Opinion
No. 28179.
November 20, 1951.
APPEAL FROM THE CIRCUIT COURT OF THE CITY OF ST. LOUIS, JAMES E. McLAUGHLIN, J.
Jones, Hocker, Gladney Grand, and George S. Roudebush, all of St. Louis, for defendant-appellant.
Paul J. Kaveney, of St. Louis, for plaintiffs-respondents.
This action was instituted in the Circuit Court of the City of St. Louis by plaintiffs (respondents), A.M. Kessler and Lela Mae Finney, seeking the appointment of a receiver for defendant (appellant), United Agencies, Inc., a Corporation. A hearing was had in the trial court, upon the issues raised by the pleadings, resulting in a decree rendered on October 12, 1950, appointing a receiver to take possession of the assets and affairs of the defendant corporation and to liquidate and dissolve same. Defendant filed motions to vacate said decree and for a new trial and these being overruled has duly appealed to this Court.
This being an equity case, it is the duty of this Court to review the record de novo and give such judgment as the trial court should have given, with due deference being accorded the decision of the chancellor, who had the advantage of observing and hearing the witnesses as they testified. Handlan v. Handlan, 360 Mo. 1150, 232 S.W.2d 944; Young v. Moore, Mo.App., 236 S.W.2d 740. In this connection it may be well to suggest that there is considerable authority for the rule, as asserted by plaintiffs, that, "An application for the appointment of a receiver for a corporation is addressed to the sound discretion of the trial court in view of the particular facts and circumstances presented. A trial court's action in appointing, or refusing to appoint, a receiver will not be disturbed in the absence of a showing that it abused its discretion, and that such abuse of discretion is prejudicial to the substantial rights of the party complaining." 19 C.J.S., Corporations, § 1457.
We deem it advisable to present a detailed statement of the facts as disclosed by the rather brief record herein. Defendant, United Agencies, Inc., was incorporated in 1939 and carried on the business of a small insurance agency with offices at 3832 Washington Boulevard, St. Louis. The principal stockholder was A.C. Lovell, who managed the affairs of the company until his death in October, 1947. The ownership of his stock is now in his widow, Leona E. Lovell, who owns 668 shares of common stock out of 750, and 369 shares of preferred stock out of 1243. The plaintiff, A.M. Kessler, was employed by the defendant in 1945 and after the death of Mr. Lovell was office manager until May, 1949. She owns five shares of common stock and 250 shares of preferred, and at the date of trial herein had a deed of trust upon the building owned by defendant amounting to $3500. Plaintiff Finney owns 75 shares of preferred stock.
Apparently the company prospered while Mr. Lovell was alive, but has made very little, if any, money since his death. It appears to have become the desire of Mrs. Lovell to take over the management of the business, and in May, 1949, the plaintiff Kessler, Lamine Finney, a stockholder, Mrs. Lovell, and the defendant corporation entered into a written agreement under which Mrs. Lovell was to operate the business until May 31, 1950, at a salary of $150 a month and if during the year ending on that date the company failed to have sufficient net earnings to pay a six per cent dividend on its preferred stock Mrs. Lovell agreed to vote her shares for the liquidation and dissolution of the company. About that time one James W. Skelly was elected as a member of the Board of Directors, he being a personal friend of Mrs. Lovell, and having been given one share of stock by her in order to qualify for election to the board. The other directors were Mrs. Lovell and Lamine Finney. During the year provided for in the contract the company did not make enough money to pay the required dividend, but in fact apparently lost money.
On June 5, 1950, Director Finney and plaintiff Kessler made a request upon Mrs. Lovell for dissolution in accordance with the agreement, but she asked for time to prepare a balance sheet. They returned on June 21 and requested the balance sheet and were informed by Mrs. Lovell that it would be ready in a few days. On July 7 they again requested the balance sheet, but though it appeared to be ready Mrs. Lovell refused, saying that she wanted Mr. Skelly and the company's attorney present when they looked at it. She agreed to call a meeting for July 17 for the purpose of studying the balance sheet. On July 14 the meeting scheduled for the 17th was cancelled and a future date set. Mr. Finney and A.M. Kessler, together with their auditor, Mr. Gilmartin, called at the office of the company on August 9 and requested the privilege of seeing the books. Mrs. Lovell refused to show the balance sheet, saying that Mr. Skelly and Mr. Roudebush, their attorney, had all of the copies of same and there were not any in the office at that time. A request was made to see the books as of May 31, and she refused this request, saying that the books weren't ready to be seen. On August 11, in response to a demand by plaintiffs' attorney, a special stockholders meeting was called for August 25 to vote on the question of liquidation, but this meeting was not held when it developed that Mrs. Lovell had forgotten to have the legal notice published. A notice was later published for a meeting on September 6, which meeting was adjourned to September 14, at which time the stockholders voted to liquidate the company. A meeting of the directors was called for September 25 to vote on a plan for liquidation, but this meeting was canceled shortly before it was to be held, for the reason that Mr. Skelly could not be there. Another meeting was called for October 2 at 4 p.m., but this meeting was apparently not held because this suit was filed on that date.
At the hearing of this cause, in addition to the above facts, it appeared from the evidence that Mrs. Lovell was still drawing her salary as manager of the defendant company and that the company had lost $556.91 from January 1 to August 31, 1950. It appeared from the testimony of plaintiff Kessler that various items amounting to $1085 had been taken from the corporate assets and credited to the personal account of Mrs. Lovell during the period she had been manager of the agency. It further appeared that the sum of $25 per month that had been paid for some time by the Texas Prudential Insurance Company to help defray office expenses had been credited to the personal account of Mrs. Lovell, although in previous years this payment had gone into the assets of the company. Mr. Skelly corroborated some of the testimony of plaintiff Kessler when he stated that certain assets amounting to somewhere between $1000 and $2000 had been transferred to Mrs. Lovell and that there were still a number of items about which there remained a question as to whether they belonged to Mrs. Lovell or the corporation. On the date of the hearing the principal assets of the corporation were the company's building, which was carried on the books at $4725.22, but which may have been actually worth as much as $35,000, 200 shares of Republic Aviation Stock valued at about $2,000, and a few hundred dollars in cash.
All parties agree that prior to the enactment of The General and Business Corporation Law of Missouri in 1943, now Sections 351.010 to 351.720, R.S.Mo. 1949, courts of equity had no authority to appoint a receiver to liquidate a corporation. Ashton v. Penfield, 233 Mo. 391, 135 S.W. 938. However, Section 351.485 of said act provides in part as follows:
"1. Courts of equity shall have full power to liquidate the assets and business of a corporation.
"(1) Upon the suit of a shareholder when it is made to appear * * *
"(b) That the acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent; or
"(c) That the corporate assets are being misapplied or wasted".
Section 351.490 provides that a receiver may be appointed for the purpose of liquidating the business of the corporation.
There can be no question but that the above sections gave the chancellor the legal authority to appoint a receiver and decree liquidation of defendant. Handlan v. Handlan, supra. The only matter for our determination is whether the evidence was sufficient to prove the facts required to justify the application of the said statute.
Plaintiffs, in their petition, alleged a cause of action under subsection (c), supra, in that Leona E. Lovell, "Being in full control of all the affairs of the corporation. * * * caused the assets of the corporation to be dissipated, lost, alienated, misapplied and wasted." The defendant's verified return denied these allegations and alleged the efficient and proper operation of said business and that the defendant is ready to proceed with the private liquidation of the business as voted by the shareholders.
We have concluded that the chancellor was fully justified in rendering the judgment herein. His action in appointing a receiver and ordering the dissolution of the defendant was not arbitrary or an abuse of discretion. It should be here noted that the court in this case did not invoke the drastic remedy of ordering a solvent corporation liquidated and dissolved against the wishes of a substantial group of stockholders who might want to continue the business. The stockholders had already voted such liquidation and dissolution. The only issue was whether it should be conducted privately by the corporation or by a receiver under the supervision and control of the court.
The evidence supports the conclusion that the corporate assets were being wasted and misapplied. A reference to the facts stated above will disclose that from May 31 to October 2, 1950, Mrs. Lovell being in complete control of the corporation, used every possible means to delay and obstruct the liquidation she had agreed upon. With the corporation losing money and the eventual liquidation impending, it might well be said, that under the particular circumstances of this case, the payment of her salary was, to some extent at least, a waste of the corporate assets. Had she proceeded to make reasonable progress with the liquidation her receipt of compensation could not have been properly criticized. It appears further that during the year Mrs. Lovell managed the company $1085 of the defendant's assets were transferred to her personal account as well as the $25 per month paid by the Texas Prudential Insurance Company. Mr. Skelly testified that a number of items (there might have been 50) had been transferred to the personal account of Mrs. Lovell, and that there were still a number of items about which there was a question as to whether they belonged to Mrs. Lovell or the corporation.
In making these transfers it is possible that Mrs. Lovell acted in good faith, but the fact remains that no adverse or even disinterested person passed upon the legality of same. Certainly the defendant would not file suit to recover these assets from Mrs. Lovell as long as she was in control of it. While plaintiffs, as minority stockholders, might have had these transactions reviewed by a court of equity without seeking the appointment of a receiver, it is our view that such a remedy would not have been adequate under the circumstances existing here. We believe that the chancellor undoubtedly concluded that the best practical course was to have all these transfers reviewed by an impartial receiver who would then institute action on behalf of the corporation for the recovery of any assets illegally obtained by Mrs. Lovell.
While the burden was on plaintiffs to prove the essential allegations in their petition, we think it is significant, in view of the evidence offered by plaintiffs, that Mrs. Lovell, the storm center of the entire controversy, did not see fit to testify and thereby submit to examination as to the questionable transactions.
Defendant, in its brief, contends that the plaintiffs have not upheld the burden of proof and that the evidence completely fails to meet the statutory requirement of showing that its assets had been misapplied or wasted. What we have heretofore said disposes of this contention. The defendant further argues that the power to appoint a receiver should be exercised with great caution and that the acts complained of by plaintiffs are past acts which are not sufficient grounds for appointment of a receiver, citing Niedringhaus v. William F. Niedringhaus Inv. Co., 329 Mo. 84, 46 S.W.2d 828; Ingram v. Clover Leaf Lumber Co., 331 Mo. 739, 55 S.W.2d 295; Wimp Packing Company v. Wimp, 313 Ill.App. 262, 39 N.E.2d 720, and Simplex Paper Corporation v. Standard Corrugated Box Co., 231 Mo.App. 764, 97 S.W.2d 862. We are in complete accord with the general rule that courts should use considerable caution in appointing receivers. What we have already said, however, will clearly indicate our conviction that under the particular facts and circumstances of this case the application of that rule would not and should not have changed the decision of the chancellor. See Cantwell v. Columbia Lead Co., 199 Mo. 1, 97 S.W. 167, and Ashton v. Penfield, supra.
The Niedringhaus case, supra, supports defendant's contention that past acts are not sufficient to justify appointment of a receiver by the following statement at page 839 of 46 S.W.2d, "Courts do not appoint receivers for corporations merely because of past acts or derelictions when no present or future harm threatens because thereof." We do not see that the application of this rule would have caused the trial court to deny plaintiffs the relief they sought. While obstructing the proposed liquidation Mrs. Lovell was continuing to pay herself the regular salary as manager and continued to take the $25 monthly payment by Texas Prudential. The chancellor no doubt also considered that there were a number of corporate assets about which there remained a dispute as to whether ownership was in Mrs. Lovell or the defendant. In the 16 months before the date suit was filed she had transferred many such items to her personal account. It was reasonable to conclude from all the circumstances that Mrs. Lovell would likely continue such course of conduct and that unless protective measures were taken the remaining disputed items would likely be transferred to her.
Finally, defendant argues that the officers of the corporation were entitled to a reasonable time for voluntary liquidation before a receiver should have been appointed. As we view the situation Mrs. Lovell, the manager and person in complete control of the defendant and its assets, had not acted with reasonable dispatch. She knew on June 1, 1950, that under the terms of the contract of May 13, 1949, the corporation would have to be liquidated. This was a comparatively small concern with assets consolidated into a very few items. If Mrs. Lovell had taken prompt affirmative action the corporation would have been substantially liquidated by the time this suit was instituted. The plaintiffs could have reasonably expected such action on her part, but instead were met with many delays and other conduct indicating an absence of good faith. It was fair to conclude that there would never be a prompt, economical, efficient and harmonious liquidation of the corporation under her guidance.
The judgment and decree of the circuit court should be affirmed. It is so ordered.
BENNICK, P.J., and ANDERSON, J., concur.