Berger v. Amana Soc., 49571

• Citation: 95 N.W.2d 909,70 A.L.R.2d 830,250 Iowa 1060
• Decision Date: 08 April 1959
• Docket Number: No. 49571,49571
• Parties: , 70 A.L.R.2d 830 Adolph T. BERGER et al., Appellants and Appellees, v. AMANA SOCIETY et al., Appellees and Appellants.
• Court: United States State Supreme Court of Iowa

Page 909

95 N.W.2d 909

250 Iowa 1060, 70 A.L.R.2d 830

Adolph T. BERGER et al., Appellants and Appellees, v. AMANA SOCIETY et al., Appellees and Appellants.

No. 49571.

Supreme Court of Iowa.

April 8, 1959.

Rehearing Denied July 24, 1959.

Swift & Swift, Marengo, Edward J. Von Hoene, Williamsburg, and Messer, Hamilton & Cahill, Iowa City, for appellants and appellees.

Bleakley & Terpstra, Cedar Rapids, and F. Paul Harned, Marengo, for appellees and appellants.

THOMPSON, Chief Justice.

Prior to 1932 the Amana Society had been organized as a corporation not for pecuniary profit under the laws of Iowa. It was in essence a communal association, with religion and religious observances as its basic motive. All property was held jointly; that is, as community property.

In 1932 it was determined that it was advisable to re-organize upon more modern lines. At that time a corporation for pecuniary profit was formed under the name of Amana Society. It took over all the properties of the former association, apparently with the consent of all members. The incorporation followed a Plan of Reorganization to which all adult members of the former Society agreed.

The 1932 Articles of Incorporation provided for capital stock in the amount of $2,060,000, divided into 32,000 Prior Distributive shares of the par value of $50 each, 4,000 shares of Preferred stock of the par value of $50 each, 1,200 shares of Class A Common stock of the par value of $50 each, and 4,000 shares of Class B Participating stock of the same par value. No shares of the Preferred or Class B stocks were ever issued.

The affairs of the corporation proceeded harmoniously through the twenty years of its allotted life. In 1952 it became necessary to renew the corporate charter. This was done, with the assent of all holders of stock, including Class A around whom the present controversy has developed. A preamble to the 1952 charter recites that it is considered desirable to 'extend, continue and perpetuate the traditions, customs, religious beliefs and community life at the Villages of Amana * * * by extending * * * the corporate life for an additional period of twenty years and effecting only such changes in the Articles of Incorporation * * * as may be necessary or desirable to meet gradually changing economic conditions and protect and promote the welfare of the members of the corporation who are also the owners and holders of its Class A Common Stock; * * *'.

The 1952 articles of incorporation, which we shall hereafter refer to as the charter, provide in Article III, that a part of the general nature of the business of the corporation and of its objects or purposes shall be: 'To perpetuate and meet the obligations contained in a Plan of Reorganization of the original Amana Society which was entered into as an agreement and signed by all of the members of the old Amana Society in February, 1932, as such plan has since been modified or may be modified hereby.'

The provisions for capital stock contained in the charter were somewhat, but not greatly, different from those of the 1932 articles. There was authorized a total of $1,350,000, of which 21,000 were Prior Distributive shares; 4,000 were Preferred shares; and 2,000 were Class A Common Stock. All shares had a par value of $50 each. The plaintiffs in the instant case, holders of Class A stock, signed the stock register and consented to the provisions of the charter and the conditions under which their stock was issued.

The trouble with which we are confronted here arises from amendments to the charter adopted in 1955. Article XVI of the charter provides that amendments, excepting to Article XIV (the article exempting private property of the stockholders from liability for the corporate debts), may be made at any annual or special meeting of the stockholders on vote of two-thirds of all Class A stockholders. It is also provided that amendments may be made by vote of two-thirds of all Class A stockholders present at a regular or special meeting when a written notice of the substance of the proposed amendment has been mailed to each Class A stockholder not less than sixty or more than ninety days prior to the date of the meeting. The 1955 amendments were adopted by the latter procedure, by a vote of more than two-thirds of the Class A stockholders attending the meeting, although it was somewhat less than a two-thirds majority of all such stockholders. However, it is not seriously contended that the procedure was defective.

The amendments made radical changes in the stock structure of the corporation. The chief alteration is the provision for issuance of 300,000 shares of Class B Common Stock with a par value of fifty cents per share. The Class A stock is changed to 100,000 shares of the par value of fifty cents per share, and each share of such stock issued and outstanding at the time of the adoption of the amendments is reclassified and changed into 100 shares of the par value of fifty cents each. The Class B stock will now have equal voting rights with Class A, and equal rights to dividends and distribution of assets.

The charter of 1952, prior to amendment, provided that when a holder of Class A stock desired to sell, or in the event of his death or removal from the limits of the corporate property, his share must be offered to the corporation, which 'shall purchase and pay for the same at the true value thereof within 30 days from the date the stock is so tendered.' No person could hold more than one share of this stock. The Plan of Reorganization, to which reference is made contemplated that Class A stock should be issued only to members of the former society, or to their heirs. The amendments of 1955 make a radical change in the manner of payment for shares of this stock when tendered, or upon the death or removal of the holder. Instead of payment by the corporation at the true value of the stock, the holder is now to receive an equal number of shares of Class B stock, provided for by the amendment in the number of 300,000 shares at a par value of fifty cents per share.

There were outstanding at the time of the commencement of this litigation 652 shares of Class A stock, and under the provisions of the amendments there would be issued 100 shares of Class A stock to each holder of one share, making a total of 65,200 shares. As against this there are authorized 300,000 shares of Class B. It is evident that the Class A shareholders, who have heretofore had the sole voting rights, may now be outvoted by a large majority, nearly 5 to 1. It is also evident that, since the Class B stock will share equally in dividends and distributive rights, the value of the Class A stock has been very materially reduced. We have stated the facts as shown by the pleadings and attached exhibits.

I. The case comes to us in the way of two appeals from orders of the trial court upon the applications of the defendants, Amana Society and its co-defendants officers and directors, for determination of law points under R.C.P. 105, 58 I.C.A., with leave to appeal from adverse rulings granted to both plaintiffs and defendants. The matters complained of by the plaintiffs may be classified as substantial; that is, going to the merits of the case; while the rulings adverse to the defendants were procedural. We shall first consider the plaintiffs' appeal.

It is the contention of the plaintiffs, holders of Class A stock, that the relation between them and the corporation is contractual, and that the amendments of 1955 violate the terms of their contract. They bring their action for themselves and all other holders of Class A stock. The plaintiffs themselves hold only 10 or 12 shares (there is some dispute in the arguments as to the exact amount, but it is in any event less than two per cent of the outstanding Class A stock). However, as we view the case, the amount of their holdings is not material.

In substance, the plaintiffs contend that they have rights under a contract with the corporation; the defendants claim that they have no contract, or that if they have a contract it is not the contract which plaintiffs assert, and that they have waived any rights under a contract or are estopped to assert them, if a contract they have. The point at issue comes down to the question as to what the exact contract is, under rules of law applicable. Since no evidence has been taken, we are bound to consider the well-pleaded allegations of the petition and the answers.

There can be no doubt that the relation between a corporation and its stockholders is contractual. Bishop v. Middle States Utilities Company, 225 Iowa 941, 947, 282 N.W. 305; Ontjes v. Bagley, 217 Iowa 1200, 1209, 250 N.W. 17. But it is equally true that the statutes of the state governing corporations and their organization are also a part of the contract. And all of the provisions of the charter are likewise to be considered in determining the true agreement. We here reach the real question to be decided. The Class A stockholders without doubt had a contract with the Amana Society. But all of the provisions of the charter and of the corporation laws of Iowa, so far as material, are a part of the contract. The plaintiffs contend that their agreement is that the value of their stock may not be impaired or diluted by the issuance of other stock of equal rights and values as to voting, dividends and distribution, and that they cannot be deprived of their right to have their stock purchased by the Society at its true value or compelled to take other stock in lieu of cash therefor. The defendants say that the corporation laws and the provisions of the charter of 1952, to which plaintiffs assented, give them the right to amend as they have done by the amendments of 1955. In fact the question is, not do plaintiffs have a contract, but what is the contract?

II. We turn first to the charter of 1952 itself. As a part of Article V it is provided: 'The capital stock of...