Kosman v. Thompson

Citation211 N.W. 878
Decision Date11 January 1927
Docket NumberNo. 37547.,37547.
PartiesKOSMAN ET AL. v. THOMPSON, DISTRICT JUDGE.
CourtUnited States State Supreme Court of Iowa

OPINION TEXT STARTS HERE

Certiorari from District Court, Polk County; Lester L. Thompson, Judge.

Original action in certiorari to review numerous rulings of the court below in re the receivership of the Associated Packing Company. The opinion states the case. Writ annulled in part.

Stevens and Albert, JJ., dissenting.M. A. Roberts, of Ottumwa, S. W. Livingston, of Washington, Iowa, and S. G. Van Auken and O. M. Brockett, both of Des Moines, for plaintiffs.

Bradshaw, Schenk & Fowler, Parrish, Cohen, Guthrie & Watters, and Chas. Hutchinson, all of Des Moines, for defendant.

FAVILLE, J.

The Associated Packing Company, incorporated under the laws of this state, filed articles of incorporation October 10, 1918, providing for an authorized capital of $2,000,000. On March 28, 1919, by amendment to the original articles, its authorized capital stock was increased to $5,000,000. In February, 1920, the Attorney General instituted an action in equity in the district court of Polk county in the name of the state, alleging grounds therefor, and praying the dissolution of the corporation and for the appointment of a receiver to take charge of its property and assets to manage and wind up its business and affairs. The Associated Finance Company, also incorporated, which was the exclusive agent of the packing company for the sale of its capital stock, and the Linden Bank, a copartnership engaged in the general banking business at Linden, Iowa, which had agreed in writing to purchase notes of subscribers for stock of the packing company in the aggregate sum of $1,500,000, were joined as defendants. The action was contested by the packing company and the Linden Bank. A trial resulted in a decree, certain provisions of which will be referred to later, substantially as prayed. The decree also enjoined the Linden Bank from transferring, hypothecating, or otherwise disposing of any of the notes of the packing company purchased by it or in its possession until the further order of the court. The receiver appointed by the court immediately qualified and took charge of the assets and business of the corporation. Claims were filed by numerous creditors, including the Linden Bank. The claim of the bank was allowed by the court as a general claim in the sum of $216,751.10. Other items were involved for which preference was asked and allowed by the court, but they are not now material. The assets of the corporation, outside of the unpaid subscriptions of stockholders, are insufficient to pay the corporate debts.

On February 28, 1925, upon the application of the Linden Bank, the court ordered and directed the receiver to commence an action in equity in Polk county, against all subscribers to the capital stock who had not then paid their subscriptions in full, to recover a call or assessment of 17.5 per cent. This order was preceded by a finding that the assets of the corporation consisted of property of the approximate value of $50,000, cash in bank in the sum of $69,287.47, and stock subscriptions evidenced by contracts and promissory notes in the sum of $2,536,005.25, with interest thereon, and that it would require an additional $110,000 to pay the claims of creditors, and that the amount subscribers to stock should pay on their subscriptions should be 17.5 per cent. On April 23, 1925, the receiver commenced an action in equity in Polk county, as directed by the court, against something over 800 alleged subscribers, and caused original notices to be served upon them of said action. Numerous of the defendants, who are residents of Iowa, are nonresidents of Polk county.

On June 1st, the defendants named in the action appeared and filed motions to dismiss the petition of the receiver, to vacate and set aside the order establishing and allowing the claim of the Linden Bank, and various other orders of the court entered in the receivership proceedings. These motions were based largely upon the ground that the action for the dissolution of the corporation and for the appointment of a receiver and all subsequent proceedings in the district court in relation thereto were contrary to law and in excess of the court's jurisdiction. A motion was also filed to require the plaintiff to make his petition more specific in several particulars, and a motion was also filed by all nonresident defendants for a change of venue to the respective counties of their residences. These motions, so far as the ruling is material to the present controversy, were overruled. Thereupon this original action in certiorari was commenced in this court and a writ issued. Although the argument of counsel has taken a wide range, the controversy really resolves itself into three primary propositions: (1) Did the district court of Polk county acquire jurisdiction, in the action brought in equity by the Attorney General in the name of the state for that purpose, to decree a dissolution of the corporation known as the Associated Packing Company, to revoke its charter and appoint a receiver to wind up its affairs, or must an action to dissolve a corporation be prosecuted at law in the nature of an action in quo warranto? (2) Did said district court exceed its proper jurisdiction or act illegally in the proceedings subsequent to the appointment of a receiver in any of the particulars complained of, including the overruling of the several motions above referred to? (3) Were the defendants, who are nonresidents of Polk county, entitled to a change of venue?

I. We first consider the question as to the character of the original action and the scope and effect of the decree entered therein, assuming, without so deciding, that plaintiffs are in a position to question said matters fully in the instant case.

It is contended on one hand that the original action was one in which the legal existence of the corporation was recognized, and it was sought to dissolve the same and wind up its affairs under a receivership. On the other hand, it is claimed that the original proceeding was in effect an action in quo warranto to test the legality of the organization of a purported corporation.

It is obvious that the relation of plaintiffs to a legally organized corporation would be quite different from their relation to an organization that never became incorporated.

The record discloses that the corporation, the Associated Packing Company, was prima facie duly organized as a corporation under the laws of this state. There is no claim anywhere in the proceedings of any defect in the manner of incorporation. The objects of the corporation, as expressed in its articles, were legitimate and proper. All the necessary legal steps for incorporation were taken, and the proper state official issued a certificate of incorporation. The promoters of the corporation thereafter proceeded to sell stock in the corporation to the public. The corporation operated for a considerable length of time, acquired property, incurred indebtedness, and functioned in all respects as a corporation. A large amount of the corporate stock was sold presumably chiefly by the original promoters, to many subscribers. The articles of incorporation were originally filed on October 10, 1918. On March 28, 1919, an amendment to the articles of incorporation was filed. From October 10, 1918, until February 27, 1920, the corporation exercised its functions as a corporation, under its certificate, without any question of legality being raised. On the 27th day of February, 1920, the Attorney General of the state instituted an action in equity against said corporation. The petition in said cause recited that the action was brought upon the relation of the Attorney General, and alleged, among other things, that the Associated Packing Company “is a corporation organized under chapter 1 of title IX of the Code of Iowa, as amended, and that its articles have been duly filed.” It is alleged that the corporation, through its officers and agents, has been selling or offering for sale, shares of stock in the corporation, and has employed many agents to sell the same. The petition also alleged:

Paragraph 7 1/2. This plaintiff further alleges that the said corporation and the Associated Packing Company was never organized in good faith for the purpose of conducting a packing business, but was organized solely as a stockselling or promotion scheme; that the parties who organized the same, at the time of its organization had no person associated with them who had any knowledge of the packing business; that the original incorporators of said business were C. J. Stevens, President, et al.”

It is further alleged in the petition that in the organization of said company the parties interested in its organization confederated and conspired together for the purpose of defrauding the public in connection with the sale of said stock and in making exorbitant promotion profits. It is further alleged that the “said corporation” has been making, issuing, and circulating fraudulently exaggerated reports with reference to the value of the stock, and has been representing to its stockholders and prospective stockholders fraudulently exaggerated values of the property of said corporation and of the value of said stock. The petition contains further extensive recitals with regard to the property owned by the said corporation and buildings thereon and its value. There is a further allegation that representation has been made to induce the purchase of stock that purchasers would be made directors of said corporation, or officers thereof, and that said representations were false. It is alleged that:

“Said corporation has so misused and abused its franchise that the best interests of the state of Iowa demand that said corporation be dissolved; that a temporary restraining order issue for the purpose of preventing the officers and agents of said corporation from distributing...

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8 cases
  • Strong v. Crancer
    • United States
    • Missouri Supreme Court
    • November 16, 1934
    ...Brick Co., 138 S.W. 532, 234 Mo. 698; Levering v. Schnell, 78 Mo. 167; American Cent. Life Ins. Co. v. Harmon, 39 F.2d 21; Kosman v. Thompson, 211 N.W. 879; Buzard Houston, 30 L.Ed. 451. Hyde, C. Ferguson and Sturgis, CC., concur. OPINION HYDE This is an action in equity by a trustee in ban......
  • Kosman v. Thompson
    • United States
    • Iowa Supreme Court
    • December 17, 1927
    ...the dissolution and receivership of the Associated Packing Company. Writ allowed in part; annulled in part. Superseding former opinion in 211 N. W. 878.O. M. Brockett and S. G. Van Auken, both of Des Moines, M. A. Roberts, of Ottumwa, and S. W. Livingston, of Washington, Iowa, for plaintiff......
  • State ex rel. Havner v. Associated Packing Co.
    • United States
    • Iowa Supreme Court
    • July 18, 1933
    ...were not promoters of the scheme to organize and incorporate a pretended "packing corporation". In a dissenting opinion in Kosman v. Thompson, Iowa, 211 N.W. 878 (not officially reported), Justice Stevens substantially: "The vital inquiry at this point is: What is the effect of the court's ......
  • State ex rel. Havner v. Associated Packing Co.
    • United States
    • Iowa Supreme Court
    • July 18, 1933
    ...they were not promoters of the scheme to organize and incorporate a pretended “packing corporation.” In a dissenting opinion in Kosman v. Thompson, 211 N. W. 878, Justice Stevens said substantially: “The vital inquiry at this point is: What is the effect of the court's decree, if any, upon ......
  • Request a trial to view additional results

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