Loomis v. Missouri Pac. Ry. Co.

• Decision Date: 03 December 1901
• Citation: 65 S.W. 962,165 Mo. 469
• Parties: LOOMIS v. MISSOURI PAC. RY. CO. et al.
• Court: Missouri Supreme Court

65 S.W. 962

165 Mo. 469

LOOMIS v. MISSOURI PAC. RY. CO. et al.

Supreme Court of Missouri.

December 3, 1901.

CORPORATIONS — FRAUD OF CORPORATION — SUIT BY STOCKHOLDER—FRAUDULENT ACTS OF DIRECTORS—EVIDENCE—LIMITATION OF ACTIONS—LACHES—EQUITY.

1. Where a stockholder in a corporation sued another corporation and the directors thereof for fraudulent appropriation of the property of the corporation in which he was a stockholder, and alleged that he had made no request of his corporation or its directors to institute a suit because such directors had been instrumental in bringing about the fraud, and that they had the absolute control of his corporation, business, books, etc., but it appeared from the evidence that, at a time when the alleged directors of plaintiff's corporation were elected, they were not competent to serve, because not stockholders, as required by Rev. St. 1889, § 2772, and that plaintiff and his son ever since the corporation's organization had been a majority of the legal directors, and that the others had never attempted to act as directors, the suit could not be maintained.

2. Rev. St. 1889, § 6775, limits an action for fraud to five years, but provides that the cause of action shall not be deemed to have accrued until the discovery, at any time within ten years, of the fraud. A president of a corporation sued in October, 1891, another corporation and the directors thereof to obtain a restoration of the corporation's mining properties, alleged to have been fraudulently appropriated by the defendant company. In June, 1881, he had received a letter from the defendant company which showed by the letter head that the defendant was operating the properties of plaintiff's company, and that he had never informed himself as to the condition of his company, as required by Rev. St. 1889, § 2774, requiring the directors of a corporation to mail a full statement of its affairs to each stockholder once a year. He knew that the former superintendent of his company's mines was superintendent of the defendant company until the end of 1881. A director of defendant company had told him in 1884 that defendant company was operating the properties, and in 1887 an account was published in the newspapers of an accident in the mine of plaintiff's company, occasioning great loss of life. Plaintiff had never demanded, even by letter, a statement of the operations carried on on properties belonging to his company, nor visited the mines, though residing within a day's journey of them. Held, that if plaintiff knew of the acts of which he complained as early as June, 1881, he was barred by the statute and his laches.

3. If plaintiff failed to make any inquiry, when the slightest investigation would have disclosed the facts, and when it was his statutory duty to do so, even within less than five years before suit, his suit was barred by laches.

In banc. Appeal from St. Louis circuit court; H. D. Wood, Judge.

Suit by Wesley H. Loomis against the Missouri Pacific Railway Company and others. From a decree in favor of defendants, complainant appeals. Affirmed.

Plaintiff's petition is a statement of his case. In substance, it avers: That the plaintiff prior to February, 1881, owned practically all of the 500 shares of the stock of the Choctaw Coal & Mining Company; said shares being of the par value of $100 each. This company was engaged in the mining of coal in the Indian Territory, and had expended large sums of money for machinery, tools, equipments, etc., in the prosecution of its operation. That the policy of the Missouri Pacific Railway Company, which then owned and operated a railroad extending from the city of Hannibal, in Missouri, through the state, crossing and connecting with its main line at the city of Sedalia, into and through the said Indian Territory, and near the coal lands of the Choctaw Coal & Mining Company at Savanna, in said territory, was to acquire control of all the coal lands and coal mines, and to monopolize the coal business whenever and wherever it could do so, especially the so-called coal lands in the Indian Territory; and, to carry out its purpose, it employed codefendant E. J. Crandall to look into, examine, and report upon the character and extent of the coal fields in the territory. That, in the year 1881 the said Crandall, in furtherance of the purpose of the railway company, went to the Indian Territory and examined certain coal lands,— among them, those belonging to the Choctaw Coal & Mining Company. In the early part of the year 1881 the Missouri Pacific Railway Company and A. A. Talmage, its general superintendent and manager, James A. Hill, its general freight agent, and E. J. Crandall formed a conspiracy to obtain the control and possession of the stock and mining property of the Choctaw Coal & Mining Company, and to that end proposed to plaintiff in February, 1881, that the capital stock of said mining company should be increased to $100,000,—the $50,000 of new stock to be issued to the plaintiff, who should sell the same, with $16,000 of the original stock, to defendants, who were either to pay him in cash therefor, or expend an amount of money equal to the par value of the stock in improving the mines belonging to the Choctaw Coal & Mining Company, and securing transportation facilities for their output,—and that the number of directors, of which defendants were to form a majority, was to be increased from three to five. The plaintiff accepted the proposition so made, and the capital stock of the Choctaw Coal & Mining Company was increased to $100,000, and the new stock of $50,000, and $16,000 of the old stock was turned over to Talmage, Hill, and Crandall, who were elected directors in pursuance of the agreement, and to the railway company. That thereafter Talmage, Hill, and Crandall and the railway company caused to be incorporated, under the laws of Illinois, the Atoka Coal & Mining Company, one of the defendants herein, with a capital stock of $500,000, comprising 5,000 shares, of $100 each. That the subscribers for the Atoka stock were J. N. Patton, C. M. Hays, A. A. Talmage, J. A. Hill, L. S. W. Folsom, and E. J. Crandall; the said Patton, Hays, Talmage, Hill, and Folsom subscribing for 50 shares of stock each, and E. J. Crandall for 4,750 shares. That no part of the subscription of 4,750 shares, the par value of which amounted to $475,000, was made by Crandall for himself, but 2,500 shares of it were subscribed for and on account of the railway company, and 2,250 shares were held by him in trust for the Atoka Coal & Mining Company, to be disposed of in the manner thereafter to be directed by its board of directors. That Crandall subscribed for the large amount of the capital stock of the Atoka Company in pursuance of a conspiracy devised and carried out by the Missouri Pacific Railway Company and Talmage, Hill, and Crandall, by means of which the railway company was to acquire and keep the control and management of the Atoka Coal & Mining Company and its business, and in order that it might acquire the control and benefits of the property and business of the Choctaw Coal & Mining Company without paying anything therefor. That A. A. Talmage, James A. Hill, E. J. Crandall, C. M. Hays, and L. S. W. Folsom were elected directors of said Atoka Company, and A. A. Talmage was elected president, C. M. Hays secretary, and E. J. Crandall treasurer. That on or about the 1st of July, 1881, said Talmage, Hill, and Crandall transferred the $66,000 of the capital stock of the Choctaw Company theretofore assigned to them by W. H. Loomis to the Atoka Company, receiving therefor $64,800 of the capital stock of the latter company, which latter stock they converted to their use and that of the Missouri Pacific Railway Company, and thus defrauded the plaintiff out of the whole amount of the $66,000. That from the year 1881 to the year 1887 the mines of the Choctaw Company were worked at a monthly profit of $5,000, and that such profits were expended by Talmage, Hill, and Crandall, under the direction of the railway company, in the development of the mines of the Atoka Company, and such of said profits as were not so expended were wrongfully and fraudulently converted to the use of the railway company and said other parties, to the damage of plaintiff in the sum of $550,000. That the Atoka Coal & Mining Company prior to the institution of this suit had declared and paid out to the holders of 4,900 shares of its capital stock the sum of $220,500, which said sum was paid to defendants Missouri Pacific Railway Company, James A. Hill, and Atoka Coal & Mining Company, and which sum was derived from operating the properties of said Choctaw Coal & Mining Company by the Atoka Coal & Mining Company. That in April, 1887, the mines were carelessly and negligently destroyed and abandoned by the Atoka Company, and the machinery, property, and business belonging to the Choctaw Company were converted by said Atoka Company to its own use. That plaintiff was thereby deprived of all his interest in said property, income, and business of the Choctaw Company, in addition to his loss of $66,000, the purchase price of the stock transferred by him, which had never been paid for. That the promise to expend that amount for betterments upon the property was not kept. Talmage, Hill, and Crandall were employés of the railway company, and committed the fraudulent acts stated at its dictation, and for its, as well as their own, benefit. That all of these acts and things were done by the railway company, Talmage, Hill, and Crandall without the knowledge of plaintiff, and so secretly as not to put him on notice thereof. That he was kept in ignorance as to the wrongful and fraudulent acts of the parties aforesaid until about January 4, 1890, when disclosures were made by Crandall and Hill in a certain suit instituted by said Hill against the Atoka Coal & Mining Company in the circuit court of the city of St. Louis,...