Elliott v. Sullivan

• Decision Date: 08 May 1911
• Citation: Elliott v. Sullivan, 137 S.W. 287, 156 Mo. App. 496 (Mo. App. 1911)
• Parties: H. H. ELLIOTT, Respondent, v. GEORGE SULLIVAN et al., Appellants
• Court: Missouri Court of Appeals

137 S.W. 287

156 Mo.App. 496

H. H. ELLIOTT, Respondent, v. GEORGE SULLIVAN et al., Appellants

Court of Appeals of Missouri, Springfield

May 8, 1911

Appeal from Lawrence Circuit Court.--Hon. Carr McNatt, Judge.

Judgment reversed.

McPherson & Hilpirt for appellants.

(1) The court erred in overruling defendant's demurrer to plaintiff's petition. Bates v. Wilson, 14 Colo 56; Morawetz on Corporations, secs. 769, 1022; Jayser v Breman, 16 Mo. 88; Wells Co. v. Gastonia Co., 198 U.S. 177; Railroad v. Coal & Mining Co., 161 Mo 288; Armour v. Bements Sons, 123 F. 56; Lead Co. v. Paint Co., 8 Mo.App. 264; Bank v. Rockefeller, 195 Mo. 15; Webb v. Rockefeller, 195 Mo. 57. (2) The concentration of all the shares of stock of a corporation in the hands of a single individual does not work a dissolution of the corporation, and this rule seems to have been universally recognized by the courts. Spencer v. Champion, 9 Conn. 536; Mfg. Co. v. White, 42 Ga. 148; State v. University, 5 Ind. 77; Stagg Co. v. Taylor, 113 Ky. 709, 68 S.W. 862; Russell v. McLellan, 14 Pick. (Mass.) 63; Baldwin v. Canfield, 26 Minn. 43, 1 N.W. 276; Bridge Co. v. Traction Co., 196 Pa. St. 25, 46 A. 99. Button v. Hoffman, 61 Wis. 20, 20 N.W. 667; Banking Co. v. Eisenmen, 94 Ky. 83; Swift v. Smith, 65 Md. 428, 5 A. 534; Kuch v. Louisville, 101 S.W. 373. (3) It was ruled in Oxley State Co. v. Butler Co., 121 Mo. 641, after a careful consideration of the authorities, that the mere insolvency of a company, and its inability to carry out the purposes of its incorporation would not ipso facto work a dissolution. Ready v. Smith, 170 Mo. 172; Hill v. Fogg, 41 Mo. 563; Bank v. Robidoux, 57 Mo. 446; Hotel Co. v. Saur, 65 Mo. 279; Buell v. Buckingham, 16 Iowa 296. (4) The legality of its incorporation could be inquired into by the state, but by no one else, and this is as true where the corporation is formed under a general law as it is where the corporate existence is claimed under a special charter. Stout v. Zulich, 48 N. J. L. 599; Dugan v. Colo. N. I. Co., 11 Colo. 113; Finch v. Ullman, 105 Mo. 263; Catholic Church v. Tobbin, 82 Mo. 424; Bradley v. Reppell, 133 Mo. 53; Bibb v. Hall, 100 Ala. 96; Rheinhard v. Virgo, 107 Mo. 616. (5) Such company is a corporation de facto from the time of issuing the certificate by the Secretary of State and must remain so until it is dissolved by judicial proceeding upon behalf of the State. Swartwont v. Railroad, 24 Mich. 389; Church v. Froislie, 37 Minn. 447; Doty v. Patterson, 155 Ind. 60; Johnson v. Okerstrom, 70 Minn. 309. (6) Plaintiff at the time of the sale of said goods knew all the facts of the incorporation of the company to whom he was selling the goods and he was acquainted with the amount, character, and kind of property the corporation owned. This conduct with such knowledge estops him. Reynolds v. Hood, 209 Mo. 611; State ex rel. v. Allen, 132 Mo.App. 98; Hasbrouck v. Rich, 113 Mo.App. 389; Trust Co. v. Railway, 82 F. 642; Railroad v. Trust Co., 95 F. 497. Land Co. v. Railroad, 161 Mo. 604; 4 Thompson on Corporations, sec. 5275; 1 Beach on Private Corporations, sec. 13; Railroad v. McPherson, 35 Mo. 13; Ins. Co. v. Needles, 52 Mo. 18; St. Louis v. Shields, 62 Mo. 247; Stoutimore v. Clark, 70 Mo. 471; Mining Co. v. Richards, 95 Mo. 106.

John L. McNatt and H. H. Bloss for respondents.

(1) Where a person contracts or sells goods to a firm believing at the time that it is a corporation, when in fact it is not such and he is thus left remediless to enforce his rights against a corporation, he is not on that account precluded from recovering against the supposed incorporators as individuals. The principal would be different if Mr. Elliott were seeking to deny the legal existence of a corporation, where he had received some benefit from it by contract, or otherwise; and it was seeking to have him make some just compensation. Cleaton v. Emery, 49 Mo.App. 353; Mining Co. v. Richards, 95 Mo. 110; Furniture Co. v. Crawford, 127 Mo. 364; Hart v. Salisbury, 55 Mo. 310; Martin v. Powell, 79 Mo. 401; Richardson v. Pitts, 71 Mo. 128; Journal Co. v. Nelson, 133 Mo.App. 482. (2) Where persons had joined together intending to form a corporation and had assumed a corporate name, but the incorporation failed of accomplishment, and goods are ordered and sent in a corporate name, held that such persons were liable individually. Fur. Co. v. Crawford, 127 Mo. 364; Smith v. Warden, 86 Mo. 399; Zeigler v. Fallen, 28 Mo.App. 298. (3) A business corporation will be regarded by the courts as dissolved where it is necessary to protect the rights of creditor, whereas, under the same state of facts, if to subserve the rights of creditors, it should regard a corporation not dissolved, it will so hold. Yourkee v. Ins. Co., 180 Mo. 169; State ex rel. v. Society, 9 Mo.App. 120. (4) The undisputed facts showed that the defendants began the enterprise by resolving that they were the owner of corporate stock, this so-called corporate principal had not a dollar of means to carry on a mining business, unless the defendants by reason of their charity, saw fit to contribute something, at the same time they were the real beneficiaries, the old corporation they knew was insolvent, and at the time of the contraction of these debts sued for they knew that the mining business was getting no results and the debts were getting larger all the time, so that as Mr. Gardner says, when they ceased they owed something over $ 5000. If these facts do not show the ear marks of fraud, then we do not recognize such ear marks when we see them. Herboth v. Gaal, 47 Mo.App. 255; Cole Mfg. Co. v. Jenkins, 47 Mo.App. 664; Blackwell v. Fry, 49 Mo.App. 638; Leedom v. Furn. Co., 38 Mo.App. 425; Reid, Murdock & Co. v. Lloyd, 52 Mo.App. 278. (5) Where a corporation quits business for many years, divides its property and surrenders same to its stockholders, fails to elect officers or hold any election whatever, and all the stock comes into the hands of one person, it will be treated as dissolved by the courts, when the rights of third parties intervene. Bank v. Kellog, 52 Mo. 583; Moore v. Whitcomb, 48 Mo. 543; State ex rel. v. Society, 9 Mo.App. 114; Bank v. Gallaher, 43 Mo.App. 490.

OPINION

GRAY, J.

Plaintiff's petition contains five counts, in which he asks judgment for goods sold and delivered to the Kansas City-Aurora Mining Company. The counts are substantially alike, except the first is for goods sold and delivered by the plaintiff, and the others are for goods sold and delivered by assignors. In each count there is a general allegation that the goods were sold and delivered to the Kansas City-Aurora Mining Company, a partnership composed of the defendants. After said general allegations, it is alleged in each count, that the defendants claim to be engaged in business as a corporation, and that as such corporation, they claim they bought the goods sued for herein, and the petition then proceeds in the following language:

"Plaintiff further says that the defendants, each and every of them, are liable to him for the reasonable value of the goods aforesaid so sold, as individuals, jointly and severally, and not in law authorized to have the amount here sued for charged against The Kansas City-Aurora Mining Company as a corporation, for reasons hereinafter pleaded, as follows, to-wit: Many years prior to the association of the defendants together for mining purposes, which association occurred in 1909, there was incorporated under the laws of Missouri, a corporation known as The Kansas City-Aurora Mining Company, and at the time of the incorporation of said Company, its capital stock of $ 5000 was fully subscribed for, and fully paid up, and it had engaged in the mining business thereafter until all of its capital stock was exhausted, and it had become a worthless and insolvent corporation; and thereafter during the year 1909, the defendants herein, desiring to engage in the business of mining, and conspiring together for the purpose of cheating, wronging and defrauding this claimant and others to whom they might become indebted in the prosecution of said mining business, should said business not prove a success, by attempting to escape the personal liability that would result to them, and each of them, should they engage in business as co-partners, and further conspiring together to avoid the responsibilities they would assume should they incorporate a company under the laws of the State of Missouri, undertook, without authority from said corporation, to engage in business under the name of the said Kansas City-Aurora Mining Company, thus connecting their individual business with the said corporate name, and having thus assumed the said corporate name, defendants falsely and fraudulently represented that they had a capital stock of $ 5000 which was fully paid up, and constituted a basis for credit to which this claimant and all others would have recourse for the payment of their debts, when in fact and indeed they had no capital stock at all which would serve as a basis of credit, and to which recourse could be had for the payment of debts, but further conspiring together for the purpose of effectuating the contemplated fraud as aforesaid, the defendants conspired with an officer or agent of the said insolvent corporation, and fraudulently induced him to issue to these defendants $ 5000 of the capital stock of the said corporation, without paying anything therefor, and after having issued to them the said capital stock, the said defendants undertook and did carry on said mining enterprise in the name of the said corporation, and for the purpose of securing credit from this claim and others, represented that they had organized a corporation with $ 5000 capital stock fully paid up, and...