Fisher v. Morgens
| Decision Date | 18 December 1928 |
| Docket Number | No. 27115.,No. 27118.,27115.,27118. |
| Citation | 14 S.W.2d 633 |
| Parties | FISHER v. MORGENS et al. (two cases). |
| Court | Missouri Supreme Court |
Appeal from St. Louis Circuit Court; Franklin Miller, Judge.
Suit by Neville C. Fisher, trustee in bankruptcy of the Vortex Oil Corporation, against A. L. Morgens, George J. Wanstrath, S. W. Uhl, and others. Judgment for plaintiff, and from an order sustaining a motion in arrest of judgment against the second named defendant and overruling motions for new trial and in arrest by defendant last named, plaintiff and defendant last named separately appeal. Reversed in part and in part rendered.
Benj. J. Klene and Holland, Lashly & Donnell, all of St. Louis, for appellant Fisher.
Arthur V. Lashly, Ralph C. Lashly, and Stout & Spencer, all of St. Louis, for appellant Uhl.
Lubke & Lubke, of St. Louis, for respondent Wanstrath.
This is a suit brought by a trustee in bankruptcy against a number of stockholders of the Vortex Oil Corporation to recover from them the respective amounts unpaid on their stock in that company.
After a dismissal on account of a lack of service as to thirteen of the defendants, the case was heard by the court and a judgment entered against each of the remaining twelve in the several amounts found to be due and unpaid on their respective shares of stock.
There were two separate appeals, as indicated by the above titles, from this judgment. One was by the plaintiff from an order of the court sustaining a motion in arrest of the judgment entered against defendant George J. Wanstrath; and the other by the defendant S. W. Uhl upon the overruling of his motions for a new trial and in arrest. These cases will be considered in the order above stated. Judgment was rendered against Wanstrath in the sum of $10,000. His motion in arrest was sustained, first, on the ground that the judgment was erroneous, and, second, that it was without warrant of law.
There was a consolidation of two other companies with the Vortex Oil Corporation. Wanstrath owned 10,000 shares in one of those companies, the Marion Oil & Gas Company. He exchanged these, without any payment, for an equal number of shares of the Vortex Company. The court held, after reviewing the testimony, that the leases on lands held by the Marion Company were ineffectual to pass any right or title in them to the Vortex Company, and that said leases had no cash value, and that there was no showing that Wanstrath and other defendants who had exchanged Marion oil stock for Vortex stock gave anything of value for the former, or at any time paid anything for the Vortex stock. It was also shown that Wanstrath had knowledge of the lack of value of the Marion oil stock before he exchanged the same for Vortex stock. He attended director's and stockholder's meetings of the Vortex Corporation before the stock of that company was issued to him. He admitted on cross-examination that he was present at a meeting of the board of directors of the Vortex Company on January 9, 1922. This was prior to the date of his stock certificate, which was on the 20th of January, 1922. At this meeting a report was received from J. W. Hemans, who had been commissioned by the Vortex Company to investigate the title of the Marion Oil Company's leases and who reported that it was impossible to put any estimate upon their value. These facts, considered in connection with Wanstrath's acquiring the ownership of the Marion stock in February, 1920, demonstrates that the finding of the trial court was fully sustained by the evidence that he paid nothing for the Vortex stock when he exchanged the Marion stock for it.
I. The limitations upon a review of an order sustaining a motion in arrest of judgment, renders a statement of the facts unnecessary. The foregoing statement is made, therefore, simply to demonstrate the correctness of the ruling of the trial court in overruling the motion for a new trial, and thus, in effect, holding that the evidence was ample to sustain the judgment. The question raised by a motion in arrest, both at common law and under our rulings, is one of law, arising from the face of the record. In determining the legal propriety, therefore, of an order sustaining a motion of this character, we are limited to the record proper. Tidd's Practice, p. 917, star p. 918; Andrews Stephens Pleading (2d Ed.) 230; State ex rel. Conant v. Trimble, 311 Mo. loc. cit. 143, 277 S. W. 916; McGannon v. Millers' Nat. Ins. Co., 171 Mo. 143, 154, 71 S. W. 160, 94 Am. St. Rep. 778.
II. The defendant contends that the petition filed by the trustee herein does not state a cause of action, in that the claims of creditors against the Vortex Oil Corporation are not alleged to have been incurred after the defendants became stockholders, and that these creditors extended credit to the corporation, relying upon the fact that its stock was fully paid.
The lack of merit in this contention may be demonstrated under the well-recognized presumption of the regularity of the proceedings of a court of competent jurisdiction, in the absence of evidence to the contrary and the result flowing from that presumption. The claims to be paid out of the assets of this corporation were submitted to, reviewed by, proved before, and their allowance ordered by, the referee in bankruptcy. In harmony with the general presumption above stated, it is a well-established rule in bankruptcy proceedings that verified proofs of claims against a bankrupt estate, such as were made here, constitute prima facie evidence of their validity, and, if objected to and such objections are not sustained, they are entitled to be classified as liabilities to be satisfied out of the assets of the estate. No objections having been made to these claims, or, if made, they were held to be without merit, the prima facie evidence of their validity becomes established. Whitney v. Dresser, 200 U. S. 532, 26 S. Ct. 316, 50 L. Ed. 584, affirming In re Dresser (C. C. A.) 135 F. 495; In re Schwarz (D. C.) 200 F. 309; Moore v. Crandall (C. C. A.) 205 F. 689.
Not only the trustee, but any stockholder, was required to interpose, at the time of the submission of these claims, any tenable objections to their allowance. Rosenbaum v. Dutton, 203 F. 838, 122 C. C. A. 156. The duty of each was imperative, if it was desired to object to the allowance of the claims; the one, because he represents all of the creditors, and the other, because he and his fellow stockholders are the only persons who would be injuriously affected by the allowance of an improper claim. In re Two Rivers Woodenware Co., 199 F. 877, 118 C. C. A. 325; Atkins v. Wilcox, 105 F. 595, 44 C. C. A. 626, 53 A. L. R. 118. The defendant Wanstrath's silence, therefore, when he should have spoken, is, in effect and in law, a concession by him of the validity of these claims, and forecloses in a proceeding as at bar his right to interpose objections thereto at this time.
III. Wanstrath, the defendant, interposes no defense to the merits of this action. He admits (his motion in arrest going to the entire petition and being in the nature of a demurrer, O'Connor v. Koch, 56 Mo. 253; Aultman v. Daggs, 50 Mo. App. 280, as the trial court found in overruling his motion for a new trial) his indebtedness to the corporation for whatever amount was unpaid on the stock held by him. His failure to pay this amount created a liability in the nature of a debt to the corporation, classified, on account of its nonpayment, as an actionable fraud upon the corporate creditors. Coleman v. Hagey, 252 Mo. 102, 158 S. W. 829.
As a refuge to escape liability for this fraud, he relies upon the rule applicable, as we will show, to creditors alone, as to the pleadings and the proof required in suits by them against the holders of unpaid stock in insolvent corporations, to satisfy the claims of creditors against such corporations. That rule is a wholesome one, and properly invoked works no injustice. It is to the effect that, to hold a stockholder of a corporation liable for unpaid stock, the creditor must plead and prove that he extended credit to the corporation, relying on the fact its stock had been paid for in full. The propriety of the application of this rule in suits by creditors against holders of unpaid stock is well established. Scott v. Luehrmann, 278 Mo. 638, 646 and cases, 213 S. W. 855 and cases 857; Coleman v. Hagey, 252 Mo. 102, 158 S. W. 829; Biggs v. Westen, 248 Mo. 333, and cases 345, 154 S. W. 708, 711; Colonial Tr. Co. v. McMillan, 188 Mo. 547, 87 S. W. 933, 107 Am. St. Rep. 335; Berry v. Rood, 168 Mo. 316, 67 S. W. 644; Van Cleve v. Berkey, 143 Mo. 109, 44 S. W. 743, 42 L. R. A. 593; Handley v. Stutz, 139 U. S. 417, 426, 11 S. Ct. 530, 35 L. Ed. 227; Babbitt v. Read (C. C. A.) 236 F. 42, 47.
The limitation of the rule to suits by creditors of an insolvent corporation is evident from its express terms, in requiring creditors to allege and prove the time of their extension of credit to the corporation and their knowledge as to the manner of its organization as prerequisites to their right to recover against holders of unpaid stock. The reason for this requirement as a condition precedent to a creditor's right of recovery is that, if a person, knowing that a corporation has issued stock without requiring a full payment of the same, sees fit with that knowledge to lend money to the corporation, he has no more right to call the stockholder to further account for his debt than would the corporation itself. Berry v. Rood, supra.
An Iowa case more comprehensively states the reason of the rule to this effect: "Recovery of a creditor from a stockholder for unpaid subscription for stock, or, in event of payment in property, for the undervaluation, is allowed on the theory that a fraud has been practiced on the creditor, who has the right, in dealing with the corporation, to assume that its stock is fully...
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