Gord v. Iowana Farms Milk Co.

• Decision Date: 17 November 1953
• Docket Number: No. 48320,48320
• Citation: 60 N.W.2d 820,245 Iowa 1
• Parties: GORD v. IOWANA FARMS MILK CO. et al.
• Court: Iowa Supreme Court

Page 820

60 N.W.2d 820

245 Iowa 1

GORD v. IOWANA FARMS MILK CO. et al.

No. 48320.

Supreme Court of Iowa.

Nov. 17, 1953.

Edward A. Doerr and Carl H. Lambach, Davenport, for appellant.

Robert D. Wells, William W. Brubaker and Edward N. Wehr, Davenport, for appellees.

WENNERSTRUM, Justice.

Plaintiff brought an action in equity wherein he sought to have canceled certain shares of stock issued to the defendants Evelyn Runkel Moore and Helen E. Helble by the Iowana Farms Milk Company, a closely held corporation. He claimed there was issued to these defendants stock in excess of their pre-emptive subscription rights of an authorized issue and also asked that it be decreed that plaintiff is entitled to exercise his pre-emptive right of purchase in the stock authorized to be issued in his proportionate share of previously held stock. As an alternate remedy the plaintiff sought to have the defendants Glenn H. Moore, Evelyn Runkel Moore and Helen E. Helble held to account to plaintiff for any profits made by Evelyn Runkel Moore and Helen E. Helble by reason of the stock issued and that judgment be entered against them and in favor of the plaintiff for such sum as may be found to be due him. The trial court held against the contentions of the plaintiff and dismissed his petition. He has appealed.

In the fall of 1932 the plaintiff Cleo L. Gord and the defendants Glenn H. Moore and Helen E. Helble commenced the operation of the Iowana Farms Milk Company as individuals after the acquisition of a dairy business then owned by G. Watson French, a Davenport industrialist. This business was incorporated in November, 1932 and at the time of its incorporation Glenn H. Moore was elected president and director and has since continued to so act. Cleo L. Gord was elected secretary and treasurer and director of the corporation and so continued to act until February, 1950. He was not reelected an officer and director at the corporate meeting held at that time. In February, 1951 he terminated his employment with the company.

Prior to the acquisition of the dairy business by Moore and Gord the latter had been manager of Iowana Farms then owned by French, who, in connection with his farming operations also was engaged in the wholesale and retail sale of dairy products in Davenport and nearby cities. Gord was graduated in 1926 from Iowa State College with a degree of Bachelor of Science in Dairy Industry. Prior to his employment by French in December, 1930 he had been employed by several companies engaged in the sale of dairy and kindred products in Iowa and elsewhere. Mrs. Helble, formerly Helen E. Grell, had also been an employee of French as a bookkeeper for some time prior to the acquisition of the dairy business by the Iowana Farms Milk Company. At the time of the incorporation of this company she was elected vice-president and director and has so continued to act up to the time of the trial. The three officers to whom reference has been made constituted the board of directors from the time of the incorporation to February, 1950.

The original capital was furnished at the time of the purchase of the dairy by Moore and Gord and a mortgage was given to French on the equipment with provision for small periodic payments. At the time of the incorporation common stock was issued at the established par value of ten dollars per share. Glenn H. Moore furnished $3,500, Cleo L. Gord furnished $1,670 and Helen E. Helble $30. Their respective shares amounted to 67.3%, 32.1% and .6% and so continued in almost this same proportion until November 26, 1949. Immediately prior to this last named date Glenn H. Moore held 715 shares and Evelyn Runkel Moore, wife of Glenn H. Moore, held 362 shares or a total of 1,077 shares. Their respective proportions of the total stock issued was 42.77% and 21.65% or a total of 64.42%. At this same time Cleo L. Gord held 562 shares of common stock or 33.61% and Helen E. Helble 33 shares or 1.97%.

Glenn H. Moore commenced his connection with the dairy industry in Cedar Rapids, Iowa in 1916. During most of the subsequent period until 1932 he was engaged in several dairy enterprises, in some of which his father-in-law furnished a substantial portion of the necessary capital. In April, 1932 he was employed in Rock Island, Illinois by the Peerless Dairy Company. During the summer of 1932 he had conversations with Mr. French, previously mentioned, relative to the acquisition of the French dairy and his milk distribution business. Prior to this time Cleo L. Gord had been in charge of the French dairy offices and its accounts and this arrangement was continued by the new purchasers.

At the time the French dairy was acquired seven milk distribution trucks were in use. Under the new owners the business developed and prospered and in 1937 the dairy corporation began the construction of a new plant in Bettendorf, a city adjacent to Davenport. The operation of the business continued at the Iowana Farms until February 7, 1938 when the Bettendorf plant was opened. Gord's duties consisted largely in supervising the distribution of the dairy products. Moore was in charge of production and the finances and was generally the office executive

The dairy corporation had been promised financial assistance by a Davenport bank to make possible the construction of the new plant at Bettendorf. This arrangement was not carried out because the financial institution concluded it was not advisable to lend money on a one-purpose building. At the suggestion of Glenn H. Moore, Cleo L. Gord went to Chicago and sought financial assistance through the Reconstruction Finance Corporation. Funds from this lending agency were finally obtained in August of 1938. This loan was paid off in August, 1942. In 1937 or 1938 Elmer A. Runkel, the father-in-law of Glenn H. Moore, bought an entire issue of preferred stock in the amount of $5,000. This stock, however, was later given to his daughter Evelyn Runkel Moore. During the development and growth of the Iowana Farms Milk Company Mrs. Moore lent to the corporation a considerable amount of money from her individual funds.

The individual business activities of Glenn H. Moore and Cleo L. Gord were also successfully carried on. During the summer of 1941 Gord and Moore acquired what has been referred to as the Ivanhoe Farms for $22,500. They made a down payment of $1,500 and a further payment of $2,500 on March 1, 1942 and subsequent payments were made until the purchase price obligation was liquidated. It was purchased on an equal basis. Mrs. Moore lent Gord money so that he could be on an equal basis with Glenn H. Moore in the operation of the farm. The Ivanhoe Farms were sold July, 1951 for $75,000 and equal distribution of this amount made to the two owners.

In 1943 Gord and Moore purchased 185 acres of the Iowana Farms--a portion of the French property. The purchase price is not disclosed by the record but it was sold in 1950 for $116,000 to the Aluminum Company of America. In connection with the settlement of this transaction, at Gord's insistence, Moore received $10,000 in excess of an equal distribution of the proceeds of the sale. This additional payment to Moore apparently was made by reason of services rendered by him in connection with the operation of this property and its sale. From a study of the record it would appear each partner received $40,000, Moore received an additional $10,000 as previously stated and of the amount remaining, $20,000 was lent to the Iowana Farms Milk Company, the corporation. The disposition of the amount remaining from the proceeds of the sale is not set forth. It is also shown by Moore's testimony that in addition to the $20,000 loan to the Iowana Farms Milk Company other funds were lent to it out of proceeds of the liquidation of the Iowana Farms and the rersonal property on it. The total amount apparently lent the milk company at this time was $42,300. There is no showing other than that these loans were jointly held by Moore and Gord. In the purchase of the farm properties, mortgages were given to a Davenport bank.

As previously stated, during the growth and development of the dairy business Evelyn Runkel Moore lent the corporation various amounts at different times. For these loans notes were issued which carried seven per cent interest. It was testified to by Moore that as of December 31, 1948 the Iowana Farms Milk Company was indebted to Evelyn R. Moore in the total sum of $18,380 and to Helen E. Helble in the amount of $1,015. Both of these notes were demand notes and bore seven per cent interest. It was further testified to by Moore that as of December 31, 1950 the Iowana Farms Milk Company was indebted to Evelyn R. Moore on demand notes bearing seven per cent interest in the respective amounts of $17,000, $13,000, $2,000 and $1,200. As of this same date he also testified the corporation was then further indebted to Helen E. Helble in the principal amount of $1,800 on a promissory note bearing seven per cent interest and due January 1, 1954. He further testified that as of this same date the corporation was indebted to the Iowana Milk Farms, the partnership between Moore and Gord, in the respective amounts of $14,000, $4,000, $20,000 and $4,300. Each of these notes bore interest at four per cent. The testimony of Moore further discloses that as of December 31, 1949 the corporation owed a Davenport bank $107,000, which obligation bore four per cent interest and was secured by a mortgage on all the land, buildings and equipment of the company along with certain personal assets belonging to Moore and Gord. It was payable $2,000 per month.

The balance sheet of the corporation for December 31, 1949, which it was stipulated was correct, showed total assets of $560,121.90. The liabilities were shown to be $267,954.21. The total net worth of the corporation included total capital stock issued and outstanding in the amount of $46,430, premium received on...