Buerck v. Mid-Nation Iron Products Co.

• Decision Date: 28 August 1922
• Docket Number: No. 23283.,No. 22956.,22956.,23283.
• Citation: 245 S.W. 45,295 Mo. 263
• Parties: BUERCK et al. v. MID-NATION IRON PRODUCTS CO. et al.
• Court: Missouri Supreme Court

245 S.W. 45

295 Mo. 263

BUERCK et al. v. MID-NATION IRON PRODUCTS CO. et al.

No. 22956.

No. 23283.

Supreme Court of Missouri, Division No. 2.

August 28, 1922.

Motion for Rehearing Denied October 9, 1922.

Appeal from St. Louis Circuit Court; Chas. B. Davis, Judge.

Action by Ferdinand Buerck and others against the Mid-Nation Iron Products Company and others, wherein defendants appeal from an order overruling a motion to vacate the appointment of a receiver; and action by the Southeast Missouri Trust Company, trustee, against the Mid-Nation Iron Products Company and Odon Guitar, Jr., receiver, in which John F. Green and others intervened as parties plaintiff, and wherein the intervening plaintiffs and defendant receiver appeal from an order refusing to vacate an order appointing a receiver for the same property involved in the first case. The cases were consolidated in the Supreme Court and argued and submitted together. Appeal in the first case dismissed and order in the second case reversed and cause remanded, with directions to sustain the motion to set aside the order.

William B. Cloyes, of Chicago, Ill., and John A. Hope, of St. Louis, for appellants.

W. G. Carpenter and Geo. C. Mackay, both of St. Louis, for respondents.

DAVID E. BLAIR, J.

Case No. 22956, which will be referred to as the "Buerck Case," comes here upon a special appeal granted by one of the judges of this court from an order of division No. 14 of the circuit court of the city of St. Louis, overruling a motion of defendant Mid-Nation Iron Products Company to vacate the appointment of a receiver.

Case No. 23283, which will be referred to as the "Trust Company Case," comes here upon an appeal granted to intervening plaintiffs and the receiver defendant by the circuit court of Butler county, from an order refusing to set aside and vacate its order appointing E. E. Fenzel receiver for the same property involved in the Buerck Case. The two cases were separately briefed and have been consolidated in this court and were argued and submitted together.

I. In the Buerck Case the petition, in substance, alleged that plaintiffs, respondents here, are bondholders and stockholders la defendant Mid-Nation Iron Products Company, herein referred to as "iron products company," and bring the action on behalf of themselves and others similarly situated; that said iron products company is a Missouri corporation, having its principal office and place of business in the city of St. Louis; that on or about January 20, 1017, defendant Earl A. Clemons and others caused said iron products company to be organized as a corporation as an instrument for their fraudulent purposes and to take title to a certain tract of iron ore bearing land in Wayne and Butler counties in this state, comprising about 25,-000 acres; that the incorporators of said iron products company did not own said land at the time said corporation was organized, and falsely swore in the articles of association that they did own the same and that it was of the value of $2,003,030; that said corporation did not acquire deed to said land until several months thereafter; that defendant Clemons and his associates caused stock to be issued to themselves as follows $1,314,700 par value to Earl A. Clemons; $5,000 par value to William R. Leeper; $5,000 par value to W. F. Groetzinger; $100 par value to J. F. Lindsay; $100 par value to E. Abby Lindsay; $100 par value to F. J. Quinn.

Said petition then proceeded to allege: That none of the above-named persons invested any real money in said iron products company. That they proceeded to issue bonds in the sum of $1,000,000 secured by mortgage upon said Lands and that defendant Clemons sold $160,000 in par value of said bonds before he had secured title in the corporation to more than a small part of said lands. That Clemons and his associates paid to Concrete Investment Company of St. Louis the sum of $120,003 and to a St. Louis bank the sum of $18,000, which represented the total purchase price of said. lands and thereafter had title conveyed to one Cochran, trustee, and by him to said iron products company. That, upon the conveyance of the property to iron products company, defendant Clemons caused said corporation to issue to himself promissory notes aggregating $220,000, secured by double that amount in face value of the first mortgage bonds of said corporation as collateral, without any consideration whatever therefor to said corporation. That while said corporation property cost defendant Clemons and his associates only about $140,000, it thereupon became and was subject to a $2,000,000 capital stock issue of said corporation, $220,000 liability to defendant Clemons on said notes and $1,000,000 bond issue. That out of $160,030 first received from the sale of bonds, $138,000 went to apply on the purchase price of the lands and $22,000 thereof was wrongfully appropriated by said Clemons to his own use, in addition to the $220,000 note.

That the $160,000 of bonds were sold to Mid-Vale Steel Company and the real consideration for the payment of the money by that company was not the security supporting said bonds, but was a contract from the iron products company giving such steel company the right to prospect, mine, and take ore from the land, and that if said company was not satisfied with the land from an ore standpoint, it might cancel the contract and retain the bonds. That after spending a large amount of time and money, said steel company rejected the property as not being a satisfactory ore proposition. That after such rejection, defendant Clemons began selling such bonds of the iron ore products company remaining in its treasury as he was able to sell to plaintiffs and others similarly situated "under every variety of false representation which could be made," and sold to plaintiffs and such others approximately $100,000 of such bonds, and applied the greater portion of the proceeds from such sales upon the aforesaid $220,000 note payable to himself, so issued to him by the corporation without consideration therefor, and thereby reduced the alleged amount of said note to approximately $140,000. That all but a small amount of the remainder of said bonds have, under various pretexts, been converted by defendant Clemons and his associate, defendant Thomas B. McPherson, to their own use, and "have been traded, bartered, exchanged, and pledged by them in a great variety of ways and manner unknown to these plaintiffs" and not disclosed by the books of the corporation, and are now outstanding and an apparent lien against the corporation. That there is now an apparent outstanding indebtedness against the corporation in excess of $700,000 and that the property is worth no more, than when it was purchased in the year 1917.

The petition then alleges: That no mining machinery has been placed on the property or any buildings erected thereon, and that no mining or development work has been done thereon and no ore sold therefrom, and that expenses have at all times been paid from proceeds of bonds sold to plaintiffs and others similarly situated, and that defendant and his associates and defendant directors of said corporation are selling and attempting to sell the bonds remaining in the treasury for the purpose of maintaining their salaries and other expenses and for application upon the said Clemons note.

"That the defendant Clemons to date pretends to hold and own approximately $1,400,-3,30 of the capital stock of said company. That he holds and pretends to own $140,000 of collateral indebtedness against said property. That he holds or pretends to own a large amount of the bonds of said company, which plaintiffs charge to be in excess of $100,000. That he has already paid himself, as aforesaid, $235,000 on the alleged purchase price of said property, has drawn a munificent salary from said company all these years, all without ever having invested a dollar in actual money in the said company and without ever having done or performed any services of benefit to said company or to any one else, except himself.

"That defendant Thomas B. McPherson has been an active aider and participant in all tee fraudulent acts of said defendant Clemons heretofore enumerated, has received from said company a very large amount of the bonds of said company without any consideration whatever to said company for the receipt of same, is selling or attempting to sell, is pledging or attempting to pledge, said bonds for his own personal advantage wherever he may be able to do so, and is in addition thereto claiming to own $75,000 of the outstanding stock of said company. That defendants James N. Hull, James P. Pierce and Hartzler Redhead are nominal stockholders in said company and constitute the board of directors, were placed there by and with the connivance and solicitation of defendant Earl A. Clemons and defendant Thomas B. McPherson, and are used merely to further the ends and purposes of defendants Earl Clemons and Thomas B. McPherson.

"That a bankruptcy petition has been filed against defendant Earl A. Clemons. That he owes a very large amount of money, and that he in attempting to use, and will attempt to use, the bonds of this company now in his possession and his so-called note indebtedness of this company as aforesaid to offset and pay up the debts claimed against him, unless a court of equity immediately intervenes and appoints a receiver to look after and protect the interests of the said Mid-Nation Iron Products Company in its claim to said bonds and in its defenses against the said pretended indebtedness of said Clemons."

Said petition then alleges: Chat 48,000 acres of additional land in Wayne and Butler counties were conveyed by Concrete Investment Company to one Cochran, acting as a dummy for title for said Clemons and his associates, for $77,478, paid for by three notes secured by deed of trust and no actual money, and that said Cochran placed thereon a...