National Bank of Commerce v. Francis

• Decision Date: 03 December 1922
• Docket Number: No. 22963.,22963.
• Parties: NATIONAL BANK OF COMMERCE IN ST. LOUIS v. FRANCIS et al.
• Court: Missouri Supreme Court

246 S.W. 326

296 Mo. 169

NATIONAL BANK OF COMMERCE IN ST. LOUIS v. FRANCIS et al.

No. 22963.

Supreme Court of Missouri, in Banc.

December 3, 1922.

Rehearing Denied December 20, 1922.

Appeal from St. Louis Circuit Court; J. Hugo Grimm, Judge.

Action by the National Bank of Commerce in St. Louis against David R. Francis and others. Judgment for defendants, and plaintiff appeals. Affirmed.

Edw. J. White and Geo. L. Edwards, both of St. Louis, for appellant.

Bryan, Williams & Cave, of St. Louis, for respondent Mallinckrodt.

A. & J. F. Lee and Thomas S. McPheeters, all of St. Louis, for respondents Francis and others.

Jourdan, Rassieur & Pierce, of St. Louis, for respondents Scullin and others.

Jeffries & Corum, of St. Louis, for respondents Knight and others.

SMALL, C.

Appeal from the circuit court of the city of St. Louis. The petition of the plaintiff, a national bank, to recover a money judgment against the defendants, is in three counts: First, it seeks to hold defendants as partners; second, to set aside the transaction under which the money was paid out by the plaintiff, as ultra vires the plaintiff as a national bank, and to recover same from defendants under an implied contract to repay said money; third, to hold defendants liable as for money had and received.

The three counts are based upon the same transaction, to wit: The purchase by the plaintiff on October 1, 1903, of 525 notes (so called) of the Allegheny Improvement Company, for $1,000 each, which company the petition alleges, in effect, was a dummy corporation used by defendants as their agent to make said notes as a construction company, in pursuance of a reorganization agreement of the defendants, who were first mortgage bondholders of the St. Louis & North Arkansas Railroad Company, and who had caused said mortgage to be foreclosed and had purchased the property of said railroad company at the foreclosure sale, through a reorganization committee. The allegations of the petition in this regard are as follows:

"For the purpose of making said extensions of said property the agents used a pretended corporation, known by the name of the Allegheny Improvement Company. Said company was organized or adopted and used for the purposes for which a construction company was directed to be organized or adopted and used by the principals' agreement, and pursuant thereto. Said company was organized or adopted and used by the agents, in the exercise of the powers conferred upon them by the principals' agreement. The agents appointed or elected the shareholders, directors, and officers of said company from time to time, none of whom had any financial interest in said company. Said company never had any actual paid-up capital, and never owned any property of any kind or character. Said company had no real independent existence, and was a corporation in name only, being solely the instrument and hand of the agents. The agents caused said company to contract with the railroad company selected by them for the extension of said property east and west, in consideration of said railroad company paying to said construction company for the use and benefit of the principals $25,000 par value of its stock and $25,000 par value of its first mortgage bonds for each mile of road so constructed."

The petition further states "that plaintiff has always relied for the repayment of said moneys upon the notes of the Allegheny Improvement Company." The petition also shows that no interest was paid on said Allegheny Improvement Company notes after October 1, 1909, and that the principal thereof came due October 1, 1911. This suit was filed April 8, 1918. Defendants filed a demurrer to each count in the petition, setting forth two grounds: First, that it failed to state facts sufficient to constitute a cause of action against defendants, or either of them; and second, that it appears upon the face of each count that the cause of action attempted to be alleged therein was barred by the statute of limitations.

The court sustained said demurrer, and plaintiffs refusing to plead further, final judgment was rendered in favor of the defendants, from which plaintiff appealed to this court.

By an agreement of counsel in the lower court, and continued here, the exhibits referred to in the petition are deemed part of the petition and are to be so considered in disposing of the demurrer. Said exhibits are very voluminous and are four in number. No. 1 may be denominated the bondholders' reorganization agreement. It recites: The default of the St. Louis & North Arkansas Railroad to pay its interest due on the bonds, July 1, 1905, and January 1, 1908, and that its then existing road would not produce revenues enough to pay expenses, and that this condition could only be relieved by an extension of its lines, to connect with Joplin, Mo., on the west, and Helena, Ark., on the east, which extensions were estimated to cost $5,000,000. That some of the bondholders were unwilling to subscribe toward the fund necessary to make such extensions, and the railroad company could not raise the necessary money without the co-operation of the majority of its first mortgage bondholders, who had requested the trustees in the mortgage to foreclose the same, and that to protect the interests of the bondholders it was necessary, to appoint a reorganization committee. Therefore the parties signing said agreement mutually agreed:

First. To forthwith surrender their bonds and coupons to the Union Trust Company of St. Louts, as depositary, subject to the order of the committee of reorganization.

Second. For which the trust company would issue to each bondholder a certificate of beneficial interest, in a certain prescribed form.

Third. That John Scullin, D. Francis, Robert S. Brookings, and R. C. Kereus should be the committee of reorganization and empowered:

(a) To bid in the property and franchises of the railroad company at the foreclosure sale and use the bonds and coupons of the subscribing bondholders in payment of such part of the purchase price as permitted by the decree of the court.

(b) To have full power to execute a temporary mortgage upon the railroad so purchased "for the purpose of raising money to pay into the registry of the court" the necessary sum to pay ratably other bondholders not parties to the reorganization agreement, and costs of the foreclosure proceedings, including master's and attorney's fees, "or to bind the subscribers hereto severally in the proportion of their interests as represented by the certificates of beneficial interest issued to them for the payment of money borrowed by said committee to he used for the aforesaid purposes, but to no greater extent, it being expressly understood that the subscribers hereto shall be held as security for such sum as the Committee may borrow for the purposes aforesaid, only in the event a temporary mortgage upon the property purchased is not executed, and then only severally to the extent alone of their ratable share of said loan."

(c) Committee to collect proceeds for bondholders in case third party purchased at foreclosure sale.

(d) "if the committee becomes the purchaser of said property, the members thereof shall, as trustees and agents of the subscribers, hereto forthwith reorganize the company in accordance with the provisions of the statutes of the states of Arkansas and Missouri relating to the reorganization of railroad companies by purchasers at judicial sales."

(e) For the purpose of controlling the stock and bonds of the companies which may construct the proposed extensions, the committee shall make such contract with the Southeastern Railroad Company for constructing the eastern extension as is necessary "to acquire the ownership of said railroad as trustees and agents of the subscribers hereto," or may incorporate another company to acquire its property rights and franchises. The committee shall also cause to be organized a corporation in Missouri, "for and on I behalf of the subscribers hereto," for extension westward to Joplin. Said committee also to have power to sell the property and franchises of the reorganized company to any construction company, and undertake with such purchasing company to cause to he constructed said extensions, upon the purchasing company agreeing to issue and deliver to the committee all the stock and bonds of the entire line when completed, including the line of the St. Louis & North Arkansas Railroad Company, as reorganized, for not less than an issue of $25,000 per mile, each of stock and bonds, and said committee shall have power to cause the St. Louis & North Arkansas Railroad Company, as reorganized, to purchase any such construction company, or to consolidate said reorganized St. Louis & North Arkansas Railroad Company, with any such construction company upon such terms as the committee may deem "best for the subscribers hereto."

(f) Said committee to have power to cause a construction company to be organized for the "benefit of the subscribers hereto," and cause said company to make contracts with the company undertaking to build said extensions for the stock and bonds received by said construction company from the railroad company as consideration for building such extensions. "All profits made by any such construction company shall, under proper contract to be made by the committee, be paid to the committee for the benefit of the holders of the certificates of interest."

(g) Committee may buy the bonds of bondholders not patties to reorganization agreement, and use same in payment of purchase price at foreclosure sale.

(h) Committee to use all bonds and stocks received by it "under any of the contracts aforesaid which in its option it is authorized to make for and on behalf of the subscribers hereto," except such as it may retain to reimburse itself for money borrowed to pay purchase price of the property and costs of foreclosure sale, "as collateral security for...