Chouteau v. DeAn

• Decision Date: 13 May 1879
• Citation: 7 Mo.App. 210
• Court: Missouri Court of Appeals
• Parties: CHOUTEAU, HARRISON & VALLE, Defendant in Error, v. OWEN M. DEAN, Plaintiff in Error.

7 Mo.App. 210

CHOUTEAU, HARRISON & VALLE, Defendant in Error,

v.OWEN M. DEAN, Plaintiff in Error.

St. Louis Court of Appeals, Missouri.

May 13, 1879.

1. Oral testimony as to what was said or done at a meeting of the directors of a corporation is not admissible to prove a contract between the corporation and a stockholder for the surrender of stock and the release of the stockholder.

2. The capital stock of a corporation is a trust-fund created by the issue of stock in good faith, and stock cannot be issued without receiving therefor, in some shape, a reasonable equivalent for the par value of the stock.

3. Where $10,000 of stock is issued by a corporation to an officer thereof, in consideration of services rendered by him valued at $2,500. the stock being taken at its market value of twenty-five per cent, such officer thereby becomes a stockholder, and, as such, liable to creditors of the corporation to the extent of the difference between the value of his services and the par value of the stock.

4. The stock having been issued to him and receipted for in the usual form, and the transaction entered upon the corporation books, he cannot, by a voluntary cancellation and return of the certificates, annul the contract without the consent of the stockholders.

5. Nor could the corporation voluntarily consent to the surrender so as to release the stockholder from his contingent liability to creditors for the corporation's debts.

ERROR to St. Louis Circuit Court.

Affirmed.

JOHN A. HARRISON, for plaintiff in error: The creditor deals not on the credit of the corporators, and therefore the personal responsibility of stockholders is inconsistent with the nature of a body corporate.-- Meyers v. Irwin, 2 Serg. & R. 371; Ang. & Ames on Corp. 31, note 4. The stock in question having been issued to defendant as full paid, with the agreement that he should not be called upon to pay any greater price therefor than he actually did pay, there can be no recovery.-- Robertson v. Sibley, 10 Minn. 323; Phelan v. Hazzard, 6 Cent. L. J. 109; Spear v. Crawford, 14 Wend. 20; Palmer v. Lawrence, 3 Sandf. 161, 164; Seymour v. Sturgess, 26 N. Y. 134; Northern R. Co. v. Miller, 10 Barb. 260; Railroad Co. v. Kennerly, 12 Conn. 509; Boset v. Railroad Co., 13 Ill. 504, 511. The trial court also erred in holding that defendant could be made liable although he had in good faith paid full market or real value of the stock in controversy. The company had the right to deal with the stock as with any other property, and to regard its real rather than its fictitious or nominal value. New Albany v. Burke, 11 Wall. 96, 105; Burke v. Smith, 16 Wall. 394; Otter v. Brevoort Petroleum Co., 50 Barb. 247; Pondville Co. v. Clark, 25 Conn. 233; Catlin v. Eagle Bank, 6 Conn. 233.

J. H. WIETING, for defendant in error: 1. That the facts in this case worked a dissolution of the corporation, for the purposes of a proceeding like the present, see Moore v. Whitcomb, 48 Mo. 543; State Savings Assn. v. Kellogg, 52 Mo. 583, and cases cited; Perry v. Turner, 55 Mo. 418; Slee v. Bloom, 19 Johns. 456 (the leading case). 2. That in such case the stockholder can be sued directly for the company's liabilities existing at the date of dissolution, without previous suit against the corporation, see State Savings Assn. v. Kellogg, 52 Mo. 583; 1 Wag. Stats. 293, sect. 22. ““““The directors of a company cannot, as against its creditors, discharge the liability of a stockholder by receiving property at an exaggerated valuation. The transfer [of the property] is to be regarded as payment only to the extent of the actual value of the property.”-- Tallmadge v. Iron Co., 4 Barb. 382; Van Cott v. Van Brunt, 2 Abb. N. C. 283; Sawyer v. Hoag, 17 Wall. 610; Upton v. Tribilcock, 1 Otto, 45; Upton v. Sanger, 1 Otto, 56-60; Webster v. Upton, 1 Otto, 65. The directors of a corporation cannot release a stockholder from his individual liability, as against existing creditors, by accepting a surrender of his stock.-- Mann v. Pentz, 2 Sandf. Ch. 257; Payne v. Bullard, 23 Miss. 88; Slee v. Bloom, 19 Johns. 456.

LEWIS, P. J., delivered the opinion of the court.

The Carondelet Railway Company was incorporated in May, 1874, with an authorized capital stock of $300,000, divided into six hundred shares, at $50 each. It became indebted to the plaintiff, also a corporation, upon certain coupons amounting to $2,050, and in April, 1876, became insolvent and was dissolved. This suit was instituted under Wagner's Statutes, p. 293, sect. 22, against the defendant as the holder of unpaid stock to the amount of $10,000.

It appears that prior to August 21, 1874, the defendant was a director of the company. On that day he was elected secretary and treasurer. The position had always been a salaried one, and it was verbally agreed between defendant and the president and other officers, that he was to be paid for his services. On June 11, 1875, it was agreed among the officers of the corporation that the defendant, the president, and several of the directors should be paid in stock of the company for services rendered. The defendant estimated his services at about $2,500; but, inasmuch as the stock was really worth only twenty-five per cent of the nominal value, he made out a bill for $10,000, which was allowed by the board of directors, and “paid-up” stock to that amount was directed to be issued and delivered to him. The defendant afterwards addressed a letter to the board, asking a reconsideration of his account, “which was altogether too much, and would not have been presented in that amount but for the understanding that the same was to be paid in the paid-up capital stock of the company.” The writer requests that in lieu of the stock he be paid a fair compensation in cash for his services; and adds, that if the board should not deem it best to make the desired change, then he requests a delivery of the stock to him in due form, “full paid, and free from any and all assessments thereon, or for further or other payments thereon or therefor, or any part thereof.” The board, however, refused to make any change, and ordered the issuance of the stock. The certificates were delivered to the defendant and he signed the stub receipts for them on July 19, 1875. The transaction was entered upon the cash-book, which was the only book wherein such entries were made. On August 21, following, the defendant marked his certificates ““cancelled” across the face, and returned them to the then secretary of the company, entering, at the same time, on his account in the cash-book a credit for the shares as “returned to company and cancelled.” On the minutes of the board, bearing date August 27, 1875, appears this entry: “President Dean reported that he had cancelled the 200 shares of stock issued to him for services, and returned the same to the company.” No other action having reference to the same subject appears in the minutes. The question to be determined is whether, for the purposes of this suit, the defendant can be treated as a holder of unpaid stock at the dissolution of the corporation, in April, 1876.

The court refused to allow the defendant, as a witness, to answer his counsel's question, of what was said or done in the meeting of the board on August 27, that did not appear in the minutes. There was no error in this refusal. Nothing short of a valid contract between the corporation and the defendant could avail to consummate legally the...