Smith v. Middle States Utilities Co. of Delaware
| Decision Date | 18 June 1940 |
| Docket Number | 44803. |
| Citation | 293 N.W. 59,228 Iowa 686 |
| Parties | SMITH et al. v. MIDDLE STATES UTILITIES CO. OF DELAWARE. |
| Court | Iowa Supreme Court |
Appeal from District Court, Clarke County; Homer A. Fuller, Judge.
Plaintiff brought three separate actions to recover damages for the alleged failure of the defendant to repurchase, from the plaintiffs, shares of the preferred and common capital stock of the defendant, in accordance with the terms of an alleged verbal promise, on the part of the defendant, which entered into the consideration for, and was a part of, the original purchase of the stock by the plaintiffs. The actions were consolidated for trial. There was a judgment for plaintiffs for $5,234.38 on a directed verdict. Defendant appeals from the judgment, and from the rulings of the court sustaining plaintiffs' motion to direct a verdict, and overruling defendant's motion for a directed verdict.
Reversed and remanded.
C. E Richmann, of Cedar Rapids, and Hughes, O'Brien & Hughes of Des Moines, for appellant.
O. M Slaymaker, R. E. Killmar, and D. D. Slaymaker, all of Osceola, for appellees.
This is the second appearance of this case in this court. The former case is reported in 224 Iowa 151, 275 N.W. 158.In the former trial below, the petition alleged and the court submitted both the issue of fraud in the sale, and the agreement to repurchase. On that appeal the court held that any fraud in the sale was barred by the statute of limitations, and the judgment was reversed because this issue was submitted, but the court found no error in submitting the issue as to the repurchase contract.
Plaintiffs are an elderly married couple who retired from farming to a modest home in Osceola. Their entire property consisted of the home and about $4,100 in government bonds and bank deposits. In the early part of 1928 the plaintiffs were solicited to buy stock in the defendant company by W. J. Brownell, a stock salesman of the defendant, and W. E. Hahn, the manager of the telephone exchange at Osceola, under the control of defendant, or of one of its affiliated companies. Hahn was an old acquaintance of twenty years, and had been a neighbor of plaintiffs. They told the solicitors they had $4,100 they would like to invest so they would have it when they got old. This stock was represented to the plaintiffs as: perfectly safe in every way; as safe as government bonds; it paid good interest; that the company would pay them money back at any time they wanted it; no mortgage on the property; a safe sound investment. On April 27, 1928, these agents and representatives of the defendant sold eight shares of preferred and one share of the common stock of the defendant. At other times, up to and including the 20th day of January, 1929, when the last sale was made, these agents made stock sales to the plaintiffs, until the total amount was forty-one shares of preferred, and eight shares of the common stock. The preferred stock had a par value of $100 a share, and was divided into class " A" and class " B", the only difference in the classes being that the former paid seven percent annual dividends, and the latter, six percent. The common or voting stock had no par value, but every purchaser of five shares of preferred stock received one share of common stock, upon paying one dollar a share for the latter. Plaintiffs were allowed a small discount so that their total purchases cost them $3,970. They established the purchases and payment beyond controversy. Their preferred stock was of class " B" . Plaintiffs claim, and they alleged in their petition and amended petition, that it was a part of the stock purchase agreement that the defendant would repurchase the stock at any time the plaintiffs requested it, and would pay plaintiffs therefor par value of the stock, plus earned interest to the date of purchase. While the defendant, in its pleadings, denied making any such agreement, it offered no evidence of any kind to the contrary, and the fact that the two salesmen mentioned sold between $50,000 and $60,000 of this stock in Clarke County and vicinity, and for some time did buy back the stock from purchasers, gives support to the plaintiff's contention. Quarterly dividends were paid to plaintiffs on their preferred stock up to and including April 1, 1932. There is testimony that plaintiffs requested compliance with the repurchase agreement sometime in 1931, prior to the cessation of dividend payments. Immediately after payment of dividends was stopped, repeated demands to repurchase were made, together with tenders of the stock to the defendant. All such requests were refused. Petitions were filed in the three actions on January 22, 1935 and recovery was asked because of fraud on the part of defendant in procuring the stock purchases, and also on the repurchasing agreements. The defendant at that time answered, setting up the Delaware statutes, under which it was incorporated, its certificate of incorporation, and the decisions of the highest court of Delaware, all to the effect that it was forbidden to " use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital."
On the former appeal the ruling of the trial court sustaining the plaintiff's demurrer to that part of the answer alleging that under its certificate of incorporation, and under the statutes of Delaware, and the decisions of its court, an agreement to use its funds to purchase its own stock was unenforceable if such use would impair its capital, was held to be error.
The present actions are based solely upon defendant's breach of the repurchase agreement, and one of the fact issues is whether such use of its funds would have impaired its capital. The defendant herein, by amended and substituted answer, filed October 4, 1938, realleged the illegality of the alleged repurchase agreement, and averred that at the respective times of the alleged making of the repurchase agreements " the Corporation had no surplus", and that " the stock upon which recovery is sought, at the time of the alleged tender to defendant, had a market value of between $8.00 and $10.00 per share." There is no proof of the last statement.
On October 6, 1938, the third day of the trial, the defendant amended its substituted answer by alleging that the plaintiffs had never tendered the original stock which they had purchased, but they had assigned and surrendered for cancellation said original stock, and the stock in their possession when the suits were begun were certificates issued as of September 21, 1931, and no agreement for their repurchase was alleged to have been made, and that therefore plaintiffs had no cause of action. Defendant also alleged in this amendment that if any contract of repurchase was made " it was such a contract as required the demand for repurchase within a reasonable time and prior to the expiration of the Statute of Limitations relating to the enforcement of verbal or unwritten contracts, and that more than five years have elapsed between the making of said alleged contract and the demand for said repurchase, and more than five years have also elapsed since the making of said contract of repurchase and the bringing of this suit, and said cause of action is fully barred by the Statute of Limitations in such case made and provided." All of these allegations were denied in plaintiffs' reply.
The plaintiffs, and W. E. Hahn, one of defendant's representatives who sold the stock, all as witnesses for plaintiffs, testified to the purchase of and the payment for the stock, the agreements to repurchase the stock, the repeated requests for its repurchase, the tender of the stock to defendant, and the defendant's refusal to repurchase all as alleged in the plaintiffs' pleadings. Hahn testified that John A. Reed was the president of the defendant during all of this time; that Reed gave him a course in stock salesmanship, " what to say and what to do", and told him to sell all the stock he could, and to promise the purchasers that the defendant would take up the stock any time they wanted it to. M. L. Golliday, general manager, told him the same things, and to let the other work go when he could sell stock. He testified that the defendant did take up the stock for a time, and paid back the purchase price to John Wilson, Mrs. Johnson, Dr. Hollenbeck, John Armstrong, Fanny Sellman, and Mr. Willy, but began refusing in 1931. He said that the plaintiffs had asked him seven or eight times to send their stock in to the defendant and to get their money, and that he had talked to Brownell, and written to the company about it; that he had written to J. W. Smiley, the vice president of the company and to Reed, the president, and they told him they couldn't do it, " as they weren't taking up any more stock" . This witness gave the names of between twenty and twenty-five persons, a number of them widows, to whom he and Brownell, as agents of the defendant, had sold stock, with each of whom they had made the same kind of a repurchase agreement, as is claimed by the plaintiffs. The defendant offered no testimony, and there is no evidence in the record, disputing any of the matters of fact thus far stated. The burden was upon the plaintiffs to establish the following issues of fact, towit: the purchase of the stock, the payment therefor of the amount alleged, at the times alleged, the repurchase agreement, the demand for repurchase and the tender of the stock at the times alleged, and the refusal of the defendant to comply with the demands. H. L. Davis, assistant treasurer and general auditor of defendant since February 1927, as its witness, testified that plaintiffs' money had been received by defendant and never returned. A verdict...
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