188 Mo. 547 | Mo. | 1905
In an action at law, tried to the court without a jury, the plaintiff, as a judgment creditor of the Sedalia Electric and Railway Company, referred to herein as the Railway Company, seeks to hold defendant liable as a stockholder, owning 2594 shares of unpaid capital stock of said Railway Company, of the par value of $259,400, for the sum of $47,076.75, said judgment debt. The result of the trial was a judgment for defendant, from which plaintiff appeals.
It will contribute to an understanding of the case to state the paper issues which are substantially as follows :
After alleging its incorporation and citizenship in New York, and the incorporation of the Sedalia Electric and Railway Company under the laws of the State of Missouri, the petition avers that said Railway Company became indebted to the plaintiff, for money loaned, in the sum of $105,000, evidenced by a promissory note dated the 1st of November, 1898, due in one year, with interest at the rate of six per cent, payable quarterly, which note was indorsed and guaranteed by Stewart & Co., and was secured by the pledge of certain bonds and stock of said Railway Company as collateral; that payments were made by said makers, indorsers and guarantors, and by the sale of said pledged collateral, whereby the principal was reduced to $44,550, which, with interest, remained due and unpaid to plaintiff. That on the 17th of Octo
The case was tried on an amended answer admitting the incorporation of the plaintiff, the incorporation of the Railway Company, its original indebtedness to plaintiff in the sum of $105,000, evidenced by the note referred to; admitting that Stewart & Co. indorsed and guaranteed the note and that certain bonds and stocks were pledged to secure its payment as alleged; admitted the Railway Company was organized with the amount of capital stock and number of shares and par value-of each share as alleged, and admitting the stock was originally subscribed by Reeve, but denying seriatim and specifically the other allegations in the petition.*
For affirmative defense, the answer pleads that at the time the stock was issued it was agreed by the Railway Company and the stock subscribers that the Railway Company should accept the conveyance of certain real estate, buildings, apparatus, electric light plant, electric street railway plants, and other property, interests and franchises in full payment for all stock to he issued; that said Railway Company would issue such stock fully paid and non-assessable, and that no persons holding any of said stock should remain or he liable for any further payment on account of the same ;■ that the conveyances aforesaid were made and the agreement completed, the Railway Company put in possession, etc., and the said stock was so issued and delivered and bore upon its face the express agreement that it was fully paid and non’-assessahle; that the property, interests, franchises, etc., so conveyed, were at the time of a value equal to the face value of said stock; that at the time and in said matters the directors of said Railway Company and its officers and all persons connected with said transaction acted in good faith and in the honest belief that the value received by the Railway Company was equal to the amount of the face
Por a further defense it is alleged that before it advanced money to said Railway Company upon said $105,000 note and at the time, plaintiff had full notice of said facts connected with the issuance of said stock as well as of the value of the franchises, interests, etc., conveyed to said Railway Company as a consideration for the stock, of the amount of stock issued and its full value, of the business to be conducted by said company, and of the plan of its organization, capitalization and operation.
As a further defense it was alleged that at the instance and request of said Stewart, and after plaintiff had .agreed to make said $105,000 loan, defendant executed a certain underwriting agreement to which Stewart & Co., other underwriters and plaintiff were parties, whereby defendant agreed that he would, if required so to do by plaintiff, any time between the 1st day of September, 1899, and the 2d day of October, 1899, but not otherwise, purchase and take from plaintiff sixty bonds and 600 shares of the capital stock of said Railway Company, then in the hands of plaintiff, and that he would in’that case pay therefor at the rate •of $750 for each bond, together with ten shares of said stock (said plaintiff, however, having the privilege of selling said bonds and stock to others upon terms set forth in said underwriting agreement), and for the purpose of inducing him to execute it, said Stewart agreed he would secure other persons to underwrite the bonds and stock so underwritten by defendant and would substitute such other persons in the place and stead of defendant as a party to said underwriting agreement and would procure plaintiff to release defendant from said underwriting agreement; that to secure the carrying out of said Stewart’s agreement, he, Stewart, caused to be issued and lodged with defendant a cer
The answer finally alleges that the underwriting agreement executed by defendant was a part of the collateral security deposited with and pledged to plaintiff to secure the payment of said $105,000 note; that by said agreement all sales of said bonds and stocks were to be received by plaintiff and applied towards the satisfaction of said note; that plaintiff did not at any time between the 1st of September, 1899, and the 2d day of October, 1899, require defendant to purchase or pay for any of said bonds or stock, but did, without defendant’s consent, and in spite of the refusal, of defendant to join therein, enter into another agreement with the other parties to said underwriting agreement whereby it extended said underwriting agreement and the time within which the same was to be performed, and thereby released and discharged defendant.
The case made on the facts is as follows:
Prior to October, 1898, there existed in Sedalia two corporations, one known as the Electric Railway, Light and Power Company of Sedalia, hereinafter referred to as the Power Company, and the other known as the Sedalia and Brown Springs Electric Railway Company, hereinafter called the Brown Springs Company. The Power Company was the elder of the two, and owned about nine miles of street railway track, a powerhouse, engines, boilers, electric generators, lighting wires, a street railway franchise in Sedalia, an electric lighting franchise, together with a park outside the city limits, and was engaged in running electric passenger c'ars, and the generation and sale of electricity for light and power purposes in the city. Upon all its properties and franchises was a mortgage of $200,000. The Brown Springs Company was a servient corporation owning about two miles of track, extending south from the southern terminus of the track of the Power Company, and also owning 120 acres of land and a spring, possibly of medicinal virtues, but owning no rolling stock or powerhouse, and was operated by the Power Company. On the assets and properties of'the Brown Springs Company was a mortgage of $50,000, which indebtedness was guaranteed by the Power Company. These two properties were practically operated as one. Both of them were in bad condition and though the interest on the mortgage debt was kept paid, yet they had a floating indebtedness of from $50,-000 to $60,000, with an earning capacity inadequate to pay fixed charges and operating expenses, let alone to provide for needed repairs and betterments. In this condition of thingsJStanley H. G. Stewart, masquerading as Stewart & Co., a so-called “banker and broker” of the city of New York, appeared on the scene through a representative, made an investigation of these prop
While Mr. Stewart posed as a capitalist, he was one by way of aspiration and anticipation only. His
Prior to and at this time respondent was surety for Stewart at the Hanover National Bank in New York
At this stage, Stewart being pressed, as usual, for funds in his promoting schemes, applied to respondent to become an underwriter on the bonds to be deposited with the plaintiff trust company, assuring him that from the proceeds of the loan thereby secured, the indebtedness at the Hanover National Bank was to be (and was) taken up, and pressing debts against the Railway Company paid off.
As it is contended by appellant that respondent became the owner of all the stock issued by the Railway Company except such as was to be and was pledged as collateral to the appellant, and enough more to qualify the directors of the Railway Company, and as it is contended by respondent that he merely became the pledgee of such stock as collateral security against his liability and loan of credit as an underwriter, the relations between.the two men at the time become material. On this head the record shows that respondent was a capitalist and the father-in-law of Stewart. The two men officed in the same building, and, were it not for the written communications passing between them and introduced in evidénce, it would be difficult to believe their feelings and relations were as strained and. unique as we are forced to conclude from the record before us; for they met at respondent’s home and yet did not speak, but corresponded and acted through intermediaries and respondent seems to have entertained business distrust of Stewart and to have a rooted an
‘ ‘Replying to your favor of tbe 2d and 4th, I have consulted with tbe attorney having charge of tbe matter of loan with tbe Colonial Trust Company, and be has agreed to undertake that providing we carry out tbe underwriting on tbe present basis, be will arrange for tbe substitution of name or names to take tbe place of yours; and I will therefore accept your offer on tbe basis outlined, which I understand to be as follows: In consideration of your underwriting 60 bonds as per written agreement inclosed, with ink interlineations which you will notice, I herewith place with you 2594 shares of tbe capital stock of tbe Sedaba Electric and. Railway Company, issued in your name. This leaves 1400 shares to be deposited with tbe • Trust Company under tbe terms of said underwriting agreement and tbe six shares necessary for qualifying tbe directors. Attached to the stock please find tbe resignation of tbe president, treasurer, assistant secretary, and majority of directors; tbe vice president has not been elected yet, and tbe secretary is in Sedaba, as it was necessary to have- that officer there temporarily, until all of tbe papers relative to tbe consolidation bad been properly executed, but we can have bis resignation at any time
“Yours very truly,
“Stanley H. O. Stewart.
“P. S. — After writing the ' above yesterday, we found the Trust Company wishes the underwriters to agree to substitution of the ‘interim bond’ until the permanent ones were ready (the bonds are promised Tuesday) and they are getting the agreement signed this morning by the others. It will be sent to you later.” ■
On the strength of the agreement outlined above, respondent executed the following underwriting agreement covering sixty $1,000 bonds with plaintiff trust company:
“Underwriting Agreement.
“Agreement made the first day of November, 1898, between Emerson McMillan (hereinafter called the Underwriters), parties of the first part; Colonial Trust Company, of the City of New York, a corporation
“Whereas, Stanley H. Gr. Stewart of the City of New York, doing business as Bankers at No. 40 Wall Street in the said City, under the firm name of Stewart & Company, have purchased and recently consolidated the properties known as the Electric Railway, Light & Power Company of Sedalia, Missouri, and the Sedalia and Brown Springs Electric Railway Company, merging the same into a new company under the name of the Sedalia Electric & Railway Company; and
“Whereas, the Trust Company is about to make a loan of one hundred and five thousand dollars to the said Sedalia Electric & Railway Company^ at the request of Stewart & Company, which loan is to be evidenced by the promissory note of the said Sedalia Electric & Railway Company, indorsed by said Stewart & Company, and payable in one year from the date of this agreement, with interest at six per cent per annum, payable quarterly in advance; and
“Whereas, said loan is to be secured by one hundred and forty of the bonds of the said Sedalia Electric & Railway Company, with fourteen hundred shares of the capital stock of the said company, said bonds and stock being now owned by said Stewart & Company; and
“Whereas, the Underwriters are desirous of purchasing certain of said bonds of the Sedalia Electric & Railway Company held under said loan;
“Now, Therefore, This Agreement Witnesseth, That the Underwriters, in consideration of one dollar and other valuable considerations, the receipt whereof is hereby acknowledged, do each for himself or themselves, and his or their heirs, executors and adminis
“Each Underwriter agrees that the Trust Company shall have the right to reduce the subscription of any Underwriter, and to make allotment in any case of less than the number of bonds subscribed for. In the event that a less number of bonds than is subscribed for shall be allotted in any case, the Underwriter or Underwriters to whom such less number of bonds may be so allotted, agrees that he or they will take' and pay for such less number of bonds at the same price per bond, and upon the same terms of payment as those mentioned above.
“In case of the failure of the underwriters, or any of them, to take and pay for the said bonds at the times and as provided in this agreement, the holder of said note of said Sedalia Electric & Railway Company may, without further demand or notice, sell, assign or deliver the whole or any part of said securities not so taken and paid for, at any brokers’ board in the City of New York or elsewhere, or at public or private sale, at their option, at any time thereafter, without adver
“The Underwriters each further agree that the Bankers shall have the right to purchase from or through the Trust Company at any time on or before September 1, 1899, all or any part of the bonds for which the Underwriters have subscribed, at the price of not less than seven hundred and fifty dollars and accrued interest per bond, and each ten shares of stock, but in such event the Trust Company shall apply seven hundred and fifty dollars and accrued interest per bond for the bonds and stock so sold, to the payment of the loan mentined herein, and in the event that the Bankers shall purchase all of the said bonds and stock hereby allotted to the said Underwriters under the terms of this agreement, then and in that event the Underwriters are hereby released from all further liability in the premises, and the Trust Company hereby agrees to notify them of such release.
<«q'rilst Company agrees that upon payment at any time after September 1, 1899, and on or before October 1,1899, of said sum of seven hundred and fifty dollars per bond and the accrued interest thereon hereunder, it will deliver or cause to be delivered to the person entitled thereto respectively the number of said bonds and the number of said shares of stock now in its possession, for which the Underwriters have re
“It is understood and agreed that each Underwriter shall be liable for and upon his own subscription or default, and not for or upon the subscription or default of any of the others.
“In Witness Whereof, The Trust Company has caused this agreement to be subscribed by its President, and its corporate seal to be hereunto affixed,, and the Underwriters and said Stewart & Company have hereunto affixed their names, this first day of November, 1898.”
Following this, the record abounds with a correspondence, curt and acrid on one side and appealing on the other, between Stewart and respondent, the purport of which was that respondent was from time to time extending the time for Stewart’s compliance with the agreement to either sell the bonds pledged to the appellant trust company and take up its note and thus redeem the stock or procure other underwriters for the sixty bonds in question and take up respondent’s underwriting agreement, and return the same to him, and various excuses of Stewart for not doing so, and various plans suggested whereby Stewart hoped to carry his deal and release his father-in-law.
For some reason appellant did not present the Railway Company bonds and stock to respondent between September 1, 1899, and October 1, 1899, and demand payment therefor. On the other hand, it sold its collateral, including said stock and bonds, under the terms of the pledge, and the other underwriters having complied with their agreement and the note being reduced by such compliance and by the sale of said collateral, it was finally merged into the aforesaid judgment in the Federal court and this suit was instituted.
The record shows that receivers were appointed by the Federal court and the underlying mortgages upon the assets and properties of the two constitutent companies consolidated into the railway company, were foreclosed and the property passed to strangers. Thus the stock and bonds of the Railway Company became as waste paper and Stewart was declared a bankrupt.
The trial court found for the defendant on two grounds: “First, because the plaintiff, when it contracted this liability with the Sedalia company, knew exactly the condition of the stock. It advanced nothing upon the credit of that stock and it was endeavoring to place this watered stock upon the community in. its underwriting agreement. Second, I am clearly of the opinion,” says the trial judge, “that the contract that was entered into by Mr. McMillan with Stanley Stewart constituted a pledge of stock and although it contains what may properly be termed a clause of forfeiture in case the debt is not paid, courts have uniformly held, from the Roman law down to date, that such clause as that will [not?] be enforced.”
Nevertheless the fact that the stock was watered is by no means decisive of the case; for in an action at law tried to the court as a jury, the finding of the trial court on the facts is as binding on ns as the verdict of a jury. With the weight of evidence we have nothing to do, and if there be substantial evidence sustaining a finding, that finding will not be meddled with on appeal. [Butler Co. v. Bank, 143 Mo. 13; Comer v. Statham, 173 Mo. 246.]
So, too, it is good law that underlying the trust-fund theory and the true-value theory is the proposition that creditors have the right to assume that stock has been fully paid in money or money’s worth as set forth solemnly in the articles of association of a corporation and to extend credit on the faith of such assumption, but because of this underlying proposition it follows that if a creditor of an insolvent corporation did not extend credit on the faith of shareholders ’ having paid their stock subscriptions in money or money’s worth, but, to the contrary, knew at the time of the creation of the corporate debt that such stock was paid for in simu-. lated values, he is. not entitled to the remedy here
Applying the foregoing propositions of law to the facts of this case, we are of the opinion that even if respondent was held to be the actual owner of the stock in question, yet there is substantial evidence upon which the court below might well base its finding to the effect that appellant extended no credit to the Railway Company on the faith of its stock being full paid in money or money’s worth. To the contrary, the proof tended to show that appellant knew the stock had been paid for in chips and whetstones and, when issued, represented only, what its president termed, a ‘ ‘ sentimental value. ’ ’ Appellant’s president investigated this scheme when it involved a purchase of the bonds and the stock. It was laid before him anew by one Birdseye, an attorney for Stewart. By a letter in evidence he certified in substance that he had investigated the plan blazoned forth ■in the prospectus. Now, turning to the prospectus, it flew a danger signal in that it proposed to sell a $1,000 five per cent gold mortgage bond for $775 and to give ten shares of capital stock in a new-fledged corporation of the par value of $1,000 as a bonus. On such facts, it would disturb, it seems to us, all normal methods of reasoning to conclude that a creditor who knew of .such offer and whose experience in corporate stock and bond dealing enabled him to appreciate its significance, and who, as a part of the very inception of his debt, as here, undertook to finance such a company and to foist such a bond and stock sale upon a confiding public, extended credit on the faith of the fact that the •corporate stock was fully paid in money or what might
If, then, we should hold that respondent was the actual owner of the stock, we should be constrained to hold further that appellant is not entitled to the remedy it seeks in this case.
II.
But was respondent a shareholder? The trial court found he was a pledgee of the stock and not a shareholder. Appellant insists that respondent was a shareholder and that the trial court erred in its construction of the agreement between respondent and Stewart. Light will be thrown upon this contention by recurring to fundamental legal principles. "What is a pledge? A pledge had been defined to “be a deposit of personal property as security, with implied power of sale upon default;” also as “a bailment of personal property as security for some debt or engagement;” also as “a deposit of personal property by way of security for the performance of another act; ’ ’ and it has been said that “every contract by which the possession of personal property is transferred as security only, is to be deemed a pledge.” “The term ‘collateral security’ has in/recent years come into general use to designate a pledge of negotiable paper, corporate stocks, or other incorporeal personalty, as distinguished from a pledge of corporeal chattels.” [Jones on Pledges (2 Ed.), sec. 1.]
Referring to the agreement between respondent and Stewart whereby the former came into possession of the stock certificate, and interpreting that agreement, wherein it may be dubious, in the light of the circumstances surrounding the parties, the contemporaneous construction put on the contract by the parties to it and the construction placed thereon by them continuously thereafter; remembering, too, that the record discloses that respondent did not want to invest in the
Nor can the fact urged here, that the stock was placed in the name of respondent on the books of the corporation and that a certificate was issued directly to him, be allowed to alone dominate the situation and characterize him as a shareholder. [Union Savings Association v. Seligman, 92 Mo. 635.] If the fact that the stock stood in the name of respondent be allowed as conclusive on the question of ownership, it would lead to singular and embarrassing results; for the proposition wouldbecome a two-edged sword and cut both ways, since by the samp token appellant became a stockholder when it had its pledged stock similarly transferred to it on the corporate books, and we would have the anomalous sight of one shareholder suing another on the theory that the stock was paid for in mere colorable values.
Nor do we place any significance upon the fact that respondent demanded and received the resignation of all of the directors and officers of the corporation, for he never acted on this paper resignation, nor did he act in the capacity of a shareholder at any time, and the paper resignation of the directors and officers, in the light of the record, must be held merely as an auxiliary prod in his hand — a wherewithal to goad Stewart into performing the principal obligation wherein respondent had loaned his credit and wherein he held the stock as security to indemnify him against loss by that loan of credit.
The clause in the agreement between respondent and Stewart to the effect that after 90 days, if Stewart
By section 1324, Revised Statutes 1899, it is provided as follows:
“No person holding stock in the corporation, as executor, administrator, guardian or trustee, and no person holding such stock as collateral security, shall be personally subject to any liability as stockholder in such corporation; but the person pledging such stock shall be considered as holding the same, and shall be liable as stockholder accordingly. And the estate and funds in the hands of such executors, administrators, guardians or trustees shall be liable in like manner and to the same extent as the testator or intestate or the ward or person interested in such trust fund would have been if he had been living and competent to act and hold the same stock in his own name. ’ ’
If the above statute is to be given effect and we are to hold, as we do, that the contract in question is that of a pledge,.the question in hand is set at rest. For this statute was construed in the Seligman case, supra; by the Supreme Court of the United States in Burgess
The instructions given on both sides indicate that the trial court entertained a correct, view of the principles of law applicable to the facts proved, and we are of opinion that no error exists, and, therefore, affirm the judgment.