National Lead Co. v. S. E. Grote Paint Store Co.

80 Mo. App. 247, 1899 Mo. App. LEXIS 151

Opinion

BOND, - J.

Collateral attack. Before passing on the legal effect of the evidence introduced in support of the answer, it is necessary to decide whether in this proceeding any evidence of the purposes of the incorporation of plaintiff dehors the statements contained in its constating articles was admissible. It is quite true as a general rule that questions affecting the right of .a corporation to enjoy its franchise — to be a corporation, or its legal entity as such, can only be raised in a direct proceeding to annul or forfeit the grant to which the state granting the charter is a party, for the reason that as to third parties the legality of the corporation is avouched by its charter from the state which reserves to itself the power to withdraw the franchises bestowed upon evidence of fraudulent obtention or subsequent abuse. But the existence of this rule of procedure can not deprive the legislature of the power of enacting that inquiries affecting the validity of the charter of a corporation may be made in other proceedings than by an action in tire name of the state, and this is just what was done when the anti-trust act pleaded in defendant’s answer became the law of this state. By the language of the first section of that enactment a violation of its provisions is made a crime, i. é., a conspiracy to defraud, and subjects the offender to certain penalties provided in the act. By the second section of that enactment certain things disjunctively stated are declared to be unlawful. By the fifth section thereof purchasers of goods from corporations transacting business contrary to any provision of either the first or .second section of the act, are relieved from liability upon pleading the act as a defense to a suit for the price. Subsequent sections of the act provide that corporations offending any of its provisions may be dissolved by a quo warranto on behalf of the state. It is, therefore, perfectly plain that the act in question for’the same mischiefs affords two remedies; first, nonpayment of the price of goods sold by the offending corporation, a forfeiture of its charter by a direct proceeding on the part of the state. As it thus appears that the act in express terms permits a violation of any of its provisions to be pleaded by a private person in a suit against him for the price of goods purchased of a corporation transacting business contrary to the statute, it must follow that the right to plead 'such a defense entitles the party so authorized by the legislature to prove what he has pleaded." The correctness of this view seems hardly to require the support of authorities. But the right of a private person to make a collateral attack upon a corporation for abuse of its franchises, where express legislative authority to do so has been given, is the settled law of this state under repeated adjudications. Christian University v. Jordan, 29 Mo. 68; Railroad v. Winkler, 33 Mo. 354; Bank v. Garten, 34 Mo. 119; Cheeney v. The Inhabitants of the Town of Brookfield, 60 Mo. 53; Ins. Co. v. Smith, 117 Mo. 261. We are, therefore, wholly unable to assent to the views of the learned counsel for respondent that the trial court erred in receiving evidence tending to prove the real objects of the incorporation of plaintiff and the nature of the business conducted by it. Such evidence was competent under the express statutory authority given to the defendant to plead illegality in the incorporation or business transacted by plaintiff as a ground of release from the indebtedness sued upon.

The crucial question in this case is whether the plaintiff corporation, either in its organization, or business operations in this state, has offended any of the provisions of its laws? That the predecessor of the plaintiff, the “National Lead- Trust,” was an unlawful combination, both in purpose and fact, is sufficiently established by the nature of the agreement under which it was created and the methods and practices resorted to in furtherance of that agreement. The agreement in question can only be construed as a contract to suppress competition, fix the prices of commodities and limit their production, and to restrain trade. Unless some one or all of these purposes had been entertained by the signers of the trust agreement, it would have not contained provisions looking to the acquisition by the trustees of the entire le'ad business of the country, nor would it have united in the accomplishment of that end, a majority of the stockholders of the largest corporations dealing in that product. That it had these objects in view and practically accomplished them, is evident from the fact that it started with a concert of eight corporations and terminated after having issued ninety million of trust certificates, and after it formed a combination of thirty corporations, constituting a large majority of the lead dealers of the country, who had united themselves together in the effort to realize dividends upon the-aforesaid capitalization out of assets of less than one-fourth in value of the amount for which trust certificates had been issued. "While the conclusion of the illegal purpose of the-trust agreement is irresistible upon a consideration of its several provisions and the manner in which they were carried out, it will appear from an examination of the cases, that this result has been declared by every court called upon to-review that agreement, or others substantially like it. State ex rel. v. Standard Oil Co., 49 Ohio St. 137; Distillers, etc. Co. v. The People, 156 Ill. 448; Bishop v. A. Preserving Co., 157 Ill. loc. cit. 311; People v. N. R. S. R. Co., 121 N. Y. 582; Uncles v. Colgate, 148 N. Y. 529; U. S. v. Freight Ass’n, 166 U. S. 290; U. S. v. Joint Traffic Ass’n, 171 U. S. 505. Bnt the illegality of the organization and operation of the National Lead Trust does not involve the conclusion that the purchaser of its assets, whether a natural or artificial person, succeeded also to the status of that illegal combination under the laws enacted in this state for the punishment of pools, trusts and conspiracies. Eor the mere purchase by one of the assets which another has employed for an illegal purpose, does not of itself imply that they will be used by the purchaser for the purpose of effectuating the objects to which they had been devoted by the seller. Such an intent on the part of the purchaser, if inferable, must be gathered from proof of all the circumstances characterizing the transaction, as well as his subsequent conduct. As to these sources of proof, the record in the case under review shows that the beneficial owners of the property were the subscribers to the National Lead Trust and holders of its certificates, and that these same persons remained the beneficial owners of the same property after it was converted into the capital of the plaintiff corporation, the only difference being that each holder of a trust certificate received in lieu thereof shares of stock in the new corporation at an agreed rate of exchange, and the 'further fact that the legal title to the property was put into a corporate entity of a body of nine trustees appointed under the trust agreement. The sale itself was titular, rather than real. The corporation was professedly created to acquire the assets of the preceding trust. It was formed by the express authorization of the members of the trust and required to have “such purposes” and “such powers” as should be approved by the agents of the trust. In all other respects the fullest details of the organization of the future corpora tion were exactly defined and strictly prescribed in tbe formal resolution, adopted by the members of the National Lead Trust, directing certain agents (reorganizing trustees) to secure the specified charter of incorporation. By the terms of this resolution the projected corporation was not permitted to be formed independently of the capital furnished by the lead trust, nor was it permitted to be endowed with any “purposes” or “powers” which were not approved by the reorganizing trustees directed to obtain its charters. Moreover in point of fact it was actually created and organized in the strictest conformity with the requirements of said resolution and under a charter empowering it to carry on the business of manufacturing lead and its kindred products without restriction, and which expressly authorized it “to purchase * * * all such stocks, bonds, securities and obligations of other companies or corporations,” as might be convenient in the prosecution of its business. By the obtention of the latter and other grants of power (in its charter) the plaintiff corporation secured for itself every faculty possessed by its predecessor (the National Lead Trust), for engrossing the entire business of the country in the commodities in which it was authorized to deal. For it can not be maintained that the trust had any power to acquire the stocks and bonds of other corporations engaged in the same business — and thus stifle competition — ■ which was not expressly granted to the plaintiff in the amplest measure by the above quoted clause in its charter empowering it, in effect, to do the same thing. If, therefore, the preceding trust was an unlawful combination under the laws of this state as declared in the Acts of 1891 (then in force), it must follow that the plaintiff corporation is equally amenable to said acts, if, as the record shows the fact to be, it actually engaged through the same methods and for identical objects in a similar* business to that of the former trust, unless there is something in the mere fact of the plaintiff’s corporate character which exempts it from the application of the law prohibiting combinations to fix the price or quantity of products, or to restrain trade. The learned counsel for respondent seems to claim such an exemption for the plaintiff. In discussing the question thus presented we will concede for argument only that a private business or manufacturing corporation, which has-no implied power as such to purchase shares of stock in rival corporations, may acquire such a right under the laws of New Jersey if provided for in the articles of incorporation. The first section of the Act of 1891, supra, provides, that any corporation wherever created which is “organized to do business in this state, or any * * * individual or other, association of persons whatsoever who shall create, enter into, become a member of or a party to any pool, trust agreement, combination, confederation or understanding with any other corporation, * * * individual or any person or association of persons, to regulate or fix the price of any article of merchandise or commodity,” or in the same manner “to fix or limit the amount or quantity of any article, commodity or merchandise to be manufactured, mined, produced or sold in this state,” shall be deemed and adjudged guilty of a conspiracy to defraud, and be subjected to penalties as provided in this act.” Can it be rationally held that the legislature had in view the commission of the criminal offense created in the foregoing section by a corporation as such, separate and apart from the individuals composing it? There is no legal ground upon which such a view can be entertained. A corporation can only act through its members or their agents. The corporate entity with which the law clothes it for special purposes is not self-acting, hence there was no thought of its action only, in the mind of framers of the statute. The evident purpose of the legislature was to specify certain acts, which, if done by its stockholders or governing bodies,, should constitute a crime on the part of the corporation. It did not contemplate the commission of an offense by an impalpable abstraction, which could neither think nor act; but it intended to bind this corporate entity by the imputed actions of its human agencies. In other words, the legislature referred to the corporation in its true essence as an association of persons without which, it could not exist, and through whom alone, it must perform all its functions as a corporate being. Morawitz on Corporations, section 227; Taylor on Corporations, section 51; State v. Standard Oil Company, 49 Ohio St. 137; Buffalo Oil Company v. Standard Oil Company, 106 N. T. 669; Boogher v. Life Association of America, 75 Mo. 319. Hence it must follow that if the stockholders and governing officers of the plaintiff corporation combined with each other to violate any of the provisions of the section under review through the instrumentality of their corporate entity, then the corporation composed by them was a party to such illegal combination within both the letter and the spirit of the above section of the Act of 1891. Or concretely stated, that a combination which is illegal under the anti-trust law, can not be operated under the cloak of a corporation by its constituent members or governing bodies. This conclusion is believed to be irresistible in reason and has received the unwaivering support of the courts and the text writers. Ford v. Milk Shippers’ Ass’n, 155 Ill. 166; People v. Gas Co., 130 Ill. 275; Distilling Co. v. People, 156 Ill. 448; Strait v. National Harrow Co., 18 N. Y. Supp. 224; Beach on Monopolies, sec. 159; Hirsch on Com. Corp., p. 86; Am. Biscuit & Mfg. Co. v. Klotz, 44 Fed. Rep. 723; National Harrow Co. v. Quick, 67 Fed. Rep. 130; Merz Capsule Co. v. U. S. Capsule Co., 67 Fed. Rep. 414. In the case of Ford v. Milk Shippers’ Association, supra, the members of a milk trust subsequently incorporated brought action against a purchaser of the commodity sold by the corporation, who defended on the ground that it was formed in furtherance of a trust scheme and transacting business in contravention of an anti-trust act substantially the same as that pleaded in defendant’s answer in the present action. It was insisted for the plaintiff that being a corpora tion it could not violate the statute, to which defense the supreme court of Illinois answered as follows; “The corporation, as an entity, may not be able to create a trust or combination with itself, but its individual shareholders may, in controlling it, together with it, create such trust or combination that will consitute it, with them, alike guilty.” The point in judgment in that case is identical with the issue presented in the one before us. The conclusion reached by the Illinois court is logical, fully sustained by the above and other authorities, and in exact accord with the views heretofore expressed in this opinion.

Comity. Neither can the plaintiff shut off an investigation of its corporate organization and purpose upon the plea of comity due it as a foreign corporation. The doctrine 0n this subject is simple and clear. It concedes no rights to a corporation of a sister state which are denied by law to a domestic corporation, or which are contrary to the laws or public policy of the state into which the foreign corporation enters for business. Toomey v. Supreme Lodge, 74 Mo. App. loc. cit. 521; affirmed in 48 S. W. Rep. 936. “This law of comity was not established for the purpose of giving any state an unlimited power to dispose of the franchiseofactinginacorporatecapacity in other states. To obtain a charter for the purpose of evading the laws of a foreign state, under cover of the rule of comity, would be a fraud upon the state granting the charter; and to attempt to act under such charter in the foreign state would be a fraud upon the latter. Limit of capitalization. 2 Morawetz on Private Corporations, approved by the Kansas City Court of Appeals in Clayton v. Emery, 49 Mo. App. loc. cit. 351. The state of Missouri limits its business or trading corporations to a capitalization 0f tenmillionof dollars, thus putting a practical barrier to the unwholesome effects which might accrue from corporate energy supplied with unlimited capital. By the Act of 1891, it has regulated the business of all corpo rations, foreign or domestic, within its borders. To extend the principle of comity to the plaintiff corporation would not only endow it with a capacity denied a domestic corporation, but would annul in its favor the provisions of a law (Act of 1891) applicable to all corporations, foreign or domestic, and which was enacted by the state in the execution of its sovereign power of internal regulation and for the welfare of its citizens. Hence it is plain that no question of comity can be invoked in this case.

Holding as we do that the corporation formed, fashioned, constituted and controlled by the parties to an illegal combination in furtherance of its purpose, afforded no .barrier to an exposure by the purchaser of its goods, of the nature of its business, and the true purposes of its organization under the anti-trust act law of Missouri, the next inquiry is does the record show such a state of facts as to relieve the purchaser from liability for the goods sold to him by the plaintiff ? All that the statute requires to be shown to afford such a release, in addition to the proof of the- illegal character and purpose of the plaintiff corporation already referred to, is evidence that the indebtedness sued for grew out of the transaction of its business in the state. That the goods were purchased by defendant in this state hardly admits of a doubt, for the itemized account filed with plaintiff’s petition shows that the sale of its commodities was made by one of' its branch departments in the city of St.- Louis, where the evidence also shows the defendant was engaged in business, and there was also evidence tending to prove that plaintiff was using properties it had purchased in St. Louis and East St. Louis in furtherance of its illegal design. Hence the case should have been submitted to the jury upon the undisputed facts and documentary evidence in the record proving that the plaintiff corporation was itself a party to an illegal combination on the part of its managing officers and constituent members under the first section of the Act of 1891, and upon evidence tending to prove that it was transacting business contrary to said section of said act at the time of the purchase by defendant of the goods sued fpr. In the elaborate instructions given by the learned trial judge at the request of plaintiff and of his own motion, this issue was not submitted to the jury in accordance with the law as declared in this opinion, on which account the judgment in this case must be reversed and the cause remanded. As the case must be retried it is proper to pass upon the questions raised by the evidence proffered by defendant and excluded by the court, tending to show that the plaintiff as a member of a “Drug Club” was a party to an agreement to regulate or fix the price of commodities of the kind dealt in by it. The learned trial judge rejected this testimony, as shown by the memorandum on the motion for new trial, for want of specific specification in the answer of defendant of the dealers with whom the contract was alleged to have been made and the location of the club. It is questionable whether the allegations of the answer were not sufficient to entitle the defendant to the proof in question. The proof itself was clearly germane to one of the express prohibitions of the anti-trust act, and should undoubtedly have been admitted, if the issue as td such a contract to fix or regulate the price or products was sufficiently tendered by the averments of the answer. As the case must be remanded, any indefiniteness of the answer on this point may be cured by proper amendment. The result is the judgment is reversed and the cause remanded.

All concur. Judge Bland in the reversal.