Hageman v. Southern Electric Railroad Company

• Decision Date: 19 March 1907
• Citation: 100 S.W. 1081,202 Mo. 249
• Parties: CORA HAGEMAN v. SOUTHERN ELECTRIC RAILROAD COMPANY and UNITED RAILWAYS COMPANY, Appellants
• Court: Missouri Supreme Court

100 S.W. 1081

202 Mo. 249

CORA HAGEMAN v. SOUTHERN ELECTRIC RAILROAD COMPANY and UNITED RAILWAYS COMPANY, Appellants

Supreme Court of Missouri, Second Division

March 19, 1907

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

Reversed.

George W. Easley with Boyle & Priest for appellants.

(1) The proof offered to show that the United Railways Company assumed to pay the liabilities of the Southern Electric Company, was not admissible under the pleadings, and, if admitted, cannot be the basis of a decree in this cause. "A party can no more succeed upon a case proved but not alleged than upon a case alleged but not proved." 1 Beach's Modern Equity Pr., sec. 99. Such is the rule firmly established in equity practice in this State. Duncan v. Fisher, 18 Mo. 404; Irwin v. Chiles, 28 Mo. 570; Mead v. Knox, 12 Mo. 287; Harris v Railroad, 37 Mo. 310; Newham v. Kenton, 79 Mo 382; Christian v. Ins. Co., 143 Mo. 496; Dougherty v. Adkins, 81 Mo. 411. And such rule is consistent with all of the American equity practice. Wilson v. Cobb, 28 N.J.Eq. 177; Howell v. Sebring, 14 N.J.Eq. 84; Stevens v. Church, 41 Conn. 370; Doggett v. Sims, 4 S.E. 909; Gorham v. Parsons, 119 Ill. 299; Midmer v. Midmer, 26 N.J.Eq. 299; Francis v. Bertrand, 26 N.J.Eq. 213; Kelly v. Kelly, 54 Mich. 30; Hunter v. Hunter, 10 W.Va. 264; Elyton, etc., Co. v. Iron City, etc., Works, 20 So. 51; Skimer v. Bailey, 7 Conn. 496; Edwards v. Brightly, 12 A. 91; Hawes v. Dobbs, 137 New York 465.(2) The contention made for the respondent, that the property of the Southern Electric Railroad Company, at the time of its transfer to the United Railways Company, was a trust fund for the payment of the debts of the corporation, including the alleged liability to the respondent, we contend, has no application to this character of case. We are not contending that under certain circumstances the property of a corporation is not a trust fund for the payment of the debts of the company. Our contention is that in this case nothing is either alleged or proven which brings any one of the defendants within that rule. We do not contend that, where the property of a corporation has been divided among its shareholders, without provision being made for the payment of debts, the shareholders who receive that property or that for which it was sold cannot be held liable for the debt. We do not contend that, where the property of a corporation has been sold, leaving valid debts unpaid, and the proceeds of the sale divided among the stockholders of the company, such stockholders are bound in equity to refund and make good to the creditors such debts and liabilities. That does not mean that where one has bought in good faith the stocks and properties of a corporation from its previous stockholders and paid a sound price therefor, and the price paid distributed to the original shareholders, the purchaser of such stocks and properties is responsible to the creditors of the corporation whose stock and properties were so purchased and paid for. The very authorities on which respondent most relies are like the Reinhard case in 114 Mo., and show that it is the original stockholders that must be looked to, the stockholders who divided the price of the stock and property among themselves that must be responsible to the creditors, and not the purchasers. Mo. Lead M. & S. Co. v. Reinhard, 114 Mo. 232; Powell v. Railroad, 42 Mo. 63; Hoard v. Railroad, 123 U.S. 222; Fogg v. Blair, 133 U.S. 534. The decisions quoted by respondent are not antagonistic to the propositions herein advanced; an anlysis will reveal that those in similar cases which might be cited, as the recent case of Berthold v. Land & Lumber Company, 91 Mo.App. 240, are based upon equitable doctrines and involve the recognition and enforcement of equitable rights and liabilities. Birge v. Railroad, 100 Mo.App. 465; Fogg v. Blair, supra; Railroad v. Ham, 114 U.S. 594; Hollins v. Brierfield, etc., Co., 150 U.S. 385; Graham v. Railroad, 102 U.S. 148; McDonald v. Williams, 174 U.S. 403; 1 Thomp. on Corp., sec. 263; Bruffett v. Railroad, 25 Ill. 353; Memphis Water Co. v. Magens, 79 Tenn. 37; Milling Co. v. Com. Co., 128 Mo. 491; Bank v. Packing Co., 138 Mo. 59; Calihan v. Powers, 133 Mo. 498; Schufeldt v. Smith, 131 Mo. 286; Myers v. Folding Chair Co., 130 Mo. 195.

Seneca N. & S. C. Taylor and Charles Erd for respondent.

(1) One who has recovered a judgment in a Federal court may prosecute in a State court a proceeding in equity, to subject to its satisfaction property which cannot be reached under execution. Bush v. Arnold, 50 Mo.App. 8; Chicago Bank v. Sloman, 42 Neb. 350; Bullett v. Taylor, 34 Miss. 743; Brown v. Bates, 10 Ala. 432; Ballon v. Loeb, 78 Wis. 407; Lowell v. Warren, 25 Minn. 9; Wandting v. Straw, 25 W.Va. 705; Thompson v. Lee Co., 22 Pa. 206; McConnelly v. Hargraves, 48 Ga. 50; Freeman on Judgments (4 Ed.), sec. 578; 3 Thompson on Cor., sec. 3571. (2) A demand arising ex delicto may be enforced against the stockholders of a corporation under the constitutional provision that dues from a corporation shall be secured by the individual liability of stockholders. Flinnicker v. Marshall, 28 L. R. A. 404; Rider v. Fritchey, 15 L. R. A. 515; Haywood v. Shreve, 44 N. J. L. 104; 18 Am. and Eng. Ency. Law (2 Ed.), 846. (3) The capital stock and other property of a corporation are in equity, as between creditors and stockholders, deemed to be a trust fund for the payment of the debts and liabilities; and where such property has been divided among the stockholders, leaving debts and liabilities unpaid, the stockholders are bound in equity to refund. Missouri L. & M. Co. v. Reinhard, 114 Mo. 219; Heman v. Britton, 88 Mo. 549; Eppright v. Nickerson, 78 Mo. 490; Powell v. Railroad, 42 Mo. 68; Bertholdt v. Lumber Co., 91 Mo.App. 240; Beyer v. Trust Co., 63 Mo.App. 526; Williams v. Boyce, 38 N.J.Eq. 364; Hastings v. Drew, 76 N.Y. 9; Bartlett v. Drew, 57 N.Y. 387; Story, Equity Jurisprudence (13 Ed.), p. 602, sec. 1252; Taylor on Private Corp., secs. 651, 654, 655, 656; 2 Beach on Equity Jurisprudence, secs. 906 and 908; 3 Thompson on Private Corp., secs. 2946, 2951; 2 Morawetz on Corporations, sec. 780. (4) Where the assets of a corporation have been distributed among the stockholders, leaving debts and liabilities due to third parties, they may in equity obtain a decree compelling shareholders to satisfy such claims. This doctrine has never been disputed in Missouri. Missouri L. M. & S. Co. v. Reinhard, 114 Mo. 232; Heman v. Britton, 88 Mo. 549; Roan v. Winn, 93 Mo. 503; Bertholdt v. Land & Lumber Co., 91 Mo.App. 240; 1 Cook on Corporations (4 Ed.), sec. 222; 3 Thompson on Private Corporations, sec. 2946. (5) The doctrine is fundamental that a person holding a claim against a corporation, either for liquidated or unliquidated damages, has a lien on the corporation assets prior and superior to a shareholder, and if the shareholder appropriates such assets to his own use, such creditor may have relief in equity, because of such lien. Real Estate Institute v. Collonious, 63 Mo. 295; Hunter v. U.S., 30 U.S. 173; Good Templars, etc., v. United Life Ins. Asso., 59 F. 220; Pitch v. Anthony, 8 Mass. 536; Bowman v. Engine Co., 36 Wis. 207; Stucker v. Yoner, 33 Iowa 177; Gould v. Hayes, 19 Ala. 436; Couch v. Terry, 12 Ala. 225; Andrews v. Murphy, 12 Ga. 431; Martin v. Densford, 3 Blackford (Ind.) 295; Orston v. County, 5 Ky. Law Rep. 686. (6) Where the shareholders, as such, appropriate to their own use the assets of a corporation with the consent of the board of directors, an action at law by a judgment creditor will not lie against said shareholders, because such assets constitute trust property which can be reached only by a proceeding in equity. Roan v. Winn, 93 Mo. 503; Lackland v. Garesche, 56 Mo. 267; Powell v. Railroad, 42 Mo. 68; Weil v. Tyler, 38 Mo. 545; Firebaugh v. Stone, 36 Mo. 111; Reagan v. Railroad, 21 Mo. 30; Beyer v. Trust Co., 63 Mo.App. 527; Bachman v. Lewis, 27 Mo.App. 81; McLane v. Eastman, 21 Hun 312; Von v. Grant, 16 Mass. 7; Bartlett v. Drew, 57 N.Y. 587; Osgood v. Laytin, 3 Keys 521. (7) An ordinary business corporation may cease to do business and wind up its affairs, whenever a majority of the shareholders deem this to be advisable; but the franchise conferred upon the shareholders by the State is not extinguished by a mere cessation of business thus brought about. The company still continues to be a corporation in the eye of the law, and may sue and be sued in that capacity. 2 Morawetz on Private Corporations, secs. 1004, 1010, 1035; Bank v. Pahquioque, 14 Wall. 383.

OPINION

FOX, P. J.

This is a proceeding in equity, begun in the circuit court of the city of St. Louis, having for its object the subjection of certain dividends accruing on the preferred stock of the United Railways Company, a corporation, which will hereafter be called the United Company, to the payment of a judgment rendered against the Southern Electric Railroad Company, which will hereafter be called the Southern Company, in the circuit court of the United States for the Eastern District of Missouri.

There is but little, if any, disagreement regarding the facts of the case. The real controversy is one of law rather than one of fact.

There is no point made against the pleadings, and for that reason they will not be noticed.

The facts in the case are as follows:

The Southern Company and the United Company were organized and existing under and by virtue of the laws of the State of Missouri, and were at all the times hereinafter mentioned common carriers of passengers for hire, in the city of St Louis; on and prior to September 16, 1899, the par value of the capital stock of the Southern Company was $ 1,500,000, and was actually worth $...