Kosman v. Thompson

Citation215 N.W. 261,204 Iowa 1254
Decision Date17 December 1927
Docket NumberNo. 37547.,37547.
PartiesKOSMAN ET AL. v. THOMPSON, JUDGE.
CourtUnited States State Supreme Court of Iowa

OPINION TEXT STARTS HERE

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

Original action in certiorari to review numerous rulings of the district court in proceedings relating to and growing out of 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 plaintiffs.

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

KINDIG, J.

The Associated Packing Company, on October 10, 1918, filed articles of incorporation with the secretary of state, providing for an authorized capital of $2,000,000, and accordingly said state official issued in return a certificate of incorporation. By amendment to said original articles, the capital stock was increased on March 28, 1919, to $5,000,000. Afterward, under such certificate, the company employed a large number of agents and other representatives, acquired considerable real estate, did business with many Iowa banks, entered into contractual relationships with a multitude of Iowa citizens, and assembled (including its stock subscription notes) resources of a value in excess of $3,000,000.

During February, 1920, the Attorney General instituted an action in equity in the district court of Polk county in the name of the state, praying for the dissolution of the corporation and the appointment of a receiver to wind up its business, and alleging (1) violations of statutes, (2) fraud practiced by the promoters upon the state in the application for the charter, (3) conspiracy between the officers of the Associated Packing Company and those of the Associated Finance Company, an incorporated fiscal agent of the Packing Company, and (4) other irregularities. Trial was had resulting in a decree as asked. Upon qualification, the receiver took charge of the assets. Claims were filed by numerous creditors, including the Linden Bank, the amount of the latter demand being $216,751.10. Total indebtedness of the institution is such that the assets outside of unpaid stock subscriptions are insufficient to pay corporate obligations.

Finally, February 28, 1925, upon application of the Linden Bank, the district court ordered and directed the receiver to commence an action in equity in Polk county against all subscribers to capital stock, who had not then paid their subscriptions in full, (1) to assess such “subscribers” in an amount sufficient to pay all claims established against the corporation, together with the expense of administration, and (2) to recover judgment on said assessment.

Obediently, on April 23, 1925, the receiver commenced such action in equity in said county against more than 800 alleged subscribers, demanding (1) an assessment for 17 1/2 per cent., or for such other percentage as may be necessary, in order to pay the indebtedness, and (2) judgment against each of said subscribers for the amount of the assessment so fixed.

[1] I. At the threshold it is urged that the district court is without and acting beyond its jurisdiction in the premises, for the reason that said proceedings instituted by the Attorney General for dissolution were equitable in nature under section 8402 of the Code of 1924, and not in law under the provisions of section 12428 and supplemental paragraphs of said Code. Said first Code reference reads:

Courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any corporation, and to appoint a receiver therefor. * * * An action therefor may be instituted by the Attorney General in the name of the state, reserving, however, to the stockholders and creditors all rights now possessed by them.”

A determination of this controversy involves an interpretation of said sections, as well as the establishment of their relationship to each other, and an exposition of their uses to the state and the individual litigant. No impediment is confronted in this task because of the sacredness of said law proceeding afforded by constitutional protection. Unhampered, therefore, the Legislature was free to enact such remedies for the occasion by it deemed wise and convenient.

[2] Quo warranto, actions in the nature of quo warranto, remedies provided by said section 12428, and kindred laws may be entirely abdicated and substitutions made in place thereof. State ex rel. Cates, Attorney General, v. Standard Oil Co. of Kentucky, 120 Tenn. 86, 110 S. W. 565;Ames v. State of Kansas, 111 U. S. 449, 4 S. Ct. 437, 28 L. Ed. 482;Louisville, etc., R. Co. v. State, 154 Ala. 156, 45 So. 296;State v. Atchison, etc., R. Co., 176 Mo. 687, 75 S. W. 776, 63 L. R. A. 761;State v. McLain, 58 Ohio St. 313, 50 N. E. 907;State v. Evans, 33 S. C. 612, 12 S. E. 816;Wright v. Lee, 4 S. D. 237, 55 N. W. 931.

Since governments have been formed, some men have been inclined to encroach upon the prerogative of the sovereign or state. To prevent this and maintain governmental power and order, a remedy has been found necessary to prevent infringement. Law alone need not be selected for protection in this regard, and there is no prevention of the state calling to its rescue the elasticity and emergency usefulness of equitable proceedings. Platner v. Kirby, 138 Iowa, 259, 115 N. W. 1032;State v. Fidelity Loan & Trust Co., 113 Iowa, 439, 85 N. W. 638;State ex rel. Mullan v. Syndicate Land Co., 142 Iowa, 22, 120 N. W. 327;Chicago Mutual Life Indemnity Association v. Hunt, 127 Ill. 257, 20 N. E. 55, 2 L. R. A. 549. Evolution has tended to produce broader and more easily manipulated laws for the purposes here under consideration. Ames v. State of Kansas, supra; State ex rel. Cates, Attorney General, v. Standard Oil Co. of Kentucky, supra.

As an historical investigation will reveal, at common law there were two modes to ascertain or enforce the forfeiture of a charter of a corporation for misuser or nonuser. The one was by scire facias, where there was a legal existing body capable of acting, but which abused its power. The other was by quo warranto, or an information in the nature of a quo warranto, and applied where there was a body corporate de facto only, exercising a franchise without authority, or an association assuming to act as a corporation without even color of right. 14a Corpus Juris, 1134, § 3768. Little is known of the origin of quo warranto, its history being obscured in antiquity. It was used at least as early as Richard I. State ex rel. Dunlap v. Stewart, 6 Houst. (Del.) 359. Recitation of its future development and change is interestingly made in State ex rel. Cates, Attorney General, v. Standard Oil Co. of Kentucky, and Ames v. State of Kansas, supra.

Events in this state leading up to the legislation in question have been well catalogued by Mr. Justice McClain in Platner v. Kirby, supra, wherein he concludes, as to what is now section 8402, as follows:

“The legislative intent seems to have been to authorize what was not previously authorized with reference to corporations in general, an action in equity by the Attorney General in the name of the state and in the interests of the public to dissolve a corporation on account of violation by it of the laws of the state, and to leave to the stockholder such remedy as he already had.”

Support for this pronouncement is furnished by the statements and holdings in State v. Fidelity Loan & Trust Co., supra; State ex rel. Mullan v. Syndicate Land Co., supra; Crow v. Bond & Mortgage Co. (Iowa) 209 N. W. 410.

The state in its province as a sovereignty had a right to choose between the procedure afforded for its convenience and protection by said sections and adopt the one most to its liking. Plaintiffs cannot complain. These sections were not provided for their use, and the effect on them is incidental only. Wallace v. The Pierce-Wallace Publishing Co., 101 Iowa, 313, 70 N. W. 216, 33 L. R. A. 122, 63 Am. St. Rep. 389; Platner v. Kirby, supra; Crow v. Bond & Mortgage Co., supra. Manifestly it is quite immaterial to the state whether the business of the corporation be wound up by three trustees or one receiver. Prejudice to the plaintiffs, if any, in either event is not controlling when compared with the rights and liberties of all the people who constitute and are the state. Such action in equity on the part of the state does not deprive plaintiffs of any right belonging to them. Said section 8402 expressly reserves to them such “rights” as similar litigants enjoyed at the time of the legislative enactment. Platner v. Kirby, supra. For enlightenment as to what these individual “rights” were, reference is made to French v. Gilford, 30 Iowa, 148,Dickerson v. Cass County Bank, 95 Iowa, 392, 64 N. W. 395, and Crow v. Bond & Mortgage Co., supra.

Argument is advanced that because the law action affords the relief of ouster, while the equitable process acomplishes dissolution, the action in the case at bar must have been under said section 12428. This contention does not receive our approval. Under the proceedings in the nature of quo warranto there are two forms of ouster, total (section 12428), and partial (section 12429). See, also, State v. Capital City Dairy Co., 62 Ohio St. 350, 57 N. E. 62, 57 L. R. A. 181;State v. First National Bank, 297 Mo. 397, 249 S. W. 619, 30 A. L. R. 918;Attorney General ex rel. City of Monroe v. Toledo, etc., R. Co., 151 Mich. 473, 115 N. W. 422. Total “ouster” necessarily results in death of the corporation. The being suffocates for want of prerogative breath. On the other hand, “dissolution,” under section 8402, accomplishes the same result. There, demise is caused by direct sentence. State v. Fidelity Loan & Trust Co., supra....

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