Chrisman-Sawyer Banking Co. v. Independence W. Mfg. Co.

• Decision Date: 21 May 1902
• Citation: 68 S.W. 1026,168 Mo. 634
• Parties: CHRISMAN-SAWYER BANKING CO. v. INDEPENDENCE WOOL MFG. CO. et al.
• Court: Missouri Supreme Court

68 S.W. 1026

168 Mo. 634

CHRISMAN-SAWYER BANKING CO. v. INDEPENDENCE WOOL MFG. CO. et al.

Supreme Court of Missouri, Division No. 1.

May 21, 1902.

CORPORATIONS—UNPAID SUBSCRIPTION—LIABILITY —LIMITATIONS—PARTIES—REAL PARTY IN INTEREST.

1. Where a corporation took up from a subscriber to its stock a portion thereof which was not paid up, making the same treasury stock, the subscriber was nevertheless personally liable, to the amount of the unpaid subscription, to subsequent creditors of the corporation.

2. Act 1855 (Rev. St. 1855, c. 34, art. 1, § 18; Id. c. 37, §§ 10, 21) relating to business corporations, provided that stockholders should be personally liable, without regard to the amount of the stock owned by them, under three circumstances: First, until the capital stock was fully paid in; second, for all existing debts if the annual statement was not published, and for all debts that might be contracted before such statements were published; and, third, for all debts contracted in excess of the amount of the capital stock of the company. Section 22 (now Rev. St. 1899, § 1330) provides, "No stockholder shall be personally liable for the payment of any debt contracted by" the company unless it was to be paid within one year, nor unless suit be brought against the company within one year after the debt becomes due, nor unless suit be brought against the stockholder within two years after he ceases to be a stockholder. Rev. St. 1899, § 985, imposes a liability to the amount of unpaid subscriptions. Held that, in an action for unpaid subscriptions, the limitation of section 1330 has no application; the unpaid subscriptions being not a debt of the corporation, but the debt of the subscriber, for which he is liable under section 985.

3. Section 540, Rev. St. 1899, requires every action to be prosecuted in the name of the real party in interest, except as provided in section 541; and that section provides that a trustee of an express trust may sue in his own name without joining with him the person for whose benefit the suit is prosecuted, and further provides, "A trustee of an express trust, shall be construed to include a person with whom or in whose name a contract is made for the benefit of another." Plaintiff purchased a judgment against a corporation in favor of a bank, and sued a stockholder for his unpaid subscription. It appeared that plaintiff was on intimate terms with one who had guarantied the corporation's indebtedness to the bank, and that the consideration given for the judgment was the note of plaintiff and the guarantor. Plaintiff testified that he purchased the judgment to protect the guarantor. Held, that he could not recover, not being the real party in interest or a trustee of an express trust; no contract having been made by the bank for the benefit of the guarantor.

Appeal from circuit court, Jackson county; John W. Henry, Judge.

Action by the Chrisman-Sawyer Banking Company, to the use of T. A. Simpson, against the Independence Wool Manufacturing Company and another. From a judgment for defendant company, plaintiff appeals. Affirmed.

In 1888, McCoy and McAfee, as partners, were engaged in the operation of a woolen mill at Independence. On the 28th of August of that year they organized a business corporation under the name of the "McCoy & McAfee's Wool Manufacturing Company," with a capital stock of $50,000, the whole of which was alleged to have been bona fide subscribed and the full amount thereof actually paid up in lawful money of the United States, and to be in the custody of the persons named as the first board of directors. The stockholders and the number of shares owned by each were stated in the articles of incorporation to be as follows: John McCoy, 240 shares; John F. McAfee, 125 shares; James T. McAfee, 125 shares; Joseph McCoy, 10 shares. The purpose of the company was principally to manufacture wool. It was not true, as stated, that the capital stock was fully paid up in cash. On the contrary, no cash was paid. The property then belonging to the partnership of McCoy & McAfee was turned over to the company at its cost price of $40,000. The four persons above named composed the board of directors and constituted the entire body of the stockholders. It was nowhere stated that the $40,000 was to be applied to the payment of any particular shares. If applied to all the $50,000 stock ratably, it would be sufficient to pay up 80 per cent. of all the stock, and leave each share with 20 per cent. unpaid. To relieve the situation thus presented, they resolved that the company should purchase 50 shares of the capital stock from John McCoy and 25 shares from each of the McAfees at the par value of $100 a share, and that the shares so purchased should be "treasury stock" and be owned by the company. The shares so to be purchased were not designated. It was not even then stated that this would leave $40,000 of the stock fully paid and $10,000 wholly unpaid, but the parties so treated it, and the lower court so treated it, and therefore the case will be determined on that theory by this court. Afterwards, the McCoys and the McAfees sold all of their stock in the company to Gudgell and his associates. Gudgell was elected president, and the name of the corporation was changed to the Independence Wool Manufacturing Company. This took place prior to 1893. At that time the company owed the Chrisman-Sawyer Banking Company about $7,000, which was evidenced by notes of the company. The bank had but little confidence in the company, and so it had required McCoy and McAfee to guaranty the indebtedness. When Gudgell and his associates bought out McCoy and McAfee, they gave their guaranty to the bank in place of that formerly given by McCoy and McAfee. The liability of the company to the bank afterwards increased until it amounted, in 1896, to about $44,000. In 1896 the mill burned, and after all the assets of the company were turned over to the bank, and after they were all exhausted, there remained about $7,500 due the bank. The bank reduced this claim to a judgment, an execution against the company was returned nulla bona, and the bank was about to proceed against Gudgell and his associates on their guaranty when Gudgell procured his friend and partner in the cattle business, T. A. Simpson, to buy the judgment against the company. This was done by giving the bank a note for the amount of the judgment made by Gudgell and Simpson. In addition to being partners, they had lived together in the same house for over 17 years. Simpson says he knew the mill had burned; that he had bought the land on which it stood when it was sold under a deed of trust; that he knew of no assets the company had; that he did not know anything about the "treasury stock" transaction, but that he purchased the judgment to protect Gudgell. The judgment was based upon a note dated May 5, 1896, and this note was a renewal note, based upon an indebtedness that had been contracted after 1893, when McCoy and McAfee sold out to Gudgell and his associates. The suit was begun on September 28, 1898. After the judgment was transferred by the bank to Simpson, he filed a motion in the original case against John McCoy, seeking to recover from him the sum of $5,000 as the unpaid subscription on the 50 shares of stock so turned back to the company as "treasury stock" as aforesaid. Various defenses were interposed by the defendant, which will be adverted to hereinafter. The trial court entered judgment for the defendant, and the plaintiff appealed.

Flourney & Flourney and C. O. Tichenor, for appellant. Saml. H. Woodson and Wallace, Wallace & Culbertson, for respondent.

MARSHALL, J. (after stating the facts).

1. The first question that is presented is whether a subscriber to stock in an incorporated company, that has not been fully paid up, can, by any device or arrangement with the company, its officers, or all of the other stockholders, surrender his stock to the company and be released from all liability for the amount remaining unpaid on such stock, and thereby be relieved of all responsibility on account of such stock to existing or subsequent creditors of the company. It is conceded by all text-writers and adjudications, and by the plaintiffs herein, that such a subscriber cannot be so released as to existing creditors without their consent; but it is claimed by the defendant that subsequent creditors cannot complain or object, because, when they gave credit to the company, such unpaid subscription did not constitute an asset of the company, and in support of this contention the defendant cites Erskine v. Peck, 13 Mo. App. 280, affirmed by this court in 83 Mo. 465, Johnson v. Lullman, 15 Mo. App. 55, affirmed by this court in 88 Mo. 567, Hill v. Mining Co., 124 Mo. 167, 25 S. W. 926, 32 S. W. 111, 1 Beach, Priv. Corp. §§ 101, 113. Cook, Stock & S. § 168, and cases in other jurisdictions, including Morgan v. Lewis, 46 Ohio St. 1, 17 N. E. 558; Insurance Co. v. Swigert, 135 Ill. 162, 25 N. E. 680, 12 L. R. A. 328; Dunn v. Howe (C. C.) 96 Fed. 163; Graham v. Railroad Co., 102 U. S. 148, 26 L. Ed. 106; Trust Co. v. Abbott, 162 Mass. 148, 38 N. E. 432; 27 L. R. A. 271; Steacy v. Railroad Co., 5 Dill. 348, Fed. Cas. No. 13,329. Beach, Priv. Corp. § 113, states this to be the law, and, in support of the statement that subsequent creditors have no right to complain, the author cites Hollingshead v. Woodward, 35 Hun, 410, Johnson v. Lullman, 15 Mo. App. 55, and Erskine v. Peck, 13 Mo. App. 280; and this statement and this section of Beach on Private Corporations is cited in Hill v. Mining Co., 124 Mo., loc. cit. 167, 25 S. W. 926, 32 S. W. 111, as authority for that doctrine. Thus it will be seen that Beach relies principally on the St. Louis court of appeals and on this court in Erskine v. Peck and Johnson v. Lullman as his authority for so stating the doctrine, and afterwards, in Hill v. Mining Co., this court relies on Beach as...