Lex v. Selway Steel Corp.

• Decision Date: 15 December 1925
• Docket Number: 35739
• Citation: 206 N.W. 586,203 Iowa 792
• Parties: HENRY W. LEX et al., Appellees, v. SELWAY STEEL CORPORATION et al., Appellees; FRED BROWN et al., Appellants
• Court: Iowa Supreme Court

206 N.W. 586

203 Iowa 792

HENRY W. LEX et al., Appellees, v. SELWAY STEEL CORPORATION et al., Appellees;

FRED BROWN et al., Appellants

No. 35739

Supreme Court of Iowa, Des Moines

December 15, 1925

REHEARING DENIED APRIL 7, 1927. [Copyrighted Material Omitted] [Copyrighted Material Omitted]

Appeal from Polk District Court.--JAMES C. HUME, Judge.

Reversed in part; affirmed in part.

Howard L. Bump, for plaintiffs.

Howard L. Bump and James M. Parsons, for receiver.

Brockett, Strauss & Blake, for Selway Steel Corporation, Selway Steel Post & Fence Co., Selway Steel Post Co., and Robert R. Selway.

Guy A. Miller, for Herman H. Budke.

Parrish, Cohen, Guthrie & Watters, for interveners General Fireproofing Co. and Republic Iron & Steel Co.

Lehmann, Seevers & Hurlburt, for M. W. Richey, intervener.

Charles Hutchinson and Clark & Byers, for Van S. Allen, John Mohnssen, Peter J. Mohnssen, Samuel Zeigenhorn, Joseph O'Brien, Garrett W. Wiggers, John H. Schmitz, John J. Blum, and William Thompson, administrator.

Stewart & Hextell, for Robert C. Friar and Thomas H. Friar.

Lappen & Carlson and Wilson & Shaw, for Melvina Mogul and Phillip Brody.

Lappen & Carlson and Loepp & Walter, for Heiko J. Muller.

Lappen & Carlson, for H. B. Spellman.

F. J. McGreevy, for D. E. Aukes, R. C. Bode, H. J. Frerichs, Rath State Exchange Bank, and Farmers & Merchants Savings Bank.

Tesdell & Mackaman and Kimball, Peterson & Smith, for A. F. Dammerow and John Schnepel.

Charles W. Lyon and J. C. McCoid, for F. B. Montgomery and S. T. Hills.

John McLennan and Molsberry & Reaney, for C. E. Cummings.

John McLennan and Robertson & Robertson, for Fred Brown.

Salinger, Reynolds, Meyers & Cooney, for Louis Baumhover, J. M. Bell, G. William Dunlop, C. D. Enfield, Adolph Fricke, William Fricke, Jacob H. Janssen, Matt Lappe, C. A. Langenfeld, John Schleisman, John R. Wolfe, William Wittrock, August Wittrock, G. S. Toliver, Executor, Albert Copp, and Elias Barg.

E. A. Wissler, for Albert Copp.

W. C. and W. I. Saul, for Peter W. Bartels.

Frank J. Comfort, for Henry W. Hansen and William Guttenfelder.

Ray Fountain and Swan, Clovis & Swan, for J. A. Nelson and C. F. Beekman.

Dale & Harvison, for J. A. Haugh.

Clem Wade, H. J. Fitzgerald, and W. H. Salisbury, for F. O. Martin.

Clem Wade, for W. G. Shelldorff.

O'Connor & Rader, for Adolph Vogel and Oscar Z. Fox.

Miller, Kelly, Shuttleworth & Seeburger and Mallory & Leming, for C. E. Shafer, M. Mennenga, C. C. Scantlebury, J. A. Miller, A. J. Hobson, W. R. Bunker, and W. G. Atzbaugh.

Miller, Kelly, Shuttleworth & Seeburger and Miller & Everett, for Sam Johnson.

Miller, Kelly, Shuttleworth & Seeburger, for Ed M. Workman and N. D. Shinn.

Miller, Kelly, Shuttleworth & Seeburger and E. W. Weeks, for I. P. Horton.

Miller, Kelly, Shuttleworth & Seeburger and E. R. O'Brien, for L. J. Fridley.

F. J. McGreevy and Stipp, Perry, Bannister & Starzinger, for Walter G. Austin.

Stipp, Perry, Bannister & Starzinger and J. W. Kridelbaugh, for A. L. Nye and W. A. Eikenberry.

Wambach & Daly, for G. Romanelli.

Carr, Cox, Evans & Riley and McGrath & Archerd, for Elias Barg, F. G. Brisbin, H. H. Fritze, Gordon Gibbs, L. G. Hill, S. S. Hamilton, G. J. Meier, Carl Neilsen, B. J. Tillman, and William Young.

George Hise, for Frank Katzer and Patrick O. McWilliams.

George Hise and Burnstedt & Hemingway, for W. A. Anderson and John Johnson.

Wilson & Shaw and E. N. Farber, for Nora E. Storjahann and Henry M. White.

Wilson & Shaw and W. J. Keefe, for George W. Kroh.

Wilson & Shaw and Poston & Murrow, for J. K. Green.

Wilson & Shaw, for C. E. Carlson, F. W. Martens, J. F. Martens, and J. E. Reid.

Ladd, Warren & Ladd and Church & McCully, for Andrew Schmidt and G. S. Toliver, Executor.

Thomas J. Bray and James G. Shifflett, for William Robbins.

John J. Myerly and James E. Goodwin, for Grimes Savings Bank.

Clyde C. Coyle, for Geo. W. Lowis and P. G. Farnsley.

John D. Denison, for J. E. Campbell and J. L. Taylor.

John L. Gillespie, for P. J. Weil and J. C. Weil.

Weir Casady and Wilson & Shaw, for Norwalk State Bank.

R. N. Johnson and Miller, Kelly, Shuttleworth & Seeburger, for John Lingenfelter.

Harold S. Thomas, for Estate of George Frost.

Edwin D. Samson and A. V. Proudfoot, for Vern Smith, Mrs. E. W. and Madge Frances Smith.

Weir Casady, for D. H. Martens.

Ben J. Gibson, Attorney-general, and William R. C. Kendrick, Assistant Attorney-general, for the state of Iowa.

C. L. Nourse, for Iowa Loan & Trust Co.

Ira W. Jones, for George W. Grimm and Elmer S. Grimm.

Judson Piper, for George N. Felgar.

Carr, Cox, Evans & Riley, for John Justice.

W. A. Cook, for A. C. Meyer.

Clock & Saley, for W. A. Nalan.

Lehmann, Seevers & Hurlburt, for J. J. O'Laughlin.

J. W. Kridelbaugh, for John A. Pos.

Thornell & Thornell, for E. Smith.

H. S. Martin, for A. H. Stoll.

W. C. Shepard, for George W. Raisty.

J. E. Jordan, for McIlhinney Investment Co.

John B. Sullivan, for John J. Jacklin.

VERMILION, J. EVANS, STEVENS, and DE GRAFF, JJ., concur. FAVILLE, C. J., and ALBERT, J., dissent. MORLING, J., not participating.

OPINION

The opinion states the facts.--Affirmed in past; reversed in part.

VERMILION, J.

This case, in the form in which it comes to us on this appeal involves, in its general aspects, the right of the receiver of the Selway Steel Post & Fence Company, an insolvent corporation, and two judgment creditors of the corporation on their own behalf, to recover, as against subscribers to its capital stock, the amounts unpaid on their subscriptions, and the right of stockholders who have paid in full for their stock to contribution from subscribers who have not so paid in full, to the end tat, as between them, the loss shall be equalized. The case assumed these aspects only after many mutations, some of which will be referred to in the further consideration of the questions presented. It may here be briefly noted, however, that the present case is a consolidation of sixteen cases against the Selway Steel Post & Fence Company--which will for convenience be referred to as the corporation--or its receiver. The decree below granted the general relief asked by the receiver as against all of the defendant subscribers who had not rescinded their contracts of subscription prior to filing of the application for the appointment of the receiver, but denied a recovery as against those who had so rescinded; sustained the claim to contribution of stockholders whose stock was fully paid for; and denied individual relief to the two creditors referred to above. A portion of the defendants against whom a recovery was granted, appeal. The plaintiffs appeal from the decree denying them relief against certain defendants. The creditors appeal from the decree against them.

Numerous questions arise, affecting the claims of particular defendants, that will be considered in later divisions of this opinion.

The principal and ultimate question involved in the claims of all but a few of the parties is as to the right of the receiver, or the creditors, to recover against subscribers to the stock of the corporation who were induced to enter into subscription contracts by fraud of the corporation or its agents.

Some questions are presented affecting all, or a considerable portion, of those sought to be held as subscribers to the stock, which it is necessary to dispose of before passing to a consideration of the principal question.

I. Many of the defendants are not residents of Polk County, where the actions were commenced, and, at various stages of the original actions, and when called upon to answer the present claims of the receiver and the complaining creditors, they endeavored by motions to have the place of trial changed, as to them, to the various counties of their residence. These motions were all overruled.

The original action was by Lex and Harlan, as plaintiffs, against the Selway Steel Post & Fence Company, the corporation primarily involved, and certain of its officers; the Selway Steel Post Company, a copartnership, to whose property and rights it was alleged the corporation had succeeded; and the Selway Steel Corporation, to which it was alleged the property of the first named corporation was about to be fraudulently transferred. The petition was filed October 12, 1920. The plaintiffs alleged that they were stockholders in the first named corporation, and had paid in full for their stock, and they asked and procured the appointment of a receiver for the Selway Steel Fence & Post Company. On April 7, 1921, the plaintiffs in that action filed an amendment to their petition, in which they asked that all who had subscribed for stock in the principal corporation be made parties; that the affairs of the corporation be wound up; and that subscribers to stock who had not paid their subscriptions in full be required to pay such amounts, in addition to what they had paid, as would make the burden equal upon all stock subscribers; and that plaintiffs, and all others who cared to join with them and who had paid in full for their stock, have contribution from those who had not so paid. On April 8, 1921, the General Fireproofing Company, a judgment creditor of the corporation, by an amended and substituted petition, in an action in equity commenced by it against subscribers to the stock of the Selway Steel Post & Fence Company, asked that the defendants be required to pay into court, to the extent of their liability as subscribers, an amount sufficient to pay its judgment and the claims of any other creditors who might elect to come into the case. The Republic Iron & Steel Company, holding an unpaid judgment against the corporation, intervened, and joined the...