Biggs v. Westen
| Decision Date | 28 February 1913 |
| Citation | 154 S.W. 708,248 Mo. 333 |
| Parties | DAVID BIGGS, Trustee of KLINE-DRUMMOND MERCANTILE COMPANY, Appellant, v. EDWARD WESTEN et al |
| Court | Missouri Supreme Court |
Appeal from St. Louis City Circuit Court. -- Hon. George H Williams, Judge.
Affirmed.
Bland & Cave for appellant.
(1) The payment of all of the bonus stock is necessary for the payment of all of the creditors unless some are held to be estopped, and there is nothing in the evidence which would prevent the company itself, even though a going concrn, from enforcing the payment of this bonus stock and therefore no creditor can, on any theory, be estopped. The holders of this stock are indebted to the corporation itself and the amounts due thereon are an asset of the company and the plaintiff trustee in bankruptcy is entitled to recover the same for the payment of any creditors. (2) There is some evidence from which it might be inferentially said that there was a sort of general oral understanding among the promoters and organizers that the payment of this stock would not be enforced, but it is not sufficient to constitute a contract, even on the part of the promoters. And, furthermore, if it were sought to avoid liability on the subsequent absolute contract of subscription on the ground that these oral terms were to be inserted therein and were left out through fraud, accident or mistake, it would be necessary so to plead. None of the defendants have done so. Railroad v. McCormick, 90 Iowa 446; Railroad v. Conway, 177 Pa. St. 364; Payson v. Withers, No. 10664 Fed. Cas. (3) Again even if there had been such a contract between the promoters and prospective stockholders, or such representations by the promoters, it would not be binding on the corporation unless subsequently ratified by it or in fact remade by it. Joy v. Manion, 28 Mo.App. 59; Ollesheimer v. Thompson Mfg. Co., 44 Mo.App. 172; Haskell v. Sells, 14 Mo.App. 91; Hill v. Gould, 129 Mo. 106; Chouteau v. Dean, 7 Mo.App. 210; Prilsining v Templeton, 2 Mo.App. 424. There is absolutely no evidence of any such ratification or new contract on the part of the company. (4) On the contrary the contract entered into between the subscribers to the articles of association and the subscription agreement and the corporation was a written promise to pay for the stock subscribed for, absolute on its face, and purporting to be complete, and it cannot be varied, even as against the corporation, by proof of any oral agreement or understanding between the corporation or its promoters and such subscribers either contemporaneous therewith or prior thereto. It is needless to discuss that proposition, however, as the record fails to disclose any contract between the defendants and the corporation other than the one evidenced by the subscription to the articles of association. Joy v. Manion, 28 Mo.App. 59; Cook on Corporations, sec. 137; Railroad v. Conway, 177 Pa. St. 364; Nebraska Expo. Co. v. Townley, 46 Neb. 893; Railroad v. McCormick, 90 Iowa 446; Railroad v. Conway, 177 Pa. St. 364; Martin v. Remington, Martin & Co., 88 N.Y.S. 573; Merrick v. Consumers H. & E. Co., 111 Ill.App. 155. (5) Unless then some corporate action was taken subsequent to the signing of the articles of association by which the corporation contracted and agreed to waive the said payment or to accept something less than full payment, or property in payment, the said stockholders are still bound to the corporation itself by their unconditional promises to pay. The evidence fails to show any such subsequent agreement. (6) The fact that the certificates of stock contained the words "full paid and non-assessable" is immaterial. At most the legal effect of the words in question was a stipulation against liability to further taxation after the holder had fulfilled his contract to pay the par value of the stock. Van Cleve v. Berkeley, 143 Mo. 119; Upton v. Tribilcock, 91 U.S. 48.
W. F. Evans, Marion C. Early, and Frank K. Ryan for certain respondents. G. B. Silverman, Carl Otto, Igoe & Carroll, and Julius T. Muench of counsel. Stanley D. Pearce for respondent J. H. Christopher; Lewis & Rice for respondent Graham Paper Company; and Stewart, Bryan & Williams and Harold R. Small for respondent J. E. Smith.
(1) Each and every stockholder who extended credit to the corporation with knowledge of the conditions under which the common stock was issued is estopped to assert any liability against any shareholder for any unpaid part on such stock. It therefore follows that one extending credit with such knowledge could not create a preference in his own favor. Bell's Appeal, 115 Pa. St. 921; Trust Co. v. McMillan, 188 Mo. 547; Meyer v. Mining Co., 192 Mo. 162; Dickerson v. Trust Co., 176 U.S. 161. (2) Johnson received 61 shares of common stock through the contract between the American Supply Co. and the Kline-Drummond Mercantile Co. and is in this case joined as a co-defendant. It was found that he received this stock with full knowledge and without paying for it. He should be held to pay his pro rata share on this stock and the judgment, to that extent, should be modified, if the appeal is permitted to stand. Smith v. Heidecker, 39 Mo. 157; Moore v. Bank, 111 U.S. 156. (3) Nor could he secure a better standing in a court of equity by arranging with the trustee, whose duties are limited by law, to aid him to establish his claim.
STATEMENT BY THE COURT.
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 or 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 1600 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, 1250 shares, as a stock dividend among its own shareholders. The defendant J. B. Johnson received sixty-one 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 sixty-one 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 ejoin 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...
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