Biggs v. Westen

• Decision Date: 28 February 1913
• Parties: BIGGS v. WESTEN et al.
• Court: Missouri Supreme Court

154 S.W. 708

248 Mo. 333

BIGGS v. WESTEN et al.

Supreme Court of Missouri. Division No. 1.

February 28, 1913.

Motion for Rehearing Stricken March 15, 1913.

1. BANKRUPTCY (§ 306) — POWERS AND DUTIES OF TRUSTEE.

A trustee in bankruptcy is the representative of creditors only to collect and administer the assets of the estate, and it is not his duty to represent creditors in prosecuting their claims to an allowance in the bankruptcy proceedings or to a judgment in other courts, and hence, in a suit by the trustee of a bankrupt corporation against the stockholders to collect the amount due on their stock, it was improper for the trustee to appeal from a judgment sufficient to pay all the demands adjudged against the bankrupt by the lower court at the instance of another creditor, whose claim was disallowed, especially where such other creditor was a stockholder and party to the suit and might have himself appealed.

2. CORPORATIONS (§ 240) — LIABILITY OF STOCKHOLDERS TO CREDITORS.

A bondholder of a corporation, who became such with knowledge that preferred stockholders had received common stock as a bonus under an understanding that it should not be paid for, could not enforce his claim against the corporation by compelling shareholders to pay for such common stock.

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

Action by Davis Biggs, trustee in bankruptcy of the Kline-Drummond Mercantile Company, against Edward Westen and others. From the judgment plaintiff appeals. Affirmed.

This is an action in equity to recover from J. B. Johnson and other stockholders in the Kline-Drummond Mercantile Company, a corporation, payment of the par value of its common stock which had been issued without payment and as a bonus to the subscribers for the preferred stock of said corporation, in the proportion of one share of common to every two shares of preferred. The suit was filed by the trustee in bankruptcy by authority given by the referee in bankruptcy. The petition did not set forth the particular creditors of the bankrupt nor their respective claims, but alleged that the liabilities of the bankrupt corporation were in excess of $115,000, and that it had no assets except its unpaid stock subscriptions; and prayed an accounting between the bankrupt and the several defendant stockholders, and for judgment against each of the defendants, and execution thereunder for enough to pay the debts of the bankrupt.

The defendants answered separately. The answer of defendant J. B. Johnson admitted the authority of the plaintiff to sue, and denied the other allegations. The other defendants set up payment by them of the common stock which they had received, and prayed certain set-offs for the amounts of certain claims held by them against the bankrupt. The case was referred. On the hearing before the referee it appeared that, prior to the incorporation of the bankrupt company (Kline-Drummond Mercantile Company), a corporation known as the "American Supply Company" was engaged in conducting a mail order business through sales made by its agents; that the stockholders of this corporation desired to form another which should conduct a similar business on a larger scale by direct correspondence with purchasers and which would employ no agents. To carry out this purpose, the Kline-Drummond Mercantile Company was incorporated with a capital stock of $400,000-$160,000 preferred and $240,000 common stock — each share to be of the par value of $100, and the certificate therefor to recite it to be full paid and nonassessable. It was agreed by the corporation that any subscriber or purchaser who should take and pay the par value of any of its preferred stock should also receive as a bonus and without any further payment one-half as much of its common stock. These proposals were recited in the prospectus issued before the formation of the corporation and exhibits by its chief promoter, one John W. Baker. After the issuance of its preferred and common stock on this plan, there remained in the hands of the new corporation 1,600 shares of its common stock, which were disposed of by transfer to the former corporation (the American Supply Company) in exchange for its mailing list of customers. The American Supply Company, after effecting this exchange, donated 350 shares of the common stock thus acquired by it to the said John W. Baker for his services in promoting the new corporation, and divided the residue, to wit, 1,250 shares, as a stock dividend among its own shareholders. The defendant J. B. Johnson received 61 of such shares. A circular letter explaining this transaction was mailed to each stockholder of the American Supply Company.

The new corporation, having thus disposed of its preferred and common stock, entered upon its business venture and soon thereafter became considerably indebted; and about July, 1904, issued bonds for $40,000. These were purchased by its own directors. It became also indebted in large sums to two banks and a trust company, evidenced by notes indorsed by its directors. At the time of the issuance of the bonds of the Kline-Drummond Mercantile Company, defendant J. B. Johnson, who held its preferred stock of the par value of $10,000 and the bonus given therewith, and who had also received 61 shares of its common stock in virtue of his holdings in the American Supply Company, effected an exchange of the preferred and common stock so held by him for bonds of the Kline-Drummond Mercantile Company of the par value of his preferred stock. This transaction was had through his attorney under instructions otherwise to enjoin the bond issue and apply for a receivership. In 1905 the board of directors sold the tangible assets of the corporation and applied their proceeds to the payment of its indebtedness. This left an outstanding indebtedness against said corporation, evidenced by its notes, amounting to about $78,000. This outstanding indebtedness was settled by the agreement of John W. Baker, the promoter of the corporation, to take care of $10,000 thereof and by the contribution of $68,000 in cash made by certain directors and shareholders of the company through a Mr. Held, appointed to act for them and in whose hands they placed this sum for the purpose of paying the remainder of the notes, and upon an agreement that they should be credited by the corporation for full payment of any liability against them, respectively, as the holders of its unpaid common stock, and that the corporation should become indebted to them in the amount of the excess of their advancement over and above such credit. The corporation was further indebted in current accounts in sums aggregating about $2,700.35, and was adjudged a bankrupt. After this was done the notes of the corporation acquired by the agent of the contributing payors were credited by the amounts severally due by them on the unpaid common stock which they held. The credit thus given amounted to $33,750 and left a balance of $34,250 due from the bankrupt corporation to the agent of said directors. This balance was one of the claims exhibited in the bankrupt proceeding on behalf of said directors. There were also exhibited in that proceeding the claims of all the bond holders (including the claim of defendant J. B. Johnson for $11,902.50) aggregating...