Rossing v. State Bank of Bode
| Decision Date | 28 November 1917 |
| Docket Number | 30706 |
| Citation | 165 N.W. 254,181 Iowa 1013 |
| Parties | T. A. ROSSING et al., Appellants, v. STATE BANK OF BODE et al., Appellees |
| Court | Iowa Supreme Court |
Appeal from Humboldt District Court.--N. J. LEE, Judge.
THIS is a suit in equity, in which the plaintiffs, who were stockholders in the defendant the State Bank of Bode complain of the dissolution of that bank, the sale of its assets, and the formation of the defendant State Savings Bank of Bode, asserting that all these things should be held fraudulent as to plaintiffs, and praying, among other things that plaintiffs should be given such interest in the new bank as they owned in the old. They claim further that the directorate of the old bank wrongfully allowed defendant Hanson commissions on the making of farm loans, which should have been received by the old bank, of which Hanson was cashier. The district court dismissed the petition of the plaintiffs, and they appeal.
Affirmed.
O. T Gullixson and E. A. & W. H. Morling, for appellants.
Kenyon, Kelleher, O'Connor & Price and F. M. Miles, for appellees.
I.
The plaintiffs seek relief on the allegation, in substance, that the dissolution of the old and the formation of the new bank should be set aside because both acts were a fraudulent scheme on part of those defendants who control both banks to transfer the assets and good will of the old bank to the new, and to exclude plaintiffs from sharing in the new to the extent of the value of their shares in the old. If the corporation was dissolved, and the new bank has stockholders not in court, how is such relief possible?
Undoubtedly, a court of equity may set aside a sale where one who controls buyer and seller so sells the property of one to the other as that a fraud is worked upon minority shareholders. Such relief has often been given. Manufacturers' Sav. Bank v. O'Reilly, (Mo.) 10 S.W. 865; Abbott v. American Hard Rubber Co., 33 Barb. (N.Y.) 578, 588; Conro v. Port Henry Iron Co., 12 Barb. (N.Y.) 27, 64; 3 Cook on Corporations (7th Ed.), 2113. In Mason v. Pewabic Min. Co., 10 S.Ct. 224, 33 L.Ed. 524, that being still possible, the prayer granted was that the minority may have the property publicly sold. But all that can give no standing to a prayer which asks impossible relief. It will be remembered that the "setting aside" which the plaintiffs pray is in effect a demand that the court decree the old bank is not dissolved; that this is so because the new bank is the old bank; and that the plaintiffs, therefore, shall have such share in the new bank as equals the one they had in the old bank. If the State Bank of Bode is dead, no court can give it life. Aside from complaint of things that were done in winding up its affairs after dissolution, there is no challenge of the legality of the dissolution itself, beyond an allegation that plaintiffs have neither knowledge nor information sufficient to form a belief "whether the said proceedings for dissolution were in form conformable to the articles of incorporation and with the law of the state of Iowa." The only attack made by the evidence is that voting by proxy was not authorized formally; and that without such votes the dissolution and winding up by sale was ordered by less votes than the articles of incorporation require. It is doubtful whether an allegation that plaintiffs do not know whether the "proceedings for dissolution" conformed to the articles and to the laws of the state raises whether proxy voting was authorized. But grant it does, and the fact remains that this objection is either untenable, waived, or both. The statute provides that a corporation may be dissolved "in accordance with the provisions of its articles." Code, Section 1617. The articles here provide for a dissolution upon a vote "of the stockholders representing a three-fourths majority of all stock then issued," which would seem to recognize a vote by representation,--i. e., by proxy; and the vote on dissolution was declared to be, and treated as, valid. The votes were counted, and it was found, in accordance with the practice of the corporation, that 295 shares were represented, and declared by the president that the resolution was adopted. All this was unchallenged. The declaration was preliminary to proceeding with the business of the meeting. Those who now assert illegality voted proxies. The bank record reciting all this voting and action on the vote was received in evidence without objection. Though voting by proxy were not formally provided for, it must still be recognized now, because according to usage, and of having been dealt with as valid. See Graebner v. Post, (Wis.) 96 N.W. 783; Pendleton v. Harris- Emery Co., 124 Iowa 361; Jones v. Bonanza Min. & Mill. Co., (Utah) 91 P. 273. The practice was not only permissible because of usage, but this particular voting was permitted and not objected to, and so made now unobjectionable.
It is a principle of corporation law that the legality of an election will not be inquired into upon the ground that illegal votes were cast, unless those votes were challenged at the election at the time when they were cast. 2 Cook on Corporations (7th Ed.), 1827. All irregularities in a corporate election, the legality thereof, as well as the legal qualifications of the officers elected, are settled by the election as against a collateral attack. Jones v. Bonanza Min. & Mill Co., (Utah) 91 P. 273. Though a proxy cannot vote when the owner of the stock is present and votes, yet the alternative proxy may vote the stock even though the principal proxy is present, no one objecting. 2 Cook on Corporations (7th Ed.), 1785. The ordinary proxy, being intended to be for an election merely, does not enable the proxy to vote to dissolve the corporation, or to sell the entire corporate business and property, or to vote upon other important business, unless the proxy itself is general, or in special terms gives the power to vote on such questions. But where the stockholder does not promptly object, he may be bound. Graebner v. Post, (Wis.) 96 N.W. 783, 784. The validity of a corporate election is not affected by the fact that an alternative in proxies voted the stock when the principal attorney was present, where none of the shareholders who executed the proxies complained of, and all of them subsequently formally ratified, the action of the alternative. Commonwealth v. Roydhouse, (Pa.) 82 A. 74. A stockholder is bound by the action of his proxy at a stockholders' meeting, unless he exercises the most active diligence in repudiating the same, where he knows or should have known what was done at the meeting. Synnott v. Cumberland Bldg. Loan Assn., 117 F. 379. Neither McKee v. Home Savings & Trust Co., 122 Iowa 731, 98 N.W. 609, nor Stewart v. Pierce, 116 Iowa 733, 89 N.W. 234, hold anything that is material on this point. The first decides merely that, in a situation where what was done can be undone by the courts, and the statute says that one may vote by proxy but that no person shall vote more than 10 per cent. of the outstanding shares at the time of the election, one who votes more than that number of shares cannot by such vote carry a proposition, and that this applies to more than voting for the election of bank officers. The other is that, where the court finds that a stockholder owns one half the stock of a corporation, the other stockholders may properly be enjoined from voting more than one half thereof.
1-a
The majority has power to order dissolution and the sale of the assets upon such vote as was here had. It had power even to sell it to itself. The courts will closely scrutinize the fairness of such a sale, but that does not affect the original power to make it. One corporation may lawfully sell its assets to another corporation composed in greater part of the majority stockholders of the selling company. Mumford v. Ecuador Development Co., 111 F. 639, 643. The mere fact that directors sell property of their corporation to a new corporation of which they are directors and stockholders will not make the sale absolutely void. Manufacturers' Sav. Bank v. O'Reilly, (Mo.) 10 S.W. 865. And so though the sellers control both corporations. Miners' Ditch Co. v. Zellerbach, 37 Cal. 543; Olsen v. Homestead Land & Imp. Co., (Texas) 28 S.W. 944; Smith v. Stone, (Wyo.) 128 P. 612. Where a sale is made from one corporation to another, and the directors of one are largely interested in the stock of the other, or the same person or persons own a majority of the stock of both corporations, such sale is not void nor constructively fraudulent, but will be avoided by actual fraud, or if an undue advantage is taken or unconscionable bargain made. 3 Cook on Corporations (7th Ed.), 2113. And see Beidenkopf v. Des Moines Life Ins. Co., 160 Iowa 629, 649, 142 N.W. 434. As said in Plimpton v. Bigelow, 93 N.Y. 592:
"The right which a shareholder in a corporation has by reason of his ownership of shares, is a right to participate according to the amount of his stock in the surplus profits of the corporation on a division, and ultimately, on its dissolution, in the assets remaining after payment of its debts."
In Price v. Holcomb, 89 Iowa 123, 56 N.W. 407, speaking to a claim that, under the rule governing a purchase of trust property by the trustee, the holder of the majority of stock cannot buy the property of the corporation, we said that such stockholder's relation was not that "of agent or trustee, but a joint owner," and, while ...
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