Gregg v. Middle States Utilities Co. of Delaware

• Citation: 293 N.W. 66,228 Iowa 933
• Decision Date: 18 June 1940
• Docket Number: 45083.
• Parties: GREGG v. MIDDLE STATES UTILITIES CO. OF DELAWARE (two cases).
• Court: United States State Supreme Court of Iowa

293 N.W. 66

228 Iowa 933

GREGG v. MIDDLE STATES UTILITIES CO. OF DELAWARE (two cases).

No. 45083.

Supreme Court of Iowa.

June 18, 1940

Appeal from District Court, Clarke County; Homer A. Fuller, Judge.

Actions at law to recover on separate verbal agreements of the defendant to repurchase its stock sold by it to the plaintiff Earl Gregg, and to his mother. The two cases were consolidated for trial, and from judgments for plaintiffs entered on verdicts directed by the court, at the close of all the evidence, the defendant has appealed.

Affirmed.

C. E Richmann, of Cedar Rapids, and Hughes, O'Brien & Hughes of Des Moines, for appellant.

O. M Slaymaker, R. E. Killmar, and D. D. Slaymaker, all of Osceola, for appellees.

BLISS Justice.

This is the second appeal of these cases to this court. On the other appeal, reported in Bishop v. Middle States Utilities Co., 225 Iowa 941, 282 N.W. 305, judgments for each plaintiff were reversed. The appeals were from the sustaining of plaintiffs' demurrer to the answers. The petition in each action was filed on November 6, 1935. After the death of Nancy Bishop, her son Earl Gregg, a man seventy-one years old at the time of the trial, as special administrator of her estate, was substituted as plaintiff in the action begun by her. In all of the stock transactions, involved in both actions, Earl Gregg acted for himself, and also for his mother. For his mother, Gregg made three purchases of the preferred stock of the defendant, to-wit: One share for $100, on February 1, 1928; five shares of preferred, and one of class " A" common stock, on July 1, 1929, for $500; two shares of preferred, in 1929 for $200. For himself, Gregg purchased four shares of preferred and one of common stock, on February 1, 1928, for $400, one share of preferred, on April 2, 1928, for $100, ten shares of preferred and two of common, on July 1, 1929, for $1,000, and ten shares of preferred and two of common, on October 1, 1929, for $1,000. In addition to the above stated matters, the petitions alleged that in each purchase the defendant was represented by its agents and employees, W. J. Brownell and W. E. Hahn, who verbally agreed with and represented to Gregg, as a part of each transaction, and as consideration for the purchase, that the defendant would repurchase the stock and pay back the purchase price, at any time such demand was made upon the defendant. The petitions further allege the demand and tender of the stock and the refusal of the defendant to repurchase. For answer the defendant admitted that it was organized under the laws of Delaware, and that by the statutes of that state, the decisions of its courts, and the provisions of its certificate of incorporation, it was forbidden to use its funds or property for the purchase of its own stock, when such use would cause any impairment of its capital. The answer further alleged that at the times alleged in the plaintiff's petitions relative to the purported repurchasing agreements, it had no surplus and any such use of its property would have impaired its capital, and that the alleged agreements were void, and made without authority. All other allegations of the petitions were denied. By an amendment to the answer it was alleged that the cause of action as to each purchase accrued more than five years prior to bringing the suits, and was barred by the statute of limitations. By reply, plaintiffs denied the affirmative defenses of the answer, realleged the repurchase agreements, and averred that defendant had received and retained the purchase price, and ratified the acts of its representatives.

At the close of all of the testimony each side moved for a directed verdict. Defendant's motion was denied, and plaintiffs' motions were sustained. Judgment for the full amount prayed for was entered for each plaintiff.

The appellant assigned three errors as grounds for reversal. The first assignment is that the court erred in refusing to sustain its motion to direct a verdict for it, on the ground that the actions were barred by the statute of limitations. Code 1939, § 11007. The second assignment is that the court erred in refusing to admit in evidence, defendant's Exhibits " 2" to " 8", inclusive, being certain journals, ledgers, and other claimed books of original entry of the defendant, offered by it in proof of its defense that the alleged repurchase agreement was void because an impairment of its capital. The third assignment is that the court erred in sustaining plaintiffs' motions for directed verdicts.

Before discussing these assignments we will refer to some matters of fact shown by the record. Some of these matters together with additional matters are mentioned in our opinion in the case of Smith et ux. against this defendant, in which the pleadings and proof are much the same as in this case. The decision therein was announced at this sitting of the court and is reported in, Iowa, 293 N.W. 59.

As noted in said opinion, the appellant, Middle States Utilities Company, and its affiliate, the Utilities Holding Corporation, were organized as Delaware corporations, about 1926. About the same time, the promoters of the two above mentioned corporations organized the Middle States Utilities Company, a Missouri Corporation, and the Middle States Utilities Company, an Iowa corporation. These last two corporations and others mentioned in the Smith case are referred to as corporations subsidiary to the appellant and its Delaware affiliate. As stated in the Smith case these corporations were all promoted, officered, managed and operated, in general, by the same men. There were about twelve or fifteen of these companies. There was much shifting of assets from one to the other. While the record of the purchase and the transfer of the various telephone properties is not fully shown in the record, it appears that the Utilities Holding Corporation would acquire the various telephone properties and exchanges, and would then transfer them to either the Missouri or Iowa subsidiaries, as the geographic location of the properties might require. The Middle States Utilities Company of Iowa operated telephone properties in twenty-one towns at the time of the trial. The Middle States Utilities Company of Missouri operated exchanges in fourteen towns. The Andrew County (Missouri) Telephone Company and the Clinton County (Missouri) Telephone Company, which were other subsidiary corporations, operated seven and six exchanges, respectively. Very few of the prices at which the Utilities Holding Corporation bought exchanges, and very few of the prices for which that corporation transferred them to the subsidiary companies are shown in the record before us. It does appear that the Utilities Holding Corporation acquired the Osceola telephone plant-building, switchboard, lines, and the Northwestern Bell Telephone local exchange-for $38,418, and a little later when it transferred this plant to the Middle States Utilities Co. of Iowa, that company was charged therefor on the books of the Utilities Holding Corporation, $69,050.45. The appellant was a holding company rather than an operating company, although at times it operated one or two companies. Some evidence of the shifting of assets appears from the fact that prior to 1929 the appellant operated the Osceola telephone property, known as the Clarke County Mutual Telephone Company, and about May 1, 1929, it was transferred to the Middle States Utilities Company of Iowa, which operated it until some time prior to July 1, 1931, when it passed to the Utilities Holding Corporation, which operated it until October or November, 1938, when it was turned back to the Middle States Utilities Company of Iowa, which held it at the time of the trial in 1939.

H. L. Davis, assistant treasurer and general auditor of the appellant and who had been connected with that company in various capacities since 1927, was a witness for appellant. He testified that: The appellant, the Utilities Holding Corporation, the two Middle States Utility Companies of Iowa and Missouri " were very closely related" ; that he had worked for all of them, during the same periods and at different periods; John Reed was the president of all of these companies until his death in January, 1933; the vice presidents, directors and employees were pretty much the same; Golliday, who lived at Holden, Missouri, was general manager for all of the telephone operating companies; J. W. Smiley was the man in charge of the securities department; W. J. Brownell was a securities salesman in the employ of the Middle States Utilities Company of Missouri. Mr. Weekly, a witness for appellant, testified that he was the General Manager of the Middle States Utility Companies subsidiary companies, and was in charge of operating and maintaining them, and that he managed the Osceola plant since July 1, 1931, while it was operated by both the Utilities Holding Corporation and the Middle States Utilities Co. of Iowa.

The plaintiff introduced in evidence Exhibits " T", " U", " V", " W" and " X" . Davis testified that all of them were prepared and sent out of the general offices of the appellant and its associated companies. These were sent to Earl Gregg, as one of the stockholders of the appellant. Exhibit " T" contained these statements:

" $100,000.00

Middle States Utilities Company

6% Cumulative Preferred Stock

Par Value-$100.00 per Share

Dividends payable quarterly.

We are now offering an issue of $100,000.00 of our Cumulative Preferred Stock. Dividends paid quarterly on the first day of January, April, July and October. The proceeds of this issue will be used to partially reimburse the Company for expenditures made for major improvements and additions on the property of two smaller companies in...