Chrisman-Sawyer Banking Company v. Independence Wool Manufacturing Co
| Decision Date | 21 May 1902 |
| Citation | 68 S.W. 1026,168 Mo. 634 |
| Parties | CHRISMAN-SAWYER BANKING COMPANY to use of SIMPSON, Appellant, v. INDEPENDENCE WOOL MANUFACTURING COMPANY and McCOY |
| Court | Missouri Supreme Court |
Appeal from Jackson Circuit Court. -- Hon. John W. Henry, Judge.
Affirmed.
Flournoy & Flournoy and C. O. Tichenor for appellant.
(1) The so-called "sale" or "surrender" of stock by defendant John McCoy to the company was ultra vires and void, and he remains liable to plaintiff as a creditor of the company, regardless of the fact that the transaction between McCoy and the company took place prior to the time when the claim on which plaintiff sues accrued. 1 Morawetz on Private Corp., sec. 109; vol. 2, sec. 824; 2 Thompson's Com. on Law of Corporations, sec. 1151; Ins. Co. v. Floyd, 74 Mo. 286; Nichols v. Stevens, 123 Mo. 96; Ollesheimer v. Mfg. Co., 44 Mo.App. 172; Wells & Co. v. Mfg. Co., 54 Mo.App. 45; Shickle v Watts, 94 Mo. 410; Rawhide Co. v. Hill, 72 Mo.App. 142; Skrainka v. Allen, 7 Mo.App. 434; s c., 76 Mo. 384; Gill v. Balis, 72 Mo. 424; Ramsey v. Mfg. Co., 116 Mo. 323; State ex rel v. McGrath, 86 Mo. 239; Bank v. Thompson, 19 Nev. 103; Hamor v. Eng. Co., 84 F. 397; Putnam v. Hutchinson, 45 P. 931; s. c., 4 Kan.App. 273; Allibone v. Hager, 46 Pa. St. 48; Railroad v. Bowser, 48 Pa. St. 29; Alling v. Wenzel, 133 Ill. 264; Singer v. Given, 61 Iowa 393; Railroad v. Eastman, 34 N.H. 140; Upton v. Tribilock, 91 U.S. 45; Crandall v. Lincoln, 52 Conn. 94. (2) Where a method is provided by statute, as in this State, whereby a corporation may reduce its capital stock, that method is an exclusive one, and the requirements of the statute must be strictly complied with. Sec. 1328, R. S. 1899; Mfg. Co. v. Hilbert, 24 Mo.App. 343; 1 Morawetz on Private Corp., sec. 114.
Samuel H. Woodson and Wallace, Wallace & Culbertson for respondents.
(1) A contract of subscription for shares of stock in a corporation may be rescinded and cancelled by the mutual consent of the subscriber and the corporation and all other stockholders, and the withdrawing member will not be liable for the debts of the company thereafter contracted. Johnson v. Lullman, 15 Mo.App. 55; Johnson v. Lullman, 88 Mo. 567; Erskine v. Peck, 13 Mo.App. 280; Erskine v. Peck, 83 Mo. 465; Hill v. Coal Mining Co., 124 Mo. 167; 1 Beach on Private Corp., secs. 101 and 113; Cook on Law of Stock and Stockholders, sec. 168; Stewart v. Railroad, 32 Grattan 146; Evans v. Smallcomb, L. R. 3 H. L. 249; Morgan v. Lewis, 46 Ohio St. 1; Ins. Co. v. Swigert, 135 Ill 162; Chetlain v. Ins. Co., 86 Ill. 224; Fruit Co. v. Coon, 107 Cal. 447; Dunne v. Howe, 96 F. 163; Graham v. Railroad, 102 U.S. 148; Steacy v. Railroad, 5 Dillon 348; Beach on Private Corporations, sec. 101. (2) The contention of the appellant that the act of the corporation releasing the defendant's subscription was ultra vires and void, is based on the theory now exploded, that the assets of a corporation are held by it in trust for its creditors. This theory does not obtain in this State, and has been so modified in the jurisdiction in which it originated (the United States courts) as to amount to nothing more than a rule that after the company becomes insolvent its assets must be first applied in payment of its debts before anything can be distributed among stockholders. Butler v. Land & Mining Co., 139 Mo. 468; Schufeldt v. Smith, 131 Mo. 280; Alburger v. Bank, 123 Mo. 313; Bank v. Ward, 111 F. 787; Hollins v. Coal Co., 150 U.S. 371; Graham v. Railroad, 102 U.S. 148; Hospes v. Mfg. Co., 48 Minn. 144. In each and every one of the Missouri cases above cited the trust fund theory is repudiated and the rule established that a corporation holds its property by the same title and with the same power of control and disposition as a natural person. (3) It is thus seen from the foregoing cases that it is the doctrine generally, as well as in Missouri, that unpaid subscriptions to the capital stock of a corporation may be surrendered to the corporation, and the shareholder will not be liable thereon for future debts of the company. The cases holding this doctrine in Missouri, viz., Johnson v. Lullman, 88 Mo. 567; Erskine v. Peck, 83 Mo. 465, and Hill v. Coal Mining Company, 124 Mo. 167, could not of course be overruled by the St. Louis Court of Appeals, as claimed by appellants. And it should be borne in mind that this rule obtained in this State as a rule of property when the transaction in question occurred. (4) This proceeding is barred by section 1330, Revised Statutes 1899, relating to private corporations. The debt sued on herein, according to the promissory note filed with the petition, and which was offered in evidence in the case, matured August 5, 1896. The suit against the corporation, according to the petition which was put in evidence, was filed on December 28, 1898, which was not within one year after the debt became due. Not only was this suit not filed within two years after the defendant had ceased to be a stockholder and had surrendered his stock, but was brought more than ten years after that date. The statute of limitations is treated as applicable to a motion of this kind in the case of Nichols v. Stevens, 123 Mo. 115.
Motion to charge stockholder for unpaid subscription for stock.
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 and McAfee's Wool Manufacturing Company," with a capital stock of fifty thousand dollars, 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 the manufacture of 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 and McAfee was turned over to the company at its cost price of forty thousand dollars. 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 eighty per cent of all the stock, and leave each share with twenty per cent unpaid. To relieve the situation thus presented, they resolved that the company should purchase fifty shares of the capital stock from John McCoy, and twenty-five shares from each of the McAfee's at the par value of one hundred dollars 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 forty thousand dollars of the stock fully paid and ten thousand 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 seven thousand dollars, 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 guarantee the indebtedness. When Gudgell and his associates bought out McCoy and McAfee, they gave their guarantee 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 forty-four thousand dollars. 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 guarantee, 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 seventeen 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 five thousand dollars as the unpaid subscription on the fifty shares of stock so turned back to the company as "treasury stock" as aforesaid. Various defenses were interposed by the defendant which will be...
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