Van Cleve v. Berkey

• Decision Date: 29 January 1898
• Citation: 44 S.W. 743,143 Mo. 109
• Parties: VAN CLEVE et al. v. BERKEY et al.
• Court: Missouri Supreme Court

44 S.W. 743

143 Mo. 109

VAN CLEVE et al. v. BERKEY et al.

Supreme Court of Missouri.

January 29, 1898.

CORPORATIONS — LIABILITY OF STOCKHOLDERS.

Const. 1875, art. 12, § 8, and Rev. St. 1889, § 2499, prohibit the issue of corporate stock or bonds, except for money paid or property actually received, and invalidate any fictitious increase of stocks or indebtedness. Rev. St. 1889, §§ 2517, 2519, provide a remedy by which any unpaid balance of capital stock may be subjected to the payment of unpaid corporate debts. Held, that where fully paid up and non-assessable stock was issued in consideration of an agreement to transfer to the corporation a worthless invention, and whatever patent might be obtained thereon, assignees taking such stock with full knowledge of the facts are liable to parties who became creditors in good faith that the stock was fully paid up, though no actual fraudulent intent on the part of the corporation or its stockholders is shown.

In banc. Appeal from St. Louis circuit court; Jacob Klein, Judge.

Proceeding in equity by J. B. Van Cleve and others against Alfred Berkey and others. From a judgment for plaintiffs, defendants A. K. Bretelle and F. W. Dustin appeal. Affirmed.

Wm. B. Thompson, for appellants. Frank E. Richey and J. L. Secor, for respondents.

BRACE, J.

This is a proceeding in equity in behalf of various judgment creditors of the Braun Machine Manufacturing Company against that company and the other defendants, who are stockholders therein, whereby it is sought to charge the individual defendants, as the owners of unpaid stock in said corporation, with a sum sufficient to pay the several judgments of the plaintiffs remaining unpaid. The corporation was formed under the laws of the state of Illinois, and was to have a capital of $100,000, which was subscribed by the parties in interest as follows: William F. Braun, $90,000; Alfred Berkey, $2,000; Solomon L. Cohen, $2,000; Meyer Jacoby, $2,000; Edwin Massa, $2,000; Nelson G. Ziebold $1,000; Louis Lesaulmies, $1,000, — to whom the full amount of stock, as subscribed, was issued as full paid and non-assessable; the consideration paid therefor being a transfer (or an agreement on the part of said Braun to transfer) to the company of an invention of his, for an improved process of manufacturing flour, for which he claimed to have a French patent, and for which application had been made for a United States patent. The trial court held that such transfer was not full payment for said stock, and charged the defendants as holders of unpaid stock. From the judgment of the circuit court, two of the defendants, Dustin and Bretelle, who were not original subscribers, but purchasers of stock soon after its organization, appeal. Their counsel have kindly inserted in their brief the opinion of the learned judge who tried the case below, the following extracts from which contain a fair statement of the case, with his rulings. Judge Klein says: "The essential facts shown by the evidence are these: One William F. Braun, claiming to be the inventor of a valuable improvement in the manufacture of flour, and claiming to have obtained a patent on his invention from the French government, induced the defendants Berkey, Cohen, Jacoby, and Massa, and the other subscribers to the capital stock of the corporation, above named, who are made defendants in the bill, but who have not been served with process, and are therefore not in court to interest themselves in the matter, and doubtless also induced them to believe that the invention which he claimed to have made was of the greatest value, and would revolutionize the whole milling business of the world. He seems to have been impecunious himself, but to have had great powers of persuasion; and, as a result of a number of interviews, the parties named agreed to form a corporation under the laws of Illinois, with a capital of $100,000, which was subscribed by the parties above named in the proportions above stated. It is not clear from the evidence whether the original arrangement made between Braun and these parties was to the effect that they should severally become interested in the invention itself prior to its transfer to the corporation to be formed, or whether the invention was to be turned over to the corporation by Braun in payment of the shares of stock subscribed by him, and that the other subscribers should contribute certain sums of money to be used in procuring a patent upon the invention in the United States, and as a sort of working capital for the corporation; but it does not seem important to the court which of these two views that may be taken of the evidence is the correct one. The testimony of the defendants who have testified in the case with relation to that matter is extremely unsatisfactory, and it is not the fault of any of the plaintiffs that all of the books and records of this corporation have been lost, which seems to be the fact. It is quite evident from the evidence that no money was paid into the treasury of the company by any of the parties, except the small sums paid respectively by the subscribers, either upon their shares of stock, or for their interests in the supposed invention which was to be turned over to the corporation; and the evidence is extremely unsatisfactory as to what was actually done towards turning over to the corporation, or to any one for it, the invention itself. * * * It is, however, perfectly clear from the evidence that the invention which Braun claimed he had made never materialized into anything substantial. He seems to have been engaged for a long time in the construction of a machine according to his plans, and involving his invention, and the debts of the several plaintiffs seem to have arisen out of his attempt to manufacture the machine. Aside from the witness Putnam, who seems to have seen the plans and drawings of the invention which Braun claimed to have made, no one was called to whom the same were submitted; and the testimony of Mr. Putnam is quite clear to the effect that the invention was of no value whatever, as the same was being embodied in the machine being made by Braun. The evidence shows that all of the defendants acted in good faith, so far as their actual intentions were concerned, and that none of them was moved by any actual fraudulent intent in the transaction. None of the original subscribers, however, are able to state how much money they actually advanced, either for their stock in the corporation, or for their interest in the invention, and the evidence satisfies the court that none of them advanced over ten per cent. of the amounts respectively subscribed by them for either purpose. From this, the fair and reasonable inference to be drawn is that they did not consider the invention to be worth the amount of money for which it was to be put into the corporation. They were evidently willing that Mr. Braun should have $90,000 of the capital stock of the corporation, and they were also willing — each of them — to pay in, for the purpose of obtaining a patent from the government of the United States on the supposed invention of Braun, and for the purpose of having a machine made, the small sums respectively paid by them; but they were not willing to advance the amount of money which they actually subscribed, and this is the strongest evidence in the case to show that they did not consider the invention to have the supposed value of $100,000. In point of fact, as the result shows, the whole matter was a mere speculation; and while the individual defendants doubtless were deceived by Braun, and gulled into the belief that they would become millionaires by investing two hundred dollars apiece in this enterprise, the court cannot regard such a transaction as amounting to a payment of the shares of stock which they respectively received in this corporation. Assuming that the invention, for which no patent was ever obtained in the United States, is to be regarded as property, and therefore as susceptible of having a value, it does not lie in the power of persons claiming to own an invention to put any value thereon that they please, and treat the invention as the equivalent of the value they have put thereon. Where the law permits subscribers to pay for stock by labor done or property actually received, it means that the corporation must receive in labor or property what it was reasonably worth in money. Corporations must own property for the purposes of their legitimate business, and, if a man contracts to take shares in the corporation, he must pay for them, to use a homely phrase, `in meal or in malt.' He must either pay in money or in money's worth. And it is the rule laid down by the supreme court of this state, which the learned referee seems to have overlooked, that the property or labor turned into the corporation as payment for shares of stock must be a fair, just, lawful, and needed equivalent for the money subscribed. Shickle v. Watts, 94 Mo. 410, 7 S. W. 274; Garrett v. Mining Co., 113 Mo. 330, 20 S. W. 965. The same view is the necessary result of the decision of the court of appeals in the case of Leucke v. Tredway, 45 Mo. App. 507, in which a transaction very similar to the one in this case was under consideration. * * * With respect to the defendants Dustin and Bretelle, the evidence shows that they were not original subscribers, but came into the corporation very early after its organization. It also appears that they had full knowledge of the fact that the only payment which had been made to the corporation for the capital stock was the intention on the part of the inventor, Braun, to turn over a patent which he might thereafter obtain to the corporation in payment of the capital stock. In such a case the mere fact that the certificates of stock recited that the shares were full paid and nonassessable is immaterial. They knew that the recital was untrue, and they took the shares of stock subject to the...