Colonial Trust Co. v. McMillan

• Decision Date: 24 May 1905
• Citation: 188 Mo. 547,87 S.W. 933
• Parties: COLONIAL TRUST CO. v. McMILLAN.
• Court: Missouri Supreme Court

87 S.W. 933

188 Mo. 547.

COLONIAL TRUST CO. v. McMILLAN.

Supreme Court of Missouri, Division No. 1.

May 24, 1905.

CORPORATIONS — STOCKHOLDER'S LIABILITY — KNOWLEDGE OF CREDITOR — PLEDGE OF STOCK — APPEAL — FINDINGS — CONCLUSIVENESS.

1. Where a jury is waived in an action at law, a finding of the trial court, if sustained by substantial evidence, will not be interfered with on appeal.

2. One who becomes the creditor of a corporation with knowledge of the fact that stock issued as fully paid up has not in fact been paid for cannot enforce a stockholder's liability for the difference between the amount paid for the stock and its par value.

3. Defendant's son-in-law, who was promoting a consolidation of corporations and was financially embarrassed, procured a loan on the note of the new corporation, which note was secured by bonds underwritten or guarantied by defendant under an agreement providing that a block of stock in the new corporation should be placed in the hands of defendant as security for the performance by the son-in-law of his

agreement to procure other parties to underwrite the loan so as to take up defendant's underwriting agreement. The stock was in fact issued directly to defendant as a stockholder, and resignations of the officers of the corporation were placed in his hands, but he refused to act as a stockholder, and did not act upon the resignations. Held, that defendant was the pledgee, and not the owner of the stock, and hence was not subject to a stockholder's liability.

4. Where stock was pledged under an agreement that if the pledgor did not perform certain acts within 90 days the stock should become the property of the pledgee, failure of the pledgor to perform his agreement within 90 days did not render the stock absolutely the property of the pledgee, but merely gave him an option to treat it as such.

5. Under the express provisions of Rev. St. 1899, § 1324, one holding stock as collateral security is not liable as a stockholder.

Appeal from St. Louis Circuit Court; Horatio D. Wood, Judge.

Action by the Colonial Trust Company against Emerson McMillan. From a judgment for defendant, plaintiff appeals. Affirmed.

W. J. Stone, Judson & Green, and R. I. Brownrigg, for appellant. Edward S. Robert, for respondent.

LAMM, J.

In an action at law, tried to the court without a jury, the plaintiff, as a judgment creditor of the Sedalia Electric & Railway Company, referred to herein as the "Railway Company," seeks to hold defendant liable as a stockholder owning 2,594 shares of unpaid capital stock of said railway company, of the par value of $259,400, for the sum of $47,076.75, said judgment debt. The result of the trial was a judgment for defendant, from which plaintiff appeals.

It will contribute to an understanding of the case to state the paper issues, which are substantially as follows: After alleging its incorporation and citizenship in New York, and the incorporation of the Sedalia Electric & Railway Company under the laws of the state of Missouri, the petition avers that said railway company became indebted to the plaintiff for money loaned in the sum of $105,000, evidenced by a promissory note dated the 1st of November, 1898, due in one year, with interest at the rate of 6 per cent., payable quarterly, which note was indorsed and guarantied by Stewart & Co., and was secured by the pledge of certain bonds and stock of said railway company as collateral; that payments were made by said makers, indorsers, and guarantors, and by the sale of said pledged collateral, whereby the principal was reduced to $44,550, which, with interest, remained due and unpaid to plaintiff; that on the 17th of October, 1900, plaintiff, having theretofore instituted suit against said railway company in the Circuit Court of the United States in the Central Division of the Western District of Missouri to recover said balance, did recover the same, with costs, and thereafter sued out execution, upon which the marshal made return of nulla bona; that said railway company is wholly insolvent, and has ceased to do business or to perform any of the purposes of its creation, and has ceased to be actively governed, managed, or controlled by its board of directors or officers, and has become virtually defunct and dissolved; that said indorser and guarantor, Stewart & Co., was one Stanley H. G. Stewart, who did business as a "banker or broker" in the city of New York, and is now insolvent; that the bonds and stock pledged for the payment of said note were sold by plaintiff, and the net proceeds applied on the note; that said judgment of the federal court remains wholly unpaid; that said railway company was organized with a capital stock of $400,000, divided into 4,000 shares of the par value of $100 each; that defendant is owner and holder of 2,594 shares of said capital stock, originally subscribed by one Reeve, who paid nothing on said stock in money, property, or services, notwithstanding which the shares of stock were issued to him; that on the 9th day of December, 1898, Reeve transferred his said stock certificates to defendant, so that he became and was thereafter the owner of said stock; that defendant well knew Reeve had paid nothing on said stock, knew the whole amount of Reeve's stock subscription was still due said railway company, and knew that said railway company was at the time largely indebted to plaintiff and other creditors; that by reason of the premises defendant is indebted to said railway company in the sum of $259,400, whereby a right had accrued to plaintiff, as a creditor, to have and recover from the defendant the amount due plaintiff by said railway company, to wit, the said sum of $47,076.75, together with interest at 6 per cent. since the 17th day of October, 1900, etc. The case was tried on an amended answer admitting the incorporation of the plaintiff, the incorporation of the railway company, its original indebtedness to plaintiff in the sum of $105,000, evidenced by the note referred to, admitting that Stewart & Co. indorsed and guarantied the note, and that certain bonds and stocks were pledged to secure its payment as alleged, admitting the railway company was organized with the amount of capital stock and number of shares and par value of each share as alleged, and admitting the stock was originally subscribed by Reeve, but denying seriatim and specifically the other allegations in the petition. For affirmative defense, the answer pleads that at the time the stock was issued it was agreed by the railway company and the stock subscribers that the railway company should accept the conveyance of certain real estate, buildings, apparatus, electric light plant, electric street railway plants, and other property, interests, and franchises in full payment for all stock to be issued; that said railway company would issue such stock fully paid and nonassessable, and that no persons holding any of said stock should remain or be liable for any further payment on account of the same; that the conveyances aforesaid were made and the agreement completed, the railway company put in possession, etc., and the said stock was so issued and delivered, and bore upon its face the express agreement that it was fully paid and nonassessable; that the property, interests, franchises, etc., so conveyed were at the time of a value equal to the face value of said stock; that at the time and in said matters the directors of said railway company and its officers and all persons connected with said transaction acted in good faith, and in the honest belief that the value received by the railway company was equal to the amount of the face value of the stock, and all said directors, officers, and persons exercised all reasonable caution and their best judgment in the premises, etc. For a further defense, it is alleged that before it advanced money to said railway company upon said $105,000 note, and at the time, plaintiff had full notice of said facts connected with the issuance of said stock, as well as of the value of the franchises, interests, etc., conveyed to said railway company as a consideration for the stock, of the amount of stock issued and its full value, of the business to be conducted by said company, and of the plan of its organization, capitalization, and operation. As a further defense, it was alleged that at the instance and request of said Stewart, and after plaintiff had agreed to make said $105,000 loan, defendant executed a certain underwriting agreement to which Stewart & Co., other underwriters, and plaintiff were parties, whereby defendant agreed that he would, if required so to do by plaintiff any time between the 1st day of September, 1899, and the 2d day of October, 1899, but not otherwise, purchase and take from plaintiff 60 bonds and 600 shares of the capital stock of said railway company, then in the hands of plaintiff, and that he would in that case pay therefor at the rate of $750 for each bond, together with 10 shares of said stock (said plaintiff, however, having the privilege of selling said bonds and stock to others upon terms set forth in said underwriting agreement), and, for the purpose of inducing him to execute it, said Stewart agreed he would secure other persons to underwrite the bonds and stock so underwritten by defendant, and would substitute such other persons in the place and stead of defendant as a party to said underwriting agreement, and would procure plaintiff to release defendant from said underwriting agreement; that, to secure the carrying out of said Stewart's agreement, he, Stewart, caused to be issued and lodged with defendant a certificate for 2,594 shares of the capital stock of said railway company, which was received and has at all times been held by defendant as collateral security to secure his release from any obligations growing out of said underwriting agreement, and to insure the substitution of other underwriters in his place and stead,...