Ramsey v. Thompson Manuf'G Co.

• Decision Date: 30 May 1893
• Citation: 116 Mo. 313,22 S.W. 719
• Parties: RAMSEY v. THOMPSON MANUF'G CO. et al.
• Court: Missouri Supreme Court

22 S.W. 719

116 Mo. 313

RAMSEY v. THOMPSON MANUF'G CO. et al.

Supreme Court of Missouri, Division No. 2.

May 30, 1893.

CORPORATIONS — STOCK SUBSCRIPTIONS — FRAUD — RECOVERY BACK OF MONEY PAID — RIGHTS OF CREDITORS.

1. Plaintiff subscribed to the stock of a corporation, the contract reciting that the amount of the stock was to be $100,000, 50 per cent. of which was to be paid up, and that it was proposed to purchase a mill, and engage in manufacturing certain wares. He was informed by the secretary and treasurer that $50,000 had been paid up, and that the corporation had been fully organized, whereupon, understanding that the mill had been purchased, he paid for and received the stock. The articles of association recited, as required by Rev. St. § 926, that the capital stock was $50,000, that the entire amount had been actually and bona fide subscribed, and that 50 per cent. thereof had been paid. As a matter of fact the mill had not been bought, only $600 of the capital stock had been paid, and the corporation at no time engaged in manufacturing. Held, that the contract of subscription was procured by fraud, and plaintiff could avoid the same, and recover back the consideration paid for the stock.

2. Where a subscription to stock of a corporation, and subsequent payment for the stock, are procured by fraudulent representations as to the purposes of the corporation and the amount of paid-up stock, the stockholder may recover back land and money with which he paid for the stock, notwithstanding the insolvency of the corporation; its creditors not being parties to an action for such relief.

3. A subscriber to stock of a corporation who made his last payment for the stock in June, and sued in October to avoid the contract of subscription for fraud, and to recover back the consideration paid, and who did not discover the insolvency of the corporation until about the middle of November, was not guilty of laches in not earlier suing, or discovering the insolvency of the corporation.

Appeal from circuit court, Greene county; W. P. Wallace, Judge.

Action by George A. Ramsey against the Thompson Manufacturing Company and others. From a judgment for defendants, plaintiff appeals. Reversed.

The other facts fully appear in the following statement by BURGESS, J.:

This is an action by plaintiff against defendant company, a corporation, to recover back $200 paid by him in money, and to reinvest in him the title to a lot in the city of Springfield, Mo., which he conveyed to one G. A. Frizzell, trustee, for the use and benefit of the corporation in payment of stock which he had subscribed to it, and which subscription, the payment of the money, and the execution of the deed to the lot in payment thereof, he alleges, were obtained by fraud and fraudulent misrepresentations. The allegations in the petition, leaving out the formal parts, are as follows: "Plaintiff, for amended petition, states that the defendant the Thompson Manufacturing Co. is a corporation duly organized under the laws of the state of Missouri. That the defendants Willis H. Thompson, J. H. Pomeroy, G. A. Frizzell, E. G. H. Kirst, and J. M. Phillips, on or about the ___ day of ___, 1888, entered into and formed a conspiracy for the purpose of organizing a bubble company, whose ostensible and nominal purpose was to establish, in the city of Springfield, Missouri, a manufacturing plant, and manufacture children's carriages, children's wagons, wooden and willow ware, hobbies, swings, jumpers, hammocks, and so forth; but for the real purpose of cheating and defrauding the plaintiff and other citizens of the said city of Springfield. That in pursuance of their fraudulent scheme and design, as aforesaid, the defendants made and presented to the plaintiff a contract and agreement of subscription to the said company, which contract and agreement is in words and figures as follows, to wit: `We, the undersigned representatives of the Thompson Manufacturing Co., propose to establish in the city of Springfield, Mo., a manufacturing plant for the purpose of manufacturing children's carriages, children's wagons, wooden and willow ware, hobbies, swings, jumpers, hammocks, &c., &c. And we further propose to locate the said manufacturing plant in the city of Springfield, Mo., on the following terms and conditions, to wit: We propose to file articles of incorporation of the Thompson Manufacturing Co., with a capital stock of $100,000, divided into two thousand shares of the uniform par value of fifty ($50) dollars each, with a paid capital stock of fifty per cent. of the entire capital stock, in accordance with the laws of the state of Missouri; and we further propose to the citizens and business men of the city of Springfield that in consideration of their subscription for stock in the said plant to the amount of twenty thousand dollars, ($20,000,) or four hundred shares of fifty ($50) dollars each, payable as follows, to wit: Ten per cent. of said subscription payable on or before thirty days after date of obligation; and ten per cent. payable four months after date of obligation; and ten per cent. payable 7 months after date of obligation; ten per cent. payable ten months after date of obligation; and ten per cent. payable thirteen months after date of obligation; and the balance of said subscription to be paid in, upon call by the board of directors of the said Thompson Manufacturing Co., in assessments pro rata with the payments hereinbefore provided for, not to exceed at any one time ten per cent. of the total amount of said subscriptions, — in consideration of the above, we, as representatives of the Thompson Mfg. Co., agree to purchase the building known as the "Old Cotton-Mill Building," situate in the city of Springfield, Mo., and to equip it and put the said works into operation within ninety days after date of the purchasing the said building; and we further agree to locate in, and direct all our interests towards, the city of Springfield, Mo. Witness our hands this twenty-second day of March, A. D. 1888.' That the said contract of subscription was duly signed and executed by said Willis H. Thompson, president of said corporation, J. H. Pomeroy, and E. G. H. Kirst, who constitute the majority of the board of directors of said corporation. That the said defendants, in further pursuance of their fraudulent scheme and design to defraud the plaintiff, represented to the plaintiff that they were men of large means, and that they had in their possession, and under their control, a large sum of money, to wit, fifty thousand dollars, ($50,000;) that the capital stock of said corporation of the amount of fifty thousand dollars ($50,000) had been fully paid up by them, and that the said sum of fifty thousand dollars ($50,000) was then in the hands of the board of directors of said company, — all of which statements were false and fraudulent, and known to be so by the defendants at the time they were so made, and were for the purpose of inducing the plaintiff to subscribe for stock in said corporation. That the plaintiff, relying upon said statements and representations, and upon the promises of the said defendants and the said company to carry out and fulfill the terms and conditions set forth in said contract of subscription, was induced to subscribe by the terms in said contract, in said company, for ten shares of the stock, of the par value of fifty dollars ($50) each. That the defendants afterwards, to wit, on or about the ___ day of June, 1888, in further pursuance of their fraudulent design to defraud the plaintiff, represented again to the plaintiff that their said company had been organized, and that the full amount of capital stock, to wit, fifty thousand dollars, ($50,000,) in said company, had been paid up by said defendants, and that the said defendants and the said corporation had already purchased machinery for the purpose of equipping the building mentioned in said contract of subscription as the `Old Cotton-Mill Building,' and that the said company would be soon in operation in accordance with the terms in said contract of subscription. The plaintiff, believing said statements to be true, and relying in good faith upon the purpose of said company, and its said promoters and originators, to carry out the terms of said contract of subscription, paid to the said corporation and its said officers the amount of his subscription, as follows, to wit, two hundred ($200) in cash, and conveyed to said Frizzell, in trust for said corporation, under the direction of the officers and board of directors of said company, in payment of the balance due on his said subscription, a lot of land of the value of three hundred ($300) dollars, which lot of land is situated in Greene county, in the state of Missouri, and described as follows, to wit: `Lot twenty-one (21) in Orchard's addition to the city of Springfield, Missouri.' That the said statements, and each and all of them, made by the said defendants to the said plaintiff, concerning the capital of said company, and concerning the wealth and means of its said promoters and originators, were false and fraudulent, and made with the intention to deceive the plaintiff, and for the purpose of inducing him to subscribe for and purchase a portion of the stock of said company. That at the time the said defendants made the false and fraudulent statements, as aforesaid, they had no property whatever, and no part of the said capital stock of fifty thousand dollars ($50,000) had been or was thereafter paid up by the said defendants, or any one of them. That the said corporation has not complied with the terms and conditions in said contract mentioned and specified, nor any one of them, nor any part thereof, but have wholly failed to engage in the business of manufacturing as in said contract provided, or to pay the sum mentioned in said contract into said company's capital stock, or any sum whatever, or to equip with...