Elliott v. Sullivan

GRAY, J. Plaintiff’s petition contains five counts, in which he asks judgment for goods sold and delivered to the Kansas City-Aurora Mining Company. The counts -are substantially alike, except the first is for goods sold and delivered by the plaintiff, and the others are for goods sold and delivered by assignors. In each count there is a general allegation that the goods were sold and delivered to the Kansas City-Aurora Mining — 501 — Company, a partnership composed of the defendants. After said general allegations, it is alleged in each count, that the defendants claim to be engaged in business as a corporation, and that as such corporation, they claim they bought the goods sued for herein, and the petition then proceeds in the following language: “Plaintiff further says that the defendants, each and every of them, are liable to him for the reasonable value of the goods aforesaid so sold, as individuals, jointly and severally, and not in law authorized to have the amount here sued for charged against The Kansas City-Aurora Mining Company as a corporation, for reasons hereinafter pleaded, as follows, to-wit: Many years prior to the association of the defendants together for mining purposes, which association occurred in 1909, there was incorporated under the laws of Missouri, a corporation known as The Kansas City-Aurora Mining Company, and at the time of the incorporation of said Company, its capital stock of $5000 was fully subscribed for, and fully paid up, and it had engaged in the mining business thereafter until all of its capital stock was exhausted, and it had become a worthless and insolvent corporation; and thereafter during the year 1909, the defendants herein, desiring to engage in the business, of mining, and conspiring together for the purpose of cheating, wronging and defrauding this claimant and others to whom they might become indebted in the prosecution of said mining business, should said business not prove a success, by attempting to escape the personal liability that would result to them, and each of them, should they engage in business as co-partners, and further conspiring together to avoid the responsibilities they would assume should they incorporate a company under the laws of the State of Missouri, undertook, without authority from said corporation, to engage in business under the name of the said Kansas City-Aurora Mining Company, thus connecting their individual business with the said corporate name, and having thus assumed the said cor — 502 — porate name, defendants falsely and fraudulently represented that they had a capital stock of $5000 which was fully paid up, and constituted a. basis for credit to which this claimant and all others would have recourse for the payment of their debts, when in fact and indeed they had no capital stock at all which would serve as a basis of credit, and to which, recourse could be had for the payment of debts, but further conspiring together for the purpose of effectuating the contemplated fraud as aforesaid, the defendants conspired with an officer or agent of the said insolvent corporation, and fraudulently induced him to issue to these defendants $5000 of the capital stock of the said corporation, without paying anything therefor, and after having issued to .them the said capital stock, the said defendants undertook and did carry on said mining enterprise in the name of the said corporation, and for the purpose of securing credit from this claim and others, represented that they had organized a corporation with $5000 capital stock fully paid up, and which would serve as a basis of credit, when in fact they had no corporate organization at all, or any capital stock. That for the reasons aforesaid, said corporation cannot be held liable for the payment of the plaintiff’s debt, and being insolvent, the same could not be collected front it if judgment Avere secured.” There was a demurrer filed to the petition, and the same was overruled, and defendants answered, denying that they were members of the co-partnership, and alleging that the plaintiff and one of the assignors had instituted proceeding's against the corporation in its corporate name in the circuit court of Lawrence county, and had obtained judgments against the corporation on the identical demands sued for, and had levied execution upon the corporation’s property under said judgment, and disposed of the same. The trial court found the issues in favor of the plaintiff and rendered judgment on each count' for the amount sued for. — 503 — The facts of the case may be stated as follows: In 1899, a Mr. Miller and his associates, procured from the State of Missouri, a charter for a company known as the Kansas City-Aurora Mining Company, with a capital stock of $5000 divided into two hundred shares of $25 each, and fully paid. The corporate life, as evidenced by the certificate, was fifty years. The company engaged in mining in Lawrence county, and in the course of a couple of years, had expended its $5000 and quit active business, and did nothing further save making some, reports when called upon by the Secretary of State. About the time the company ceased business, Mr. Miller acquired from the other stockholders all the shares of stock of the corporation. No proceedings of any kind were taken or threatened to revoke the charter of the corporation upon its quitting business in 1901. In March 1909, the United Zinc Company, another corporation, and owner of ninety acres of land at Aurora, proposed to one Mr. Stratton that if he would associate some persons with him who were willing to advance about $500, which it was deemed would be neces-. sary to drain the land of water, the United Zinc Company would give him and his associate a lease on the ninety acres of land, including the right to use a certain mining plant and mill and other machinery. Mr. Slratton, believing that the offer was a good one, and with others desiring to advance the mining interests in and about Aurora, called a public' meeting at the Elks Club Room at Aurora, on the 9th day of March, 1909, to discuss the proposition of the United Zinc Cimpany, and with a view of interesting the business men of Aurora in the proposition. At this meeting an effort was made to get twenty men to take an interest of twenty-five dollars each, and thereby raise the $500. Mr. Miller was present at this meeting and was solicited to go into the company. Whereupon-he stated that he had quit mining and did not want to mine any more, but he had a charter and was the owner of all the stock of the Kansas City504 Aurora Mining Company, and to help the matter along he would transfer to each of the persons who advanced twenty-five dollars, ten shares of the stock owned by him, and would retain ten shares for himself. The proposition was agreed to, whereupon, Mr. Miller surrendered the certificates of stock for the purpose of having them cancelled and new stock was issued to the new stockholders to whom the shares had been given by him. An effort was made to reorganize the .corporation, but on account of some irregularities, it was abandoned and another meeting held, at which all the shareholders were present, and agreed in writing to the holding of the meeting. In the meantime, the shares transferred by Mr.. Miller had been transferred by three of the persons to the others interested, so that only seventeen shareholders remained. The old charter provided for three directors, and the statutory steps were taken to increase the number of directors to seven, and the statement required therefor was filed with the Secretary of State, and the certificate of the Secretary of State was procured and filed. From the time the number of directors was increased from three to seven, the corporation continued in regular manner, elected officers, held corporate meetings, bought goods for the use of the corporation, sold ores mined, and all of the same was done -under the name of The Kansas City-Aurora Mining Company. The corporation received the $500 subscribed by the stockholders, accepted the lease from the United Zinc Com" pany, and did all such things in the same manner as other corporations do in the conduct of business companies, and the goods sued for in this case were bought in the name of the corporation and actually used in its behalf. There is no evidence that the defendants were partners, or that they held themselves out as such, or that they had any other interest in the company than as shareholders. The shares of stock were dealt in and bought and sold in the usual manner. — 505 — Tlie petition is based upon the theory that the defendants conspired together to commit a wrong, and that they falsely represented and pretended that they had organized a corporation with a capital stock of $5000 fully paid up, and that they had the same as a basis of credit; that the plaintiff and his assignors, relying upon the truth of such statements, and believing that the defendants had organized a corporation with a capital stock of $5000, extended credit; that in truth and in fact, no corporation Avas organized, and the defendants had fraudulently procured credit, and therefore, should be held liable as co-partners or individuals. We believe the petition states a cause of action, and if the evidence supports it, the judgment holding the defendants personally liable' should be affirmed. We have carefully read the record, and there is no testimony tending to show that any of the defendants made any false statement as to the character and kind of property OAA'ned by the corporation, or as to the capital stock of the corporation, to induce the sellers of goods to give credit, or that any of the defendants were guilty of any default- or deceit to get credit for the corporation. The plaintiff testified in his own behalf, that he was solicited to take stock in the company and to become one of the twenty-five dollar shareholders, and that he kneAv that the defendants sued were stockholders in the Kansas City-Aurora Mining Company, and that he further knew that $500 was all the company had to start with, and that he sold the goods on the credit of the corporation, but that some of the stockholders had personally guaranteed the payment of a part of his bill; that he sued the corporation for the account described in his petition and obtained a judgment against it and levied on its property and sold it, but realized nothing after the payment of costs. One of the counts was based on coal by the Sinclair Coal Company. Mr. Sinclair was offered as a witness in behalf of plaintiff, and testified that he knew when the — 506 — Kansas City-Aurora Mining Company was first organized, and that he was in the employ of Mr. Miller at that time; that he knew when the company quit mining, and that it had expended all of its money, and that he knew the goods sued for in the present suit were sold to the same corporation, and that the Kansas City-Aurora Mining Company, to whom the goods Avere sold, was the same corporation he had knoAAui in 1900; that he kneAV what property the corporation owned at the time the goods Avere sold, hut that some of the defendants, personally, guaranteed the payment of his account. One of the counts Avas based upon oil furnished by the Waters-Pierce Oil Company. Mr. Carter, who was agent for the company at the time the oil Avas sold to the corporation, was a witness to prove the account, and testified that he thought it Avas a neAV company, and he supposed it was a corporation, and thought the $500 Avas all the property it had; that he extended credit and delivered the goods sued for to the corporation, with live knoAAdedge of the character and kind of property it had. Mr. Guernsey, travelling salesman for the Waters-Pierce Oil Company, testified that he signed the list to become one of the shareholders, and that he sold his interest to Mr. Crumpley. He Avas asked by defendants’ attorney if at the time the Waters-Pierce Oil Company sold the goods sued for, he did not know the kind and character and amount of property owned by the corporation. The court sustained an objection on the ground that the evidence was cumulative. Without further reviewing the testimony, it may be said that the allegations of plaintiff’s petition to the effect that the defendants conspired and represented that they had organized a corporation with a capital stock of $5000 fully paid up, and that the plaintiff' and the assignors of the account sued on, believing the representations, and the company' had a capital stock of $5000, extended credit to the defendants, Avere wholly — 507 — unproven. All the evidence shows that the defendants acted in good faith, and under the advice of Mr. Edward T. White, a lawyer of experience and recognized ability, and that they believed their corporation was reorganized in legal form. The general rule is, that where a person has contracted and dealt with another as a corporation, that he will be estopped in a proceeding AVherein such dealings are an issue to deny the existence of the corporation. [West Mo. Land Co. v. Railway Co., 161 Mo. 595, 61 S. W. 847; Hasbrouck v. Rich, 113 Mo. App. 389, 88 S. W. 131; In re Western Bank and Trust Co., 163 Fed. 713.] This rule however, has not been extended to cases; where no charters have been obtained from the Secretary of State, but is limited to irregularities in the organization of the corporation, and the general rule is, until the charter has been obtained from the state, the corporation has no legal existence. If the Kansas City-Aurora Mining Company was in existence in 1909, then Ave are of the opinion that the defendants are not personally liable in this case, as the plaintiff and his assignors dealt Avith the defendants as members of a corporation, and are estopped from denying the legal existence of the corporation on account of mere irregularities in its organization, or its failure to elect officers and hold meetings, etc. The evidence above stated shows that the company Avas legally organized in 1899; that it ceased to do business in 1901, and at that time Mr. Miller acquired all the stock and what property it had, and used the same for his own benefit. No steps were taken by the state or any creditor to dissolve the corporation, and it remained in that condition except for the making of certain reports to the Secretary of State, until March, 1909, when Mr. Miller assigned to certain other persons, a portion of the shares of the corporation, and a meeting was held, officers elected, and the corporation proceeded to transact business iu the usual manner. — 508 — It is claimed by the respondent that when Mr. Miller acquired all the stock of the corporation and ceased to transact business for several years, the corporation was dissolved and could not be resurrected, and cites in support of his contention the following cases: State Savings Bank v. Kellogg et al., 52 Mo. 583; Moore v. Whitcomb, 48 Mo. 543; State ex rel. v. Societe Republicana, 9 Mo. App. 114; Bank v. Gallaher, 43 Mo. App. 490. In the Kellogg case, the corporation was insolvent and had been adjudicated a bankrupt, and the court held that on account thereof, there was such a dissolution as to authorize creditors to bring suit against the stockholders without joining the company. The court expressly recognized the rule, that a corporation is not to be deemed dissolved by reason of any misuser or nonuser of its franchise until default has been judicially ascertained and declared, in the following- language relating thereto: “It may be admitted that the old and well established principle of law remains good as a general rule, that a corporation is not to be deemed dissolved by reason of any misuser or non-user of its franchise, until default has been judicially ascertained and declared.” In that case the plaintiff was proceeding under the statute to hold individual stockholders of a dissolved or defunct corporation, and the court simply held that such a creditor did not have to wait until the charter expired by limitation, but as to him the corporation would be deemed dissolved when it was adjudged a bankrupt. In the case cited from the 9th Mo. App. the distinction made in the Kellogg case is recognized in the following language: “Purely business and manufacturing corporations are deemed dissolved when they cease to do business and have become divested of their property; but these decisions are made in reference to the rights of creditors, the statute having- conferred a general liability on the stockholders.” The Gallaher case was also a suit under the statute providing that where a corporation is dissolved, leaving — 509 — debts unpaid, suits may be brought against any person who was a stockholder at the time of the dissolution, without joining the company. And the court stated that for the purpose of permitting a creditor to institute a suit, the corporation would be deemed dissolved when it had practically surrendered its corporate rights, ceased to do business and transferred all of its assets. In Moore v. Whitcomb, the corporation was organized and chartered for the sole purpose of building and operating a specific railroad. The company failed and the state foreclosed its lien on the property, and all of the property of the corporation including its franchise to build the road was sold'. The court held as the corporation was organized for the special purpose aforesaid, and because its right and authority to construct and operate the road, had been taken away, the company was thereby dissolved so as to permit a creditor to sue a stockholder as trustee without joining the corporation. In this case no creditor is pursuing the statutory remedy against the officers. The plaintiff is not claiming that he sold goods to a corporation that has since dissolved, and that the defendants were its officers at the time of the dissolution. The question here is: Is an ordinary business corporation, organized under the laws of this state, dissolved, so that it cannot be reorganized because it has ceased to do business, to own property, and all of its stock has been acquired by one person? The following authorities in this state are to the contrary: Hill v. Fogg, 41 Mo. 563; Kansas City Hotel Co. v. Sauer, 65 Mo. 279; Staunton Copper Mining Co. v. Thurmond, 7 Mo. App. 587; Ready v. Smith, 170 Mo. 163, 70 S. W. 484; Oxley Stave Co. v. Butler Co., 121 Mo. 614, 26 S. W. 367; Bank v. Robidoux, 57 Mo. 446; Youree v. Ins. Co., 180 Mo. 153, 79 S. W. 175; Mfg. Co. v. Montgomery, 144 Mo. App. 494, 129 S. W. 460. And so is the weight of authority. [Bethel Hotel Co. v. Webster, 31 L. R. A. 708; Button v. Hoffman, 61 Wis. 20, 20 N. W. 667; Baldwin v. Canfield, 26 Minn., 43, 1 N. W. 261; — 510 — Buell v. Buckingham & Co., 16 Ia. 284; Louisville Banking Co. v. Eisenmen, 94 Ky. 83, 39 L. R. A. 684, and authorities therein cited; 10 Cyc. 1276-7-8; Cook on Stockholders, 631.] The law is well summed up in Cook on Stock and and Stockholders, supra, as follows: “There are certain acts and facts which do not in themselves constitute a dissolution. A dissolution is not effected by a failure to elect officers; nor by a sale or assignment of all the corporate property; nor by the fact that one person owns all the shares of stock; nor by a cessation of all corporate business and acts; nor by the death of its stockholders; .nor by insolvency; nor, in all cases, by a consolidation with another corporation under statutory authority. For certain purposes, however, such as rendering stockholders liable on their statutory liability, or relieving directors from a penal liability, dissolution is held to arise by some of these acts.” We held in Mfg. Co. v. Montgomery, supra: “After the corporation had been organized, it Avas a-separate and distinct person from Montgomery, and notAvithstanding he was the owner of the stock, he was not the corporation. As said by the Supreme Court of Wisconsin, in Button v. Hogman, 20 N. W. 1. c. 668: ‘These general principles sufficiently establish the doctrine that the OAvner of all the capital stock of a corporation does not, therefore, own its property, or any of it, and does not himself become the corporation. While the corporation exists he is a mere stockholder of it, and nothing else.” Our law requires three persons to sign articles of agreement in order to organize a corporation, and therefore, a less number than three cannot organize. But there is a difference betAveen organizing a corporation, and the purchase in good faith of all the stock after the corporation has been created. In Louisville Banking Co. v. Eisenmen Bros, supra, the court said: “There is a difference betAveen the attempt to create one person — 511 — a corporation under this statute, and the purchase in good faith of all the stock after the corporation has been created. In the first instance, there is no corporation, and in the last, there is a franchise, the operations of which are suspended until the stock may be transferred to others.” In Swift v. Smith, 65 Md. 428, 5 Atl. 584, it is held that where one person has acquired all the stock of a corporation he may assign shares of stock to others and by so doing, the corporation can again proceed to transact the business for which it was organized. And in Kirch v. Louisville, 101 S. W. 373, it is held) that if the stock of a corporation has come into the hands of a single individual, the question whether this may be a ground for forfeiture of the franchise of the corporation can be raised only by the commonwealth, and the corporation is not subject to collateral attack by individuals under such circumstances. Our statutes, sections 2996-7-8, Revised Statutes 1909, provide how and under what circumstances a corporation may be dissolved. It is there provided when the directors or a majority of the stockholders shall discover that the stock, property and effects of the corporation have been so far reduced by loss or otherwise, that it will not be able to pay just demands, an application may be made to the court, and upon hearing, a judgment of dissolution may be rendered. From these statutory provisions, it is apparent that the failure of the company to have property to meet its demands, does not of itself dissolve the corporation, but it is only grounds for dissolution which afford the court the right to act in the matter. We do not believe that under the evidence in this case, the existence of the corporation is subject to collateral attack. The company was legally organized -with a fully paid up capital. At a time when no steps had been taken by the state to dissolve it for misuser or non-user of its franchise rights, these defendants ac — 512 — quired stock in it from the legal holder thereof, and the corporation then assumed to and did engage in the very business it was orgaiiized to transact. The goods sued for were sold axxd delivered to it as a corporation after the coxnpaxiy resumed business. Uxxder such circuxnstances the authorities hold, and we believe, correctly, that the plaintiff cannot attack the existence of the corporation in this collateral proceeding. [Kirch v. Louisville, 101 S. W. 373; Clark and Marshall on Private Corporations; 10 Cyc. 1278; Wight v. Railroad Co., 63 Am. Dec. 522.] The premises considered, we are of the opinion that the judgment is for the wrong party, and that plaintiff is not entitled to maintain the action against the de-» fendaxxts, and therefore, the judgxnexit will be reversed. All concur.