State Ex Rel. Gentry v. Bray

ON DEMURRER. This is an original action in the nature of an information byquo warranto brought by the State at the relation of the Attorney-General against the Monarch Transfer Storage Company and others, claiming to be directors thereof to oust the corporation from the exercise of such rights, privileges and franchises as it claims to possess, because of fraud practiced upon the State in the pretended increase of its capital stock. The information of the Attorney-General charges, in substance, that at the time of the issuance of the articles of incorporation to this company in 1915, there was not, nor has there been since any part of the capital stock of same actually paid up in lawful money of the United States, or its equivalent in property which might answer the purpose of money; and at the time of said increase of said capital stock from $15,000 to $150,000 as attempted to be effected in 1920; that no part of said increase was actually paid up in lawful money of the United States or its equivalent in property of the full value thereof which might serve its purpose as money in conducting its business as a corporation.

To this information the Monarch Transfer Storage Company and the individual defendants have filed a demurrer, as follows:

"1. That the information filed does not state facts sufficient to constitute a cause of action, in that it appears upon the face of the information and petition, that the relator's cause of action, if any accrued more than ten years before the commencement of the suit and was completely barred by the Statute of Limitations:

"2. That the information shows upon its face that the defendant Monarch Transfer Storage Company was issued a certificate of incorporation by the Secretary of State on April 1, 1915, and that the articles of incorporation had prior thereto been duly recorded in the office of the Recorder of Deeds setting out in detail money and property alleged to have been used to pay up the capital stock of the corporation and that the State is estopped because it has ever since said date acquiesced and continued to recognize the defendant as a corporation;

"3. That the information shows upon its face that the suit is to contest the validity of the corporation and that the information is against the corporation and board of directors, instead of the individuals or stockholders of said corporation, and is therefore a defect of the parties defendant;

"4. That it appears upon the face of the information that several causes of action have been improperly united in one suit."

I. The plea of the Statute of Limitations as a ground of demurrer in a case of this character can only be made when the statute creates an absolute bar by the mere lapse of time without any exception, if the necessary facts thereforLimitations. appear in the petition. [Knisely v. Leathe, 256 Mo. l.c. 341 and cases.] While "the necessary facts therefor" may appear so far as the allegation regarding the original incorporation in 1915 is concerned, if the demurrer be sustained as to this allegation enough remains to constitute a valid charge of an abuse of corporate franchise as to the fraudulent increase of capital stock in 1920. The gravamen of the information on which is based the ground of ouster, despite the superfluous paragraph in regard to the original improper incorporation in 1915, is the fraudulent increase of the capital stock in 1920. The demurrer is therefore not available as to this allegation. An illegal issue of stock by a corporation for less than par value or for property at an intentional and fraudulent overvaluation is a misuse of its powers and a ground for proceedings by the statute to forfeit its charter. [State ex inf. Attorney-General v. Hogan, 163 Mo. 43; Floyd v. State,177 Ala. 169; State v. Citizens' Light, etc., Co., 172 Ala. 232; People v. Leadville City Bank, 7 Colo. 226; State v. N.O. Deben Redemp. Co., 51 La. Ann. 1827, aff. 180 U.S. 320; People v. Larsen,265 Ill. 408.] Property listed as capital stock may be so overvalued as to constitute a fraud against the State and to invalidate the incorporation. This is what is charged to have been done in this case and it is sufficiently pleaded.

The second and third grounds of demurrer are what, in the terminology of the law, are designated as speaking demurrers, in that they allege affirmative matter which, taken with the allegations of the petition, shows no cause of action. Pleadings of this character are not recognized by our procedure. They are therefore worthless as raising any question as to the sufficiency of the information. The purpose of a demurrer is not to raise an issue of fact nor does it prove an allegation of same. [Bennett v. Lohman,292 Mo. 493; Pacific Lime Gypsum Co. v. Missouri Bridge Iron Co.,286 Mo. 112, 226 S.W. 853; Hubbard v. Slavens, 218 Mo. 598.]

As to the contention that there is a misjoinder of parties in the respondents named in the information. Eliminating the allegation as to the improper valuation of the capital stock under the original incorporation which is in effect a sustaining of the demurrer to this charge, there remains theMisjoinder. State's contention that the corporation has violated and abused its power in its pretended increase of capital stock in 1920. It is usually held in quo warranto proceedings to oust a corporation from the use of corporate franchises that the action should be brought against the individuals charged with the unlawful use or exercise of same instead of against the corporation, for the reason that a suit against the latter in its corporate name is in effect an admission of its corporate existence. The correctness of this rule in principle may be admitted where the exercise of the corporate franchise was wholly unauthorized from the beginning. When, however, there was originally a regular corporate organization and it is sought to enforce a forfeiture, or where it is merely sought to oust a corporation from the exercise of particular franchises unlawfully assumed, the proceedings must be against the corporation and not merely against its officers and stockholders. [State ex inf. Berkley, Pros-Atty., ex rel. McCormack. v. McClain, 187 Mo. 409; State ex inf. Atty-Gen. v. Fleming, 147 Mo. 1.]

The rule has been most tersely stated in Rex v. Amery, 2 Term R. 523, where in citing from Lord Hale's Com. Pl. Book it was quaintly said; "If quo warranto be brought for usurping to be a corporation, it should be brought against particular persons because in disaffirmance of the corporation; but if it be brought for liberties claimed by a corporation it must be brought against the corporation itself." [Cited in State ex inf. v. Fleming, supra.]

Here the original legal existence of the corporation, with the elimination of the allegation in regard thereto, is not questioned; and we have under one view of the facts a proceeding against the individual respondents for usurping to be a corporation and under another view a proceeding against the originally regulated incorporated company for liberties claimed since its fraudulent act. It was, therefore, proper to join the corporation and the individuals as respondents. Under the liberal construction given pleadings by our modern procedure, especially in regard to a misjoinder of parties and with a view to the substantial administration of justice, the joinder of the corporation and that of the individual stockholders as respondents was not error. [State ex rel. Perkins v. Long,275 Mo. 169.]

From whatever vantage this case is viewed it involves but one question, viz.: the fraudulent character of the attempted increase in the capital stock, whether it be construed to be the act of individuals or that of the theretofore valid corporation. There is therefore no misjoinder of the parties.

Involving, as this case does, the corporate existence of the respondent, named as a corporation, it is pertinent, in addition, to consider the general sufficiency of the information. In a proceeding in the nature of quo warranto asking for a judgment of ouster when, as at bar, the proceeding was ex officio by the Attorney-General it is unnecessary that the pleading on its face show anything more than that the corporation assumed usurped and unlawfully exercised corporate privileges. This is sufficient to put it on its defense. Although the information may have undertaken to specify the grounds upon which it proceeds, this does not alter the case. [State ex inf. Atty.-Gen. v. Hogan,163 Mo. 43.] Further than this, if a corporate franchise is claimed by the State to have been usurped it need only be alleged generally that the franchise is being exercised without lawful authority and as against the State, and it then devolves upon the respondent to show a complete legal right to use and enjoy the privilege in question. This is the general rule, to which may be added that when the purpose of the proceeding is to perfect the charter the grounds of the forfeiture must be specifically pleaded. [State ex rel. Union Elec. Light Power Co. v. Grimm,220 Mo. 483.] The specific charge made in the present proceeding is a fraudulent and pretended increase of capital stock. This is pleaded with sufficient particularity to meet the requirements of the rule in that the respondents be informed as to the nature of the charge made against them to enable them to make their return in defense to the same. This constitutes sufficient information for the reason that the sole question for consideration is whether there has been a misuse and abuse of corporate rights granted by the articles of incorporation and whether rights not granted have been usurped. [State ex rel. v. Hannibal etc. Co.,27 Mo. App. 496.]

In short, the rulings here and elsewhere in which it is sought to oust a corporation from the exercise of corporate franchises when brought upon the information of the Attorney-General for the State, is sufficient if the powers alleged to have been usurped by the corporation are clearly and definitely stated. The demurrer therefore, so far as it can be considered as such, is overruled, except as to that portion in regard to the original improper incorporation of the company in 1915.

The effect of the demurrer is to admit the truth of matters well pleaded in the information. In the presence of this well-established rule and this being an original proceeding it should be speedily determined. If within ten days the respondents so desire, return may be made to the information; otherwise, judgment will be rendered as prayed by the relator. All concur, except Graves, J., absent and Otto, J., not sitting.