Euston v. Edgar

• Decision Date: 27 November 1907
• Citation: 105 S.W. 773,207 Mo. 287
• Parties: ALEXANDER EUSTON, Appellant, v. S. C. EDGAR
• Court: Missouri Supreme Court

105 S.W. 773

207 Mo. 287

ALEXANDER EUSTON, Appellant, v. S. C. EDGAR

Supreme Court of Missouri, First Division

November 27, 1907

Appeal from St. Louis City Circuit Court. -- Hon. John A. Blevins Judge.

Affirmed.

Boyle & Priest, Edward T. Miller and T. E. Francis for appellant.

(1) A stockholder of an Illinois corporation is liable to a creditor thereof to the amount of the unpaid balance due on his shares. R. S. Ills. 1895, chap. 32, sec. 8; Coleman v. Howe, 154 Ill. 458; Alling v. Wenzell, 133 Ill. 264; Bates v. Gt. West. Del. Co., 134 Ill. 536. (2) The rights of stockholders and creditors of a corporation must be adjudicated according to the statutes and jurisprudence of the State which creates the corporation. Glenn v. Liggett, 135 U.S. 533; Allen v Fairbanks, 45 F. 445. (3) The court erred in giving defendant's instruction 3-d, in modifying plaintiff's instructions 1 and 4, and in refusing plaintiff's instruction 8. Authorities cited under point I; Sprigg v Nat. Bank, 172 Ill. 149. (4) Plaintiff's knowledge that defendant had not paid for his stock at the time plaintiff became a creditor of the company would not estop him from proceeding against defendant. Sprigg v. Nat. Bank, 172 Ill. 149. (5) This being a case in equity, this court will review the entire record, and will treat the case as if it had been originated here and was to be heard for the first time. Lins v. Lenhardt, 127 Mo. 271; Robertson v. Shepherd, 165 Mo. 360. (6) The finding and judgment of the court is against the evidence and the weight of the evidence, and we submit that, on the whole record, the finding and judgment should have been for the plaintiff.

Judson & Green for respondent.

(1) While mere knowledge that a stock subscription has not been paid up in full will not estop a creditor who has extended credit while possessed of such knowledge from collecting his debts from a stockholder, yet an agreement between the subscribers that the capital stock is to be paid up in a certain manner does estop any creditor who was a party to such agreement from asserting that a subscriber who pays in the manner specified in the agreement is not thereby discharged from all further liability. Our courts have expressly so held: Woolfolk v. January, 131 Mo. 620; Carp v. Chipley, 73 Mo.App. 35; 3 Thompson on Corporations, 3008. (2) The organization of the Missouri Metal Company induced and promoted by the plaintiff was avowedly for an illegal purpose: the suppression of competition between zinc producers of Missouri, Illinois and Kansas, who were parties to the agreement. It was therefore violative of public policy and statutes of Missouri, as well as of Illinois, and of the United States. Morawetz on Corp., sec. 758; Laws 1889, p. 96; Laws 1891, p. 186; Laws of Illinois, 1891, p. 206; Laws of Illinois, 1893, p. 192; 2 United States Statutes at Large, 1890; Fink v. Schneider Granite Co., 187 Mo. 244; Ford v. Chicago Milk Shippers' Ass'n, 155 Ill. 166, 27 L. R. A. 298; Chicago W. & V. Coal Co. v. People, 214 Ill. 621, affirming 114 Ill.App. 75; People v. Sheldon, 139 Ill. 211, 23 L. R. A. 221; People v. Milk Exchange, 145 N.Y. 267, 27 L. R. A. 437; United States v. Jellico Mountain Coal & C. Co., 46 F. 432; United States v. Coal Dealers' Ass'n of Cal., 85 F. 252; United States v. Chesapeake & Ohio C. Co., 105 F. 93; Northern Securities Co. v. United States, 193 U.S. 197. (3) The illegal purpose of the corporate organization to which plaintiff was a party is fatal to the cause of action. Morawetz on Corp., sec. 758; Metropolitan Lead & Zinc Min. Co. v. Webster, 193 Mo. 351; Williams v. Scullin, 59 Mo.App. 30; Irwin v. Williar, 110 U.S. 499; Gibbs v. Consolidated Gas Co., 130 U.S. 396.

OPINION

VALLIANT, P. J.

Plaintiff, a judgment creditor of an Illinois corporation, sues defendant, a stockholder, to recover the amount of his judgment, $ 7,645.16, on the theory that defendant is liable because he has not paid for his stock. In the inception of the corporation the stock now owned by defendant was subscribed for by one Ruggles, who paid nothing for it, but who assigned it to defendant. Under the laws of Illinois not only the subscriber to the capital stock but the individual to whom it is assigned is liable to the corporation and to a creditor of the corporation for the unpaid face value of the stock.

The pleadings and evidence show as follows:

In 1894 certain persons engaged in the manufacture of spelter or interested in companies engaged in that business, among whom were the plaintiff and defendant, came together in St. Louis and discussed a method of obtaining a better price for their product than it was then bringing in the market. To accomplish this purpose they agreed to form a corporation under the laws of Illinois to combine in one organization the owners of the zinc furnaces in the States of Illinois, Kansas and Missouri, to which organization was to be given the market control of the products of all those furnaces; that is to say, all the concerns going into the scheme were to sell their product to the corporation to be thus formed at a price regulated by a scale agreed on, and the corporation was to have the control of the product in the market, thereby avoiding competition among themselves and controlling the market for better prices, the profits derived from the better prices to go back to the producers in the way of dividends on their stock in the corporation to be formed. The capital stock of the corporation was to be divided and allotted to the constituent manufacturers in proportion to the amount of their relative and respective products.

The capital stock of the corporation was to be $ 100,000, 1,000 shares, $ 100 each. The plaintiff agreed to loan the corporation $ 100,000, without interest for two years, in consideration of which he was to have 220 shares of stock, that is, the 220 shares of stock were to compensate the plaintiff for the two years' loan of his money. All the zinc producers in Illinois, Missouri and Kansas went into this scheme, except two in Illinois and one in Kansas. The agreement having been made, the promoters deputized certain persons to go across the river into Illinois to organize the corporation and they did so under the name of the Missouri Metal Company. Among the subscriptions to the capital stock was one for 180 shares by George A. Ruggles, who, the evidence shows, made the subscription with the purpose of transferring the stock to the defendant and did so; Ruggles paid nothing for it and received nothing for it; nothing was ever paid for the stock to the corporation unless the contract hereinafter mentioned is to be adjudged, as between the parties to this suit, a payment.

The stock was allotted to the several persons and companies entering into the scheme as above mentioned, that is, 220 shares to the plaintiff for the use of his $ 100,000 for two years, and the remaining 780 shares to the manufacturers in the proportion of their relative and respective products, and it was so subscribed by them or by others for them and transferred to them. It seems, however, that, although all the stock was taken in this way, yet the certificates were not issued; they were signed, but all left in the stock certificate book, and so remained up to the date the corporation went out of business.

The corporation entered upon the business for which it was created, the constituent manufacturers turning over to it the products of their furnaces as agreed, but its operations did not meet the hopes of the promoters, and therefore after a few months of unsuccessful trial the stockholders resolved to sell the metal then on hand at the then prevailing market price, or lower if necessary, and wind up the business of the concern and quit, and this was done. All the stockholders voted in favor of that resolution except the defendant who opposed it. The plaintiff testified that in a little while thereafter the market took a turn for the better and if they had held on, as the defendant advised, the corporation would have proved a success. But howsoever that might have been, the corporation went out of business and ceased efforts, leaving its debt to the plaintiff or part of it at least unpaid. Plaintiff offered testimony tending to show that the other stockholders paid their proportion of the debt and that the amount left unpaid, which is the amount here sued for, is the proportion that would fall to defendant to pay if he is liable. The theory of the defendant is that as between the plaintiff and himself and all parties to the scheme the plaintiff paid for his stock by the loan of his money without interest to the company and the defendant paid for his stock by executing and delivering to the corporation his contract by which he gave the corporation the sole right to market the output of his zinc furnaces for the term of two years and each of the other manufacturers of zinc did the same.

The records of the corporation show that in the meeting organizing the corporation, at which the plaintiff was present and presided, this resolution was passed: "Resolved that on the payment by Alexander Euston to this company of the sum of $ 100,000, as a loan without interest for the term of two years, until January 1, 1896, the officers of the company are hereby authorized to issue a certificate for 220 shares of the capital stock of said company in lieu of interest on said loan to said Euston."

And in reference to each of the other stockholders was this resolution: "Resolved that on the signing and delivery of a certain contract by to this company, dated January 27 1894, by which the output of smelter of the Zinc Company is made subject to the order of the Missouri Metal Company for two years, the officers of this company are hereby authorized...