Euston v. Edgar

VALLIANT, P. J.

Plaintiff, a judgment creditor of an Illinois corporation, sues defendant, a stockholder, to recover the amount of his judgment, $7,645.16, on the theory that defendant is liable because he has not paid for his stock. In the inception of the corporation the stock now owned by defendant was subscribed for by one Ruggles, who paid nothing for it, but who assigned it to defendant. Under the laws of Illinois not only the subscriber to the capital stock but the individual to whom it is assigned is liable to the corporation and to a creditor of the corporation for the unpaid face value of the stock.

The pleadings and evidence show as follows:

In 1894 certain persons engaged in the manufacture of spelter or interested in companies engaged in that business, among whom were the plaintiff and defendant, came together in St. Louis and discussed a method of obtaining a better price for their product than it was then bringing in the market. To accomplish this purpose they agreed to form a corporation under the laws of Illinois to combine in one organization the owners of the zinc furnaces in the States of Illinois, Kansas and Missouri, to which organization was to be given the market control of the products of all those furnaces; that is to say, all the concerns going into the scheme were to sell their product to the cor *292 poration to be’ thus formed at a price regulated by a scale agreed on, and tbe corporation was to have the control of the product in the market, thereby avoiding competition among themselves and controlling the market for better prices, the profits derived from the better prices to go back to the producers in the way of dividends on their stock in the corporation to be formed. The capital stock of the corporation was to be divided and allotted to the constituent manufacturers in proportion to the amount of their relative and respective products.

The capital stock of the corporation was to be ■ $100,000,1,000 shares, $100 each. The plaintiff agreed to loan the corporation $100,000, without interest for two years, in consideration of which he was to have 220 shares of stock, that is, the 220 shares of stock were to compensate the plaintiff for the two years’ loan of his money. All the zinc producers in Illinois, Missouri and Kansas went into this scheme, except two in Illinois and one in Kansas. The agreement having been made, the promoters deputized certain persons to go across the river into Illinois to organize the corporation and they did so under the name of the Missouri Metal Company. Among the subscriptions to the capital stock was one for 180 shares by George A. Ruggles, who, the evidence shows, made the subscription with the purpose of transferring the stock to the defendant and did so*, Ruggles paid nothing for it and received nothing for it; nothing was ever paid for the stock to the corporation unless the contract hereinafter mentioned is to be adjudged, as between the parties to this suit, a payment.

The stock was allotted to the several persons and companies entering into' the scheme as above mentioned, that is, 220 shares to the plaintiff for the use of his $100,000 for two years, and the remaining 780 shares to the manufacturers in the proportion of their rela *293 tive and respective products, and it was so subscribed by them or by others for them and transferred to them. It seems, however, that, although all the stock was taken in this way, yet the certificates were not issued; they were signed, but all left in the stock certificate book, and so remained up to the date the corporation went out of business.

The corporation entered upon the business for which it was created, the constituent manufacturers turning over to it the products of their furnaces as agreed, but its operations did not meet the hopes of the promoters, and therefore after a few months of unsuccessful trial the stockholders resolved to sell the metal then on hand at the then prevailing market price, or lower if necessary, and wind up the business of the concern and quit, and this was done. All the stockholders voted in favor of that resolution except the defendant who opposed it. ' The plaintiff testified that in a little while thereafter the market took a turn for the better and if they had held on, as the defendant advised, the corporation would have proved a success. But howsoever that might have been, the corporation went out of business and ceased efforts, leaving its debt to the plaintiff or part of it at least unpaid. Plaintiff offered testimony tending to show that the other stockholders paid their proportion of the debt and that the amount left unpaid, which is the amount here sued for, is the proportion that would fall to defendant to pay if he is liable. The theory of the defendant is that as between the plaintiff and himself and all parties to the scheme the plaintiff paid for his stock by the loan of his money without interest to the company and the defendant paid for his stock by executing and delivering to the corporation his' contract by which he gave the corporation the sole right to market the output of his zinc furnaces for the term of two years and each of the other manufacturers of zinc did the same.

*294 The records of the corporation show that in the meeting organizing the corporation, at which the plaintiff was present and presided, this resolution was passed: “Resolved that on the payment by Alexander Enston to this company of the sum of $100,000', as a loan without interest for the term of two years, until January 1, 1896, the officers of the company are hereby authorized to issue a certificate for 220 shares of the capital stock of said company in lieu of interest on said loan to said Euston. ’ ’

And in reference to each of the other stockholders was this resolution: “Resolved that on the signing and delivery of a certain contract by----to this company, dated January 27, 1894, by which the output of smelter of the---Zinc Company is made subject to the order of the Missouri Metal Company for two years, the officers of this company are hereby authorized to issue to------shares of the capital stock of said company.”

It was under a resolution like that, with the name of the defendant inserted in the blank, that the 180 shares were ordered to be issued to defendant and under resolutions of like tenor and effect the shares of the other stockholders were authorized to be issued to them respectively.

On the books of the corporation, in the journal, the capital stock is charged to contract for $100,000, that is, the entries in the journal show that the capital stock was fully paid by the contracts of the several manufacturers of spelter. The plaintiff introduced in evidence certain statutes of Illinois showing that under the laws of that State both the subscriber for the stock and the assignee thereof were liable to the corporation and its creditors for the unpaid amount of its face value.

The defendant contended in the trial court and contends here that the plaintiff cannot recover for two *295 reasons, first, that the corporation was organized for the purpose of suppressing competition between the zinc manufacturers of Missouri, Illinois and Kansas, and to regulate and fix tbe price of that commodity-contrary to tbe statute law of those States and of the United States, and, second, that, as between the plaintiff and defendant and the other parties in the scheme, the defendant’s contract by which he agreed to give the corporation the control of the output of his manufactory for the term of two years was full payment for the stock.

The trial was by the court without a jury. The court at the request of the parties gave certain declarations of law in the nature of instructions, from which it appears that the court held the opinion that under the evidence the plaintiff was entitled to recover unless the court should find for the defendant under the following instruction or declaration given at the request of-the defendant, to-wit:

“The court declares the law, that the party participating in the organization of a corporation and in the allotment of the capital stock thereof in consideration of contract obligations assumed by the parties to whom the same is allotted, cannot thereafter claim that such stock is in fact unpaid, but he is bound by the agreement to which he is a party, and has not the standing of a creditor who gives credit to- the corporation on the faith of an actual payment in cash for the capital stock; if, therefore, it appears from the testimony that it was agreed between the plaintiff and the other parties, including defendant, who subscribed for the stock, or to whom the stock of the corporation was allotted, that the loan of capital by the plaintiff and the making of the several contracts by the other parties for the control of the product of their respective furnaces should be deemed a payment of the capital stock allotted, and that defendant duly executed his contract *296 as provided by said agreement, then tbe court declares that in that event plaintiff is bound by said agreement and tbe capital stock allotted to defendant was full paid as between him and tbe plaintiff and tbe other parties to said • organization, and plaintiff therefore cannot recover in tbis action. ’ ’

Tbe finding and judgment were for the defendant and tbe plaintiff appealed.

I. Tbe agreement add transactions out of wbicb tbis controversy has arisen occurred in 1894. At that time under the statute law of tbis State it was declared that any person or corporation entering into an agreement or combination with another ££ to regulate or fix the price of any article of merchandise or commodity” should be ££ deemed and adjudged guilty of a conspiracy to defraud, and be subject to penalties as provided in tbis act.” [Laws 1891, p. 186.] And in section 4 of -that act it was declared that: “Any contract or agreement in violation of any provision of tbe preceding sections of tbis act shall be absolutely void.”

Tbe purpose for wbicb tbis corporation was conceived and formed was tbe very purpose denounced in that act; tbe plaintiff’s own testimony so shows. But it is said in tbe brief for plaintiff that that fact cannot avail tbe defendant here because tbis is an Illinois corporation, therefore not to be judged by a Missouri statute. In tbe brief for defendant reference is made to Illinois statutes which it is said are to tbe same effect as our own, but in behalf of plaintiff we are told that we cannot consider those Illinois statutes because they were not offered in evidence.

If tbe life of tbe Illinois corporation was herein assailed it would have to be adjudged by tbe Illinois law and that law would have to be pleaded and proven. [McPike v. McPike, 111 Mo. 216 .] But no attack is made on tbe Illinois corporation; so far as tbe record *297 in this case shows that corporation was organized in strict conformity to the laws of that State and there is nothing on the face of the corporation record to show that it was-organized for an unlawful purpose. The corporation is not the plaintiff in this suit and the defendant is not attacking the validity of its organization; this is a controversy between two individuals growing out of their relative and respective dealings with that corporation. The evidence shows that these gentlemen, who were all interested in the manufacture and sale of spelter and desiring for their own peeuniary profit to advance the market price of their product, came together in Missouri and entered into an agreement to put into the hands of one concern all the product of their furnaces for the term of two years to be by that concern sold and the profits divided among them in the proportion of their respective holdings. This agreement was made in Missouri and was to be, partly at least, that is, to the extent of the Missouri concerns involved, executed in this State; the corporation was but the agent or instrument to carry out the purpose of the agreement. Can we say that our statute which denounces a scheme of this kind can be evaded by the very simple method of employing a foreign corporation as the agent to carry it into effect? If so it would he better to repeal the statute because any statute that cannot be enforced, or that can be so easily evaded, breeds contempt of law and lawful authority.

The formation of an Illinois corporation to- be- the instrument of the parties to carry out their scheme no more made it an Illinois contract than if they had selected some individual citizen of Illinois for their agent.

The corporation in this instance was a mere tool, and the part that it took in the transactions out of which this suit has arisen was mere form; the real parties were those who entered into the combination. *298 to cease competition with, each other and combine “to regulate or fix the price” of their products. We hold that the scheme out of which the plaintiff’s claim arises was in violation of law and therefore cannot be enforced in a court of law.

II. The second defense is that the defendant paid for his stock by the contract which he executed' and delivered to the corporation, whereby he gave the corporation the control of his product for the term of two' years, that is to say, as between this corporation and the plaintiff and this defendant the contract is to be adjudged as payment. That was the view taken by the trial court.

Whether the defendant would be liable to an outside creditor of the corporation or one who had dealt with it not knowing the terms on which the stock had been issued to the defendant is not a question in this case. The question here is whether the defendant is liable to this plaintiff who was a party to the original scheme to carry out which the corporation was formed, who was a promoter and organizer of the corporation.

The plaintiff as a witness testified that it was his understanding that the stockholders were to pay for their stock in money or money’s worth, and that the contracts executed by them for the delivery of their product to the corporation to be pooled and sold had nothing to do with payment for the stock. The defendant testified that his understanding was that the contract was in payment of his stock.

The plaintiff offered evidence to show that the other stockholders had paid their share of the debt, the defendant alone refusing. The court rejected that evidence and we think properly so, because, whilst the interpretation that parties to a contract, vague or doubtful in its meaning, put on it while its performance is under way, is some evidence of its meaning, yet *299 when the business is all ended and settlements' only remain to be made such interpretation then becomes a mere matter of opinion and is of little, if any, value. But in this case there was a very good reason why the other parties to this contract, or enterprise, might have felt in honor bound, if not in law, to pay the plaintiff their share of his loan to the corporation. They had agreed, to go into it for two years and the plaintiff loaned his money to the concern for that period, but after they had tried it for a few months they became discouraged and resolved to dissolve the corporation and quit, and they did so. This defendant alone opposed the abandonment of the scheme, he insisted on going on but was voted down, he was not therefore under the same moral obligation to adjust the losses that his companions were.

This corporation was organized by the parties to the original pooling scheme, all the stock was to be owned by them and was owned by them. Whatever its nominal corporate powers may have been, whatever its public proclamation of purpose may have been, it was in fact organized for one purpose only, viz., to market the combined products of those zinc manufacturers. The stockholders were to be the customers of the corporation, its whole object was to handle their product; it was not contemplated that the corporation would have dealings with the public except to- sell those products to whoever would buy. The corporation was, by the terms of the contracts with these manufacturers, to pay them for the zinc they produced a certain price' calculated on the actual cost of production and a certain per cent added to make a level rate, and for funds to pay this price the plaintiff agreed to loan the concern $100,000, for two years. The assets with which the corporation was to go into business consisted of this two-year loan and these two-year obligations of the manufacturers; they were both valuable *300 assets, they constituted the corporation’s whole stock in trade and the corporation paid for them. What did it pay? The records of the corporation show that for the use of the money for two' years 220 shares of stock were to be issued to the plaintiff and in consideration of the contract of each of the manufacturers a certain number of shares of stock were to be issued to him, the number to be in proportion to the capacity of his zinc furnaces, the number so apportioned to the defendant was 180 shares. ' The language of the resolution under which the plaintiff obtained his stock and that under which the defendant obtained his, were of the same purport; in the one it said that for the use of the money without interest for two years the plaintiff was to have 220 shares, and in the other it 'Said that for the right granted to the corporation by the contract to have the market control of his product for two years the defendant was to have 180 shares and a like resolution expressed the consideration paid by the corporation to each of the other manufacturers for the right to control the product of his furnaces. It was a sale by the manufacturer of a valuable privilege to the corporation for which the seller was paid in stock; if the stock he received was to be by him thereafter paid for in money then he received nothing for that which he sold. It cannot be said that he was to look for his pay for the privilege sold to prospective dividends on the stock, because if he was required to pay money for the stock the dividends, if any should come, would be the product of the money he so invested, and he would have received nothing for the privilege he sold to the corporation.

Not only do the records of the proceedings of the stockholders’ meeting show that the stock was issued in payment for the privileges granted by the manufacturers, but the books of account kept by the corpora *301 tion show that the stock was charged as paid in that way.

Whether the right to the market control of the output of defendant’s zinc works for the period of two years was worth the price the corporation paid for it, that is, the stock at its face value, is not a question in this case, because we are here concerned only with the rights of those who were themselves parties to the contract and they cannot raise that question. The plaintiff not only knew the terms on which the stock was issued to the defendant and the- other manufacturers, but he was himself the active officer of the corporation making the contracts; he was the president of the company and presided at the meeting when the contracts were made, that is, when the resolutions were adopted specifying the terms on which the stock was to be issued to himself, to the defendant and to the others.

A stranger dealing with a corporation has a right to presume that it has issued or agreed to issue its stock only for money or money’s worth for its full face value, and if the corporation has' issued its stock for less such stranger, becoming a bona fide creditor, failing to obtain- satisfaction from the corporation, may have redress on the stockholders to the extent that the stock has not been paid for in full value. [Shickle v. Watts, 94 Mo. 410 ; Van Cleve v. Berkey, 143 Mo. 109 ; Berry v. Rood, 168 Mo. 316 .] But this plaintiff is not in the attitude of a stranger or a creditor without notice, he was a party to the plan of the corporate organization by which it was agreed that the defendant should have this stock for the consideration of the privilege he sold to the corporation and therefore as to the plaintiff it must be adjudged that the defendant . has paid for his stock.

The trial court had the correct view of the law of this case. The judgment is affirmed.

All concur.