Riesterer v. Horton Land & Lumber Co.

• Decision Date: 12 February 1901
• Citation: 160 Mo. 141,61 S.W. 238
• Court: Missouri Supreme Court
• Parties: RIESTERER et al. v. HORTON LAND & LUMBER CO. et al.

61 S.W. 238

160 Mo. 141

RIESTERER et al. v. HORTON LAND & LUMBER CO. et al.

Supreme Court of Missouri, Division No. 1.

February 12, 1901.

CORPORATIONS — STOCKHOLDERS' MEETING — NOTICE—CONSTITUTION — STATUTES — BONDS —TRUST DEED—ATTACHMENT—PRIORITIES— TRIAL—ISSUES—APPEAL AND ERROR—BANKS AND BANKING—NATIONAL BANKS—UNLAWFUL ACTS.

1. All the stockholders of a corporation signed an agreement that the bonded indebtedness be increased to an amount fixed therein at a meeting called for that purpose, expressly waiving all notice of the meeting required by law. The meeting was held, and bonds authorized issued, and secured by deed of trust, and sold for full value. Held, that the bonds and deed of trust issued pursuant to such agreement and meeting so held were valid obligations of the corporation, notwithstanding Const. art. 12, § 8, providing that no corporation shall increase its bonded indebtedness except in pursuance of general law, nor without consent of the persons holding the larger amount in value of the stock, first obtained at a meeting called for the purpose on 60 days' public notice, and Rev. St. 1889, § 2499, providing that any corporation may increase its bonded indebtedness with the consent of the persons holding the majority of its stock obtained at a meeting called for that purpose on 60 days' notice; since such provisions for notice are for the benefit of the stockholders, and the notice may be waived by them by express agreement, or by all attending a meeting held without such notice.

2. The lien of the trust deed was superior to that of attachments subsequently levied on the property of the company.

3. An issue as to the priorities of holders of corporate bonds secured by trust deed and attaching creditors, not raised in the trial court, cannot be reviewed in the appellate court.

4. A national bank to which a corporation was indebted purchased the funding bonds of the corporation secured by a trust deed of its real estate to the amount of its claims and more, and to conform in appearance with Rev. St. U. S. § 5137, authorizing a national bank to take a mortgage only to recover debts previously contracted, and to make it appear that it held the notes of two corporations instead of bonds secured by mortgage, it took the note of another corporation, which was not indebted to it, indorsed by the one issuing the bonds, for the same amount as the bonds. Held, that the bonds and mortgage were not held as collateral security for such note, and, as such, subordinate to defendant's lien on the property under an attachment subsequent to the trust deed, since the note did not represent any debt, and defendant could not usurp the province of the government, and punish the bank for its evasion of the act of congress.

Appeal from circuit court, Ripley county; John G. Wear, Judge.

Action by Edward G. Riesterer and others against the Horton Land & Lumber Company and others. From a judgment for plaintiffs, defendants appeal. Affirmed.

Seneca N. Taylor, Charles Erd, and S. C. Taylor, for appellants. J. E. McKieghan, Shepard Barclay, and M. F. Watts, for respondents.

MARSHALL, J.

This is an action to foreclose a deed of trust, covering several thousand acres of land in Ripley county, Mo. The plaintiffs are the trustee and the holders of all the outstanding bonds secured by the deed of trust, and the defendants are the mortgagor and its creditors and other parties claiming title under it. There was a decree for the plaintiffs, from which the defendants perfected this appeal.

Briefly stated, the controversy is this: The Horton Land & Lumber Company owned the land. There was a mortgage on it for $6,500. Outside of this, the company owed a large floating debt, the bulk of which was held by the seven banks that are parties hereto. The total indebtedness amounted to $110,000. The company desired to fund the indebtedness, and pay the small creditors, and concentrate the indebtedness in the hands of the seven banks. To accomplish this, it made a deed of trust for $110,000, securing bonds to that amount, and sought to have each of the banks take bonds covering the amount of their claims, and to a further amount equal to 48 per cent. of their respective claims, and to apply the 48 per cent. cash thus raised to pay the smaller creditors. The banks agreed to this arrangement. After about $40,000 bonds had been negotiated, it was found that the deed of trust was defectively executed; so, to remedy the defect, on the 15th day of May, 1895, all of the stockholders of the Horton Land & Lumber Company signed a written resolution or agreement that the bonded indebtedness be increased to $110,000, and directing the vice president and secretary to issue bonds to that amount, and secure the same by a mortgage on the real estate and franchises of the company, and providing that the bonds should not be sold for less than their par value, or for any purpose except money, labor done, or money or property actually received, and expressly waiving the 60-days notice and all other notice required by law to be given of a meeting of stockholders of said company "called to be held at office of said company on the 21st of May, A. D. 1895, at nine o'clock a. m., for the purpose of taking an election for or against an increase of the bonded indebtedness of the said company as aforesaid, and desire and direct that this paper be taken as our vote in favor of said increase, and in favor of the adoption of the above resolution." On May 17, 1895, the directors held a meeting, and unanimously rescinded the prior defective mortgage for $110,000, and also rescinded a resolution directing a general assignment for the benefit of its creditors. On May 21, 1895, the directors held a meeting, and, pursuant to the direction in the resolution of the stockholders of May 15th aforesaid, adopted a resolution ordering the issuance of bonds for $110,000 secured by mortgage, and this is the mortgage sought to be foreclosed in this case. Accordingly, the bonds were issued, and the deed of trust properly executed. The bonds contained this provision: "This bond will not become obligatory until the certificate thereon shall be signed by the trustee," and the certificate to be signed by the trustee was: "This bond is one of a series and issue amounting in the aggregate to $110,000, described in the mortgage deed of trust mentioned therein." Thereupon the seven banks took the bonds, and advanced the 48 per cent., and with the cash thus secured the first mortgage for $6,500 and the claims of the smaller creditors were paid, the defective mortgage for $110,000 canceled, the $40,000 bonds secured thereby, which had been negotiated, were taken up, and the funding scheme carried out. Thus the matter stood from about June, 1895, until the 1st of April, 1896, when five of the seven banks that went into the funding arrangement began suits by attachment against the Horton Land & Lumber Company in the circuit court of the United states for the Eastern division of the Eastern district of Missouri to recover the amounts of their respective claims, and offering to return the bonds they had received, claiming that they were void because no notice of the stockholders' meeting which authorized their issue was published for 60 days before the meeting. These cases resulted in consent decrees stipulating that the five banks should surrender the bonds they held, and take judgment against the company, but that the decree should not be construed as settling or affecting the validity or invalidity of bonds held by persons other than the five banks. The plaintiffs in this action were not parties to that agreement. Thereafter executions were issued on said decrees, the land covered by the deed of trust here sought to be foreclosed was sold by the United States marshal, and was bought by defendants Bell and Murphy, as trustees, for the benefit of said five banks. When the bonds matured, they were not paid, and the trustee under the deed of trust and the bondholders instituted this action in the circuit court of Ripley county to foreclose the deed of trust, with the result first herein stated.

1. The defendants contend that the bonds and deed of trust are void because 60 days' public notice of the meeting of the stockholders at which their issue and execution was authorized was not given. There is no claim made that the bonds are fictitious, or were fraudulently issued. Neither is it claimed that the company did not get value received for every dollar represented by them. It is admitted that every stockholder of the company signed the resolution directing the issue. The sole claim is that under the constitution and laws of this state 60 days' public notice must be given of any meeting held to vote upon a proposition to issue bonds, and, as this was not done in this case, the bonds and mortgage are void. This contention is based upon section 8, art. 12, of the constitution, and section 2499, Rev. St. 1889. The provision of the constitution is as follows: "No corporation shall issue stock or bonds, except for money paid, labor done or property actually received, and all fictitious increase of stock or indebtedness shall be void. The stock and bonded indebtedness of corporations shall not be increased, except in pursuance of general law, nor without the consent of the persons holding the larger amount in value of the stock first obtained at a meeting called for the purpose, first giving sixty days' public notice, as may be provided by law." The statute carrying the constitutional provision into effect is: "Any corporation may increase its capital stock or its bonded indebtedness, with the consent of the persons holding the larger amount in value of the stock, which consent to such increase shall be obtained at a meeting of the shareholders, called for that purpose—sixty days' notice of the time and place of such meeting and the amount of the proposed increase of stock or bonded...