Shields v. Hobart

• Citation: 72 S.W. 669,172 Mo. 491
• Parties: SHIELDS, Appellant, v. HOBART et al
• Decision Date: 04 March 1903
• Court: United States State Supreme Court of Missouri

72 S.W. 669

172 Mo. 491

SHIELDS, Appellant, v. HOBART et al

Supreme Court of Missouri

March 4, 1903

Appeal from Greene Circuit Court. -- Hon. Jas. T. Neville, Judge.

Reversed (with directions).

Heffernan & Heffernan and Wm. G. Pettus for appellant.

(1) The defendants Byron F. Hobart and the estate of J. S. Ambrose deceased, can not maintain their set-offs as against their liability to plaintiff as unpaid stockholders to the Real Estate Investment Company for the following reasons: (a) There can be no set-off unless the debts are mutual and in the same right. Sawyer v. Hoag, 17 Wall. 622; Story's Eq. Jur. (11 Ed.), 1436, 1437. (b) The statutory individual liability of a stockholder is not a debt due by him to the company; forms no part of the assets of the company, but is a supplemental or superadded security for the benefit of creditors. Thompson, Liability of Stockholders secs. 342-386; Hanson v. Donkersley, 37 Mich. 184. The liability of a stockholder for unpaid stock is in the nature of a guaranty or a superadded security, flowing directly from the stockholder to the creditors. Hence, there is no mutuality between such a liability and the debt due by the corporation to the stockholder. Black & Co's Case, L R. 8 Ch. 261; Baker v. Atlas Bank, 9 Metc. 197. "Nothing is a specialty but a writing under seal." Thornton v. Lane, 11 Ga. 502; Shickle v. Watts, 94 Mo. 410; Alberger v. Bank, 123 Mo. 319. "Where the dissolution of a corporation sufficiently appears aliunde, it is not necessary to obtain a judgment dissolving the corporation before proceeding under the statute against a stockholder." Shickle v. Watts, 94 Mo. 411; Roan v. Winn, 93 Mo. 503; Wood v. Davidson, 89 Mo. 445; Bent v. Priest, 86 Mo. 475; La Grange Stc. Co. v. Bank, 122 Mo. 154; Suddath v. Gallagher, 126 Mo. 401; Foster v. Planing M. Co., 92 Mo. 79. While the directors of a corporation do not sustain the strict relations of trustees for its creditors, yet their duties to them and their relations to the corporation itself are such as impose upon them some of the obligations of trustees. In dealing with the corporation they deal with themselves. They should, therefore, be required, in case they give themselves a preference over other creditors, to show that all their secured debts are fair, honest and justly due them. This burden properly rests upon them. Schufeldt v. Smith, 131 Mo. 290; Thompson, Liability of Stockholders, secs. 342-386; Hanson v. Donkersley, supra. (2) A pledge of corporate assets by directors "will be scrutinized by a court of equity with the most rigorous and zealous observation." Chouteau v. Allen, 70 Mo. 338. The president of the corporation will not be permitted to create such a relation between himself and the trust property as will make his own interest antagonistic to that of his beneficiary. Brewster v. Stratsman, 4 Mo.App. 41; McAllen v. Woalcock, 60 Mo. 174; Wait on Insolvent Corp., sec. 641. Nor can directors contract with themselves to sell property to the corporation upon terms to be fixed by them as directors. Wait, sec. 641; Coleman v. Railroad, 38 N.Y. 201; Butts v. Wood, 37 N.Y. 317; Wait, 642-644; Parker v. Nicherson, 112 Mass. 196; Bent v. Priest, 10 Mo.App. 557. Shares must be paid up in full. Morawetz, sec. 589. When the overvaluation is so great that the fraudulent intent appears on its face and is not explained, the court will hold it to be fraudulent as a matter of law. Cook on Stock and Stockholders, sec. 47; Douglas v. Ireland, 73 N.Y. 104; Boynton v. Andrews, 63 N.Y. 93; Osgood v. King, 42 Iowa 478; Schenk v. Andrews, 25 N.Y. 113; Van Cleve v. Berkey, 143 Mo. 109. Where persons purchase land with the view of organizing a corporation to purchase it of them, then organize such a corporation and sell the land to it at a price in advance of what they gave for it, they are bound to restore to the corporation the difference between the price paid by them for the land and the price at which they sold it to the corporation. Simons v. Vulcan Oil & Mining Co., 61 Pa. St. 202; Thompson, Liability of Officers, p. 172; McElheny's Appeal, 61 Pa. St. 188; Wait on Insolvent Corporations, secs. 639, 641, 642, 644. A director of a corporation is a trustee of the corporation and is chargeable with all profits secretly made out of the trust relation. Bent v. Priest, 10 Mo.App. 557; Seehorn v. Hall, 130 Mo. 261; Land Co. v. Case, 104 Mo. 572. The capital stock of a corporation, which is subject to the operation of this rule, consists of all the stock for which the members have subscribed. Adler v. Milwaukee Patent Brick Co., 13 Wis. 57; Hightower v. Thornton, 8 Ga. 436; Briggs v. Penniman, 8 Cow. 387; Allen v. Railroad, 2 Ala. 437; Slee v. Bloom, 19 Johns. 456; Wood v. Dummer, 3 Mason 308; Mann v. Pentz, 3 N.Y. 422; Payne v. Bullard, 23 Miss. 90. The corporation had no authority to borrow money to declare dividends. R. S. 1889, sec. 2773; R. S. 1889, secs. 2515-2773. Dividends can not be paid out of the capital stock. It is a favorite doctrine of the American courts that the capital stock and other property of a corporation is to be deemed a trust fund for the payment of all the debts of a corporation; so that the creditors have a lien or right of priority of payment on it in preference to any of the stockholders of the corporation. Thompson on Liability of Stockholders, sec. 10; Story's Equity Jurisprudence, sec. 1252; Wood v. Dummer, 3 Mason 308; Vose v. Grant, 15 Mass. 505; Spear v. Grant, 16 Mass. 15; Baker v. Bank, Metc. 192; Mumma v. Potomac Co., 8 Pet. 286; Curran v. Arkansas, 15 How. 304; Tarbell v. Page, 24 Ill. 46; Ogilvie v. Ins. Co., 22 How. 387; Payson v. Stoever, 2 Dill 431; Sawyer v. Hoag, 17 Wall. 610; Burke v. Smith, 16 Wall. 390; New Albany v. Burke. 2 Wall. 96; Hightower v. Thornton, 8 Ga. 486; Robinson v. Carey, 8 Ga. 530; Reid v. Eatontor Co., 40 Ga. 102; Slee v. Bloom, 19 Johns. 456; Briggs v. Penniman, 8 Cow. 395; Mann v. Pentz, 3 N.Y. 422; Hard v. Tallmann, 60 Barb. 272; Bank v. Powers, 25 Ala. 612; Curry v. Woodward, 53 Ala. 375; Smith v. Huckabee, 53 Ala. 195; Paschall v. Mitsett, 2 Ala. 472; Allen v. Railroad, 2 Ala. 437; Adler v. Milwaukee Patent Brick Co., 13 Wis. 57; Bassett v. St. Albans Hotel Co., 2 Ohio 274; s. c., 13 Ohio 197; Henry v. Vermilion Co., 17 Ohio 187; Mass v. Burroughs, 1 Woods 467; Payne v. Bullard, 23 Miss. 90; Tinkham v. Borst, 31 Barb. 407. The balance unpaid on subscription to stock is a trust fund in the hands of stockholders, for the payment of debts. Cornell's App., 5 Cent. Rep. 181; 114 Pa. 153; 139 U.S. 229; Upton v. Triblicock, 91 U.S. 45; Currier v. Lebanon Slate Co., 56 N.H. 262; Osgood v. King, 42 Iowa 478; Melin v. Ins. Co., 80 Ill. 446. The trust can not be defeated by any device short of an actual payment in good faith. Sawyer v. Hoag, 84 U.S. 17; Boynton v. Hatch, 47 N.Y. 225; Schaeffer v. Ins. Co., 46 Mo. 248; Patnan v. New Albany, 4 Bliss. 365; Re Baglan Hall Colliery Co., L. R. 5 Ch. 346; Guest v. Worcester, B. & S. R. Co., L. R. 4 Q. B. 9. The spoliation of the corporation books raises a presumption against him who destroys them. Drosten v. Mueller, 103 Mo. 624; 1 Greenleaf, Evidence, secs. 31, 37; Wharton on Evidence, sec. 1264. Defendant Hobart was charged with the knowledge of the destruction of the corporation books, was in the courtroom all the time during the trial, and heard the charges. His failure to go on the witness stand to deny complicity or explain, carries with it the usual unfavorable and damaging presumptions. Ins. Co. v. Smith, 117 Mo. 294; Henderson v. Henderson, 55 Mo. 534; Cass Co. v. Green, 66 Mo. 498; Goldsby v. Johnson, 82 Mo. 602; Leeper v. Bates, 85 Mo. 224; Mabory v. McClurg, 74 Mo. 575.

Benj. U. Massey for respondent Bigbee.

(1) The debts contracted by the Real Estate Investment Company, for which the notes, signed by the company and indorsed by Ambrose and Hobart, were given, arose out of bona fide business transactions. They were incurred in the legitimate conduct of the business of the company. If attacked for fraud, the facts constituting that fraud, must be specifically stated in the petition, and must be clearly proven at the trial; no mere presumptions are permitted. Kitchens v. Railroad, 69 Mo. 229; Alberger v. Bank, 123 Mo. 313; Milling Co. v. Commission Co., 128 Mo. 473; Schufeldt v. Smith, 131 Mo. 280. (2) These note debts of the Real Estate Investment Company which were paid by Ambrose and Hobart, by reason of their indorsement thereon, can be set off by them, in this suit against the claim of plaintiff Shields. The payment of these notes of the company by Ambrose and Hobart by reason of their said indorsement, could have been pleaded by them, as a set-off in a direct suit of the corporation against them, and therefore this plea is good in this suit against Shields, a corporation creditor. Reed v. Bott, 100 Mo. 62; Bank v. Worthington, 104 Mo. 91; Bank v. Bank, 130 Mo. 155.

Adiel Sherwood for respondents in Division Two.

(1) The judgment in No. 9408 should be affirmed because: (a) When defendant Hobart paid the notes of the Real Estate Investment Company due the Bank of Springfield, H. B. Louderman and John Thoms upon which he was indorser, and to which were attached real estate notes of said investment company secured by deeds of trust, he became entitled to enforce said deeds of trust for the purpose of reimbursing himself as far as possible. The same result followed when defendant Hobart joined with Ambrose in his lifetime and with defendant Bigbee administrator, afterwards, in paying the notes of said investment company due Laclede Bank, St. Louis, Commercial Bank and Springfield Savings Bank at Springfield, and $ 4,100 due W. D. Sheppard, and other notes upon which Hobart and Ambrose were indorsers and to which deeds of trust...