Scott v. Luehrmann , 278 Mo. 638 ( 1919 )

BOND, C. J.

The petition alleges that plaintiffs recovered judgment against the Parkview Realty & Improvement Company on July 8, 1912, for $117,303.35. This judgment was the consummation of litigation between said parties, heard twice on appeal in this court (241 Mo. 112; 255 Mo. 76).

The petition further states that returns nulla bona were made on two executions under said judgment; that the corporate defendant in said judgment is wholly insolvent, except the amount due to it from subscribers to its stock who have obtained the same without payment therefor The plan of the incorporation of the company is then set out, showing that it gave to each purchaser of its bonds a certain proportion of common stock as a bonus; that its whole capitalization was based upon the taking over of said real estate; heavily incumbered, at a fictitious valuation 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 mortgaged for $3,500,000; that said mortgage represented the funds used in the acquisition Oof the land and the extinguishment of all prior incumbrances thereon.

The petition further alleges that the defendants in this case were allotted shares of stock for which they owed the corporation, in the aggregate, $52,500, and for which they paid nothing. Plaintiffs prayed for an accounting by defendants and the application of this amount to the payment of their judgment and costs.

Defendants answered by a general denial and that plaintiffs had knowledge of the method of capitalization of the corporation; that plaintiffs themselves had purchased a'bond of said corporation and knew its capital stock had not been paid in money; that plaintiffs had brought six suits to enforce their judgment, when one would have been sufficient, and had not made necessary parties to the present action; that .if defendants are held liable by the court, then others similarly situated are liable and should be made parties; that plaintiffs have no longer any personal interest in said suit, but are representing a committee or syndicate who have agreed to pay plaintiffs a part or all of their judgment and costs; that if defendants are held liable, then all the persons so agreeing with plaintiffs should be held liable also and brought into prorate.

The reply was a general denial.

Upon a hearing the trial court, sitting as a chancellor, dismissed plaintiffs’ bill, from which they have duly appealed..

I. The substance of the allegations of plaintiffs’ petition were sustained by the evidence adduced on the hearing. The petition stated a cause of action, hence plaintiffs are entitled to recover unless some one (or more) of the affirmative defenses set up in the answer is sustained by the preponderance of the evidence, and is also sufficient in law to prevent a recovery.

After the obtention of their judgment, the plaintiffs began suits, similar to the present, to enforce it against the stockholders of the defendant corporation, who were indebted for stock allotted to them. Thereupon a number of stockholders entered into an agreement to put $160,000 in the hands of the Mercantile Trust Company as trustee, to be held for the purpose of defending the suits instituted by plaintiffs and discharging any judgments that might be recovered. A committee of the body thus formed purchased the judgment which plaintiffs sued on and took an assignment in blank of the same, on December 16, 1914. No substitution of parties was made and the cause proceeded in the name of the original plaintiffs. [E. S. 1909, see. 1924.]

In speaking of this assignment Mr. Collins, after having produced the assignment and the agreement under which the money was put in the hands of the trustee for the purposes expressed therein, said: “Part of the money deposited was paid over to the Scotts in consideration of the assignment of the judgment for the benefit of the parties who subscribed to this contract. After this agreement was executed, a committee consisting of Mr. Wright, Mr. Skinner and Mr. Carter, bought from the plaintiffs their judgment and got an assignment of it. There never was any intention and it was never contemplated in any way that there was a satisfaction of the judgment, because the very purpose of the agreement was to give these parties who had provided the fund the right to enforce contribution from the others who had refused to come in.”

This assignment of the judgment (after -the bringing of the present suit, to other stockholders of the defendant corporation who were subject to suit by any creditor of the insolvent corporation), was brought home to the actual knowledge of the defendants in this action, who did not, however, by appropriate pleadings in the way of counterclaim or cross-bill, bring in any other stockholders whom they could require to contribute; neither did they pray for the substitution of the purchasers of the assigned judgment, to the end that there might be an equitable accounting and contribution on the part of such purchasers in the payment of this established indebtedness against the corporation. [Hatch v. Dana, 101 U. S. 205.] In this state of the pleadings the only question, therefore, is whether or not the assignment of the judgment in the circumstances shown on the trial, precluded the original plaintiffs from further prosecution of this 'action. Under our statute it did not. Hence, whatever may. be the equities inter sese between defendants and the plaintiffs who have acquired the beneficial ownership of the judgment sued on as to any accounting or contributing among themselves, no such matters were brought within the cognizance of the court on the present trial and were not dealt with or attempted to be adjudged. Having been left out of the pleadings, they were necessarily excluded from the view of the court in rendering its decree. [Wilson v. Wilson, 255 Mo. l. c. 537, 538, et cases cited.]

Defendants, however, invoke the rule of law that no creditor of a corporation who knows whén he becomes such, that its shares of stock have been issued to the subscribers therefor -without payment of money or money’s worth, can enforce his claim (upon default of payment by the corporation) against such shareholders to the extent of their indebtedness for the stock issued to them. There is no question as to the correctness of this equitable principle. [Biggs v. Westen, 248 Mo. 345.] However, as to this charge of knowledge, the testimony of the Scotts was, in effect, that they knew nothing whatever of the plan of the capitalization of the defendant corporation. One of them, among other things, said: “I made no inquiry as to the ability of the company to pay for the work under the contract, because I knew the company was composed of the Lincoln Trust Company group, and that Mr. Pitzman, was handling the job, and that was to me sufficient guaranty that it was all right.”

The witness relied on by defendants to bring home knowledge to plaintiffs was Mr. Pitzman, who advertised the bid for grading work and who received plaintiffs ’ hid, to whom the contract was let on February 12, 1902. This witness said: “I don’t know whether the plaintiffs asked me anything with reference to the manner in which the Parkview Company had been organized and the way its capital stock was paid up, but I make it a rule as a general thing to.tell every contractor who bids whether the parties letting the work are responsible or not and how they are organized. I think I did this in this instance. It is many years ago, but as far as I recollect, I did tell Ed Scott. I think I told him how the company was organized. I will not say positively that I remember saying anything to him about that.” He stated further that he told Mr. Scott that the property had been bought at a high price and that he had before him on his table one of the agreements for the subscriptions for the second mortgage bonds when Mr. Scott came into the office, adding further: “I explained to him that I did not think that there would be any doubt about the money being ready for the grading contract, because of the responsibility of the parties that signed the second mortgage bonds subscriptions. I cannot tell whether I showed him that paper or not.”

The contrary tendency of the statements of these witnesses presented, at mflst, an issue of fact, as to which we do not find a preponderance in favor of the affirmative defense of knowledge on the part of plaintiffs of tEe scheme of capitalization devised by the corporation.

Neither does the purchase of one of the company’s bonds carrying a bonus of common stock, impute knowledge to the Scotts, for the evidence is clear that this was made after the corporation had made the grading contract creating an indebtedness on its part to the Scotts. In that event the Scotts would not be prejudiced in the enforcement of any indebtedness accruing under their prior contract; for such subsequent knowledge does not tend to negative their reliance upon the presumption that the corporation was legally organized and its shares of stock had been issued for money or money’s worth at the time of its prior contract Avith them. [Rogers v. Mining Co., 185 Mo. App. l. c. 675; Guerney v. Moore, 131 Mo. l. c. 671; Coleman v. Hagey, 252 Mo. l. c. 146; Trust Co. v. McMillan, 188 Mo. l. c. 567.]

It is an elementary rule that courts of equity are powerless to administer redress beyond the legitimate scope of the pleadings of the parties. [Newham v. Kenton, 79 Mo. 382; ‘Whiting v. Land & Sheep Co., 265 Mo. l. c. 382 et cases cited.] In the present case the defendants wholly failed, either by allegations in their pleadings, or in any other mode, to invoke or secure redress as against the beneficial owners of the judgment or any other stockholders occupying a similar status with the defendants. Upon the issue joined and the proof adduced at the hearing, the decree of the trial court dismissing plaintiffs’ suit was manifestly erroneous.

It is therefore reversed and the cause remanded for further proceedihgs not inconsistent with this opinion. It is so ordered.

PER CURIAM:

The foregoing opinion of Bond, C. J., in Division is adopted as the opinion of Court in Banc.

All concur (Faris, J., in result) except Graves, J., who dissents.