Punch v. Hipolite Co.

• Decision Date: 14 December 1936
• Docket Number: No. 32946.,No. 32945.,No. 32948.,No. 32947.,No. 32944.,32944.,32945.,32946.,32947.,32948.
• Citation: 100 S.W.2d 878
• Parties: MONTAGUE PUNCH v. THE HIPOLITE COMPANY, a Corporation, ET AL., Defendants, HENRY FLARSHEIM ET AL., Appellants, MINETTE K. HILL, Intervenor. MONTAGUE PUNCH v. THE HIPOLITE COMPANY, a Corporation, ET AL., Defendants, CLARENCE FLARSHEIM ET AL., Appellants, MINETTE K. HILL, Intervenor. MONTAGUE PUNCH v. THE HIPOLITE COMPANY, a Corporation, ET AL., Defendants, JENNIE C. FLARSHEIM, Executrix of the Estate of MILTON J. FLARSHEIM, ET AL., Appellants, MINETTE K. HILL, Intervenor. MONTAGUE PUNCH v. THE HIPOLITE COMPANY, a Corporation, ET AL., Defendants, AUGUST E. GILSTER ET AL., Appellants, MINETTE K. HILL, Intervenor.
• Court: Missouri Supreme Court

100 S.W.2d 878

MONTAGUE PUNCH v. THE HIPOLITE COMPANY, a Corporation, ET AL., Defendants, HENRY FLARSHEIM ET AL., Appellants, MINETTE K. HILL, Intervenor. MONTAGUE PUNCH v. THE HIPOLITE COMPANY, a Corporation, ET AL., Defendants, CLARENCE FLARSHEIM ET AL., Appellants, MINETTE K. HILL, Intervenor. MONTAGUE PUNCH v. THE HIPOLITE COMPANY, a Corporation, ET AL., Defendants, JENNIE C. FLARSHEIM, Executrix of the Estate of MILTON J. FLARSHEIM, ET AL., Appellants, MINETTE K. HILL, Intervenor. MONTAGUE PUNCH v. THE HIPOLITE COMPANY, a Corporation, ET AL., Defendants, AUGUST E. GILSTER ET AL., Appellants, MINETTE K. HILL, Intervenor.

No. 32944.

No. 32945.

No. 32946.

No. 32947.

No. 32948.

Supreme Court of Missouri.

Division One, December 14, 1936.

Appeal from Circuit Court of City of St. Louis. — Hon. H.A. Rosskopf, Judge.

REVERSED AND REMANDED (with directions).

Lewis, Rice, Tucker, Allen & Chubb, Milton H. Tucker, Robert T. Burch, Salkey & Jones, Wilbur B. Jones and Fred A. Eppenberger for appellants.

(1) A stockholder of a corporation may not maintain a suit in behalf of the corporation unless he alleges and sustains the burden of proving that he has made a demand upon the directors of the corporation to institute the suit and that they have refused to do so; or that such demand would have been futile. (a) The decree of May 31, 1932, should be set aside and the petition and the intervening petition should be dismissed because the plaintiff and the intervenor have failed to allege and to sustain the burden of proving that before bringing suit as stockholders, in behalf of the corporation, they made a demand upon the directors of the corporation to institute the suit, which was refused; or that it would have been futile to make such demand. (b) Where four out of six members of the board of directors did not participate in the acts complained of, the presumption is that a demand upon the board of directors would have been effective, and there is no presumption that such demand would have been futile. (c) Four out of six members of the board of directors of the Hipolite Company at the time of suit did not participate in the purchase of the company's notes, which is the act complained of. (d) There is nothing in the record to justify a finding that a demand on the four of the six directors who did not participate in the purchase of the company's notes would have been futile, or to rebut the presumption that such a demand would have been effective, and accordingly, such presumption remains. (e) The decree of May 31, 1932, should therefore be set aside and the petition and intervening petition should be dismissed. Caldwell et al. v. Eubanks, 30 S.W. (2d) 976; R.S. 1929, sec. 4558; 2 Fletcher Cyclopedia Corporations (Per. Ed.), sec. 535; 6 Thompson on Corporations (3 Ed.), secs. 4560, 4566, 4596; Decatur Mineral & Land Co. et al. v. Palm, 21 So. 315; Baille v. Columbia Gold Mining Co., 166 Pac. 965; Law v. Fuller, 217 Pa. 439; Virginia Passenger & Power Co. v. Fisher, 104 Va. 121, 51 S.E. 198; Brewer v. Boston Theater, 104 Mass. 378. (2) In the absence of fraud, a director of a corporation may purchase the notes of the corporation from a third party at a discount and collect them at face value, unless (a) He is under a duty to purchase the notes for the corporation (with the funds of the corporation), or, unless (b) The corporation is insolvent and the creditors of the corporation would be prejudiced thereby. 1 Morawetz on Private Corporations (2 Ed.), sec. 521; 2 Thompson on Corporations (3 Ed.), secs. 1343, 1344; 3 Fletcher Cyclopedia Corporations (Per. Ed.), sec. 869; 14a C.J., sec. 1903, p. 134; McIntyre v. Ajax Mining Co., 28 Utah, 162, 77 Pac. 613; Glenwood Mfg. Co. v. Syme, 109 Wis. 355, 85 N.W. 432; Higgins v. Lansingh, 154 Ill. 301; 3 Cook on Corporations (8 Ed.), sec. 660, p. 2523; St. Louis, etc., Ry. et al. v. Chenault, 36 Kan. 51, 12 Pac. 303; Inglehart v. Thousand Islands Hotel, 109 N.Y. 454, 17 N.E. 358; Camden Safe Deposit & Trust Co. v. Citizens Ice Co., 69 N.J. Eq. 718; Seymour v. Spring Forest Cemetery Assn., 39 N.E. 365; Patrick v. Boonville Gas Light Co., 17 Mo. App. 462; Young v. Columbia Land & Lbr. Co., 53 Ore. 438, 99 Pac. 936, and on rehearing 101 Pac. 212. (3) The rule requiring directors and officers to account for secret profits which they make in transactions with the corporation has no application to a case where the director or officer makes a profit on the purchase at a discount of the corporation's note from a third party; in such a case the alleged secrecy is immaterial. 2 Thompson on Corporations (3 Ed.), sec. 1329. (4) Where a director is without power in the management of the corporation at the time of the purchase, he is under no disability which prevents his buying a debt of the corporation at a discount and subsequently collecting the face amount of the debt. 14 C.J., sec. 1903; Hammond's Appeal, 123 Pa. 503; Morris v. Imperial Cap Co., 98 N.W. 5. (5) A stranger to a corporation, who buys a debt of the corporation at a discount and with the purchase of the debt acquires stock of the corporation and is thereafter elected a director of the corporation, is not thereby precluded from collecting the face amount of the debt so purchased. Todd v. Temple Hospital Assn., 273 Pac. 595.

Dubinsky & Duggan for respondents.

(1) The right of plaintiff as a stockholder in a corporation to file suit for himself and on behalf of other stockholders, against directors for wrongful acts of directors, cannot be questioned for the first time on appeal. Such question must be raised either by demurrer, special demurrer or by affirmative pleading through an answer, and when no such pleading is filed in the trial court, such defense is waived. And no such pleading was filed in this cause. Bulkley v. Big Muddy Iron, 77 Mo. 107; Ashton v. Penfield, 233 Mo. 418, 135 S.W. 938; Young Men's Christian Assn. v. Dubach, 82 Mo. 481; Stillwell v. Glasscock, 47 Mo. App. 557; Gregory v. McCormick, 120 Mo. 663; Boone v. St. Joseph, 1 S.W. (2d) 227; Baxter v. St. Louis Transfer Co., 198 Mo. 14; Scrivener v. American Car & Foundry, 50 S.W. (2d) 1015; Brady v. Kirby, 22 S.W. (2d) 56; State ex rel. v. Sappington, 68 Mo. 456; McDonald v. K.C. Gas Co., 59 S.W. (2d) 39; Fulwider v. Power Co., 116 S.W. 510, 216 Mo. 582. (2) Defendants cannot attack the judgment collaterally on the ground that no request or demand was made of the directors or stockholders that they file suit. State ex rel. v. Trimble, 32 S.W. (2d) 571; Brady v. Kirby, 22 S.W. (2d) 56. (3) While defendants have clearly waived the right to object to failure of plaintiff and intervenor to make a request or demand on directors or stockholders of the company to file suit, both the amended bill and the intervenor's petition show it would have been futile and unavailing. The amended bill of plaintiff and petition of intervenor, and also the evidence show and prove, beyond question, that such request would have been useless and fruitless, because the immediate defendants interested held the controlling interest in the stock of the company, and because the corporation was under the control of persons who were parties to the abuse of trust, and, therefore, no such request of directors or of the corporation was required. Proctor v. Farrar, 213 S.W. 475; Caldwell v. Eubanks, 20 S.W. (2d) 979; Hannerty v. Standard Theatre Co., 109 Mo. 306; Barthold v. Thomas, 210 S.W. 506; Moore v. Ry. Co., 80 W. Va. 653, 93 S.E. 762; Bulkley v. Big Muddy Iron Co., 77 Mo. 107; Helm v. Talmage, 40 S.W. (2d) 499; 14 C.J. 932; Brewer v. Boston Theatre Co., 104 Mass. 378; Wills v. Nehalem Coal Co., 52 Ore. 70, 96 Pac. 534; North v. Union Savings Co., 59 Ore. 483, 117 Pac. 822; High on Receivers (4 Ed.), p. 358, sec. 2950; Clark on Receivers, p. 267, sec. 233; 2 Thompson on Corporations, sec. 1366; 3 Cook on Stock & Stockh. (7 Ed.), sec. 701; Morawitz on Corporations (2 Ed.), sec. 242; 3 Pomeroy (3 Ed.), sec. 1095; Hellicell on Stock & Stockh., sec. 405; Dunphy v. Travelers Newspaper Assn., 146 Mass. 495; Orlando Orange Groves Co. v. Hale, 144 So. 674; Columbia Natl. Co. v. Washed Bar Co., 136 Fed. 710; Barr v. Pittsburgh Plate Glass Co., 40 Fed. 412; Howze v. Harrison, 165 Ala. 150, 51 So. 614; Hyams v. Old Dominion Co., 113 Me. 294, 93 Atl. 747; Jacobson v. Brooklyn Lumber Co., 184 N.Y. 161; Glass v. Stamps, 213 Ala. 95, 104 So. 237; O'Brien v. O'Brien, 238 Mass. 403, 131 N.E. 137; Starr v. Shepherd, 145 Mich. 145, 108 N.W. 769; Continental Securities Co. v. Belmont, 206 N.Y. 7, 99 N.E. 138. (a) Milton J. Flarsheim was general manager, vice president and director of the company since 1926, and was such when this suit was filed. As such general manager he had general control of the company, and, under the decisions, is considered as the principal officer of the company. Robinson v. Mining Co., 178 Mo. 539; Buffalo v. Producers Exchange, 23 S.W. (2d) 649; 14 C.J. 358. (b) A single stockholder has an undoubted right to maintain a suit in equity to restrain the directors from the consummation of a contemplated breach of trust, and he may have relief against such acts where they have been consummated. Morowitz on Corporations, sec. 242 (2 Ed.); Whitehead v. Harmers Co., 60 S.W. 70. He has a right to compel an accounting of directors and a judgment for indebtedness to the corporation. Shafer v. Home Trading Co., 52 S.W. (2d) 464; Sec. 4959, R.S. 1929. (4) Directors or officers or persons closely associated with them, cannot, secretly, purchase claims against the corporation at a discount and retain the profit thereafter, but such profits must inure for the benefit of the corporation. Patrick v. Boonville Gas L. Co., 17 Mo. App. 469; Chouteau Ins. Co. v. Floyd, 74 Mo. 286; Brewater v. Stratman, 4 Mo. App. 42; Lingle v. Natl. Ins. Co., 45 Mo. 110; McAllen v. Woodcock, 60 Mo. 180; Kitchen v. Ry. Co., 69 Mo. 272; Wills v. Nehalem Coal Co., 52 Ore. 70, 96 Pac. 531; Bramblet v. Commonwealth Land...