First Nat. Bank of Waterloo v. Fireproof Storage Bldg. Co.

Citation202 N.W. 14,199 Iowa 1285
Decision Date10 February 1925
Docket NumberNo. 35978.,35978.
PartiesFIRST NAT. BANK OF WATERLOO v. FIREPROOF STORAGE BLDG. CO. ET AL.
CourtUnited States State Supreme Court of Iowa

OPINION TEXT STARTS HERE

Appeal from District Court, Black Hawk County; E. B. Stiles, Judge.

Action in equity by a minority stockholder for an accounting by the director and president of the corporation in control of its business, the appointment of a receiver for, and the dissolution of, the corporation. The lower court granted the relief prayed, and the corporation and its president appeal. Modified and affirmed.Edwards, Longley, Ransier & Harris, of Waterloo, for appellants.

Pickett, Swisher & Farwell, of Waterloo, for appellee.

VERMILION, J.

The appellant, the Fireproof Storage Building Company, a corporation, was organized in 1907 by the appellant F. J. Fowler and E. E. Manhard. Two hundred shares of common stock of the par value of $100 per share were issued, of which the incorporators each originally owned 100 shares. The articles of incorporation provided that the affairs of the corporation should be managed by a president, vice president, secretary, and treasurer, and a board of not less than two nor more than five directors. The general nature of the business to be transacted by the corporation, as fixed by the articles of incorporation, was “the buying, selling, and leasing real estate and erecting buildings thereon.” Until the death of Manhard, on December 13, 1913, F. J. Fowler was president and treasurer and Manhard vice president and secretary, and the two constituted the board of directors. The corporation acquired a tract of ground in the city of Waterloo. Upon one part of this it erected a storage building and upon another a garage. These buildings were rented for a time. Prior to Manhard's death he had collaterated his stock, or a part of it. The appellee bank ultimately became the owner of 65 shares, and the Fowler Company, a corporation engaged in the grocery business, and of which F. J. Fowler is president, acquired the remaining 35 shares of the stock formerly owned by Manhard. From the date of Manhard's death in 1913 until 1916, the appellant F. J. Fowler was the only individual stockholder, the remaining stock belonging either to Manhard's estate, the bank, or the Fowler Company. During that time no meetings of stockholders or directors were held and no directors or officers were elected.

In January of 1916, the appellant Fowler, the Fowler Company, and the appellee bank joined in the execution of an instrument which appears in the record book of the corporation, and which recited the death of Manhard and the holding of all the common stock of the corporation by the signers, waived notice of a stockholder's meeting and declared that Frank J. Fowler, Jr., was elected a director. One share of stock held by the Fowler Company was assigned to him. The record also shows his election as vice president and secretary. Following his election as a director and officer, Frank J. Fowler was in the military service for 2 1/2 years. The corporation's records show meetings of the directors in September, 1919, and October, 1921, but no stockholder's meeting until April, 1922.

In 1919 the corporation sold and conveyed to Brandes and Widdel the ground on which the garage stood, with certain easements on other property and reserving certain easements in the property conveyed. The purchasers paid $10,000. In 1921, the corporation sold the ground upon which the storage house stood to the Artificial Ice & Fuel Company, with certain described easements over other property, and reserving certain easements to the grantor and F. J. Fowler. The purchaser paid $42,500, of which $15,000 was paid in cash and $27,500 in bonds of the purchaser, drawing 7 per cent. interest. The appellant corporation had outstanding $27,500 of preferred stock providing for 6 per cent. cumulative dividends, which was then subject to retirement at the call of the holders at par and accumulated dividends. The bonds received from the sale of the storage building were taken by the holders of the preferred stock and their stock surrendered. The appellant company paid a broker $500 for his services in the sale of the warehouse, and the appellant Fowler received $1,000 from the corporation as compensation for his services in effecting the sale and in making the exchange of bonds for stock with the holders of preferred stock. He also received $1,000 of the amount paid by the Artificial Ice & Fuel Company and $500 of the sum paid by Brandes and Widdel. Of the funds of the corporation, $11,000 were loaned to the appellant Fowler upon his unsecured notes drawing 7 per cent. interest. These notes have been renewed, the accrued interest being included in the new notes. $10,000 were loaned to the Fowler Company upon its unsecured note, at 7 per cent. interest. The interest upon this note has been paid when due. The notes given for these loans are due on demand or 10 days thereafter.

F. J. Fowler, as president of the appellant corporation, was paid a salary of $75 or $100 per year during the years from 1916 to 1920. Dividends on the common stock have been paid during the years 1914, 1917, 1919, and 1921 ranging from 4 to 7 per cent. Dividends were not paid in other prior years because of paving taxes and other extraordinary expenses, and none were paid in 1921. The corporation now owns one piece of real estate upon which stands a dwelling house occupied by a tenant, and worth about $4,500. During all the time covered by these transactions the appellant F. J. Fowler was in sole charge, management, and control of the property and business of the corporation. While during a part of the time Frank Fowler, Jr., was a director and officer, he seems to have taken no active part in the management of the business.

The foregoing facts are not in dispute; and upon them the appellee prayed, and procured in the court below, a decree dissolving the corporation, ordering its assets distributed among its stockholders, appointing a receiver to wind up its affairs, and requiring the appellant F. J. Fowler to turn over to the receiver the notes of himself and the Fowler Company, and to pay to the receiver the $500 paid to the broker for services in selling the storage house, the $1,000 and the $500 paid to himself out of the proceeds of the property sold, and $1,000 paid to himself for negotiating the sale of the storage house and effecting the exchange of the bonds received therefor for the preferred stock.

The relief was claimed in the pleadings, and the decree is defended in argument, upon two grounds: (1) That the corporation has ceased to function and has abandoned entirely the purposes outlined in its articles of incorporation and for which it was organized; (2) that the appellant F. J. Fowler has been guilty of such mismanagement of the affairs of the corporation, in paying to himself the various amounts stated, and lending the funds of the corporation to himself and another corporation controlled by him, as amounts to a fraud upon the minority stockholders against which equity will afford the relief granted.

To sustain the first of the above contentions appellee relies upon section 1628 of the Code of 1897, which provided that a corporation should cease to exist by nonuser of its franchise for 2 years at any one time, but that the omission to elect officers or hold meetings at any time prescribed by its articles or by–laws should not work a forfeiture if such election was held within 2 years. This section was repealed by chapter 374 of the Acts of the Thirty–Eighth General Assembly.

[1][2] It is clear there has been no failure of the corporation to function, no nonuser of its franchise, so far as relates to the transaction of business. It cannot be said that its business was at an end when the storage house was sold. It still owns real estate from which it derives an income in the way of rental, and still has a portion of the proceeds of the sale of its other property and the right to reinvest, when and if its directors see fit. The sale of all its property would not dissolve the corporation. Price v. Holcomb, 89 Iowa, 123, 56 N. W. 407;Beidenkopf v. Insurance Co., 160 Iowa, 629, 142 N. W. 434, 46 L. R. A. (N. S.) 290.

[3] It is contended that section 1628 was self–executing, and that by the mere failure of the corporation to elect officers or hold meetings its corporate franchise was forfeited, and that it ceased to exist except for the purpose of winding up its affairs. It will suffice to say that while the act remained on the statute books it was never so construed. Bank v. Gilinsky, 142 Iowa, 178, 120 N. W. 476, 134 Am. St. Rep. 406;Cownie v. Dodd, 167 Iowa, 627, 149 N. W. 904. We are by no means convinced that we are now, after its repeal, required to so hold to work a dissolution of a solvent corporation that is, and has at all times been, in the active exercise of its proper and authorized franchise by owning and leasing real estate. By its articles of incorporation its officers and directors held office until their successors were elected.

[4] Section 1640 of the Code of 1897 (Section 8402 Code of 1924) provides:

Courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any corporation, and to appoint a receiver therefor, who shall be a resident of the state of Iowa. An action therefor may be institued by the attorney general in the name of the state, reserving, however, to the stockholders and creditors all rights now possessed by them.”

This statute, while giving to courts of equity power on good cause shown to dissolve corporations and to appoint receivers therefor, and authorizing the Attorney General to institute proceedings for such purpose, did not confer upon stockholders any new or enlarged rights in that respect. Such rights only as they then possessed were reserved to them.

[5] We inquire what were the rights possessed by a minority stockholder to compel the...

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