254 Mo. 125 | Mo. | 1914
Lead Opinion
“This agreement, made this twenty-first day of January, 1901, by and between H. C. Pierce, J. C. Van Blarcom, W. H. Thompson, August Gehner, A. A. B. W.oerheide, Tho. H. McKittrick, Andrew Sproule,*135 L. D. Dozier, Jas. W. Bell, S. M. Dodd, E. C. Simmons, Thomas H. West, Eéstus J. Wade, Breckenridge Jones, Lorenzo E. Anderson, Murray Carleton, composing’ an underwriting syndicate, parties of the first part, and Eben Richards., party of the second part and the National Bank of Commerce in St. Louis, party of the third part, witne’sseth:
“1. That the party of the second part is now the owner of options upon the title plants of the following persons, to-wit: August Gehner & Co., St. Louis Trust Co., Union Trust Co. of St. Louis, Lincoln Trust Co., Joseph Wachtel, Albert Wenzlick, Babcock & O’Connor, August Ahrens, D. .Ind. Neudorf, M. B. O’Reilly, Lewis & Hall, which options have been deposited with the party of the third part for the purpose of this- agreement. And that the general object of this agreement is to form a corporation to purchase, own and operate the above title plants as one plant.
‘ ‘ 2. That the parties of the first and second parts hereto shall, and they hereby agree to form a corporation under the laws of the State of Missouri, relating to trust companies, and be called Title Guaranty Trust Company, with a capital stock of one million five hundred thousand dollars, full paid and with a surplus of seven hundred and fifty thousand dollars, full paid so that the book value of the stock of said corporation shall be one hundred and fifty dollars per share. The parties of the first part hereby subscribe to the capital stock of said corporation to be formed, at the price of one hundred and fifty dollars per share, the amount set opposite the name of each respectively, to-wit:
NAME. AMOUNT.
H. C. Pierce ............................$139,200
J. C. Van Blarcom ........................ 10,050
W. H. Thompson.......................... 10,050
August Gehner .......................... 10,050
A. A. B. Woerheide........................ 10,050
Thos. H. McKittrick ...................... 10,050
*136 Andrew Sproule .. ^....................... 10,050
H. C. Pierce.......*....................... 10,050
L. D. Dozier .............................. 10,050
Jas. W. Bell .............................. 10,050
S. M. Dodd .............................. 10,050
E. C. Simmons ... ......................... 10,050
Thos. H. West........'.................... 10,050
Festus J. Wade .......................... 10,050
Breckenridge Jones ........*.........'.... 10,050
Lorenzo E. Anderson ..................... 10,050
Murray Carleton.......................... 10,050
“And they, the parties of the first part, each agree to pay said sum so subscribed by them forthwith into the National Bank of Commerce in St. Louis, party of the third part, and to leave said sums on deposit with said third party, and to leave the stock so subscribed for by them with said party of the third part as collateral security of margin upon which the party of the second part may borrow from the party of the third part the amounts hereinafter set forth.
“The party of the second part agrees to subscribe for, or cause to be subscribed for, all the balance of the stock of said corporation at the price of one hundred and fifty dollars per share.
“3. The party of the third part agrees to set aside and lend to the party of the second part for the purposes of this agreement only, upon the security of said options, subscriptions and stock of said corporation to be formed, the sum of one million nine hundred and fifty thousand dollars, which, added to the three hundred thousand dollars, subscribed and paid in by the parties of the first part, will make one million five hundred thousand dollars of capital stock and seven hundred and fifty thousand dollars of surplus of said corporation. And the party of the third part agrees to charge interest at the rate of five per centum per annum on so much of said sum of one million nine hundred and fifty thousand dollars as is actually paid out by it and used for the purposes*137 of this agreement until the same is returned and repaid to it, and to lend this amount so used to the party of the second part for the period of on or before six months.
“3y2. That the total of one million two hundred and fifty thousand dollars shall be reserved as a liberal estimated amount to cover the costs of the several title plants and all costs and expenses of organization, including moving, furniture, fixtures, arranging books and papers, completing indexes, incorporating fees, attorneys’ fees, stamp taxes, interest to party of the third part, brokers’ fees, etc.; and that any surplus after the organization is complete which shall remain from said estimated amount of one million two hundred and fifty thousand dollars after paying the cost of the several title plants and the expenses of organization above enumerated shall be placed to undivided profits of the corporation.
“4. It is agreed that the Title Guaranty Trust Company shall begin business with a clear title to all the title plants above enumerated and with at least five hundred thousand dollars cash working capital.
“It is estimated, understood and agreed that the total cost of all the title plants above enumerated will not exceed one million one hundred and sixty-seven thousand five hundred dollars.
“That five hundred thousand dollars shall be added to the cost of the plants and expenses of organization as a bonus or profit to the party of the second part for his services in procuring the consolidation.
‘ ‘ So that the capital and surplus shall be expended as- follows:
Estimated cost of title plants ........................$1,167,500.00
Reserve for expenses of organization ................. 82,500.00
Bonus or profit to parties thereto .................... 500,000.00
Cash working capital ............................... 500,000.00
Total ...........................................$2,250,000.00
*138 “Bills of sale shall be procured for the respective title plants and when all are deposited with the party of the third part it shall pay to the respective grantors the consideration therefor. The plants shall be then conveyed to the Title Guaranty Trust Company by the party of the second part for the consideration of one million seven hundred and fifty thousand dollars to be paid to the party of the second part in the manner hereinafter provided, but of this sum five hundred thousand dollars shall be at once repaid to the party of the third part and credited to the party of the second part on the loan set out in paragraph 3- of this contract.
“6. All of the stock of said Title Guaranty Trust Company shall be deposited with party of the third part at the time of the organization of said corporation, as security for the money advanced by it, and 9000 shares of said stock shall be sold by the party of the third part through a broker or brokers appointed by it at a price of not less than one hundred and fifty dollars per share in cash, and this stock as sold shall be delivered to the purchasers and the proceeds of such sale shall be paid to the party of the third part to be applied upon its advances.
“It is understood that if the market should afford the opportunity and the party of the third part should sell any or all of said 9000' shares of stock for more than one hundred and fifty dollars per share, the surplus over and above said one hundred and fifty dollars per share shall be divided between the parties of the first and second part in the proportion of two-fifths to the parties of the first part and three-fifths to the party of the second part.
“When the 9000 shares of stock are sold then two thousand shares of the book value of three hundred thousand dollars shall be issued to the parties of the first part in the proportion of their respective subscriptions as set out in paragraph 2 hereof, which*139 is the stock subscribed for and paid for by the three hundred thousand dollars advanced according to terms of paragraph 2 hereof.
“There shall also be issued 3333 shares of stock of the book value of five hundred thousand'dollars to the party of the second part, which is the bonus' or profit added to the cost of the respective title plaints for the services of the party of the second part and his associates. Of these 3333 shares the'party of the second part agrees to give and transfer to the parties of the first part, to be divided in proportion of their respective subscriptions, 1333 shares of the book value of two hundred thousand dollars as compensation to them for the advancement and use of the three hundred thousand dollars subscribed by them to the capital stock of said corporation.
‘ ‘ The party of the second part agrees to subscribe for 667 shares of said capital stock at a price of one hundred and fifty dollars per share, or a total of one hundred thousand dollars, and to pay for the same in cash when the 90001 shares are sold by the party of the third part and when the balance of the stock is released and issued by the party of the third part as in this paragraph 6 above mentioned. So that the stock of said corporation shall be issued as follows:
Subscribed and paid for in cask by the parties of tbe first part, 2000 shares ..............................$ 300,000
Issued to tbe parties of tbe first part as tbeir share of tbe deal, 1333 shares ............................... 200,000
Issued to tbe party of tbe second part as bis share of tbe profits of tbe deal, 2000 shares ...................... 300,000
Subscribed and paid in cash by tbe party of tbe second part, 667 shares .................................... 100,000
Sold to tbe public at one hundred and fifty dollars per share 9000 shares .................................. 1,350,000
Total 15,000 shares ................................$2,250,000
“7. The financial transactions with the party of the third part will be as follows:
*140 Paid in by underwriting syndicate .....................$ 300,000
Set aside by bank to form corporation .................. 1,950,000
$2,250,000
“Return to bank at once:
Cask working capital ..................................$ 500,000
Cask to pay for stock issued to second party............. 500,000
Reserve for expenses or undivided profits................ 82,500
$1,082,500
Amount of actual loan needed ..........................$ 867,500
$1,950,000
“8. It is understood and agreed that this contract shall not be binding between the several parties hereto until subscriptions to the full amount of three hundred thousand dollars are made according to the terms of paragraph 2 hereof and such subscriptions evidenced by the signatures of the several subscribers to this instrument.
“In witness whereof, the several parties hereto have caused these presents to be executed in due form the day and year first above written.
“H. C. Pierce Jas. W. Bell
“J. C. Van Blarcom S. M. Dodd
“W. PI. Thompson ' E. C. Simmons
“August G-ehner Tho.s. H. West
“A. A. B. Woerheide Festus J. Wade
“Thos. H. MeKittrick Breckenridge Jones.
“Andrew Sproule Lorenzo Anderson
“L. D. Dozier Murray Car letón
“Eben Richards, party of the second part,
“The Nat’l Bank of Commerce in St. Louis,
“by W. H. Thompson, Pres’t.
“party of third part.”
The personnel of these underwriters and their relation to the buying and selling elements of the transaction are illustrated by the facts that Mr. Gehner
Some time before the execution of this contract defendant Richards, together with the defendant Holbrook, whom he .represented in it, and another gentleman named Aikman Welsh, an employee in the title department of the Union Trust Company of St. Louis, the owner of another of the abstracts involved in the transaction, conceived the idea of consolidating all the eleven abstracts of title of the city of St. Louis under the ownership and management of a single corporation, and entered into a written contract between themselves for that purpose which could not be found and produced in evidence. They had secured options on most of them, which were taken in the name of Richards, with the exception of the Wenzlick plant, which had been taken in the name of Welch and was afterward transferred to Richards. What became of Welch, or which side he assumed in subsequent transactions, does not appear in the record.
On January 29, 1901, all the options had been secured. Their dates, amount and duration were as follows:
Union Trust Company ____Jan. 23, 1901, 20 days........$ 80,000
Lewis & Hall .............Jan. 29, 1901, 20 days........ 40,000
O’Reilly ..................Jan. 24, 1901, 30 days........ 40,000
Neudorf ..................Jan. 24, 1901, 30 days........ 5,000
Ahrons ...................Jan. 21, 1901, 30 days........ 5,000
Babcock & O’Conner ......Jan. 19, 1901, 30 days........ 25,000
Wenzlick ............. Jan. 12, 1901, 30 days........ '25,000
*142 Wacktel ..................Jan. 18, 1901, 30 days........ 40,000
Lincoln Trust Company... .Jan. 14, 1901, 30 days........ 200,000
St. Louis Trust Co........Jan. 19, 1901, 30 days........ 300,000
Gekner & Co..............Jan. 12, 1901, 30 days........ 400,000
Total ..............................................$1,160,000
On January 24, 1901, the nine thousand shares of the capital stock of the proposed corporation which were, by the terms of the contract of January 24, to be offered and sold to the public,, were disposed of by a written subscription, or agreement, or whatever it may properly be called, of the following tenor:
“St. Louis, Missouri, January 24th,. 1901.
“The undersigned, each for himself, and not for the others, hereby agrees to purchase from Eben Richards (the owner and holder of 9000 shares of the capital stock of the Title Guaranty Trust Company of St. Louis, a corporation formed or to be formed, to own and operate the title plants in the City of St. Louis, Missouri, with a capital stock of $1,500,000, full paid, and a surplus of $750,000, as set out in the underwriting contract hereto attached), at the price of $150 per share, the number of shares of stock in said Title Guaranty Trust Company of St. Louis, set opposite the names of each respectively.
“And the undersigned each for himself, and not io.r the others, hereby agrees with Eben Richards, the owner and holder of said 9000 shares of the capital stock of said corporation, to pay for the. number of shares hereby subscribed for by each, at the rate of $150 per share, upon the tender of a certificate in due form for said shares.
“Lincoln Trust Company,
“by Julius C. Garrels, treasurer .. 1,000 shares
“St. Louis Trust Company,
“by Thomas H. West, president .. • 1,000 shares
“August Gehner & Company........ 1,000 shares
“Mississippi Valley Trust .Company,
“by J. Walsh, president........ 1,000 shares
*143 Mercantile Trust Company,
“by Festus J. Wade ........... 1,000 shares
‘1 J. O. Yan Blarcom................ 1,000 shares
“A. G. Edwards & Sons Brokerage Company,
“by A. D. Grant, secretary...... 3,000 shares
“9,000 shares”
The articles of association of the new company are dated February 1, 1901, the shareholders named being all the parties of the first part to the underwriters’ agreement, together with Gustave W. Niemann, a member of Gehner & Company, who had become a subscriber for sixty-seven shares which Pierce had agreed to take and defendant Holbrook who subscribed for 300 and defendant Richards who executed the articles of incorporation as subscriber for the remaining 12,700' of the 15,000- shares authorized. All these subscribers except Thompson were named as members of the first board of eighteen directors appointed by the articles. The purposes of the corporation were stated as follows:
“To certify and guarantee title to real estate; to loan money on real estate security; to buy and sell notes and bonds secured by real estate mortgages or deeds of trust, and to receive money therefor; and to act as trustee in deeds of trust conveying real estate as security for loans; and in general to exercise all the powers-, .rights and privileges necessary and incident to the proper carrying out of the above objects.”
The articles were filed, and the certificate of incorporation issued on February 15-, 1901. The first meeting of the shareholders was held on February 18th, at which by-laws were adopted which prescribed, among other things, a seal for the corporation, and provided that certificates of stock should be signed by the president and countersigned by the secretary, and .sealed with the corporate seal, ’ and should be issued by the secretary under such rules and regula
The directors met on the same day and organized by the election of Gehner as president, Richards vice-president, Wade second vice-president, Niemann secretary and. Richards counsel. They also constituted defendants Jones and Woerheide, with the president and vice-president, the executive committee, and designated the National Bank of Commerce as the depositoiy of the funds of the corporation.
The A. G. Edwards Brokerage Company was a corporation engaged in the business indicated by its name, of which Mr. George L. Edwards was president. Its relations were very friendly with the National Bank of Commerce, of which a brother of Mr. Edwards was cashier, and it kept its principal bank account there. At some time in January, 1901, and before the nineteenth day. of the month, Mr. Edwards had several conversations with Mr. Yan Blarcom looking to the acquisition by the brokerage company of stock in the corporation to be organized to engage in the title examining business. Mr. Yan Blarcom told him that such a corporation was to be organized, and asked him to underwrite and purchase some of the stock, stating that the capital of the proposed company was to be a million and a half, with a surplus of seven hundred and fifty thousand dollars. The result of these talks was that Mr. Edwards agreed to purchase for his company any part of 6000' shares which might be assigned to him. He went to Colorado about January 19th, where he remained until March; but before going he left directions with Mr. Green, the secretary of the company, to subscribe for and take the stock and pay fo,r it when notified by the bank of the amount and that it was ready. He was so notified and signed the paper above quoted on the 19th of February, re
OPINION.
I. From the foregoing statement it is readily seen that this suit had its origin in an enterprise conceived by the defendants Richards and Holbrook “to consolidate, under one management, all the title plants of the city of St. Louis, in one corporation.” The
Before January 21, 1901, he secured options on eleven plants of the city, for various amounts aggregating- one million one hundred and sixty thousand dollars, and with these and evident aptitude for such transactions as his initial capital, he continued his campaign to assemble all those other elements necessary to develop his enterprise to that fruitful condition, which is the hope of the promoter, when the public, with the confidence born of thrifty desire absorbs its securities. These elements included such financial arrangements as would enable him to secure the tesporary advancement of money for the organization of the proposed corporation, under the laws of this State, and to make his options available provided it should be needed for that purpose before the public-should come to his rescue; and also an organization which should include the names of such persons and financial institutions as would inspire the confidence of the investing public in the soundness of its securities. The times were propitious. It was contemporaneous with the organization of the greatest industrial combination that the world has known, which has offered, in round numbers, one billion and a half, dollars in par value of its securities to a responsive public, and the beginning of an era of industrial, mining, transportation and financial consolidation to which the public contributed with avidity. It was a matter of common knowledge generally disseminated not only by word of mouth and in the public press, but upon the public records, including the records of the courts, that in the creation of these combinations it was common to inflate their capitalization by additions to the value of the physical properties involved to meet not only the views of the modest promoter with respect to the value of his own services, but also to overcome the
The first necessity in all such cases is. a financial sponsor with a name of pecuniary value to its undertaking, and Mr. Richards had the great good fortune to secure in that capacity the services of the National Bank of Commerce. That the plan of organization contemplated this bank as the depository of the funds of the corporation and that of these there would be five hundred thousand dollars of working capital and two hundred and fifty thousand dollars of the surplus that would be left after the division of the profits, making in the aggregate a deposit of seven hundred and fifty thousand dollars, gave the bank a very considerable interest in its- successful execution. It required, however, in accordance with the .rule of good banking, that a cash margin should be provided as security for any loan it might be required to make in furtherance of the enterprise. For this purpose an underwriting syndicate was created to immediately subscribe and pay the bank for three hundred thousand dollars worth of the. prospective stock. It consisted of sixteen gentlemen who were, to be let in on the ground floor with Mr. Richards. Thompson and Yan Blarcom, the president and vice-president of the bank, became members and entitled to their share in the division. Mr. August Gehner of Gehner & Company, who were to 'receive four hundred thousand dollars for their title plant if the thing went through, and Mr. Niemann, his partner, naturally put their should
Mr. George L. Edwards, president of the brokerage company, whose word seems to have been the supreme law in its councils, was, on January 19, 1901, about to leave St. Louis for a sojourn of several months in Colorado. On or about that date .Mr. Van' Blarcom made an oral arrangement with him by which he agreed to take six thousand shares of the stock of the proposed Title Guaranty Trust Company, or any part of that amount which should be assigned to him. This agreement was the first step looking to the final organization of the new' corporation. It insured the success of the plan by demonstrating that the bank could dispose of the stock. After this the steps came in quick succession. On the 21st the underwriting contract was made in which the bank assumed the obligation to sell nine thousand shares of the stock, six thousand of which it had already placed with the Edwards Company. On the 24th it prepared the papers and secured the agreement of Gehner, Van Blarcom and four interested trust companies to take one thousand shares each, or six thousand shares in the aggregate, of the nine thousand. Under its agreement with Edwards it could complete this transaction by simply notifying Mr. Grant, the secretary of the Edwards Company, to come and pay for the stock. The next step in regular sequence was the organization of the new trust company. The bank had agreed to advance the money necessary for the purpose. At this point the State became a party to be reckoned with. Its Constitution and laws, in providing that corporations may be freely formed to transact practically all kinds of business which may be transacted by individuals, without personal liability on the part of their members, fully recognized the governmental duty to pro-, tect the public against fraud and imposition by substituting a foundation of credit consisting of business
II. The corporation was now full-fledged and ready to try its wings. The contract provided that the entire capital stock and surplus should be expended and applied as follows:
“Estimated cost of title plants ....$1,167,500'.OO
“Reserve for'expenses of organization ......................... 82,500.00
“Bonus of profit to parties hereto.. 500,000.00
“ Cash working capital............ 500,000.00
“Total ..........................$2,250,000.00'”
The stockholders and directors proceeded to carry it out.
The stockholders met and unanimously resolved that the corporation purchase from Richards the title plants at the price of one million seven hundred and fifty thousand dollars in cash. The directors then met, and completed the transaction by directing the president and secretary “to do all things necessary to complete said purchase and transfer. ’ ’ . Thus these gentlemen had provided, without the intervention of dummy stockholders or directors, or other apparently
If this rule, which we consider to be firmly established by an overwhelming weight of authority, is to be so changed as to facilitate the fictitious capitalization of corporations, in the hope that the value of the stock may be maintained by combinations and influences which will enable them to exact from the public and pay dividends on such fictitious values, it should be done by legislatures rather than by courts.
Y. It is said, however, that the members of this corporation, in the division of the capital stock and its proceeds, were dealing with their own, and could divide it as they pleased. They owned the whole, and if they could devise some plan by which each one of them could receive more than his share, there would
The foregoing opinion by Brown, C., is adopted as the opinion of the court.
Concurrence Opinion
I concur only in the result reached in this case; and dissent to almost everything else contained therein.
While as to the principles of law announced therein, as abstract propositions, I have no complaint to •make, because they are wise, sound and just, yet they have no application to this case.
While the opinion does not state the fact, nevertheless it is a fact, that the plaintiff was not one of the organizers of the trust company mentioned who had paid his money into the coffers thereof believing and understanding, as he had the legal right to do, that he was bearing his proportional part of the burdens, and was receiving his proportional part of the benefits thereof with the other organizers-; but he was a total stranger to the transaction, and went out into the open market and purchased his stock upon his own judgment; and neither the corporation nor. its officers or agents owed him- any duty whatever in the transaction.
If the law is as stated in the opinion of our learned Commissioner, then I can to-day go into the open market and purchase a share of stock in the United States Steel Company (in the language of the Commissioner “the greatest industrial combination that the world-has known, which has offered, in round numbers, one billion and a half dollars in par value of its securities to a responsive public”) and sue and recover in dollars and cents-, from the stockholders, officers and directors thereof, who knowingly participated in so deeply watering the capitalization of that company, the proportional part of that fictitious capital that my share of stock would bear to the whole amount thereof.
However just that doctrine as an original proposition may have been, yet in this day and age, with the conditions being as stated, such a rule would be intolerable, unjust and oppressive ; and I know of no respectable authority holding to the contrary.
The cases cited by our learned Commissioner, if I correctly understand them, have no reference to eases where the purchase was made from third parties upon .the open market, after the corporation had been completely organized, as was done in this case, but relate to transactions had between the promoters and organizers of a corporation.