Crow v. Bond & Mortgage Co. of Iowa
| Decision Date | 21 June 1926 |
| Docket Number | 37611 |
| Citation | 209 N.W. 410,202 Iowa 38 |
| Parties | R. D. CROW et al., Appellees, v. BOND & MORTGAGE COMPANY OF IOWA, Appellant |
| Court | Iowa Supreme Court |
Appeal from Polk District Court.--W. G. BONNER, Judge.
Action in equity for the appointment of a receiver for a corporation. The opinion states the facts. From a decree for the plaintiffs and the intervener, the defendant corporation appeals.
Affirmed.
Guy A Miller and Clinton L. Nourse, for appellant.
Parsons & Mills and Volney Diltz, for appellees.
VERMILION J. DE GRAFF, C. J., and STEVENS and FAVILLE, JJ., concur.
The defendant corporation was organized in 1918, for the purpose of dealing in stocks, bonds, mortgages, and commercial paper. It has an outstanding capital stock of $ 228,000. The plaintiffs and the intervener are minority stockholders. The action, in which the intervener joins the plaintiffs, was brought to secure the appointment of a receiver for the corporation. The relief prayed was granted, and the propriety of this decree is the only question presented on appeal.
I. Certain facts are not in dispute. It thus appears that, for some years prior to and at the time of the commencement of this action, C. H. Johnson was president of the corporation and in active management of its operations. P. E. Taylor had been employed as a bookkeeper by the corporation for five years prior to 1923, when he was elected a director. The petition in this action was filed June 15, 1925. On July 29, 1925, at a meeting of the board of directors, attended by Johnson, Taylor, and two others out of the six directors, Johnson resigned as president, and his resignation was accepted; and a resolution was adopted, to the effect that all of the physical assets of the corporation should be placed in the hands of Taylor, who should act as custodian and trustee for the board of directors. The resolution provided that the trustee should immediately take such steps as in his judgment might be best, to place the assets in liquid form, and enter into negotiations for the sale of the real estate; and the officers of the company were directed to turn over the assets to such trustee, and do all things necessary to carry out the terms of the resolution. These facts were alleged in an amendment to the petition.
In October, 1923, the board of directors had passed a resolution authorizing the president to "administer" the company's assets under the direction of the board, with the view of getting them in a more liquid form and collecting what was due the company, directing the reduction of expenses, and discontinuing the company's office. Since then, the corporation has been inactive, so far as new business was concerned. Notwithstanding this, its expenses have continued to largely exceed its income, the deficit in 1923 being $ 5,508.60, and in 1924, $ 3,058.28; and its cash resources have shrunk from $ 9,789.87, in 1923, to $ 2,832.08 at the time of the trial. Johnson, up to the time of his resignation, was drawing a salary of $ 200 per month. No dividend has been paid on the stock since 1920. There has been no meeting of the stockholders since April, 1923.
The testimony showed that among the assets of the corporation there were notes to the amount of $ 148,598 that were worthless, and numerous other items of little or no value. The total value of its assets at the time of the trial was not over $ 50,000. The corporation is not insolvent in the sense that it is unable to pay its debts. The debts are inconsiderable, and the rights of creditors are not involved. It is, however, perfectly apparent that its capital, as represented by its stock, has been very largely dissipated.
A great part of the business of the corporation during the days of its seeming prosperity was the buying of notes from the Gibford Chemical Company. As these notes matured, it had been the practice for Gibford, or the Gibford Chemical Company, to take up such as were not paid by the makers.
The principal complaint made by the plaintiffs of the management of the corporation by Johnson, although not the only one, is that, on May 24, 1923, Gibford brought to the office of the Bond & Mortgage Company, and turned over to its officers, certificates of deposit in the sum of about $ 20,000, for the purpose of taking up notes sold by the chemical company to the mortgage company, maturing June 1, 1923; and that Johnson, instead of so applying the certificates, used them to take up notes that he, certain of his friends, and another corporation in which he was interested, had bought of the chemical company.
Without discussing in detail the evidence relating to this transaction, we have to say that we think it sustains the charge so made. That this was a gross fraud on the corporation, perpetrated by its chief executive officer, goes without saying. The evidence also sustains other charges of mismanagement on the part of Johnson, and of neglect of duty on the part of the directors, who maintained him in control of the affairs of the corporation. In 1923, at the time of the last stockholders' meeting, there was a written demand on the board of directors by...
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