P. Melson, and Thomas H. Wagner, as lessors, and the Hotel Monticello Company, as lessee, was executed November 27, 1905, by which the lessors let to the Monticello Company, for a term of 20 years from the date of the lease, a lot of ground fronting 95 feet on the east line of Kingshighway and having a depth eastwardly of 185 feet on West Pine boulevard in the city of St. Louis, and all improvements standing on the lot. The consideration for the lease was an agreement by the Monticello Company to pay $246,000 as rental during the 20-year term at the rate of $1,000 a month for the first 10 years and $1,050 a month for the second 10 years, to pay all general and special taxes against the property, maintain the premises in repair, and to do other acts we need not state. The instrument of lease declared a violation of its covenants should work a forfeiture and end the term with all the rights and responsibilities accruing thereunder, if the innocent party elected to declare a forfeiture in writing; further provided the Monticello Company, as lessee, should execute and deliver to the lessors, 40 days after the execution of the lease, a chattel mortgage on the furniture, fixtures, and personal property kept and used by said lessee on the premises as security for payment of rent, taxes and other charges the lessee bound itself to pay. Pursuant to that term of the lease a chattel mortgage was executed December 30, 1905, covering the furniture, fixtures and personal property of every kind on the premises and in the building and was made to embrace other similar personal property, furniture or fixtures thereafter acquired by the Monticello Company and placed in the buildings and premises. A second chattel mortgage was executed by the Monticello Company on May 15, 1906, to E. P. Melson on the property described in the first mortgage to secure 35 notes of $350 each, falling due at various dates from June, 1906, to May, 1909, and drawing interest at 6 per cent. per annum. Each mortgage empowered the mortgagee to take possession of the property conveyed, upon the mortgagor's default, and to advertise the property for sale and sell it at public auction to the highest bidder for cash, after giving the prescribed notice. Transactions occurred later looking to the retirement of shares of preferred stock in the Monticello Company by the holders of shares of the common stock, pursuant to terms provided by the shareholders and recited in the certificate for the increase of the capital stock.

On October 21, 1902, the Monticello Company entered into an agreement with the Germania Trust Company of the city of St. Louis, which recited: The holders of the common stock of the company had the option to retire the preferred stock in 1902 at $110 a share; the holders of both kinds of stock had agreed to deposit with the trust company $1,000 payable quarterly, until the preferred stock had been retired in full as aforesaid; the Monticello Company was to designate in writing to the trust company when any preferred stock was to be retired, and the amount to be retired, and was to have the certificates of those shares delivered to the trust company for cancellation, and said trust company was to hold the canceled certificates as its receipt for money paid by it out of whatever funds it might receive from the Monticello Company as a sinking fund for the retirement of preferred stock; the trust company agreed to receive and hold on deposit all sums offered by the Monticello Company to retire preferred shares. At a directors' meeting on December 5, 1903, a resolution was passed regarding the contract between the Monticello Company and the Germania Trust Company. The purport of the resolution and its recitals was that, after the termination of the World's Fair in St. Louis, the Monticello Company might find itself embarrassed for money wherewith to meet the sinking fund it was to create with the trust company for the retirement of preferred shares, but the earnings expected during the World's Fair period would enable the Monticello Company easily to retire the preferred stock, thus reduce the burden on the corporate assets and save the 8 per cent. dividend payable annually on preferred stock; that the present owners of preferred stock were willing the contract between the Monticello Company and the trust company should be altered and the president of the Monticello Company was authorized to enter into a contract in lieu of the previous one, by means of which the preferred stock with its accrued dividends should be retired if possible out of the net earnings of the corporation during the year 1904. A supplemental agreement was made between the Monticello Company and the trust company on January 15, 1904, pursuant to a resolution of the board of directors of the Monticello Company taken December 5, 1903.

The substantial terms of the supplemental agreement and its recitals were these: The Monticello Company had procured from the holders of the 500 shares of preferred stock their certificates of shares, and had caused the same to be deposited with the trust company subject to the terms of the supplemental agreement of January 15, 1904; the Monticello Company should deposit with the trust company from time to time, for the purpose of creating a sinking fund, all the net earnings of the Monticello Company from June to November, 1904, inclusive, provided that if said deposit did not amount to $60,000 by December 1, 1904, the Monticello Company should continue to deposit the net earnings for two years more or until $60,000 had been accumulated with the trust company; the trust company should hold said deposit until $60,000 had been accumulated, and then should apply the money to pay the preferred shares at the rate of $110 par value, plus accumulated dividends; provided the hotel company should, after the deposit amounted to $60,000, provide for the reduction and...