Dillon v. Lee

• Decision Date: 16 December 1899
• Citation: 81 N.W. 245,110 Iowa 156
• Parties: DILLON ET AL. v. LEE ET AL.
• Court: Iowa Supreme Court

110 Iowa 156

81 N.W. 245

DILLON ET AL.

v.LEE ET AL.

Supreme Court of Iowa.

Dec. 16, 1899.

Appeal from district court, Dubuque county; J. L. Husted, Judge.

Suit to set aside certain transfers of stock in a corporation known as the Dubuque Specialty Machine Works, and to recover of defendant Lee, for the benefit of the stockholders in said corporation, the sum of $2,000, alleged to have been wrongfully appropriated by him while acting as treasurer of the corporation. There was a trial to the court, resulting in a decree dismissing the plaintiffs' petition, and they appeal. Modified.William Graham and Alphons Matthews, for appellants.

Longueville, McCarthy & Kenline, Henderson, Hurd, Lenehan & Kiesel, and T. J. Paisley, for appellees.

DEEMER, J.

The Dubuque Specialty Machine Works was organized as a corporation in the year 1891, with a capital stock of $200,000, represented by 2,000 shares, of the nominal value of $100 each. One A. Ferris Smith was the promoter and organizer of the corporation, and after its organization he sold it a certain patent in consideration of certain shares of stock, and a contract which provided, among other things, that he should receive from the corporation the sum of $14,000 from the first net earnings of the company. Plaintiff Dillon held 199 2/3 shares, Levens 130 shares, the Telegraph Company 200 shares, and the firm of Levens & Dillon 350 shares. E. W. Albee and L. M. Rafoth, who were at one time parties to the suit, owned in the aggregate 74 shares of stock in the corporation. Defendants Lee, Bothby, and G. M. Staples also owned stock. Lee was also a director and treasurer of the corporation, and a part of the time acted as secretary. In the summer of 1895 the corporation sold its plant and machinery for $100,000 in cash, which amount was paid to Lee, as treasurer; and thereafter a dividend of $45 per share was declared, and paid to the stockholders. As some of these stockholders were in arrears on assessments, these arrears were deducted from the dividends awarded them, so that the total amount paid out of the sale price of the plant was $81,188.33, to which should be added something like $5,500 paid out for other matters; leaving a balance in the hands of the treasurer, on September 2, 1895, of $13,379.76. In January of the year 1892, Smith assigned one-half of the $14,000 obligation issued to him by the company to D. M. Hillis, of Chicago, and on the same day notified the corporation of the assignment. This assignment was made as collateral security to a debt Smith was then owing Hillis. In September of the same year, Smith assigned the other half of the contract to defendant Lee, “for his own use,” and in this assignment stated that the previous assignment was made to Hillis as trustee, and agreed to have the assignment made to him corrected so as to show that fact. The evidence shows that the assignment to Lee was for the benefit of both Dillon and Lee, as Dillon had advanced one-half of the amount paid by Lee for the assignment. Dillon transferred his interest to some of the other stockholders, and thereafter Staples, the Telegraph Company, Bothby, Dillon, Levens & Dillon, Levens, and defendant Lee transferred a one-half interest in the Smith contract to the corporation. On September 2, 1895, Lee went to Chicago, where Hillis lived, and there, for the consideration of $5,000, procured an assignment of his one-half of the Smith contract to be made to him (Lee). He paid the consideration by his personal check on the Citizens' State Bank of Dubuque, of which Lee was president, and claims that on his arrival home from Chicago he borrowed the sum of $5,000 with which to meet the check, which was presented and paid on the 4th day of September. On that day Lee, as treasurer of the Dubuque Specialty Machine Works had in his possession nearly $14,000 in cash, and he thereupon charged the corporation with the sum of $7,000, placed that sum to his credit on the stock books of the bank, and charged himself with the $5,000 he claims to have borrowed of the bank. The plaintiffs claim that the corporation furnished the money that paid this claim, and that Lee defrauded them out of $2,000 in his manipulation thereof. They also claim that Lee was an officer and agent of the corporation, and as such he could not buy up claims against it, and make a profit thereon. Lee insists that he acquired the original assignment of a one-half interest in the Smith contract to protect him for advances he had made to Smith, and that he was obliged to pay the amount of Hillis' claim against Smith in order to save his security, and that he advanced, in all, the sum of $7,300 for the assignment of Hillis' one-half interest. This is one of the issues in the case, which will hereafter receive attention. Early in the year 1896, the plaintiffs indorsed and transferred their stock in the corporation to Smith, and he in turn transferred the same to Lee, who caused new certificates to be issued, as follows: Certificates for 397 shares to the Staples estate, for 225 shares to defendant Bothby, and 282 2/3 shares to himself. The plaintiffs admit having received 50 cents a share on their certificates, but say that this was paid as a dividend, and not by way of purchase, and that they indorsed and delivered their shares to Smith on the strength of representations made by them to Smith and others that the stock was to be gathered up for the purpose of dissolving the corporation; that it was to be turned over to one Bradley, as trustee, to be held until all unfinished matters were disposed of; that they had no thought of selling their shares of stock; and that defendants acquired title thereto through...