Berry v. Rood

• Decision Date: 29 March 1902
• Parties: BERRY v. ROOD et al.
• Court: Missouri Supreme Court

67 S.W. 644

168 Mo. 316

BERRY v. ROOD et al.

Supreme Court of Missouri, Division No. 1.

March 29, 1902.

INSOLVENT CORPORATIONS — STOCKHOLDERS' LIABILITY — PAYMENT FOR STOCK — NOTICE TO CREDITORS — ACTION BY RECEIVER — ESTOPPEL — APPEAL — ABSENCE OF EVIDENCE.

1. Where an appellant does not bring up the evidence, his exceptions as to the findings of fact appearing in the record will not be considered, but the findings are conclusive.

2. Where the findings of fact in the record on appeal are mainly in favor of the appellee, the latter cannot move an affirmance or to dismiss the appeal because the evidence is not in the record.

3. The failure of proof, in an action by a receiver of an insolvent corporation to collect unpaid stock subscriptions, of the giving of notice before suit to the stockholder to pay such subscription, as required by order of court, is not sufficient to sustain a judgment for defendants, as the purpose of such notice is only to give opportunity to pay without suit, and the failure to give such notice, coupled with an offer to pay, should have been raised by answer,

whereupon the defendants could have been relieved from liability for costs.

4. The payment by a stockholder of a corporation of his stock subscription with mineral land, supposed by the stockholder and the corporation to be of the par value of the stock, but which is much less, is in violation of Const. art. 12, § 8, and Rev. St. 1899, § 962, providing that no corporation shall issue stock, except for money paid, labor done, or property received; and therefore the stockholder is liable to the creditors of the corporation, giving credit on the faith of its stock, for the difference between the actual value of the property and the value at which it was received by the corporation.

5. Where corporation stock stands in the name of a trustee, a purchaser thereof from the corporation at 50 per cent. of its face value, having no knowledge that the stock was not originally sold at its par value, is not liable to creditors of the corporation, giving credit on the faith of its stock, for the difference between the price paid and the par value of the stock.

6. Where a certain corporation borrowing and a corporation lending money are represented in making the loan by one who is the president of both corporations, his knowledge that the capital stock of the borrowing corporation has been paid up in property at an inflated value is notice to the lending corporation, which will prevent it from being entitled to require a stockholder to make his subscription good by paying up to the par value of the stock.

7. The receiver of an insolvent corporation may, under the direction of the court, maintain suit against stockholders to recover unpaid stock subscriptions, for the benefit of the corporation creditors.

8. The receipt by the creditors of an insolvent corporation of dividends resulting from a sale of its assets, received on stock subscriptions at an exaggerated value, does not preclude suit by the creditors or receiver against the stockholders to recover the actual balance of unpaid stock subscriptions, though the dividends are not returned, or the contract under which the assets were received from stock subscribers rescinded.

Appeal from St. Louis circuit court; D. D. Fisher, Judge.

Action by A. Moore Berry, as receiver of the Ozark Onyx Company, against Horace E. Rood and others, to recover unpaid stock subscriptions. From a judgment for defendants, plaintiff appeals. Reversed.

This appeal comes up on a copy of the judgment and of the order granting the appeal, in lieu of a full transcript; and the printed abstract filed by appellant gives what purports to be the substance of the pleadings and of some of the orders of the court, including an order of reference, the report of the referee, the exceptions to the report, the rulings on the exceptions, and the judgment. The evidence before the referee is not given. The respondents file a motion to affirm, and a motion to dismiss the appeal, for alleged insufficiency of the abstract, and failure to comply with the rule of court in that respect. Since appellant has failed to bring up the evidence, he cannot ask this court to consider any of his exceptions relating to the findings of fact by the referee, but must accept those findings, and can complain only of the conclusions of law drawn from those facts. Respondents have no ground to complain of this, because the findings of the referee are, in the main, in their favor. The motions to affirm and dismiss are therefore overruled.

The suit is by the receiver of the Ozark Onyx Company against the stockholders of that corporation to recover balances he claims to be unpaid on their several stock subscriptions. The cause was referred to P. Taylor Bryan, Esq., who made an elaborate report, which is set out in the printed abstract, and which contains all the facts that are given us in the case, and from which we make the following summary: The corporation was formed under the laws of this state in 1891, with a nominal capital of $300,000, stated in its articles to have been all subscribed and fully paid in cash. None of the subscriptions, however, were paid in cash; but the organizers were the owners of certain lands in Pulaski and Crawford counties, believed to contain valuable onyx deposits, which, pursuant to the understanding among them from the beginning, they put into the concern at a valuation of $200,000, as in payment to that extent of their subscriptions; and one subscriber, being the owner of certain onyx works and machinery in Vermont, put the same in at a valuation of $90,000, as in payment of his subscription to that extent. On the subject of the actual values of these properties the referee, in his report, after referring to the deposits of onyx on the lands, said: "The conclusion of the referee on these facts is that these deposits added little, if any, real value to the land. There was no evidence before the referee sufficient to enable him to determine accurately what was the real value of the lands of the Leighton syndicate and Rood. While they were worth probably more than what was received for them at the receiver's sale, the referee would not be justified in finding that the lands turned in by the Leighton syndicate were in fact of any greater value than the amount which Leighton paid for them, namely, $4,000 or $4,500, or that the lands turned in by Rood were of any greater value than the amount which Rood paid for them, namely, $3,000." And on the subject of the value of the property turned in by the Vermont man, the referee, after discussing it in detail, says: "The referee concludes, therefore, that the real value of the entire property of all kinds turned in by Reynolds in payment of the $90,000 worth of stock originally subscribed by him did not exceed the value of the plant and machinery and that portion of the supplies which were turned in by him. The value of the entire plant, including machinery valued at cost, according to Reynolds' books, and of the supplies, was, as is shown by the report of Rivers, offered in evidence, at least $28,254.45. As the machinery had been in use, it probably was not at that time worth quite that much. According to the agreement between Reynolds and the company, all over the value of $15,000 had to be paid for, in addition to the issue of the original $90,000 of stock to him. This was done subsequently by paying him $5,000 in cash, and by the issue to him on July 15, 1891, of $9,000 worth of treasury stock. So the referee concludes that the entire actual value of the property turned in by Reynolds in payment of this original subscription did not exceed $15,000, and, since the machinery had been in use, it did not amount to quite that much. That the entire property turned in by the original incorporators was very greatly overvalued, we think, therefore, has been clearly established." But in spite of those facts the referee found that these men verily believed that they had onyx mines of wonderful wealth on their lands, and that the same were worth at least the amount at which they were turned into the company in payment for their stock, namely, $200,000. And the referee was also satisfied that they believed that the advantage to the new corporation that would accrue from having the Vermont concern break up its established business in the state, and remove, with its machinery, its business, its secret processes in handling onyx, its prestige, and its good will, was worth the $90,000 at which the company took the same in payment of the stock issued therefor. Then the referee, coming to the question of fraud, said: "The referee has, at the expense of trying the patience of the court, gone into each fact which has been urged by the plaintiff as showing fraudulent intent in incorporating this company. He has done this because the case is one where the property transferred to the corporation was, as subsequent events have disclosed, of a small value, as compared to the capital stock issued therefor. But after a thorough examination of the facts, and though the referee believes that in many respects the original subscribers to stock acted incautiously, he has not been able to arrive at the conclusion that the incorporators were guilty of any intentional deception as to the public or creditors of the corporation. In valuing the property which was transferred to the corporation, they valued it on the theory that the lands, taken in connection with the plant and processes and management of Reynolds, would yield a dividend of six per cent., at least, upon the valuation; and while it is probable that neither the land by itself, nor the plant of Reynolds by itself, nor any one of the items of property which went to make up the entire amount of property turned into the corporation, could have been sold, even at that time, in the open market, at the value placed upon them, yet, when taken...