Iowa Drug Co. v. Souers

• Decision Date: 09 July 1908
• Citation: 139 Iowa 72,117 N.W. 300
• Parties: IOWA DRUG CO. v. SOUERS.
• Court: Iowa Supreme Court

139 Iowa 72

117 N.W. 300

IOWA DRUG CO.

v.SOUERS.

Supreme Court of Iowa.

July 9, 1908.

Appeal from District Court, Polk County; A. H. McVey, Judge.

Action in equity to cancel shares of stock held by the defendant in the plaintiff company. Decree for plaintiff. Defendant appeals. There is also an appeal by plaintiff on the ground that the decree entered in its favor does not give to it the full measure of the relief to which it is entitled. The defendant, having first appealed, will be treated as appellant. Affirmed on plaintiff's and reversed on defendant's appeal.Read & Read, for appellant.

Wm. B. Brown, for appellee.

McCLAIN, J.

In February or March, 1903, the defendant associated with himself a few other persons in promoting the organization of a wholesale drug company to carry on business in Des Moines, which, as subsequently legally organized, became the plaintiff company. On August 26th following there was a meeting of the board of directors of the plaintiff company, then duly organized, at which defendant, as president, and directors Brown, Wilcoxen, and Steelsmith were present. At this meeting there were some resignations of officers and directors, and the vacancies thus created were filled, so that from this date until March 13, 1905, the persons above-named and Connell and Rawson constituted the board, the officers of the board being the defendant, president, and treasurer, Rawson, vice president, and Connell, secretary. The defendant had been for many years engaged in the retail drug business in Des Moines, and, at the date of the meeting of directors above referred to, owned and was conducting a retail drug store. On August 27, 1903, at an adjourned meeting of the board of directors, at which all the officers and directors were present, a resolution was passed and duly recorded, reciting that, as the affairs of the company required the immediate personal attention of at least one person at that time, and the conditions were such that no one but the president of the company was available for this purpose, and the defendant, as president of the company, was willing to assume immediate personal charge of its business, provided he could dispose of or make some personal arrangement in regard to his retail business, he was employed as manager, to act in such capacity from and after the 10th day of September, 1903, until the company was ready for business, at a compensation of $250 per month, on condition that he give his whole time and undivided attention to the business; and that, in case he did not sell and dispose of his retail business to any other person, the company purchase his stock, fixtures, and business for the sum of $9,000, at any time on or before December 1, 1903, with the further recital that “the invoice price of said stock and fixtures is about $11,850.” The record further recites that defendant accepted such employment, and would engage some person to manage his retail business until he could dispose of it, or the company saw fit to purchase at the price named, which amount he would be willing to accept if sold to the company. At the next meeting of the directors, on October 2, 1903, at which all the officers and directors, except director Brown, were present, by-laws were adopted fixing the duties of officers, and defendant was unanimously elected manager, Rawson assistant manager, and Connell credit man and head bookkeeper, and contracts with these persons for employment for definite periods, at fixed salaries, were provided for; it being expressly recited that, whereas defendant“has been elected business manager, and as heretofore on resolution of this board has been devoting his time and attention to the business of the company at the compensation fixed at $250 per month, therefore be it resolved that said employment, at the salary of $250 per month, be discontinued on the 31st day of December, 1903. That the president and secretary of this company be and are hereby authorized and directed that in case said Webb Souers shall purchase and pay for capital stock of this company in the amount of $14,000, and shall agree to devote his entire time and attention to the business of this company, as provided in the by-laws, to enter into a written contract with said Webb Souers as business manager for a period of five years from and after January 1, 1904, at a compensation of $3,500 per annum, payable monthly, and upon such other terms and conditions as may be mutually agreed upon for the best interests of the company.” At the next meeting of the board, held on October 8, 1903, at which all the members of the board except Steelsmith were present, the minutes of the previous meeting were read and approved, and the board approved a contract submitted, with defendant as general manager. It appears otherwise without controversy that the defendant subscribed and received certificates for $15,000 of the stock of the company, and paid therefor $6,000 in cash, with the understanding that the balance of his stock was fully paid for by the sale to the company of his retail business, including the stock and fixtures, at $9,000.

The plaintiff seeks in this action to have canceled defendant's stock in the company to the extent of $7,367.62 as unpaid for, the contention being that the sale of defendant's retail business, including the stock and fixtures, to the plaintiff company had never been consummated. The lower court found that, although defendant had turned over to the plaintiff company in payment of his stock, in addition to the $6,000 paid in cash, the further sum of about $3,000 as the proceeds of the sale by him of his stock of fixtures, and had delivered to plaintiff unsold portions of said stock, the value of the stock so turned over fell short by $3,000 in value of the balance of his subscription, and ordered the cancellation of $3,000 in value of the stock in plaintiff company held by him. On defendant's appeal it is contended that defendant's stock was fully paid for, and that the court erred in canceling any portion thereof; while on plaintiff's appeal it is contended that the court should have canceled $9,000 of value of the stock held by defendant, upon the return by plaintiff to defendant of the proceeds of defendant's retail stock, so far as the same should be found to have been received by plaintiff, and such portions of such retail stock as still remained in plaintiff's custody or possession. It is apparent that the controversy between the parties relates to the fact as to whether defendant's retail business, including the stock and fixtures, was sold to the plaintiff for $9,000, and whether, if not sold to plaintiff for cash, it was exchanged in payment for $9,000 stock subscription to the plaintiff, and being of less value than that at which it was thus exchanged, plaintiff is entitled to have the entire subscription for $9,000 in stock canceled, or to have an amount of stock canceled corresponding to the shortage in value of the retail business, including the stock and fixtures which had been transferred, or attempted to be transferred, to the plaintiff in exchange for stock in the plaintiff company. The principal contention for appellant is that no sale of defendant's retail business, including stock and fixtures, was ever made to the plaintiff company, and if such sale was in fact attempted to be made through the action of plaintiff's board of directors, such sale was ultra vires and void.

It is conceded that the recorded resolution of August 27th did not effect a consummated sale, for it remained optional with the defendant to turn over his retail business to the company, or to dispose of it as his own property if he should see...