Meir v. Crossley

The Missouri-Midwest Oil Company by contract gave to one Riley the exclusive right to market its stock. He was to sell it on a commission basis of twenty per cent. For the purpose of inducing the public to buy the stock, Riley and the brokers employed by him got out and circulated a prospectus which contained statements with reference to the assets of the corporation which were not only extravagant but false. Plaintiff being misled thereby, as he alleges, invested $15,000 in the stock which he eventually lost. Defendants constituted the board of directors of the corporation. They did not actually participate in the fraud, nor did they have any knowledge thereof at the time of its perpetration, or at the time of its intended perpetration. The evidence does not connect them with it in any way, directly or indirectly. The corporation's stock-sales agents and the corporation itself are no doubt liable for the loss sustained by plaintiff. In this action, however, plaintiff seeks to fasten liability for the actions of the corporation and its agents upon defendants, who he contends were partners because of some vice in the organization of the corporation.

So far as the evidence discloses the Missouri-Midwest Oil Company was a corporation de jure of the State of Delaware, and had fully complied with the laws of the State of Kansas where it was transacting the business for which it was incorporated. The principal contention, however, is that the corporation was fraudulent within the implications of Section 9792, Revised Statutes 1919, which declares that a corporation "organized under the laws of a foreign state by citizens and residents of Missouri for the purpose of avoiding the laws of this state . . . would be a fraud upon the laws of both states, and its pretended incorporators would be held as partners." There are at least two reasons why this contention must fail. First, the evidence on the part of the plaintiff affirmatively shows that the defendants had nothing whatever to do with organizing the corporation, or causing it to be organized. They became stockholders and directors after the charter was obtained. Prior to that time they had not participated in any way, either directly or indirectly, in its promotion or organization. Second, there was no substantial evidence that the corporation was organized under the laws of Delaware "for the purpose of avoiding the laws of this State." It is difficult to understand how a purpose to avoid the laws of Missouri could have existed when the promoters of the corporation did not intend that it should transact the business for which it was incorporated in this State, and it did not thereafter do so, as pointed out in the principal opinion.

Regardless of the statute just referred to, however, the law does not permit a fraud feasor to hide behind a corporate form. Where a corporation is formed for the purpose of accomplishing a fraud or other illegal act under the guise of the fiction that a corporation is a legal entity, separate and distinct from its members, the fiction will be disregarded and the actions of the real parties dealt with as though no corporation had been formed. Such was the holding in substance in Booth v. Scott, 276 Mo. 1. In this case there was no substantial evidence that the corporation was promoted or organized for a fraudulent purpose. And there was no evidence at all that defendants, when they bought stock and become members of the board of directors, were cognizant of any fraudulent purpose on the part of the original promoters of the corporation, if any existed, or that they entertained any such purpose themselves. So far as the record discloses they were actuated by the utmost good faith, throughout their entire connection with the corporation, in their efforts to finance it and direct its activities in the prosecution of an honest and legitimate business.

For the reasons indicated I concur in reversing the judgment of the trial court. Graves, J., and Blair, P.J., concur.