Coquard v. St. Louis Cotton Compress Co.

• Decision Date: 20 February 1888
• Citation: 7 S.W. 176
• Parties: COQUARD v. ST. LOUIS COTTON COMPRESS CO. et al.
• Court: Missouri Supreme Court

7 S.W. 176

COQUARD v. ST. LOUIS COTTON COMPRESS CO. et al.

Supreme Court of Missouri.

February 20, 1888.

1. CORPORATIONS — STOCKHOLDERS — PROHIBITION OF LOAN OR ISSUE OF STOCK TO.

Under Rev. St. Mo. § 933, providing that a corporation shall not loan money to its stockholders; and section 927, prohibiting a corporation from issuing stock or bonds except "for money paid, labor done, or money or property actually received," and

making all fictitious issues of stock or bonds void, — a corporation cannot, by a reduction of its capital stock, create a surplus, and, such surplus being invested in a plant so situated as not to be readily convertible into cash, borrow on bonds and general mortgage sufficient ready funds to distribute such surplus among the stockholders.

2. SAME.

Where there is no allegation in an answer to a complaint, filed by a corporation, that the capital stock has all been paid in, the statement to that effect of a resolution copied in the answer is not tantamount to such an allegation, and on demurrer to the answer must be taken most strongly against the pleader.

Appeal from St. Louis circuit court: SHEPARD BARCLAY, Judge.

The plaintiff, Coquard, instituted this proceeding to restrain the defendant corporation from the doing of an act which he claims is ultra vires that corporation. The petition is as follows:

"Plaintiff, complaining, showeth unto the court that the defendant the St. Louis Cotton Compress Company is a corporation duly organized under the laws of the state as a corporation, and has been such corporation since on or about the 26th day of July, in the year 1873, and having its office and place of business, and doing business as such corporation, in the city of St. Louis. That the object for which said corporation was organized and constituted was for the storage and compression of cotton, the doing of a general storage business, and the purchasing and holding of such real estate as might be necessary for the conduct of such business; but in no case to purchase cotton or other merchandise on its own account, or engage in any speculation whatever. That by the terms of the original articles of association of said corporation, entered into on the said 26th day of July, A. D. 1873, the amount of the capital stock of said association was fixed at the sum of seventy-five thousand dollars, divided into seven hundred and fifty shares of the par value of one hundred dollars. That on the 3d day of June, in the year 1875, by a unanimous vote of the stockholders of said corporation, the capital stock of said corporation was increased to the sum of three hundred thousand dollars. That afterwards, on the 24th day of July, in the year 1879, by a unanimous vote of the stockholders of said association, the capital stock of the corporation was increased to the sum of seven hundred thousand dollars. That afterwards, on the 13th day of October, in the year 1880, the capital stock of the corporation was, by a like unanimous vote of the stockholders, increased to the sum of one million dollars; and on the 26th day of April, in the year 1882, by a like unanimous vote of the stockholders, the capital stock of the corporation was increased to the sum of one million two hundred and fifty thousand dollars. And plaintiff states that on the 11th day of October, in the year 1883, he became by purchase the owner, and still is the owner, of sixty-two shares of the capital stock of the said corporation, the St. Louis Cotton Compress Company, the par value of which was and is the sum of one hundred dollars, and amounting in the aggregate to the sum of six thousand and two hundred dollars. And plaintiff further saith that in the early part of the present year the directors of said company conceived the idea of withdrawing a large portion of the capital stock from the said business of the said corporation, and repaying the same to the stockholders thereof; and in or about the month of February of this year caused a notice to be published, and by notice addressed to the stockholders of said corporation, for a meeting of stockholders to be held at the office of the company on the 19th day of March, 1885, to consider the question of diminishing the capital stock of the said corporation from the sum of one million two hundred and fifty thousand dollars to six hundred and twenty-five thousand dollars, and likewise a meeting at the same day, hour, and place for the purpose of voting upon a proposition, and giving their consent, to create or increase the bonded indebtedness of said company to the amount of $625,000. And plaintiff saith that at said meeting of stockholders, so held on the day last named, there were two propositions submitted to the vote of said stockholders at said meeting, which meeting was duly held upon regular and legal notice, as follows: `Whereas, the present authorized, issued, and fully-paid capital stock of this company is one million two hundred and fifty thousand dollars; and whereas, the same is greater than necessary, and it is desired and desirable to diminish the said capital stock to six hundred and twenty-five thousand dollars. [Part of resolution here omitted. See same fully set out in the answer.] Be it further resolved, that the board of directors of this company be, and they are hereby, authorized and directed to pay to the stockholders of this company the surplus that is or may be created by such diminution of the capital stock to the amount of six hundred and twenty-five thousand dollars, ratably in proportion of the shares of stock held by them respectively, and to call in and cancel the existing certificates of stock, and to issue in substitution therefor new certificates for the reduced capital.' And the said resolution was adopted, — ten thousand one hundred and seventy shares of stock, held by different stockholders, being voted in favor of said proposition or resolution; and plaintiff, owning said sixty-two shares of stock, voting in the negative. And simultaneously with the action of the stockholders referred to, and at the same meeting, and as part of the same action so had and taken by the stockholders of said corporation at said meeting, the following other and further resolution was presented to said meeting of stockholders, as follows: Whereas, the stockholders of this company have this day voted to diminish the capital stock of this company from $1,250,000 to $625,000, by which a surplus has been created amounting to more than $625,000, which surplus consists of real estate, improvements, and other property not money; and whereas, the directors of this company have been duly authorized by the stockholders to pay such surplus to the amount of $625,000 to the stockholders pro rata in proportion to the numbers of shares held by each: Now, therefore, the stockholders of this company hereby authorize and direct the board of directors of this company to purchase from its stockholders said surplus for the use of this company to the amount of $625,000. And, to enable said payment to be made, it is resolved, that such board of directors be, and they are hereby, authorized to issue bonds of this company to the amount of $625,000 par value, due in not exceeding 25 years after date, but payable at the option of the company at any time after the expiration of not exceeding fifteen years from their date, bearing interest at the rate of six per cent. per annum from their date, interest payable semi-annually, — which bonds shall be in such form as the board of directors shall adopt and approve; and to secure payment of said bonds and interest by a mortgage or deed of trust upon all the real estate and property of this company, situated in the city of St. Louis, Missouri, and in East St. Louis, in St. Clair county, Illinois, now occupied and used by the company in the prosecution of its business, — which mortgage shall contain such clauses, provisions, and stipulations, and be completed in such form and manner, as the board of directors may adopt and approve, and upon property therein described. And, to further secure the payment of said bonds, said board of directors are hereby directed to set apart from the earnings of said company for each year the sum of not less than ten thousand dollars as a sinking fund, until the same, together with the accumulation of interest thereon, shall amount to a sum sufficient to pay off and discharge the principal of said bonds, and all interest that remains unpaid thereon: said sinking fund, with the accumulations thereon, to be applied to the payment and discharge of said bonds and interest.' And which proposition was likewise adopted; the whole number of votes cast thereon being 10,161, and 10,099 (?) being cast in favor thereof, and your petitioner plaintiff alone voting against said proposition or resolution to the extent of his said shares of stock.

"And plaintiff says that he is advised and believes and charges that the said scheme or plan, so adopted by resolution of stockholders at said meeting, is fraudulent, illegal, and void, and without authority of law; and the directors of said company, who are made defendants herein, the said William M. Senter, John M. Gilkeson, J. D. Goldman, M. C. Humphrey, J. N. Stegall, C. M. Donaldson, Jerome Hill, George D. Fisher, T. H. West, I. M. Wiener, and W. F. Obear, unless restrained by the order of this honorable court, will proceed to act under the said last-mentioned resolution, and to issue, or cause said bonds to be issued, in accordance with the provisions of said resolution, and to execute and put of record the mortgage or deed of trust upon the property of said company, as provided therein, and thereby to the great detriment and injury of plaintiff, and his rights as a stockholder in said company. And plaintiff respectfully insists that the said corporation, the defendant company, has no authority in law to issue bonds except for money paid, labor done, or money or property actually...