Grand Amusement Company v. Palladium Amusement Co.

• Decision Date: 11 October 1926
• Docket Number: 24994
• Citation: 287 S.W. 438,315 Mo. 907
• Parties: Grand Amusement Company, Appellant, v. Palladium Amusement Company, Ruth E. Lund, Bernhard Schrand and Charles E. Knueppel
• Court: Missouri Supreme Court

287 S.W. 438

315 Mo. 907

Grand Amusement Company, Appellant, v. Palladium Amusement Company, Ruth E. Lund, Bernhard Schrand and Charles E. Knueppel

No. 24994

Supreme Court of Missouri

October 11, 1926

Appeal from Circuit Court of City of St. Louis; Hon. Frank Landwehr, Judge.

Affirmed.

H W. Femmer for appellant.

(1) A director is a trustee for the entire body of stockholders and both good morals and good law imperatively demand he shall manage all the business affairs of the company with a view to promote, not his own interests, but the common interests, and he cannot, directly or indirectly, derive any personal profit or advantage by reason of his position distinct from his coshareholders. Chouteau Ins. Co. v Floyd, 74 Mo. 291; Hannerty v. Standard Theatre Co., 109 Mo. 297; Proctor v. Farrar, 213 S.W. 469; Ward v. Davidson, 89 Mo. 458; Bandor v. Zimmerman, 80 Mo.App. 138; Moulden v. Train, 204 S.W. 66; 2 Thompson on Corporations (2 Ed.) secs. 1215, 1220, 1221, 1255, 1268. (2) It was the duty of Lund and Schrand, directors, and Charles G. Knueppel, de facto director and officer of this appellant, and trustee of its business, property and money, to keep a correct account and to make a full and correct showing of the receipts and disbursements, and failing to do so they are charged with whatever came into their hands, less the amount shown by them that they disbursed for the use of this appellant. Hannerty v. Standard Theatre Co., 109 Mo. 308. (3) Laches cannot be imputed where respondents constitute a majority of the board of directors and are alone chargeable with the delay. 14A C. J. sec. 1926, p. 151; 5 Pomeroy's Equity Jurisprudence, sec. 28.

Bishop & Clairborne for respondents.

(1) An action to set aside a fraudulent sale of personal property (a lease) and for an accounting must be brought within five years. R. S. 1919, sec. 1317. (a) A lease is personal property. Railroad v Schweitzer, 246 Mo. 129; Orchard v. Store Co., 225 Mo. 414; Tiedeman on Real Property (2 Ed.) sec. 184, p. 151; Kirchwey on Real Property, p. 286; 1 Minor on Real Property, sec. 357; Tiffany on Real Property, sec. 58, p. 146. (b) To suspend the running of the statute of limitations on the ground of fraud, the proof must show that the fraud was not discovered because of some act or deed of the defendant which prevented its discovery. State ex rel. v. Musick, 145 Mo.App. 47; Heisler v. Climer, 179 Mo.App. 110; Wood v. Carpenter, 25 L.Ed. 807. (2) The published advertisement of the sale of August 10, 1915, the filing of the trustee's deed, and the filing of the articles of agreement of the Palladium Amusement Company in the recorder's office constituted constructive notice to appellant. Turmine v. Claybrook, 204 S.W. 178; Johnson v. U. Rys. Co., 147 S.W. 1081. (3) The option to avoid a sale under a deed of trust for fraud must be exercised within a reasonable time, otherwise the action is barred for laches. Twin-Link Oil Co. v. Marbury, 23 L.Ed. 328; Ready v. Smith; 170 Mo. 174. (4) There is no reason why corporation officers and stockholders may not purchase the property of the corporation at a public sale under a deed of trust, provided the purchase is free from fraud and is in good faith and has not been accomplished by any deception practised on the other stockholders. Wiley v. Reaser, 103 S.E. 362; Twin-Link Oil Co. v. Marbury, 23 L.Ed. 328; 3 Fletcher's Cyc. Corporations, chap. 34, sec. 1396, p. 2381.

Ragland, P. J. All concur, except Graves, J., absent.

OPINION

RAGLAND

This is an action to set aside a sale under deed of trust of a leasehold, and for an accounting.

Plaintiff corporation was organized June 8, 1913, with a nominal capital stock of $ 50,000, divided into 5,000 shares of the par value of $ 10 each. The original stockholders were C. N. Lund, George Peters and Terrell Peters. The first two each subscribed for 2495 shares and the third for 10. They constituted the board of directors for the first year. Lund was president and George Peters was treasurer and general manager. No cash was paid in by the subscribing stockholders. The corporation's entire capital stock consisted of a lease, running for a term of twenty-five years from August 18, 1913, on a vacant tract of ground in the city of St. Louis on Morgan Street near Grand Avenue. The terms of the lease required the lessee to pay a rental of $ 2500 a year in equal monthly installments, and all taxes of every kind as and when they became due, and to erect on the demised premises a building of the value of at least $ 35,000.

For the purpose of obtaining funds to commence the construction of a building plaintiff executed, on August 26, 1913, a deed of trust on its leasehold to secure four principal notes aggregating the sum of $ 15,000, and nine coupon notes representing the semi-annual interest thereon at six per cent per annum. The first of the principal notes, in the sum of $ 3,000, was payable July 1, 1915; the interest fell due on January 1st and July 1st, of each year until the principal sum was paid. It was provided in the deed of trust that upon the grantor's failure to pay when due any installment of principal or interest, or any ground rent or taxes, the entire indebtedness should become due and foreclosure might be had. With the proceeds of the loan just referred to any money realized in part from sales effected from time to time of the corporate stock and in part from advancements made by Lund and George Peters the construction of a brick building was begun. The front part of the building was designed for stores and the rear portion for a roller-skating rink. In the early part of December, 1913, the skating rink was completed and fully equipped for operation, but the stores were never finished and gotten ready for occupancy until after the property was sold under the deed of trust. The building, to the extent that it was completed, cost approximately $ 66,000, and an indebtedness of $ 20,000 was incurred in advertising and in equipping the skating rink and getting it ready for use. The equipment included roller skates, linoleum, seats, tables, chairs, draperies, electric signs and a soda fountain.

Plaintiff's cash receipts from all sources from the date of its organization to June 1, 1914, were as follows: Proceeds of mortgage loan, $ 15,000; proceeds of sales of stock, $ 10,150; advancements made by Peters, $ 6,000; advancements made by Lund, $ 3,000; proceeds of loan obtained from Grand Avenue bank, $ 2,000; and total gross receipts for skating privleges for the season which began December 9, 1913, and ended May 10, 1914, $ 31,933.25. The exact figures from which could be determined the cost of operating the rink for the period just mentioned were not shown by the evidence. However, Lund who was then president testified that out of the gross receipts they paid, according to his recollection, as much as $ 14,000 on the corporation's indebtedness for building and equipment. This estimate was liberal in view of other evidence which discloses that plaintiff had to meet a weekly pay-roll of $ 500, in addition to paying rent, interest and taxes as they fell due. But if Lund's figures be accepted, the total amount of cash received by plaintiff from the time of its organization to June 1, 1914, which it could apply to the payment of the $ 88,000 indebtedness it had incurred for building and equipment was $ 50,150. In other words, there was outstanding against it on the date last mentioned matured demands to the extent of $ 37,850, in addition to its mortgage indebtedness of $ 15,000 and that to the Grand Avenue bank of $ 2,000.

Those who purchased shares in the plaintiff corporation prior to June 1, 1914, were Ruth E. Lund, Vida Elston, M. D. Culver, William F. C. Stenson, Charles G. Knueppel, Ben Schrand, Mrs. H. M. Baker and Hummelscheim Lumber Company. Some of these made further purchases of the stock during the year 1914, and in addition to them one W. W. Menges purchased 130 shares during the latter part of that year. Knueppel had had the sub-contract for the brick work of plaintiff's building, and Schrand that for the plainting. Some of the stock that each took was paid for by applying the purchase price as a credit on the amount due him under his contract. Ruth E. Lund was the wife of C. N. Lund. She, Knueppel and Schrand were made parties defendant to this suit.

At a stockholders' meeting held about June 1, 1914, Schrand, C. N. Lund and George Peters were elected directors. Following the stockholders' meeting, a director's meeting was held and Schrand was elected president, Lund vice-president and Peters secretary and treasurer. At the same meeting a resolution was adopted, over Peters' protest, making Knueppel general manager and the custodian of all the property and funds of the corporation. This action was taken because the majority of the board were of the opinion that to enable the corporation to tide over the difficulties which were then threatening its existence, it was necessary that its affairs be put in the hands of someone who had sufficient financial standing or bank connection to borrow money for its use. This, Knueppel did. He obtained an additional loan of $ 2,000 from the Grand Avenue Bank and one from the Tower Grove Bank of $ 7,500. In each instance he, and possibly other stockholders, endorsed the note.

Kneuppel was plaintiff's general manager and the sole custodian of its funds from about June 1, 1914, to August 10, 1915. During that time he received for and on behalf of plaintiff funds aggregating $ 37,177.61, as follows: Proceeds of sales of stock, $ 3,500; gross receipts from skating-rink patronage, $ 24,177.61; and the proceeds of the two bank loans just mentioned, $ 9,500. In order to account for these funds he offered in...