Independent Van & Storage Co. v. Iowa Mercantile Co.
| Citation | 168 N.W. 782,184 Iowa 154 |
| Decision Date | 17 September 1918 |
| Docket Number | 32120 |
| Parties | INDEPENDENT VAN & STORAGE COMPANY, Appellee, v. IOWA MERCANTILE COMPANY, Appellee; F. H. KLUSS, Intervenor and Appellant |
| Court | United States State Supreme Court of Iowa |
Appeal from Linn District Court.--MILO P. SMITH, Judge.
ACTION by a stockholder to rescind a subscription for stock, and recover notes delivered and money paid on the subscription. Decree in the court below dismissing plaintiff's petition. Plaintiff appeals.
Reversed.
Redmond & Stewart, for appellant.
Crissman & Linville, and Powell & Robbins, for appellees.
On the 10th day of July, 1916, defendant the Iowa Mercantile Company was a corporation and a going concern. On that day, one of its duly authorized agents solicited the intervenor, Kluss to purchase stock in the company. In pursuance of the solicitation and representations and statements made by this agent, the intervenor made an application to the company for stock, in the following words and figures:
On the receipt of this application, the company issued to the intervenor five shares of Class B stock, upon receipt of which the intervenor executed and delivered to the company his two promissory notes of $ 100 each, and paid to the company $ 100 in cash, as stipulated in the contract. On the 7th day of September following, the Mercantile Company being insolvent, a receiver was appointed, to take charge of its affairs. We take it that the receiver was appointed in the suit instituted by the Independent Van & Storage Company against the Mercantile Company. After the receiver had been appointed, and on the 13th day of October, 1916, Kluss intervened in said action. In his petition of intervention, he alleges: That he was induced to subscribe for the stock through the fraudulent representations of the agent of the Mercantile Company; that the agent represented that the company was prospering, and in a thriving condition, and that, during the month of June, 1916, its earnings, above and over all expenses, were in the sum of approximately 20 per cent of the capital stock; that it had existing contracts with western fruit dealers, and had plans under way whereby storage facilities were to be had, to take advantage of its contracts with western fruit dealers; that it would be able to handle western fruit at a great profit and advantage to its stockholders, and that it could and would sell to its stockholders coal and flour and other staple merchandise for less money than said merchandise could be obtained elsewhere. The intervenor alleged that these representations were all false and were known to be false; that he believed them to be true, relied upon them, and was induced to purchase the stock, pay his money, and execute the notes in controversy. He further alleged, in an amendment to his petition, filed October 25th, that the notes and money are now in the hands of the receiver of the company; that he promptly and diligently, upon learning of the false and fraudulent representations, rescinded said transaction, by filing his petition of intervention herein; that he brings and tenders the stock certificate for cancellation. Intervenor further says that no rights of bona-fide creditors have supervened, nor had any credit been extended on account of said subscription, nor on account of the money and notes received by the Mercantile Company from this intervenor.
To this petition, the receiver, in answer, said: That he admits the insolvency of the company, as pleaded; admits that he is in possession of the notes in controversy, amounting to $ 200, and that the notes were given in pursuance of the written subscription of the intervenor for capital stock; denies that no rights of bona-fide creditors have accrued since the making of said note; and denies that no credits have been extended on account of said note and the subscription for said stock; and alleges that the intervenor is not entitled to the relief demanded.
On the 5th day of May, 1917, the said cause coming on for hearing on the petition of intervention, and the parties appearing by their respective counsel, there was filed in said cause the following agreed statement of facts:
(1) That, in soliciting the intervenor to subscribe for stock in the Iowa Mercantile Company, the agent of said company made representations as to the conditions and property rights of said company, untrue and false in fact.
(2) That said representations were made with the purpose and intent of inducing the intervenor to subscribe for stock and to give his promissory notes therefor, aggregating $ 200, and $ 100 in cash.
(3) That the intervenor was induced by said false representations to make the subscription made, believing said false representations to be true.
(4) That said representations were made, the subscription entered into, and the notes and cash delivered on the 10th day of July, 1916, and application was made for appointment of a receiver for said company, and receiver appointed on the 7th day of September, 1916.
(5) That the two promissory notes given by the intervenor in subscription for stock in said company, for the sum of $ 100 each, are now, and have been at all times hitherto, in the hands of the receiver.
(6) That the petition of intervention of intervenor was filed herein and notice given on or about the 25th day of October, 1916, asking the relief of rescission of his subscription and cancellation of said notes, and return of the $ 100 cash payment.
(7) That the character and effect of the false representations were such that, in law, they would furnish the basis and warrant judgment and decree of a court of equity, adjudging rescission of the subscription and cancellation of the promissory notes and the return of the cash payment, if action therefor had been instituted against Iowa Mercantile Company before and prior to the application for and the appointment of the receiver.
(8) That the foregoing facts are submitted for judgment of law applicable thereto.
No further evidence was introduced. Thereupon, the case was submitted to the court, and judgment entered dismissing plaintiff's petition.
Upon the record thus made, it is apparent that, if intervenor's suit was prosecuted against the Mercantile Company, he would be entitled to the relief prayed for. If the interests of the Mercantile Company alone were involved, the relief prayed for could readily be given. The record shows, however, that the Mercantile Company is a corporation; that it is insolvent and in the hands of a receiver; that the suit by this intervenor was not commenced, nor was any action taken to rescind and to recover back the property in controversy, until after the affairs of the company had passed into the hands of the receiver.
A stockholder sustains a threefold relation: (1) to the corporation as a legal entity; (2) to his fellow stockholders; (3) to the creditors of the corporation. The capital is supplied, not by the artificial entity known as the corporation, but by its stockholders. This capital is supplied for the purpose of carrying on the enterprise, and is a fund to which the creditors of a corporation have a right to resort; and, while it exists affords them protection in extending credit to the corporation. The artificial entity exists mainly for the benefit of, and is governed and controlled by, the stockholders, through officers elected by them. The legal control of any stockholder is measured by the number of shares of stock held by him, representing, as it does, the amount contributed by him to the capital stock of the company. If any unpaid stock is issued, the holder of the stock is liable to the company for the amount of the unpaid balance, and this liability is an asset in the hands of the corporation, and is an asset to which creditors may look for the satisfaction of their claims against the corporation. When liability has been assumed by a shareholder to a corporation for stock delivered, that liability is an asset in the hands of the corporation, and may be sold or assigned like any other chose in action, and, upon a general assignment for the benefit of creditors, passes to the assignee, like any other chose in action held by the corporation. It is subject to attachment by creditors of the corporation, and may be reached by attachment process,...
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Indep. Van & Storage Co. v. Iowa Mercantile Co.
......On the 7th day of September following, the Mercantile Company, being insolvent, a receiver was appointed to take charge of its affairs. We take it that the receiver was appointed in the suit instituted by the Independent Van & Storage Company against the Mercantile Company. After the receiver had been appointed, and on the 13th day of October, 1916, Kluss intervened in said action. In his petition of intervention he alleges: That he was induced to subscribe for the stock through the fraudulent ......