Vogeler v. Punch

103 S.W. 1001, 205 Mo. 558, 1907 Mo. LEXIS 132

• Court: Supreme Court of Missouri
• Decided: July 1, 1907
• Status: Published

Opinion

BURGESS, J.

This is a suit in equity, and was instituted by Louis L. Soloman, a stockholder of the defendant Copper Crown Mining Company, against Montague Punch and the said Copper Crown Mining Company for the cancellation of a certificate for one thousand shares of the capital stock of said company of the alleged par value of twenty-five dollars each. The plaintiff, Soloman, having died during the pendency of the suit, it was revived in the name of his administrator, Charles M. Dewey. The latter having also died during the pendency of the suit, it was revived in the name of Soloman’s administrator cle bonis non, Julius Vogeler, the present plaintiff.

The petition upon which the case was tried alleges in substance that the Copper Crown Mining Company is and has been, since the twentieth day of July, 1902, a corporation organized under the laws of the State of Michigan. That the defendant Punch is in possession of and claims to be the owner of certificate No. 35 of the stock of said corporation, purporting to be for one thousand shares of said stock, full paid and non-assessable. That said Punch has been endeavoring to sell and dispose of the stock represented by said certificate, and is now about to sell and dispose of the same. That' Punch is not the owner of said stock, and has paid nothing to the company for the same. That said stock certificate, which has been for some time signed in blank by the president and secretary of the company, but not filled out for any number of shares or in the name of any person, was on the eighteenth day of September, 1902, filled out for one thousand shares in the name of Punch, and was on the twelfth day of January, 1903, delivered to Punch by M. J. Hopkins (the president of the company). That the certificate was a part of the treasury or reserve stock of the corporation, being a portion of that stock which was reserved for sale in order to raise funds to carry on its mining operations. That there was never any action. by the board of directors authorizing the said Hopkins or anyone else to fill out and deliver the said certificate to Punch, but that said delivery was made by the said Hopkins to Punch upon his own motion, all of which matters and facts were well known to Punch. That prior to the incorporation of the company, Punch entered into an agreement with M. J. Hopkins and one W. R. Hopkins that the company should be incorporated under the laws of the State of Michigan, that Punch should do the legal work necessary in the matter of said incorporation and organization and continue during the first year of said corporation’s existence to render all necessary legal services and advice in connection with the same. That Punch, at the time said agreement was made, represented that he had acquaintances and connections which would enable him to procure and: induce investment by other persons of the necessary funds to carry out the development of the mining business, in which it was proposed the company should engage. That said agreement between Punch and the Messrs. Hopkins was never made known to the other stockholders of the corporation or its board of directors. That Punch drew up and prepared the articles of incorporation and placed himself thereon as a' subscriber for two thousand shares of the stock thereof. That thereafter and until he obtained possession of the said certificate of stock he continued to act as the legal adviser of the said M. J. and W. R. Hopkins, and pretended to act as counsel and attorney for said corporation. That subsequent to drawing the articles of incorporation, he wholly failed and neglected to perform his duties as attorney; that he failed and neglected to prepare drafts of minutes of the first meetings of stockholders and directors and of by-laws to be submitted to the board of directors, as he promised to do. That in September, 1902, he began to urge the Messrs. Hopkins to issue two thousand shares of the stock of the company to him; that in order to induce them to do so, he represented to them that certain persons were willing to invest in the company and would invest, if he could convince them that he was largely interested therein, which statement was false. He further stated to the Messrs. Hopkins that as a matter of law he was entitled to have such stock issued to him. That they fully relied upon him, and upon faith in his statements and advice delivered to him said certificate No. 35 for one thousand shares of the stock of the company, and also another certificate of the stock of the company for one thousand shares. That shortly thereafter, Punch sold or pretended to have sold the latter certificate to a third person. That the latter certificate for one thousand shares was transferred to such third person on the books of the company by W. R. Hopkins without authority from the directors. That Ptmch has never paid anything to the company for either of said certificates of stock. That the company and its officers are now recognizing Punch as a stockholder in the company. That the plaintiff has endeavored unsuccessfully to secure from the company relief against the assertion by Punch of his claim of ownership of said certificate. That if Punch is permitted to sell or dispose of said certificate, the plaintiff’s rights as a stockholder of said company will be seriously injured, and he will be greatly damaged, and that he is without adequate remedy at law, etc. The prayer of the petition is that the court order that said certificate be surrendered and cancelled, and that until the determination of the suit, Ptmch be enjoined from asserting any rights as a stockholder by virtue of said certificate or from disposing of it or attempting to dispose of it. Upon this petition, a temporary injunction was issued as,prayed.

At the time of the institution of this suit, there was in force against the defendant company a peremptory writ of mandamus issued by the circuit court of the city of St. Louis against the company in a suit instituted by Punch, commanding the company in substance to recognize Punch’s rights as a stockholder under the same certificate. This peremptory writ of mandamus was, upon a motion in arrest of judgment, afterwards quashed.

Punch’s answer to' the petition was a general denial.

The defendant, the Copper Crown Mining Company, filed an answer and a cross-bill, the allegations of which are substantially the same as those contained in the plaintiff’s petition, and substantially the same relief was prayed for.

Before the taking of evidence was commenced, the plaintiff requested the court to make a written finding of facts and of the law after all the evidence had been ' submitted.

After hearing the evidence, the court rendered the following decree, and made the following findings of facts and of law:

“This cause coming on for hearing upon the pleadings and testimony herein, it is ordered and adjudged and decreed, that the said Montague Punch, one of the defendants herein, became on January 12, 1908, and continues to be, the lawful owner and holder of certificate No. 35 for one thousand shares ($25,000') of the capital stock of said Copper Crown Mining Co. (a corporation), a defendant and cross-complainant herein, issued by its authority for legal services rendered and to be rendered to it by him, and that he is a stockholder in said company and as such is now, and was continually, entitled from January 12,1903, and prior thereto, to' all the rights and privileges of a stockholder in said company, and that neither the plaintiff nor said Copper Crown Mining Co. is entitled to any relief in this action and that the injunction granted in Division No. 2 of this court is dissolved and the petition of the plaintiff and cross-complainant, said Copper Crown Mining Co., are dismissed and the costs of this proceeding are taxed against said plaintiff and against said company.

“And in rendering said judgment and decree the court made findings of law and facts as follows, to-wit:

“The original plaintiff, L. L. Soloman (now deceased) was, on August 31, 1903, the date this suit was filed, the owner of seventy-one shares of stock of the defendant and cross-complainant, the Copper Crown Mining Company, a mining company incorporated July 18,1902, under the laws of the State of Michigan, with a capital stock of two million, five hundred thous- and dollars, consisting of one hundred thousand shares of the par value each of twenty-five dollars.

“Some months before its incorporation, Montague Punch, the defendant, and an attorney at the St. Louis Bar, had been employed (with the consent of Dr. Hopkins, by W. J. Hopkins, one of the promoters of the company, and its secretary when organized) to draw the papers and do the work preliminary to the incorporation, and to continue for one year to act as its legal adviser, with the understanding that he should get as compensation two thousand shares of the company’s stock, issued as full paid and non-assessable. He did this preliminary work, also drafted minutes, revamped by-laws prepared by the company’s Michigan counsel, and after the incorporation attended directors’ meeting and acted as the company’s legal adviser until the early part of 1903, when his further services were refused by the company.

“The incorporators and board of directors for the first year were Dr. M. J. Hopkins (also the president), W. J. Hopkins his brother (also the secretary, and who did not give his testimony in this case), Julius Yogeler (the father-in-law of Dr. Hopkins), W. T. Ross (both of these got their stock as promoters), and defendant Punch, who subscribed for two thousand shares, which he was to pay for by said legal services. The Hopkinses were the chief parties in interest. All, as directors, knew that Mr. Punch was acting as counsel for the company and said directors also knew that the stock, two thousand shares in two certificates Nos. 35 and 156, of one thousand shares each, was issued to him for services rendered and to be rendered as aforesaid. No minute book was in evidence, and such minutes as were kept, seem to have been kept on slips of paper.

“One certificate (No. 35) was dated September 18, 1902, the other (No. 156) January 12, 1903, and both were delivered to Mr. Punch on the last-named date. In February, 1903, he sold one thousand shares (certificate 156) to one Jacob Lippe, through a broker, for one thousand dollars, and the company issued to said Lippe sixteen certificates aggregating one thous- and shares, in lieu of said single certificate. Defendant still holds certificate No. 35.

‘ ‘ The stock never had any market value, in the legal meaning of that term, but some of it sold as high as $7. In September, 1902, and January, 1903, it could not be sold at a price to exceed two dollars and a half, and that price could not have been readily obtained.

“On June 15, 1903, the company, in writing, refused to recognize Mr. Punch as a stockholder, and on June 20 he began a mandamus proceeding in Division No. 6 of this court to compel recognition by the Copper Crown Mining Company of his rights as a stockholder in virtue of said certificate No. 35. The company denied in its return that he was a stockholder. After a hearing, a peremptory writ was issued on August 31, 1903, but motions for a new trial and in arrest were sustained on September 21, 1903, because the court erred in granting a peremptory writ that did not conform in its requirements to the alternative writ. That case is still pending. On September 23, 1903, the company called on Mr. Punch to pay on the two thousand shares he had subscribed for an assessment of six dollars per share.

“Mr. Soloman did not seek relief through the corporation only to be'denied, as alleged in the petition; on the contrary, after the order in the mandamus case of August 31, 1903, granting the peremptory writ, it was agreed between the company and Mr. Soloman that the latter should bring this action as the quickest and best way to effect their common purpose of having defendant Punch judicially declared not a stockholder in said company.

“The court finds and declares the law to be that •under the facts found the defendant, Mr. Punch, became on January 12, 1903, and continues to he, the lawful owner and holder of certificate No. 35 for one thousand shares of the capital stock of the Copper Crown Mining Company issued hy its authority for services rendered and to he rendered, and said company could not against his wishes refuse to further receive his services and thereby, affect his rights as stockholder.

‘ ‘ The court finds that neither the plaintiff nor said Copper Crown Company is entitled to relief in this action.

“The injunction heretofore granted' in Division No. 2 of this court is dissolved, and the petition of the plaintiff and cross-complainant of said Copper Crown Mining Company are dismissed and the costs of this proceeding ordered taxed against plaintiff and said company.”

In due time plaintiff and the Copper Crown Mining Company filed their motions for new trial and in arrest, which were overruled, and they bring the case to this court hy appeal for review.

"While the finding of facts hy the court was authorized hy section 695, Revised Statutes 1899, it is not binding upon this court in this equity proceeding; hut as it fairly and, for all the purposes of this case, substantially states the material facts disclosed upon the trial, it will, therefore, he adopted hy this court.

It is well settled that when the stock of a corporation is issued as full paid and non-assessahle, for money, property or labor, grossly disproportionate in value to the par value of the stock, such issuance of stock is unlawful as agaiust the stockholders not consenting thereto, and creditors. [Garrett v. Kansas City Coal Mining Co., 113 Mo. 330; VanCleve v. Berkey, 143 Mo. 109; Shields v. Hobart, 172 Mo. 491; Rumsey Mfg. Co. v. Kaime, 173 Mo. 551; McClure v. Paducah Iron Co., 90 Mo. App. 567; Chubb v. Upton, 95 U. S. 665; Upton v. Tribilcock, 91 U. S. 45.]

Bnt the court found that some months before the incorporation of the Copper Crown Mining Company. Montague Punch, the defendant, an attorney at the St. Louis Bar, had been employed (with the consent of Dr. Hopkins) by W. J. Hopkins, one of the promoters of the company (and its secretary when organized), to draw the papers and do the work preliminary to the incorporation, and to continue for one year to act as its legal adviser, with the understanding that he should get as compensation two thousand shares of the company’s stock, issued as full paid and non-assessable; that he did this preliminary work, also drafted minutes, revamped by-laws prepared by the company’s Michigan counsel, and, after the incorporation, attended directors’ meetings, and acted' as the company’s legal adviser until the early part of 1908, when his further services were refused by the company. That Punch and two other promoters got their stock as such. That Punch got two thousand shares which he was to pay for by said legal services. That Dr. M. J. Hopkins and W. J. Hopkins were the chief parties- in interest, and that all, as directors, knew that Punch was acting as counsel for the company, and that said directors also knew that the stock, two thousand shares in two certificates, Nos. 35 and 156, of one thousand shares each, was issued to him for services rendered and to be rendered. That one certificate (No. 35) was dated September 18, 1902, the other (No. 156), January 12, 1903, and that both were delivered to Punch on the last-named date. That in February, 1903, he sold one thousand shares (certicate No. 156) to one Jacob Lippe, and that the company issued to* said Lippe sixteen certificates aggregating 1,000 shares in lieu of said single certificate, and that defendant still holds certificate No. 35. That the stock never had any market value in the legal meaning of the term, hut some of it sold as high as $7; that in September, 1902, and January, 1903, it could not be sold at a price to exceed $2.50, and that even that price could not have been readily obtained.

The court’s finding of facts is clearly supported by. a preponderance of evidence, but even if it were close, we should be inclined to defer to the finding of the court.

It has always been held by this court that stock in a business corporation may be paid for by services rendered. Any other doctrine than this would place a corporation under a disability not contemplated by law. A corporation, unless prohibited by statute, has the general capacity of contracting which the common law concedes to every one ordinarily competent to enter into binding engagements. [Liebke v. Knapp, 79 Mo. 22; Woolfolk v. January, 131 Mo. 620.]

There was no fraud found by the chancellor to have been practiced upon the directors of the company by Punch in obtaining the stock, or any part of it; and although, by agreement of the parties, the stock was to be partly paid for in services to be thereafter rendered the company by him, the company refused his services, and the courts will, under such circumstances, treat that as payment which the parties agreed should be payment. [Thompson on Liability of Stockholders, sec. 134.] The services rendered by Punch to the corporation, after he had subscribed for stock, were a good consideration in payment therefor, being in accordance . with an agreement to that effect. [Cook on Corporations (5 Ed.), sec. 20, p. 85.] So a corporation may lawfully agree to issue stock to a person in payment of services in procuring a loan for the corporation and guaranteeing payment of the same. [Doak v. Stahlman, 58 S. W. 741.] The rule is, “That a party, although a director or other officer of a corporation, may recover the reasonable value of necessary services rendered to a corporation, entirely outside of the line and scope of his duties as such director or officer, performed at the instance of its officers, whose powers are of a general character, upon an implied promise to pay for . such services, when they were rendered under such circumstances as to raise a fair presumption that the parties intended and understood that they were to be paid for, or ought to have so intended and understood.” [Taussig v. Railroad, 166 Mo. 1. c. 34; Wagner v. Edison Electric Ill. Co., 177 Mo. 62; Coal Co. v. Watson, 107 Mo. App. 1. c. 453; Taussig v. Railroad, 186 Mo. 269, 276.] Under the facts as found, there is no ground for holding, or to justify the contention, that the services rendered and which were to be rendered by Punch were disproportionate in value to the par value of the stock, or that they were not reasonably commensurate with the par value of the stock received by him.

Another insistence is that if a promoter of a company, or other person standing in a confidential relation to it, procure the issuance to himself of stock of the corporation, without consideration, such stock is fictitious and void, and may be cancelled by a court of equity in a suit at the instance either of the corporation itself or of a stockholder.

The almost universal doctrine is that such a suit must be brought by the corporation itself, and that its stockholders cannot maintain or defend an action for or against it. This duty the law imposes upon the directors, as the trustees and agents of the corporation of which they are members, and in the absence of a charge of fraud or collusion it will be presumed that the directors acted for the best interests of the corporation. “ The discretion of the directors or the majority of the stockholders as to acts mtra vires cannot be questioned by single stockholders unless fraud is involved. This proposition of law is clearly, firmly and very properly established beyond any question.” [Cook on Stockholders and Corporation Law (3 Ed.), sec. 684; Meyer v. Bristol Hotel Co., 163 Mo. 59.] In Albers v. Merchants Exchange of St. Louis, 45 Mo. App. 1. c. 218, it is said: “Exceptions to this rule' have been recognized, where the circumstances are such that the action cannot be brought in the corporate name. Such an exception generally arises in cases where the directors, who are guilty of the breach of trust, own of control a majority of the shares, so that they can perpetuate themselves in power, keep control of the corporation, and defy the minority. In such cases the minority would be remediless, if the courts of equity did not open their doors to them. But courts of equity cannot assume the management of all the corporations in the country; and, if they were to- open their doors to every dissatisfied or dissenting-stockholder, in cases where he should fail to disclose facts making it clear that no redress could be had through regular corporate action, litigation of this kind' would be be endless; for, as was forcibly said by Mellish, L. J., if a mere irregularity in the business of a company ‘gives a right to every member of the company to file a bill to have the question decided, then, if there happens to be one cantankerous member, or one member who loves litigation, everything of this kind will be litigated; whereas, if the bill must be filed in the name of the company, then, unless there is a majority who really wish for litigation, the litigation will not go on. ’ [MacLougall v. Gardiner, L. R. 1 Ch. Div. 13, 20.] It is, therefore, a settled principle of equity jurisprudence that, before a court of equity will open its doors to a single stockholder, although he comes, as he must, not only on behalf of himself but also in behalf of all the other stockholders, to an inquiry into grievances of this kind, he must show that there is no other road to redress; and he does not show this, unless he shows that all remedies within the corporation itself have been exhausted.” The same rule is announced in Bulkley v. Big Muddy Iron Co., 77 Mo. 105, and Slattery v. Trans. Co., 91 Mo. 217.

In order to maintain this action it devolved upon plaintiff to allege and prove that the corporation had refused to sue, or that the defendant, Punch, was in control of the corporation.

In Hawes v. Oakland, 104 U. S. 1. c. 460, it is said: “But in addition to the existence of grievances which called for this kind of relief, it is equally important that, before the shareholder is permitted, in his own name, to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated effort, with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court. If time permits or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain an action by the stockholders as a body, in the matter of which he complains. And he must show a case, if this is not done, where it could not be done, or it was not reasonable to require it. The efforts to induce such action as complainant desires on the part of the directors, and of the shareholders when that is necessary, and the cause of failure in these efforts should be stated with particularity. ’ ’

The mere allegation in the petition that plaintiff “has endeavored unsuccessfully by application to the company to secure relief and protection from the wrongs and against the danger mentioned in the petition” is no better than no allegation, especially as the law requires that the efforts to induce such action on the part of the company or directors, and the canse of the failure in his efforts, should he stated with particularity. Instead of specific allegations in regard to these matters, we are left entirely to conjecture what kind of relief or protection plaintiff sought at the hands of the company. ‘ ‘ The allegation quoted is simply the averment of a legal conclusion, not “the statement of issuable facts; . . . not, therefore, either traversable or demurrable, and is to be treated as no statement at all, and consequently obnoxious to attack by general demurrer. . . . Nor will it do' to say that defendant should have moved to have made the pleading more definite and certain. He might indeed have done this, but was not compelled to do so. The primary duty of making the pleading definite and certain is on the party drawing the pleading, and he cannot, by his remissness, cast upon his opponent the onus of doing what his own duty demands, a duty which consists in expressing his meaning clearly and unmistakably.” [Mallinckrodt Chemical Works v. Nemnich, 169 Mo. 1. c. 397.]

Nor does the evidence show any proper effort upon the part of the plaintiff to get the company to institute suit to cancel the certificate of stock.

It is, however, contended that, even if the plaintiff’s bill were insufficient on account of failure to show sufficient effort on his part to procure action by the company, or even though the evidence did not show sufficient effort to justify the court in granting relief at the suit of a stockholder, yet, inasmuch as a cross-bill was afterwards filed on behalf of the company, and as the defendant appeared to the cross-bill, and the cause was heard thereon as well as upon the original bill, that was sufficient to give the court jurisdiction to decree whatever relief was justified by the pleadings and the evidence. With respect to this contention, it is sufficient to say that there is no allegation of fraud in the cross-bill either upon the part of the defendant or the officer of the company who issued to him the certificate of stock, nor was there any fraud shown by the evidence or found by the court to have been practiced by defendant in obtaining the stock, and it is only upon this ground that it would have the power to cancel it.

Our conclusion is that the judgment should be affirmed. It is so ordered.

All concur.