Wilson v. St. Louis & Western Railroad

25 S.W. 527, 120 Mo. 45, 1894 Mo. LEXIS 95

• Court: Supreme Court of Missouri
• Decided: February 5, 1894
• Status: Published

Opinions

Macearlane, J.

This is a suit in equity by plaintiff as a judgment creditor of the St. Louis and Western Railroad Company, to recover from certain stockholders therein, the par value of their stock which, it is alleged in the bill, was issued to and accepted by them, but for which they had never paid. The suit was commenced on the seventeenth day of October, 1888, in the circuit court of St. Louis county. On the second day of February, 1891, the fourth amended petition was filed, upon which the case was eventually tried.

That petition charged that the Laclede and Ft. Scott Railroad Company was organized under an act of the general assembly of this state, approved January 11,1860. That after said corporation had organizedand commenced the transaction of business its name was changed to that of the St. Louis and Western Railroad Company. That said corporation was authorized to issue sixty thousand shares of stock of the par value each of $100. That there had been allotted to, and accepted by, defendant J. R. Owen, twenty-one shares; D. R. Diffenderfer, eighty-five shares, and to James N. B. Dodson, two hundred’ and eighty-eight shares and to other named defendants smaller numbers of shares. That no money was paid or consideration given, for said shares and that $1.00 is due on each. That said corporation on the third day of April, 1888, was wholly insolvent and without property or assets save the amounts due on said stock, and had wholly ceased to do business or to exercise its rights and franchises.

It charges further that on the fifteenth day of October, 1887, one HughLoonan recovered a judgment against said railroad company, in said court, for $152,213.19 which is still in full force and unpaid and that execution issued thereon was returned unsatisfied in December, 1887. That afterwards said judgment was assigned to plaintiff for a valuable consideration. That on the fifteenth day of January, 1889, one Lewis A. McGinnis, to the use of Mrs. Sarah J. Kinealy, recovered judgment against said railroad company for the sum of $13,260.45, which is in full force and unpaid, and that an execution thereon was returned unsatisfied in February, 1889, which said judgment was, on the nineteenth of January, 1889, for a valuable consideration assigned to plaintiff, who is now the legal holder of both of said judgments.

Said above named defendants and others answered, setting up a number of special defenses. Among them the validity of said judgment was attacked. Both laches and the statutes of limitation, and the want of jurisdiction of the subject-matter of the suit and the persons of defendants, were pleaded. There was also a general denial and an averment that all said stock was fully paid.

On the trial it was shown that the charter authorized the construction of a railroad from Lebanon to Ft. Scott, Kansas, and that no organization for active work in the construction of the road, was commenced until 1869. The aboved named defendants were directors, Dodson being also president. It was expected to build the road by county subscriptions, which were obtained principally through the work and influence of said defendants. Work commenced in 1869, and was prosecuted on money received from the. counties until about 1872, when it was suspended.. In 1881 there was a renewal of operations, but in about 1882 ail work ceased and nothing was done after that time. On June 2, 1884, on the petition of certain creditors, the United States circuit court appointed a receiver for the corporation. An order to sell the property was made April 23,1884, and a final decree and discharge of the receiver was made in 1888. The corporation from the time it commenced operations, was never solvent.

In November, 1879, the board of directors passed the following resolution:

“Resolved, That, for their services, salaries and money expended in and for the benefit of the Laclede & Fort Scott Railroad Company, the following officers and directors be allowed the following sums attached to each of their respective names, to be paid in the capital stock of the company: J. N, B. Dodson, president, $25,000; Harrison Attaway, secretary, $5,000; George W. O’Bannon, director, $4,000; John Watson, director, $100; Waldo P. Johnson, retainer fee, $3,000; T. G. Rechow, $500; and that stock be issued to them, respectively, in full payment of the same.”

And again, on June 20, 1881, the board passed the following resolution:

11 Resolved, That, for services rendered and money expended for this company, the president and secretary are hereby directed to issue certificates of fully paid up stock to the following persons for the number of shares set opposite their names: D. F. Heppler, twenty shares; D. R. Diffenderfer, seventy shares; John Wayson, twenty-five shares; J. R. Owen, twenty shares; Waldo P. Johnson, forty-five shares; J. N. B. Dodson, thirty shares; George W. O’Bannon, twenty shares; H. Attaway, twenty shares; Charles W. Blair, fifteen shares.”

The first contract was let to one Edward Burgess and when the company suspended operations in 1872 it was largely indebted to him. Upon this indebtedness he recovered a judgment in the circuit court of St. Louis county in 1874, for the sum of $86,450.89. An execution on this judgment was returned unsatisfied in 1875. In May, 1875 Burgess assigned this judgment to the Farmers’ and Traders’ Savings Institution, as collateral to secure a debt of $3,000. Burgess testified. that no part of this debt had yet been paid. On the twelfth day of October, 1882, said institution assigned the judgment to Hugh Loonan. The judgment of Loonan, which was assigned to plaintiff, was obtained upon this Burgess judgment. It does not appear what, if any, consideration was paid for either of these assignments.

In September, 1883, one Lewis A. McGinnis commenced a suit against the Keystone Building Company. Judgment was rendered in favor of plaintiff to the use of Sarah J. Kinealy, February 4, 1884. In 1888 the railroad company was summoned as garnishee upon an execution upon this'judgment. On January 5, 1889, judgment was rendered against the company as garnishee for $13,260.45. This judgment was assigned to plaintiff January 17, 1889. It .does not appear that any consideration was paid for these assignments.

In this statement I have assumed the validity of these judgments. Any other necessary facts will be stated in the opinion. The bill was dismissed and plaintiff appealed.

I. The suit is to enforce a liability of defendants as stockholders of the corporation upon contracts which were entirely satisfactory to the parties to them. But this right is given, not only by the charter of the corporation, but by the law of the land.

The contracts of Burgess and the Keystone Building Company with the railroad company were for the construction of parts of the road, and provided that the work should be paid for, as it progressed, by the bonds of the counties which had undertaken to subscribe to the enterprise. The breaches of the contract consisted in the refusal of the counties to issue their bonds. These county subscriptions -were afterwards held to have been illegal for the reason that the question of their issue was not submitted to a vote of the people of the county. Wilson v. Polk County, 112 Mo. 134, and eases cited.

At no time from the organization of the company, until its-final dissolution was it solvent, or did its stock have any market value. There can be no doubt that the defendants, to whom the stock was issued, under the resolutions of November, 1879, and June, 1881, had performed services and expended money in discharge of their duties as directors and officers. The charter provided that the directors should each receive $1.50 per day for attendance on the meetings of the board and ten cents per mile each way ingoing to and returning from such meetings and that the board should fix the salaries of the president and other officers and agents. The salary of the president was fixed by the board at $3,000 per year, and defendant Dodson acted as president for a number of years and performed valuable services in securing county subscriptions. When the stock was issued to defendants there can be no doubt it was worth much less than the value of the services rendered. The stock was taken, as appeared from the evidence, in order to relieve the corporation from paying for these services and expenditures, in money, which was all required in order to keep the enterprise on foot. These defendants were willing to risk the future success of the enterprise for their compensation. The stock was evidently issued in the best of faith and without the semblance of a fraudulent intent.

The cause of action in favor of Burgess accrued in 1872, seven years before the first .issue of stock and nine years before the second; that of the Keystone Building Company some time previous to September, 1883, at which time McGinnis commenced his suit against that company. From the nature of the contracts of Burgess and the Keystone Building Company with the railroad company, it is further evident that neither of these contractors relied upon the unissued and unallotted stock of the company as a fund from which they were to be paid. The stock had no value, it was understood that the road was to be built from bonds of the counties, and these contractors agreed to accept such bonds in payment for their work. The issue of the stock then, though done for less than its par value, did not affect the credit of the company or operate as a fraud upon the contractors.

The right to maintain this suit and recover any unpaid balance'on this stock does not depend upon equitable rights, but upon principles of public policy, and the letter of the constitution and the statute. Shickle v. Watts, 94 Mo. 414, and cases cited. Plaintiff asks the enforcement of his supposed rights in a court of equity. His right to invoke equity must be measured by the standards fixed by the principles of equity. His application must be timely in all the circumstances; and he must come with clean hands. We do not think he has met either of these requirements.

The corporation was insolvent when the last shares of stock were issued in June, 1881. The Burgess judgment had been standing unsatisfied since 1875. This suit was not commenced until October, 1888. In the mean time the property of the railroad had been once sohlunder execution. A receiver had been appointed, demands allowed, the property sold, and the affairs of the corporation settled. In 1884 the corporation was absolutely insolvent, had entirely ceased to do business or exercise its powers and franchises and “for all essential purposes was as effectually dissolved as if a solemn judgment of conrt had been pronounced to that effect.” Savings Ass’n v. Kellogg, 52 Mo. 590; Moore v. Whitcomb, 48 Mo. 543; SMckle v. Watts, supra. Under these decisions the judgment creditors had the right to proceed at law against the stockholders in 1884.

But little more can be said for the McGinnis judgment against the Keystone Building Company. It was rendered in 1884, and not until 1888 was the railroad company garnished. During this four years not one step appears to have been taken to make the railroad company respond as a debtor of said building company, though it was practically dissolved, in fact, as well as by the limitation contained in its charter, that the road should be complete within fifteen years. Plaintiff only incorporated the McGinnis judgment, in this suit, on filing the fourth amended petition, in 1891. So it appears that this suit was not commenced until seven years after the last stock was issued, four years after a practical dissolution of the corporation, and after the sequestration of all of its assets under the orders and decrees of the United States circuit court.

In view of the absence of all natural equity in the claim of plaintiff, and all the circumstances of the case, we think the laches of plaintiff fatal to his action. Burgess v. Railroad, 99 Mo. 508, and cases cited; Mackall v. Casilear, 137 U. S. 556.

II. We think also that the circumstances show that the assignment of these judgments was without other consideration than that plaintiff would prosecute this action. The Burgess judgment, which amounted to $152,000 when revived, stood from May, 1875, to October; 1882, as collateral security for $3,000. It was then assigned to Hugh Loonan, in whose name it was revived in December, 1887. The judgment was assigned to plaintiff in a few days after the return of an execution thereon, and immediately thereafter this suit was commenced. -It does- not appear, except from a statement in the petition, that any valuable consideration was paid.

The same may be said of the McGinnis judgment. As soon as it was obtained it was also transferred to plaintiff, so far as was -shown, without consideration, and was at once included in an amended petition in this caso. We are satisfied that this whole proceeding is a mere, speculation on the liability of these defendants, as stockholders of said corporation, and that plaintiff is a mere volunteer without substantial or equitable right. It was the duty of plaintiff to have shown his good faith, if he was so acting when it was discredited by so many circumstances.

Courts of equity will not lend their aid to assist in the enforcement of legal rights acquired in such a manner. As it has been said: “It has always been held that the assignment of a bare right to file a bill in equity for fraud upon the assignor is void, as against public policy, and savoring of the character of maintenance.” Smith v. Harris 43 Mo. 562, and cases cited. “An assignment which violates the policy of the law against champerty and maintenance, as operating merely to procure or promote litigation, will not be permitted by a court of equity, even though it may not amount strictly to the criminal offense Of champerty or maintenance.” 3 Pomeroy’s Eq. Jurisprudence [2 Ed.], sec. 1276.

In a recent case in the supreme court of Minnesota in which the assignee of judgment creditors was seeking to recover similar liabilities from the stockholders, the court says: “Under such circumstances, it was incumbent upon the thresher company (the complainant) to show its own equities, and that it was in a position to demand such relief. It was not the original creditor of the car company, but the assignee of the original creditors. By that purchase it, of course, succeeded to whatever strictly legal rights its assignors had; but it is not rights of that kind which it is here seeking to enforce. Under such circumstances, we think it was incumbent upon it to state what it paid for the claims, or at least to show that it paid a substantial, and not a mere nominal, consideration.” And again the court says, after stating that the purchase had been, made after the insolvency of thé company, and after it was in the hands of a receiver: “If any person or company had gone to work and bought up for a mere song this large indebtedness of the car company -for the purpose of speculating on the liability of the stockholders, no court would grant them the relief here prayed for.” Hospes v. Mfg. Co., 48 Minn. 174.

In the case of Wilson v. Polk County, 112 Mo. 134, the same plaintiff, as assignee of said judgments, was seeking to enforce a claim against said county upon unpaid stock in the same corporation. The court held that the facts which gave plaintiff a standing in a court of equity should have been stated. Such facts were neither stated in the petition nor found on the trial in this case; indeed the evidence convinces us that the basis of plaintiff’s claim is a most unconscionable speculation on the possible successful termination of a law suit. A court of equity should not lend its aid in the matter. Judgment affirmed.

SEPARATE OPINION.