Smith v. Heidecker

1. Corporation — Attachment— Garnishment. — A subscriber to the stock of a corporation who has accepted the charter and assisted in putting it in operation cannot show, as a defence to a suit by the company, that the charter was obtained by fraud. 2. Mtachment — Garnishment—Practice — Evidence. — It devolves upon the plaintiff to show affirmatively why the garnishee should be charged; but under the act R. C. 1855, p. 528, § 69, the answer of the garnishee can have no greater effect as evidence than the answer to an ordinary petition.

Appeal from, Si. Louis Circuit Court. This suit was instituted by plaintiff as trustee of Francis Saler, endorser of Ruegg, Bosse & Co., owners of the Phoenix Cotton Factory. Plaintiff having obtained judgment against the company, and execution having been returned nulla bona, issued an alias execution, under which he garnished defendant as a subscriber for four shares of 150 each. The defence was that the subscription was obtained by fraudulent representations. Ruegg, Bosse & Co. were the owners of the Phoenix Cotton Factory, but, unable to pay their debts, conceived the plan of an incorporation, and hence obtained the charter of the Missouri Spinning Company. This proof was offered by the defendant, but excluded by the court. By the 2d section (Sess. Acts 1859, p. 295) the company could be organized whenever $50,000 was subscribed, and for which books were to be opened. No formal books were opened, but subscription lists were, handed round by Bosse and Blattau, two members of the firm of Ruegg, Bosse & Co.; but the requisite sum of $50,000 was not obtained, and .on the day of the organization men of straw were persuaded by Ruegg, Bosse & Co. to take stock so as to complete the sum, Ruegg, Bosse & -Co. promising to shield them. Immediately on the organization Ruegg, Bosse and Blattau elected themselves to three out of five of the seats of the directory, and at once purchased from themselves, for the corporation, the Phoenix Cotton Factory for $109,000. The following winter an amendatory charter was passed increasing the directory to twelve, who were elected, and among them Heidecker. The appraisement was reduced from $109,000 to $77,000 ; this last sum was to be returned to the corporation, but no part of it ever was. The stockholding directors were so dissatisfied that they declared a dissolution of the coi'poration. Proof was offered that Ruegg, Bosse &, Co. at date of the charter of the Missouri Spinning Company were hopelessly insolvent; that they hawked around the subscription lists with the assurance that the Phoenix Cotton Factory had •made 20, SO, even 50 per cent., or, as they expressed it “ hand over fist.” The court refused to give the following instructions which were asked by defendant, aiyl to which due exception was taken: 1. If the jury believe that $50,000 had not been in good faith subscribed to the capital stock of the Missouri Spinning Company at or before the organization of the company, then the jury will find for the defendant. 2. The court instructs the jury, that, under the pleadings of this case, the burden of proof is upon the plaintiff; and, before the jury can find for the plaintiff, it is incumbent upon him to disprove by satisfactory evidence the facts stated in the answer of the garnishee, and unless he have done so the jury will find accordingly. 3. The jury is instructed that the plaintiff herein stands in the same position as the Missouri Spinning Company would stand if it were plaintiff; if, therefore, the jury believe from the evidence that the Missouri Spinning Company was a fraudulent institution, and that fraud was practised upon the garnishee herein by said Missouri Spinning Company, its ■officers and agents, either in its prganization or in obtaining said subscription, then said fraud is as much to be weighed in favor of the garnishee herein as if said Missouri Spinning Company were plaintiff herein. ■ 4. If the jury believe from the evidence that Ruegg, Bosse & Co., for the purpose of defrauding garnishee and others, obtained their subscriptions to the agreement read in evidence, whereby they agreed to take a certain amount of stock in the Missouri Spinning Company; that without said company being legally organized, said Ruegg, Bosse & Co. and others, as pretended directors of said company, fraudulently managed the affairs of said company with the intent to defraud said garnishee and others of the amount of their subscription, with the intent to apply and appropriate such amount to the benefit of Ruegg, Bosse & Co.; and that plaintiff in this case, or those under whom he claims, was party or privy to the fraud, — then the jury wjll find for the defendant. 5. The court instructs the jury that the sum of $50,000 should have been subscribed at least six days before the organization of the company. At the instance of the plaintiff the following instructions were given, and to which defendant duly excepted: 1. The statements of Louis Bosse and Charles E. Blattau to other subscribers cannot affect the validity of the subscription of Bernard Heidecker, unless it appears from the evidence that they were made to him also. 2. If the jury believe from the evidence that Bernard Hei-decker attended meetings of the stockholders of the Missouri Spinning Company, and acted and voted as a subscriber, or accepted an appointment as a committee of said subscribers, or voted to accept of the amended charter, or became a director under said amended charter, he cannot deny the legal organization of the company. 3. The judgment in favor of the plaintiff offered in evidence is a debt established against the Missouri Spinning Company, and that judgment cannot be impeached in this proceeding by attacking the validity of the notes or contract upon which it is founded; and it matters not, therefore, whether the notes were obtained by fraud, or were otherwise without consideration. The jury found for plaintiff. I. The subscription of the $50,000 was a condition precedent to the organization of the company — Charter of Mo. Spinning Co., Sess. Acts 1859, p. 295; R. C. 1855, p. 372, § 9. II. The answer of a garnishee is evidence in his favor, and the burden of proof is on the plaintiff — Davis v. Knapp et al., 8 Mo. 657; McEvoy v. Lane et al., 9 Mo. 48. Where a party grounds his action on a negative averment, he must prove it — Greenl. Ev. § 78. III. The 3d and 4th instructions refused to defendant should have been given, because the plaintiff stands in the place of the Missouri Spinning Company, and the garnishee is entitled to make the same defence as he could against the Company — Drake Attach. § 672;^ Webb v. Miller, 24 Miss. 638; Myers v. Baltzell, 37 Penn. 491; McGehee v. Walker, 15 Ala. 183; Reagan v. Pacific R.R., 21 Mo. 30, — and fraud vitiates every transaction. IY. The exclusion of the declarations of Bosse and Blat-tau, unless made to Heidecker, was clearly erroneous. The proof of Gottschalk and Eisse is that they were subscribers on the same list as Heidecker. “What is said by those holding an instrument of writing at the time of soliciting or permitting persons to sign the instrument, is evidence of its contents” — Matthews v. Walker, 9 Mo. 705 ; City Bk. of Columbus, 22 Mo. 89. V. The 3d instruction for plaintiff should not have been given; such acts would bind him only after knowledge. Until the new directors were chosen, the stockholders knew nothing of the fraud. As to waiver by the acceptance of a directorship, Atlantic Cotton Mills v. Abbott, 9 Cush. (Mass.) 423. YI. The proof that the charter was fraudulently obtained by Ruegg, Bosse & Oo. for the very purpose of fraud was improperly excluded; it was a private act, and therefore could be impugned if fraudulently obtained — 2 Bl. Com. p. 346, Sharswood ed., and authorities of n. 1, p. 343-4 ; Boul-ton v. Bull, 2 H. Black, 476. In the three instructions given on motion of 'garnishee, the court tells the jury, if certain facts exist, plaintiff cannot recover; those facts are the defence contained in the answer, and it makes no difference in what manner the garnishee receives the benefit of that law, so that he receives it. But it is presumed that the garnishee asks this instruction upon the strength of certain early decisions of this court upon that subject, which are to the effect that “ the law presumes the answer of the garnishee to be true until the contrary be proven by the plaintiff” — 8 Mo. 657. But plaintiff submits, that, although that decision was good law when it was made, it is not good now under existing statutes. Under the law of 1835, when the above decision was rendered, the first step taken was to file interrogatories; the 2d, defendant’s answer; and 3d, plaintiff might deny the answer: and these were all the pleadings. The only pleading to be filed by the garnishee was his answer — R. C. 1835, p. 79, §§ 22, 24, 25. But under existing laws this is changed — R. C. 1855, pp. 258-9, §§ 65 to 69. If the only issues to be tried are those raised by the denial and reply, it is not easy to see what the answer has to do with the case.