State ex rel. Havner v. Associated Packing Co.

• Decision Date: 18 July 1933
• Docket Number: No. 41566.,41566.
• Citation: 216 Iowa 1344,249 N.W. 761
• Parties: STATE ex rel. HAVNER, Atty. Gen., v. ASSOCIATED PACKING CO. et al. WILLIAMS v. THOMPSON.
• Court: Iowa Supreme Court

216 Iowa 1344

249 N.W. 761

STATE ex rel.

HAVNER, Atty. Gen.,

v.ASSOCIATED PACKING CO. et al.

WILLIAMS

v.THOMPSON.

No. 41566.

Supreme Court of Iowa.

July 18, 1933.

Appeal from District Court, Polk County; Lester L. Thompson (deceased) and O. S. Franklin, Judges.

This is an action at law to recover on a stock assessment made against appellant, a purported subscriber of stock in the Associated Packing Company, whose charter was revoked, canceled, and annulled because of fraudulent representations made to the state in its inception. Judgment was entered against the appellant, from which he appealed.

Reversed.

See, also, 210 Iowa, 754, 227 N. W. 627.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 appellant.

Clark, Byers, Hutchinson & Garber, Bradshaw, Schenk & Fowler, Parrish, Cohen, Guthrie & Watters, and Stuart Ball, all of Des Moines, for appellee.

KINTZINGER, Justice.

The Associated Packing Company, a purported corporation, filed articles of incorporation with the secretary of state in October, 1918. The articles were approved, and a certificate authorizing the purported corporation to do business was issued. Its original authorized stock was $2,000,000, which in March, 1919, was increased to $5,000,000. Thereafter through its agents and representatives the corporation obtained a vast number of subscriptions and agreements for the purchase of its stock.

In February, 1920, the Attorney General on behalf of the state of Iowa commenced equitable proceedings against the corporation in the district court of Polk county, Iowa, asking for a revocation of its charter and the appointment of a receiver to wind up its business.

The petition alleged that the corporation had never been organized in good faith for the purpose of conducting a packing business, but was organized solely as a stock selling or promotion scheme; that the original incorporators in the organization of said company “confederated and conspired together for the purpose of defrauding the public in connection with the sale of stock * * * and of making exorbitant, unreasonable and unconscionable promotion profits in connection with the sale of said stock and in the promotion of said corporation.”

A trial was had and a decree entered adjudging that “fraud was practiced upon the State of Iowa in the application made for the charter of the Associated Packing Company by the persons applying for the same, that there had been a conspiracy between the officers of such company and the officers of the Associated Finance Company; that the allegations of plaintiff's petition were true; that the Associated Packing Company was organized for the purpose of making promotion profits, and without the good faith intention of entering into the business of operating a packing plant; that the prayer of the petition of the State of Iowa asking for the dissolution of the corporation, the Associated Packing Company, that its charter be revoked and a liquidation had, be and the same is hereby granted, and the charter of said Corporation is hereby annulled and revoked and the Corporation is ordered dissolved and its assets distributed.” A receiver was appointed for the purpose of carrying out the provisions of said decree. No appeal was taken therefrom.

The receiver found, among the assets of said purported corporation, a vast number of so-called subscriptions to stock and notes purported to have been given in payment therefor, and instituted proceedings in equity for an order of assessment against all of said subscribers for the purpose of liquidating the business of the defunct corporation. Numerous phases of litigation in connection with these proceedings were instituted, tried, and appealed to this court.

The action for the assessment was resisted by the purported stockholders. The result of such preliminary litigation was an order of court making an assessment of 50 per cent. against the balance due on all stock subscriptions. In the equity proceedings for an assessment, the receiver also asked judgment against the stock subscribers. The order of the lower court authorizing the assessment was sustained by us in Kosman v. Thompson, 204 Iowa, 1254, 215 N. W. 261. The order of the lower court in that action refusing to separate and transfer the actions for judgment on the assessments to the law side of the court was reversed; the actions were ordered separated and transferred; the actions for judgment on the assessments were transferred to law, and changes of venue granted.

The action in this particular case is based upon a 50 per cent. assessment upon a balance due on a subscription agreement alleged to have been executed by the appellant, as follows:

“Agreement of Purchase of Stock of Associated Packing Company (An Iowa Corporation)

Capital, $2,000,000.

312-313-314 Citizens Nat'l Bank Bldg. Des Moines, Iowa.

Par Value $100 a share, Fully paid and non-assessable.

I, H. C. Thompson, of Des Moines, State of Iowa, do hereby purchase from you fifty shares of Associated Packing Company stock, and agree to pay you therefor One Hundred Dollars per share, total $5,000.00, payable as follows: Not less than one-fourth cash accompanying this purchase, and the balance thereof as evidenced by my promissory note of even date and number herewith.

As soon as the total purchase price has been paid in cash, a certificate for the stock hereby purchased is to be delivered to me. Should I fail to complete the payments herein provided for when due, I agree to forfeit the initial payment made hereon to you as liquidated damages. No conditions or representations other than those printed in this agreement are relied upon by me in the purchase of this stock.

Dated and signed this 26th day of March, 1919.

[Signed] H. C. Thompson, Purchaser.

Post Office Address, Des Moines, Iowa.

Occupation, Farmer, Route 1, Box 213.

Farrell and Kirkpatrick, Agents.”

Across the face in large red letters these words: “This subscription is taken subject to an advance in price.”

Action upon this instrument is brought by the receiver of the defunct corporation to recover judgment for a 50 per cent. assessment made against a balance of $3,750 alleged to be due upon the defendant's alleged stock subscription.

After many years of litigation it is now urged that this action be finally decided upon its merits and that we determine whether or not a person who subscribed for stock after the original incorporation can be required to pay the balance of his subscription, fraudulently obtained, where the corporation itself was conceived in fraud and its charter revoked. Both of these elements are shown by the pleadings or established by the proof in this case.

Appellee receiver contends that defendant appellant is liable to the receiver for the benefit of the corporation creditors, under the “Equitable Trust Fund” doctrine, under which subscribers to stock are liable for a balance due on their unpaid subscriptions, after the dissolution of the corporation, although it be conceded that the subscriptions were fraudulently obtained, and although the charter of the corporation was annulled, revoked, and canceled for fraud practiced on the state in securing the articles of incorporation.

I. Various phases of this litigation have been in this court at different times. In our rulings on previous phases of this litigation, we studiously avoided determining the question of whether or not the “Trust Fund Doctrine” is now applicable to this case. Such rulings were based upon preliminary phases of this litigation. We there held that this question should be left open for determination in the law action against the various stockholders upon the assessments upon stock subscriptions.

Kosman v. Thompson, 204 Iowa, 1254, 215 N. W. 261, was an action in certiorari. The question involved therein was as to the validity of the proceedings in equity for an assessment against the stockholders for unpaid subscriptions. We therein held that the action against the various stockholders on the assessment was a law action. In that case we said: “Because we are circumscribed by the narrowness of certiorari, it is not within our power to and we do not determine whether or not the incorporation or lack of incorporation of the Associated Packing Company is such as will entitle or defeat recovery on the contracts and notes given for the purchase of stock, nor do we indicate what such decision should be.” Kosman v. Thompson, 204 Iowa, 1261, 215 N. W. 261, 264.

In State v. Associated Packing Co., 210 Iowa, 754, loc. cit. 766, 227 N. W. 627, 632, we said: “Notwithstanding this finding of the trial court, we think that, in a preliminary proceeding such as this, the receiver has such prima facie title to all of the property which passed into his hands under the orders of the court, including written agreements for the purchase of stock, and notes in connection therewith, as is necessary in this preliminary proceeding. If, in any suit at law, the question arises as to whether the defendant became a stockholder of said company, it must be determined on the record made in said suit, and independently of what is herein said.” (Italics ours.)

In the same case, on page 771 of 210 Iowa, 227 N. W. 627, 634, we also said: “But nothing herein contained is to be construed as determining the rights or defenses of any defendant, which are personal to him, in an action at law brought by the receiver against any alleged stockholder to recover on the so-called trust fund doctrine.”

We do not construe any of our former rulings as holding that the defense now interposed cannot be set up in a law action upon unpaid stock subscriptions. That question was left open and is now before us for determination.

[1] For the purpose of this case we do not deem it of great importance to determine whether or not the stock subscription contract signed by appellant was executory or executed. Where the...