Scott v. Barton , 285 Mo. 427 ( 1920 )

There are two of these cases, Nos. 20157 and 20158, which have been consolidated by the parties, and only one, No. 20158, has been abstracted and briefed. What is said in this case applies also to the other.

The action is in equity and seeks to enforce the collection from defendants of a judgment in favor of plaintiffs of $117,303.35. Plaintiff's bill was dismissed by the court below "without prejudice" and plaintiffs duly appealed to this court.

The case of Scott v. Luehrmann, 278 Mo. 638, decided by Court in Banc, adjudicates all of the points in issue here. That case was dismissed by the lower court, appealed here, and reversed and remanded to the lower court with directions to proceed in conformity with said opinion. Since the facts of that case and of the instant case are the same with the exception below noted, we deem them important to the present case and therefore, set them out, as follows:

"The consummation between the parties hereto was a judgment in favor of plaintiffs for $117,303.35 and against defendants. The petition avers that returns nulla bona were made on two executions; that the corporate defendant (Parkview Realty Improvement Co.) is wholly insolvent, except the amount due it from subscribers to its stock who have obtained same without paying therefor. The plan of the incorporation of the company is then set out, showing that it gave to each purchaser of its second mortgage bonds a certain proportion of common stock (3½ for 1). That its whole capitalization is based on taking over about 300 acres of real estate heavily encumbered, at a fictitious value over and above what was paid for it by the purchasing agents; that this device of the corporation was carried out by the issuance of $5,500,000, par value, of shares paid for by real estate mortgage for $3,500,000, that said mortgage represented the funds in the acquisition of the lands and the extinguishment of all prior incumbrances thereon.

"The defendants answered by a general denial, and that plaintiffs had knowledge of the method of capitalization and had themselves purchased some bonds of said corporation and knew its capital stock had not been paid for in money; that plaintiffs had brought six suits when one would have been sufficient had all necessary parties been joined in the action. The reply was a general denial."

Plaintiffs have pleaded in this case, in addition to what was pleaded in the other, the names and respective amounts due and unpaid to the corporation on stock purchased by its stockholders, viz: R.L. Barton, $17,500; H.C. Zelle, $87,500; C.B. Smith, $3,500; George F. Haid, $10,500; W.C. Waldeck, $17,500; Emanuel Waldeck, $3,500; C.G. Waldeck, $7,000; Ernest B. Filsinger, $3,500; A.A.B. Woerheide, $437,500; Julius C. Garrell, $175,000; Charles Hamilton, $35,000; O.J. McCawley, $17,500; H.E. Sprague, $7,000; Nannie B. Sherlock, $3,500; George P. Potee, $17,500; E.H. Exrler, $87,500; A.L. Abbott, $3,500; Joseph M. Brown, $17,500; F.W. Wrieden, $17,500; G.M. Telle, $17,500; George A. Held, $35,000; G.F.A. Breuggemann, $7,000; Rebecca Harris, $10,500; William E. Hall, $35,000; Ben Altheimer, $87,500; Ada Blanch Blake, $87,500; O.E. Forster, $29,166; and H.C. Stifel, $29,166. These constitute the defendants sued herein.

The facts will be further referred to when deemed necessary.

I. A creditor who has obtained judgment against a corporation, upon return of executions nulla bona, may proceed against the holders of unpaid stock to enforce the payment of such judgment. [14 C.J. p. 383, par. 505; 10 Cyc. 725-731; Meyer v.Unpaid Min. Mill. Co., 192 Mo. 162; County v. Allen, 103Stock: U.S. 498; Richardson v. Green, 133 U.S. 30; Hatch v.Judgment. Dana, 101 U.S. 205; Shickle v. Watts, 94 Mo. 410.]

And the judgment against the corporation is conclusive on the stockholders. [Nichols v. Stevens, 123 Mo. 96; Johnson v. Stebbins-Thompson Co., 177 Mo. 581; 5 R.C.L. p. 949, sec. 429; 24 Cyc. 765, sec. 5; Nave v. Adams, 107 Mo. 414.]

II. There is no doubt that the creditor of a corporation who knew when he became such that its shares of stock had been issued to the subscribers therefor without the payment of money or money's worth, cannot enforce his claim against theCreditor's shareholders to the extent of their indebtedness forKnowledge. the stock issued to them. The question of plaintiffs' knowledge, therefore, becomes a vital one.

Referring again to the facts in the Scott v. Luehrmann case, supra, we find the question of plaintiff's knowledge of the above facts at the time he became a creditor of the Parkview Realty Improvement Co. was ruled adversely to respondents' contention that appellants had such knowledge. Mr. Pitzman, chief engineer in charge of the work and who is alleged to have put plaintiffs in possession of the above facts, did not testify in the instant case, although he did testify in the Luehrmann case, and it was ruled therein that his testimony was insufficient for the purpose of establishing knowledge on the part of the appellants. Respondents offered two witnesses in the case in hand, Otto Schmitz and Edward J. Brose. Schmitz testified as follows:

"My occupation is that of civil engineer and surveyor. Have been connected with Pitzman Company of surveyors and engineers since its organization in 1893, and am its vice-president. I have known the Scotts for about fifteen years. I was familiar with the Parkview project and the grading contracts. My desk at the office was next to that of Mr. Pitzman, who was the chief engineer in charge of the work and who conferred with the several bidders on the same. I distinctly remember Mr. Edward Scott coming into the office before the grading contract was let, and having a conversation with Mr. Pitzman about the contract and the way in which the Parkview Company was organized. Mr. Pitzman had on his desk a pamphlet containing the printed syndicate agreement, and he used this in explaining to Mr. Scott the manner in which the company was financed, speaking of bonds and shares to be issued. While I cannot now give the words that were spoken, I know it was about underwriting bonds and stocks."

Brose testified as follows:

"I was connected with the Pitzman Company as a surveyor since 1895. I knew both Edward and John Scott, and remembered that Edward Scott came to Mr. Pitzman's office several times before the letting of the contract for grading the Parkview tract. I remember hearing Mr. Pitzman, on one occasion, before they had the contract, talk to Edward Scott about the organization of the Parkview Company, and the manner in which the bonds and shares were to be issued, but it is too long ago for me to give the exact conversation now."

John R. Scott, a member of the firm of Edward J. Scott Sons, testified as follows:

"The first time the matter of the financial responsibility of the Parkview Company or the question of its bonds or stocks came up for discussion to my knowledge, was in January, 1904, when the question of making a settlement with the company was under consideration. At that time I and my attorney went to Mr. Rule, the secretary of the company, and told him he wanted to know about how the capital stock of the company had been paid up. Mr. Rule refused to give us any information about it or to discuss the matter. I never saw this underwriting agreement which has been read in evidence before we brought this suit against the stockholders of the Parkview Company."

Edward J. Scott testified that "he was a member of said firm, and made the financial arrangements respecting the contract for said Parkview Company grading on February 12, 1902; that he had no knowledge as to the financial condition of the Parkview Company or the way it was organized; that he had never seen said underwriting agreement and did not see it until these stock suits were brought. Mr. Pitzman did not tell me anything about the organization of the Parkview Company or its stocks or bonds or financial condition prior to the signing of that contract. No such question ever came up until after the work was completed, nor did I have any idea of the value of the property out in that neighborhood."

The foregoing presented a question of fact for the chancellor below to determine, and the burden of proving the affirmative of the proposition was on respondents who had pleaded it as a defense to the action.

We agree with respondents that this being an equity suit it is to be tried here de novo, as held in the case of Gibson v. Shull, 251 Mo. l.c. 485, but the question of how far we will defer to the finding of the chancellor below is quite another matter, as shown by the following on the same page: "In other words, whilst we look upon the finding in the lower court as persuasive, we do not allow it to be binding, unless our minds run with the chancellor below on the facts, or unless the facts are conflicting and close and we yield to his judgment because of his better position to judge of the credibility of the respective witnesses."

We must, therefore, resort to the facts to ascertain whether or not appellants, at the time of making the contract to do the grading, had knowledge of how the Parkview Company was organized, its financial condition and how its capital stock had been paid up.

Keeping in view the fact that respondents carried the laboring oar in making this proof by a fair preponderance of all the evidence relating thereto, we think the testimony insufficient to accomplish that end. It was wholly lacking in definiteness and certainty as to any facts — it was the conclusion of the witnesses. Under the above authority it does not justify us in following the finding of the chancellor below, and we decline to do so.

III. As to respondents' contention that appellants split their cause of action by bringing more than one suit in which, they say, all matters in dispute could have been adjusted and on account thereof it becomes impossible for the court to adjudge contributions among the interested parties, we cannot agree. Appellants were not compelled to sue all of the interested parties; the obligation was not a joint one; noSplitting particular stockholder was liable for the payment ofCause of what another stockholder owed, hence appellants couldAction. sue such as they desired. Respondents could have, had they so desired, brought in as parties to the action all of the interested parties so that contribution could be adjudged among them, but we think the responsibility to pursue this course rested upon them. [Hatch v. Dana, 101 U.S. 205; Olgilvie v. Ins. Co., 22 Howard, (U.S.) 380; Terry v. Tubman,92 U.S. 156; Sec. 3004, R.S. 1909; Steam Cutter Co. v. Scott,157 Mo. 520, l.c. 525; Guerney v. Moore, 131 Mo. 650, l.c. 667; State Savings Assn. v. Kellogg, 63 Mo. 540; Perry v. Turner,55 Mo. 418.

IV. The contention made by respondents that appellants had sold all their right, title and interest in said judgment prior to bringing the present action has been adjudicated adversely to said contention in the case of Scott v. ParkviewRes Adjudicata. Realty Improvement Co., 255 Mo. 76. We hold that respondents are precluded from further raising that question.

So, also, respondents contention that appellants became a party to the syndicate agreement and thereafter were bound by its provisions because of the purchase by them of $5,000 worth of second mortgage bonds for which they were to receive $17,500 of face-value common stock of said Parkview Company, has been adjudicated adversely to respondents in said case of Scott v. Luehrmann, 278 Mo. 638. We rule the contention against respondents.

V. A stock liability upon the part of respondents is fairly established by the fact that they acquired $3,500,000 of the common stock of the corporation for $1,000,00 of second mortgage bonds; that is, three and one-half shares ofBonus. common stock were given for one share of said mortgage bonds — clearly a bonus for which the corporation received nothing. This plan was to aid the sale of said second mortgage bonds [Scott v. Realty Imp. Company, 255 Mo. l.c. 93-94.]

VI. The opinion in the Luehrmann case, supra, is alleged to be in conflict with a number of cases decided by this court and cited in respondent's brief. If it is, which we do not decide, it is the latest expression of our Court in Banc upon theStare questions therein discussed and we think they wereDecisis. correctly decided.

VII. We have given attention to other matters argued in the briefs filed, but we think what is herein said sufficiently covers the case.

We think the petition states a cause of action and that the testimony is ample to support a judgment and decree in favor of appellants.

It results, therefore, that the decree and judgment of the lower court will be reversed and remanded with directions that said respondents be adjudged to account for the amounts due by them respectively on account of unpaid stock of said Parkview Realty Improvement Company, and that they be adjudged, ordered and decreed to pay appellants said judgment, with interest and costs; and if any defendant be insolvent or without sufficient property subject to execution out of which he ought to pay, that the other defendants be adjudged, ordered and decreed to make up such deficiency in accordance with their respective liabilities.

It is so ordered. White, C., concurs; Railey, C., not sitting.