Hagemann v. Southern Electric R. Co.

• Decision Date: 19 March 1907
• Citation: 100 S.W. 1081,202 Mo. 249
• Parties: HAGEMANN v. SOUTHERN ELECTRIC R. CO. et al.
• Court: Missouri Supreme Court

100 S.W. 1081

202 Mo. 249

HAGEMANN v. SOUTHERN ELECTRIC R. CO. et al.

Supreme Court of Missouri, Division No. 2.

March 19, 1907.

1. STREET RAILROADS — LIABILITIES — PURCHASE OF FRANCHISES AND PROPERTY — RIGHTS OF CREDITORS.

Where a street railroad company paid the stockholders of another street railroad company an agreed price per share, and received from the latter company a conveyance of all its franchises and property without further consideration, the equitable doctrine that the

capital stock and property of a corporation is to be deemed a trust fund for the payment of debts, and that when such property has been divided among the stockholders leaving debts unpaid, the stockholders are bound to refund, does not apply to the property and franchises transferred, but to the consideration paid to the stockholders.

2. SAME.

Under Rev. St. 1899, p. 393, § 1187, pars. 7, 8 [Ann. St. 1906, pp. 1001, 1002], giving street railroad companies power to purchase from or sell to other corporations their franchises and other property, a street railroad company which purchased the franchises and property of another street railroad company paying the consideration to the stockholders of the latter is not liable for debts of the latter company which were not liens at the time of the transfer.

Appeal from St. Louis Circuit Court; John A. Blevins, Judge.

Action by Cora Hagemann against the Southern Electric Railroad Company and others. From a judgment in favor of plaintiff, defendant the United Railways Company of St. Louis appeals. Reversed.

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. That 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 $2,000,000 over and above its liabilities. That on the 13th of November, 1900, plaintiff brought suit in the United States Circuit Court against the Southern Company to recover damages for personal injuries received by her in the month of November, 1898, caused by the negligence of that company; and, on October 6, 1901, she recovered a judgment against it for the sum of $9,500, which was, on appeal to the United States Circuit Court of Appeals, duly affirmed (121 Fed. 262, 57 C. C. A. 348). That prior to the institution of this suit an execution was regularly issued on said judgment and returned nulla bona. That on or prior to September 16, 1899, the United Company acquired the capital stock of all the street car companies in the city of St. Louis excepting the St. Louis & Suburban Railway Company, 12 in number, in the manner hereinafter stated, and one of that number was the Southern Company. That on September 20, 1899, the latter company, by a deed of grant, bargain, and sale, duly executed, conveyed to the United Company all its franchises and tangible property of every kind and description, including all its real, personal, and mixed property, situated in the city and county of St. Louis. That the United Company paid to the shareholders the sum of $140 for each and every share of stock of the Southern Company, with the understanding and agreement with the stockholders and directors of the latter company that it would convey to the former, without additional charge, all its rights, franchises, and property of every kind and description, and that in pursuance to that agreement the deed before mentioned was executed. That on the 20th day of September, 1899, the United Company executed a deed of trust in favor of the St. Louis Trust Company, as trustee, conveying all its property of every kind and description, securing the payment of a bonded indebtedness of that date, issued by the said United Company, in the sum of $28,292,000; said bonds having 35 years to run, bearing 4 per cent. interest per annum, payable semiannually in January and July of each year. That said Trust Company accepted said trust, and said bonds have been negotiated and are held by others. That thereafter, on the 30th day of September, 1899, said United Company, as lessor, by authority of its board of directors, executed a lease in favor of the Transit Company, lessee, which lease was to begin the 1st of October, 1899, and terminate the 1st of April, 1939, and that, by the terms of said lease all the property above described, so acquired by the said defendant United Company, including all franchises, rights, and privileges, were let and leased to said Transit Company, authorizing and empowering said Transit Company to operate said roads, which lease also included the other street railways in the city of St. Louis acquired by said United Company. That by the terms of said lease, the said Transit Company agreed, at its own proper cost and expense, and without deduction from the rent provided for by said lease, to maintain, work, operate, use, and run, and keep in public use said demised railways, in the same manner as said United Company, as the owner or lessor thereof, was then, or at any time thereafter might be, required to do, and to keep the property in good repair, at its own cost and expense, without any deduction from the rent so to be paid and reserved in said lease. That, by the terms of said lease, said Transit Company agreed to pay to said United Company a net annual rental of $5 a share upon all the preferred stock of said United Company then outstanding, or which might thereafter be issued by said United Company, with the consent of the Transit Company; said rental to be paid quarterly on the 10th of January, April, July, and October, each and every year, for the period covered by said lease. The first quarterly payment, by the terms of said lease, was required to be made on the 10th day of April, 1900. Such payment to be made at the office of the Transit Company in the city of St. Louis, or at the agency of said Transit Company in the city of New York, either or both, as said Transit Company might from time to time determine. That by the terms of said lease, said Transit Company was also required to pay said United Company $1,000 per year, for the purpose of defraying the expenses and maintaining the proper existence of said United Railways Company and that said Transit Company also, by the terms of said lease, agreed to pay all taxes and assessments and water rents which might be assessed upon the real estate, personal property, franchises, capital stock, business, rental, income, dividends, and indebtedness of said United Company or any of the lines of railway or property leased or operated by it, and that said Transit Company also agreed, by the terms of said lease, to pay the interest accrued, and to accrue, as the same became respectively due and payable on all the bonds that had been issued and outstanding by said United Company or any of the subordinate companies, whose property and franchises said United Company had acquired. That among the bonds upon which said Transit Company assumed to pay the interest, a part thereof was issued by the Southern Company, to wit, 6 per cent. bonds, dated May 6, 1890, due May 1, 1915, $336,000; also 5 per cent. bonds of date August 1, 1896, due August 1, 1916, $200,000; aggregating only $536,000 all told. That said lease also provided that the Transit Company should, during the continuance thereof, apply all net surplus earned by it, over and above 6 per cent. annual dividends upon the $20,000,000 of capital stock, which the Transit Company was authorized to issue, or so much thereof as might, from time to time, be outstanding, to the betterment, improvement, or extension of the property on railway lines, then owned or which might thereafter be acquired by said United Company, defendant, or to the redemption, payment, or retirement of the mortgage indebtedness of said United Company, or its subordinate companies. That on or about September 16, 1899, the United Company increased its capital stock to $45,000,000, of which $20,000,00 was preferred, and $25,000,000 was common stock, divided into shares of $100 each, and that prior to the institution of this suit, the latter company had issued about $9,000,000 of preferred and $18,000,000 of common stock. The rental before mentioned was at all times promptly paid—the first installment was paid on April 10, 1900. The said dividends were paid direct to the United Company by the Transit Company, and the former then paid them over to its stockholders. The Transit Company was also a party defendant. On August 25, 1903, a decree was rendered in the case at bar in favor of the plaintiff, and against the Southern Company and the United Company for the sum of $10,730.30, and the decree was in favor of the Transit Company. From this decree, the United Company, alone, brought the case to this court by appeal.

Geo. W. Easley and Boyle & Priest, for appellant. Seneca N. & S. C. Taylor and Charles Erd, for respondent.

FOX, P. J. (after stating the facts).

1. The principal question presented by the record in this case for this court's decision is, do the facts before stated entitle the plaintiff...