South Missouri Pine Lumber Co. v. Crommer

CRAVES, J. Plaintiff, South Missouri Pine Lumber Company, is a Missouri corporation, organized on March 24, 1900’, whose certificate of organization was issued by the Secretaiy of State, March 26, 1900. Plaintiff was organized with a capital stock of $50,000, divided into five hundred shares of $100 each. O'f these shares A. J. Haus subscribed for 169; E. P. Ewart, 141; W. F. Maxwell, 95, and E. C. Hartwig, 95. Ewart, who is defendant herein, was an experienced lumberman, formerly of Topeka, Kansas, and later of St. Joseph, Missouri; A. J. Haus, who' is no party to the action, was an experienced lumberman of St. Joseph, Missouri; Maxwell and Hartwig, stockholders in the company, with Ewart and Haus, were bankers' without experience in or knowledge of the lumber business. The defendants in this case are E. P. Ewart, an original stockholder in plaintiff company, but not such at the time of the suit; S'. E. New-house, William Crommer, William F. Crommer and S. J. Malugen. From the petition and from the evidence it appears that the two Crommers owned a- large tract ,of land in south Missouri, upon which there was — 509 — saw timber of different kinds and character. They likewise owned sawmill plants situated upon portions of their property. The Crommers were and had been in hard straits, financially. At one time, prior to the transactions involved in this case, they had, through the instrumentality of S. E. Newhouse of St. Louis, procured a loan of $3,000 upon this property, from the Wesleyan College of Warrenton, Missouri. That, still being in hard straits, financially, they placed their property upon the market with defendant S. E. New-house, authorizing said Newhouse to sell said property for $21,000, and agreeing to pay him out of the-$21,000 the sum of $500, and further agreeing with him that whatever he got over and above $21,000 he should receive as his commission in addition to the $500 hereinabove mentioned. It seems that with this proposition upon his hands, Newhouse, through one Martin of Topeka, Kansas, and Brewster of St. Joseph, Mo., interested Hans and Ewart of St. Joseph, and they in turn interested Maxwell and Hartwig. From- the start, it appears that Maxwell and Hart-wig were in favor of organizing a corporation to take care - of the Crommer property, or whatever property might be bought. Maxwell would not go in unless they incorporated. So far as the evidence shows, neither Newhouse nor the Crommers knew anything about these first discussions of organizing and incorporating the plaintiff company. Prior to the organization of the company it was agreed between Hans, Ewart, Maxwell and Hartwig, the prospective incorporators, that Hans and Ewart ■ should proceed to south Missouri, and examine the Crommer plant and lands and negotiate for the purchase of same. Accordingly they left St. Joseph for that purpose with the knowledge of Maxwell and Hartwig. But before leaving they had an understanding with Maxwell and Hartwig that they and each of them had real estate which they would like to trade in on the deal in lieu of — 510 — a cash contribution for their stock in said proposed company. Haus and Ewart went to Elsinore, where the Crommer lumber plant was situated, and were there met by defendant Newhouse, the agent of the Crommers, as well as by the Crommers themselves, together with one Kirkland, who was the timberman for the Crommers. Under the guidance of Kirkland, Haus and Ewart inspected a portion of the timber land's then offered for sale by the Crommers and were asked, especially by young Crommer, to inspect it all. After this inspection and on March 15, 1900, the parties entered into the following contract: “Elsinore, Mo., March 15, 1900. “It is agreed, this day by and between ¥m. and W. F. Crommer of Elsinore, Mo., parties of the first part, and A. J. Haus, E. P. Ewart, W. F. Maxwell and - C. E. Hartwig, of St. Joseph, Missouri, parties of the second part. “That the parties of the first part, for and in consideration of fifty dollars in hand paid and a further consideration of four hundred and fifty dollars to be paid March 19, 1900', and four thousand five hundred dollars to be paid on the delivery of the deeds to said property hereafter described by parties of the first part to said parties of the second part, and sixteen thousand two hundred and fifty dollars in real estate, located in St. Joseph, Missouri, and Topeka, Kansas, and accepted by S. T. Newhouse, of St. Louis, Missouri, agent for the parties of the first part, and by assuming a certain deed of trust for three thousand dollars, now on said lands, and property deeded by said parties of first part and due in three years from January, 1900, and payable to the Wesleyan College of Warrenton, Missouri, bearing interest at the rate of seven per cent, payable annually and by a deed of trust of thirteen thousand dollars secured on the property deeded by the parties of the first part and payable — 511 — in thirteen each, one thousand dollar notes and due in one, two, four, five, six, seven, eight, nine, ten, eleven, twelve, thirteen and' fourteen months respectively with interest at six per cent from date thereof until paid, agreed to deed by special warranty deed to parties of the second part seven thousand five hundred acres of land located in Butler, Carter and Wayne counties, Missouri, to-wit: Five thousand acres of virgin timber land located as follows: (Description omitted). “All in township 26, range 4 east, Butler county, Missouri, free and clear of any and all debt, except a certain deed of trust for three thousand dollars above described and which parties of the second part assume and agree to pay and the taxes for 1900. “Also twenty-two acres of land located in the town of Elsinore, Missouri, together with all improvements thereon and all of the town lots owned by parties of the first part in the town of Elsinore, Missouri, excepting lots Nos. 1, 2, 3, 4, 5, 6, 7, 8, and the lot upon which Horren store building stands, together with all improvements thereon. The above twenty-two acres including the store building, warehouses, houses of all kinds, and sawmill and planing mill and all bams, in fact all improvements thereon, including the machinery in the mills, office fixtures, and furnish bill of sale to stock of goods now in said store building and warehouses, and teams consisting of seventeen mules, one horse and two horses, together with all harness, wagons, log chains, cant hooks, skidding tongs, in fact all tools, etc., owned by said parties of the first part at Elsinore, Missouri. Also a sawmill and planer located near Orchard Switch, and owned by the said parties of the first part and located in section 24, township 27, range 3 east, in Wayne county, Missouri, all property to be free and clear from debt, excepting the three thousand dollar deed of trust as above mentioned, and all taxes for the year 1900 and thereafter which par — 512 — ties of the second part assume and agree to pay. It is further agreed between said parties that this sale be consummated on or before April 2, 1900, by the said parties of. the second part paying over said $4,500 and executing their certain deed of trust as set out above, and executing their certain deeds to real estate as per agreement above, and said parties of the first'part delivering their'deed to the 7,500 acres and other property above set out at the office of the parties of the first part at Elsinore, Missouri, and it is* further agreed that parties of the first part will stop cutting timber on the said lands herein mentioned on the payment of four hundred and fifty dollars next Monday, March 19,1900, and to turn all mills and other property over to said parties of the second part, April 2, 1900, excepting the planing mill, which parties of the first part reserve the right to use free of cost if needed by them for fifteen days, or until April 15, 1900. It is understood that the timber cut and now in the yard: is not sold under this agreement and parties of the 'first part have the right to remove same, but not obstruct parties of the second part. “W. F. Maxwell, “E. O. Hartwig, “By E. P. Ewart, “Wm. CltOMMER, “W. F. Grommer, Jr., “A. J. Halts, “E. P. Ewart.” About the time the contract above quoted was signed, Haus and Ewart wrote and telegraphed Maxwell to come down and inspect the property. Maxwell was there on March 19th, saw what purported to be a portion of the property, accepted the contract and paid the $450 mentioned in the contract. He then returned to St. Joseph, where, later, on the dates hereinabove mentioned, plaintiff corporation was organized and chartered. Maxwell and Hartwig each put — 513 — in $5,000 in cash. On April 2, 19001, deed was made by the Crommers to the corporation, at which time Hartwig and his attorney, Rusk, were present, together with Hans and Ewart, who had gone to Elsinore a day or two previous. At this time the deed was received and the deed of trust made back to the Crommers: All of the parties were afforded ample opportunity to inspect the property. This action is to cancel the last six notes of $1,000 each, mentioned in the contract above set out, as well as in the deed of trust, and further to “recover of defendants, William Crammer, William F. Crommer, E. P. Ewart and S. E. Newhouse, the value of the stock issued by plaintiff to the defendant, E. P. Ewart, and by him sold to the said Doyle. That plaintiff recover of said defendants the value of the stock issued to the said A. -J. Haus, and that the difference in the value between the property contracted to be sold and delivered under the contract of March 15, 1900, and the value of the property actually delivered either under that contract or said supplemental contract of January 18, 1901, be ascertained, and that plaintiff recover ■of defendants judgment for the amount of said difference.” Then follows a prayer for an injunction asking that the sale under said mortgage be restrained and that further attempt to collect said six notes be enjoined and restrained. It appears from the petition and from the evidence that previous to this action, E. P. Ewart had been bookkeeper and general manager of plaintiff, and had sold his stock to one Doyle, who thereupon assumed the duties exercised by Ewart. It also appears from the evidence that Ewart was crowding Doyle upon some securities given in payment of his stock, and thereupon Doyle discovered in the books of the company that fraud had been' committed upon the com — 514 — pany in the purchase of these lands, to the effect that the Crommers had never asked nor received more than $21,000 therefor, and the company had paid $37,500. It might he well to remark here that the four incorporators, after these lands had been acquired, put them into the corporation at the price and sum of $50,000, thus issuing to themselves full paid stock. It further appears from the evidence that it was claimed that the Crommers had misrepresented the lands conveyed, in so far as to what amount was cov- . ered by virgin timber, and in settlement of this, dispute a supplemental contract was made, which supplemental contract was as follows: “It is agreed and entered into this 18th day of ’January, 1901, by and between Wm. Crommer, of Belgrade, Washington county, Mo., and W. P. Crommer, of Carter county, Mo., parties of the first part, and the South Missouri Pine Lumber Co., of St. Joseph, Mo., duly incorporated in Missouri, by A. J. Haus, its president, and E.. P. Ewart, its secretary, party of the second part. ‘ ‘ That parties of first part, in consideration of one dollar, the receipt of which is hereby acknowledged, and a further consideration in lieu of any timber that may have been cut out of the lands contracted by said parties of the first part, March 15, 1900, and deeded as virgin timber, to said party of the second part, agrees to deed by special warranty deed to the party of the second part the following lands in Butler county, Missouri: (Description omitted.) “Also the standing timber on 400 acres owned by parties of the first part and known by party of the second part and located in section 26, township —, range 3 E., Carter county, Missouri, to-wit: (Description omitted.) “And accepted by said second party and credit notes held by said parties of the first part and secured by deed of trust to the amount of $1,750 in full of all — 515 — claims or damages of said second party against said first parties for any shortage as above described, and it is further agreed that said parties of the first part shall have 90 days time to secure the lands to be agreed upon in the 480 acres mentioned above. “Wm. Crommer, “W. F. Crommer, “South Missouri Pine Lbr. Co., “Per A. J. Haus, President, “Per E. P. Ewart, Secretary.” “We, William and W. F. Crommer, of Elsinore, Mo., agree this 18th day of January, 1901, to extend notes number 8, 9, 10, 11, 12 and 13, due January 2nd, February 2nd, March 2nd, April 2nd, May 2nd, and June 2nd, 1901, respectively, made by the South Missouri Pine Lumber Company, April 2, 1900', for one thousand dollars each, with interest at six per cent from date thereof and secured by deed of trust, note No. 8 due January 2, 1901, to May 2nd, each of the others every six months thereafter respectively until paid. In return said South Missouri Pine Lumber Company are to pay note No. 4, due Sept. 2nd, on or before January 26, 1901, with interest thereon from date thereof at German Savings Bank, St. Louis, Mo., instead of Elsinore, Mo., and notes No. 5, 6 and 7, dne Oct. 2nd, Nov. 2nd, and Dec. 2nd, 1900, respectively, with interest thereon at same bank on or before February 16, 1901, less credit of $1,750 as per contract of this date made between us and the South Missouri Pine Lumber Company. “We further agree to use said moneys to be paid into German Savings Bank in payment of four hundred and eighty acres of land as per contract of this date or so much as will be needed of same, said money to be paid by said Bank and checked on orders made by S. E. Newhouse until said four hundred and eighty acres are purchased and contract of this date complied with. — 516 — “Wm. Crommer, “W. F. Orom:mer, “South Missouri Pine Lbr. Co., “Per A. J. Haus, President, “Per E. P. Ewart, Secretary.” The evidence, or the weight of the evidence, shows a practical compliance with this supplemental contract by the Crommers. It was so nearly fulfilled that no great substantial damage could accrue to the company. It is extremely doubtful, under the facts, whether there was any liability upon the part of the Crommers under the first .contract. Defendant Malugen was sheriff and acting trustee in the deed of trust. The property had been advertised for sale under the deed of trust- at the institution of this action, which sale was stayed by the temporary injunction granted. The substantial defendants answered by way of general denial, pleaded the second contract as a settlement and adjustment of all matters, and asked affirmative relief by way of a decree of foreclosure. Reply, general denial. The record of evidence is contained in something 1-ike nine hundred printed pages. The trial court after hearing all the evidence, some competent and much incompetent, dismissed plaintiff?s bill and also dismissed defendants’ cross-bill asking for decree- of foreclosure, thus leaving the parties standing just where they were previous to the action. But later the court so- modified the decree as to keep the temporary injunction in force until the termination of the cause in this court. Plaintiff thereupon appealed. The only evidence in any way detrimental to the Crommers is an alleged admission by Wm. Crommer, testified to by the witness Kirkland, to the effect that he (Crommer) knew that Ewart and Haus were raising the price from $21,000 to $37,500- before the deal was close-d. This is the only substantial evidence of — 517 — any conspiracy upon the part of the Crommers to aid and abet Hans and Ewart in defrauding the proposed corporation. Hans, who was at the time of the trial a stockholder in the corporation, and an alleged party to the fraud, did not testify. Nor was he made a party to the suit, although the evidence of plaintiff would tend as strongly to involve him as to involve Ewart, and more strongly to involve him than the two Crommers. Upon behalf of the defendants, it was admitted by ■ all that the Crommers only got $21,000' for their property. They emphatically denied any conspiracy or agreement to raise the price of the property to defraud plaintiff corporation. Newhouse, and the Crommers, denied having anything to do with the incorporation of plaintiff, or any knowledge of its incorporation, until such time as the deed was made, when the incorporators directed the deed to be made to plaintiff. For them the evidence shows that Newhouse got all the property at St. Joseph and Topeka, and out of it paid Martin, the real estate man at Topeka, $1,250, and Brewster of St. Joseph, $450. They testify that to the four promoters of plaintiff corporation, but one price was ever made by the defendants, Newhouse and Crommers, and that was $37,500. This price was fixed by Newhouse and the Crommers acquiesced in it, knowing that Newhouse was to get the difference between $21,000 and $37,500. The evidence also shows that the property was in fact worth $40,000 or more; when plaintiff acquired: it. In fact, Doyle, one of plaintiff’s stockholders and its general manager, makes an estimate of the timber on the land, which would show that the property must have been worth $40,000 or more. Such further portions of the evidence as may be necessary will be noted in the course of the opinion. — 518 — OPINION. I. The record discloses many lapses of memory in the witnesses. Nor is this confined to one side of the cause. Again, plaintiff’s general manager, Doyle, in effect admitted that he had been promised a consideration by Maxwell to testify as he, Maxwell, did. The testimony of Newhouse and Ewart is by no means clear and satisfactory, but to one used to the many schemes of real estate agents, where they are to get other than a fixed commission, a fair conclusion can be drawn from it. This, however, we will discuss hereafter. First, were Newhouse, and Crommers, in any sense promoters of the corporation? Under the evidence, we say, no. The trial court was amply justified in finding that the parties were not promoters. “Whether a person is or is not a promoter is a question of fact and not of law, and must in each case be determined with due regard to all the circumstances. ’ ’ [23 Am. and Eng. Ency. Law (2 Ed.), 233.] The same authority, at page 232, defines promoter thus: “A promoter is a person who takes such preliminary steps in the formation of a corporation as to bring himself into a fiduciary relation thereto, analogous to that of trustee and cestui que trust.” Cook on Stock and Stockholders (2 Ed.), sec. 651, gives the following definition: “A promoter is a person who brings about the incorporation and organization of a corporation. He brings together the persons who become interested in the enterprise, aids in procuring subscriptions, and sets in motion the machinery which leads to the formation of the corporation itself.” Our court has adopted practically the same definitions. [Exter v. Sawyer, 146 Mo. 302; Land Co. v. Case, 104 Mo. 572.] There is nothing in this evidence to bring Newhouse or the Crommers within the definition of a promoter. No evidence here that they helped organize plaintiff cor — 519 — poration. Haus, Ewart, Maxwell and Hartwig had agreed to go into the sawmill business and to organize a corporation, before they ever saw either New-house or the Crommers. They had also' agreed before they ever saw Newhouse or the Crommers that Haus and Ewart should put in property instead of cash, if they could do so. They had agreed upon all the stockholders of the corporation. These agreements and understandings were in St. -Joseph before Hans and Ewart went to Elsinore, the location of the Crommer plant, where they, for the first time, met the Crommers and Newhouse. Newhouse and the Crommers in no way solicited subscribers to the stock of the contemplated, corporation. No court could, under the evidence in this record, say that these parties were promoters. So that it follows that upon this theory of plaintiff’s case, the defendants Newhouse and the Crommers are not liable. This of course leaves out of consideration the alleged conspiracy between Ewart, who was a promoter, and Newhouse and the Crommers. This we consider next. II. Plaintiff next urges that even if Newhouse and the Crommers were not technically promoters, yet Ewart was a promoter, and if Newhouse and the Crommers aided and abetted him in the perpetration of a fraud upon the company, they are liable in a joint action with Ewart. There is no question that Ewart was a promoter. Now, as to the alleged conspiracy between Ewart, Newhouse and the Crommers. To show this conspiracy to defraud the corporation by raising the price from $21,000 to $37,500, plaintiff showed that Haus put in property not worth more than $4,500 for $8,750; that Ewart claimed to put in the property of his father not worth more than $4,500 for $7,500, but in fact put in no property at all; that the Haus property was deeded to one Edwards, a friend of Ewárt, and Edwards placed a loan thereon — 520 — for $2,200 and out of the proceeds paid Brewster $450 and turned over the remainder to Ewart; that Edwards afterwards deeded the Hans property to Carrie Thorn, the fiancee, and later the wife of Newhouse; that Newhouse afterwards sold the property for less than it was worth. They also show by Kirkland, who became the timberman for the company after the purchase from the Crommers, and who was in the service of the company at the date of the trial, that Wm. Crommer had admitted that Haus and Newhouse raised the price of the property and that he knew it. This is in substance the plaintiff’s case upon the alleged conspiracy. Ewart, Newhouse, and the two Crommers each deny that there was any agreement or understanding between the parties to raise the price. Wm. Crommer, who denied the talk with Kirkland, is shown to be a man of excellent reputation and the evidence given by .him and his son bear the earmarks of honesty. New-house and Ewart say that after the delivery of the deed to the Topeka property, Ewart paid Newhouse $2,500 in cash and took up the deed. They alse say that Ewart paid Martin $1,250’ ont of the loan on the Haus property, as his part of the commission in making the sale, and the remainder was paid by Ewart to Newhouse. They explain that Edwards was made grantee in Haus’s deed for the reason that Martin did not know Newhouse and wanted his commission secured and asked Ewart to see to it for him. Martin knew Edwards and was willing to trust him. New-house had been sick for a long time and had large debts hanging over him and was anxious to get cash rather than property. Ewart had sold ont his lumber business in St. Joseph, and had the money with which to take up the deed to his father’s property. In our judgment Newhouse was getting the property which was being put in and would thereby be making a very nice commission for one financially in hard straits, — 521 — and was not very particular at what price the property was being valued at in the trade. On the other hand, Haus and Ewart were g’etting large blocks of stock by putting in their property at an inflated value. In other words, they took advantage of Newhouse’s eagerness to trade to get big values for their real estate and thereby larger amounts of stock in their proposed corporation. When the trade was closed by the original contract, Newhouse set about to realize money out of the property and did so irrespective of the inflated valuation. This theory is consistent with all the evidence. “Fraud wili not be presumed when all the facts in the case consist as well with honesty and fair dealing as they do with an intention to defraud.” [Rumbolds v. Parr, 51 Mo. l. c. 598.] See, also, on the same proposition: Dallam v. Renshaw, 26 Mo. 533; Henderson v. Henderson, 55 Mo. 534; Glover v. American Cas. Ins. & Sec. Co., 130 Mo. 173; New England Loan & Trust Co. v. Browne, 177 Mo. 412. Fraud and collusion will not be presumed, and the burden is on the party charging them to reasonably satisfy the chancellor that they in fact exist. [New England Loan & Trust Co. v. Browne, supra.] In the case at bar the trial court heard all the parties testify from the witness stand. Their demeanor could be observed. Their facial expressions could be read. Under such circumstances the finding of the chancellor is entitled to some consideration by this court. The authorities on this, question are thoroughly, reviewed by Fox, J., in the Browne case, supra. In that case Judge Fox says: “We also fully recognize the duty of appellate courts, in equity cases, to supervise the decrees of the trial court, to the end that they may ascertain that its judgment is clearly in keeping with good conscience and justice. There is also another rule, equally well settled, in respect to — 522 — the deference paid to the finding of the chancellor. While this latter rule should not interfere with the power of the appellate court to supervise the judgment of the trial court, and occasion this court to lessen its strictness in scrutinizing the findings of the chancellor, yet the action of the trial- court should not he absolutely ignored; but that due and appropriate consideration should be given to such findings to which they are entitled, under the well-settled rules, as announced by this court. ’ ’ An examination of this voluminous record shows no sufficient ground for disturbing the decree of the trial court, and the judgment is therefore affirmed, and temporary injunction dissolved. Valliant, P. J., and Lamm, J., concur; Woodson, J., not sitting.