State ex rel. Hutt v. Anthes Force Oiler Co.
| Decision Date | 02 April 1946 |
| Docket Number | 46795. |
| Citation | 22 N.W.2d 324,237 Iowa 722 |
| Parties | STATE ex rel. HUTT v. ANTHES FORCE OILER CO. et al. |
| Court | Iowa Supreme Court |
Rehearing Denied June 21, 1946.
J O. Boyd, of Keokuk, for appellant.
E H. Pollard, of Fort Madison, for appellees.
This is an action in quo warranto seeking to oust defendants of their right to act as a corporation, praying for its dissolution and appointment of trustees or a receiver to liquidate and pay all liabilities, and that the surplus, if any, be divided among those entitled thereto as determined by the judgment of the court, and for other suitable orders. A demand was made upon the county attorney of Lee county to commence and prosecute the action, which demand he refused. Application was made to the district court of Lee county, and leave to commence and prosecute in the name of the State of Iowa was granted on May 11, 1944 and petition filed.
The relator Ray F. Hutt, alleges he is the owner of one hundred fifty-four shares of stock in the Anthes Force Oiler Company, defendant, and that the other defendants are the owners of other shares of stock in said company. The petition alleges that on or about December 29, 1922, Garrison P. Anthes, George P. Anthes, J. H. Axt, and C. B. Anthes executed articles for the incorporation of said company, specifying an authorized capital stock of $100,000 divided into one thousand shares at a par value of $100 per share, but there was no provision in the articles for commencing business or exercising the powers of a corporation for any lesser amount, or any provision made in said articles for engaging in business until the authorized capital had been fully paid. Plaintiff avers that defendants have been claiming to be authorized to engage in business and have been exercising the prerogatives of a corporation and powers not conferred by law; that the articles of incorporation provided that none of the said stock should be issued until the corporation had received the par value thereof; and that Garrison P. Anthes, George P. Anthes, and J. H. Axt were three of the four directors named in said articles and they were also officers of the corporation. The petition further states that on or about January 23, 1923 the said incorporators, directors and officers contracted with themselves as individuals, agreeing to purchase property from themselves as individuals for $52,000 and pay for the same in installments of $10,400 each on February 1st of 1923, 1924, 1925, 1926 and 1927, and the contract provided that said individuals were to use said purchase price in payment of common stock to be issued at par. That the incorporators of the corporation never applied to the executive council of the state of Iowa for the purpose of having the council value the property and authorize the issuance of common stock therefor. That the corporation at that time had no funds from which to purchase such property and the major portion of such property consisted of patents, patent rights, good will, and other things of intangible and uncertain value; that the shares of common stock were issued to said persons about the 4th of February, 1924, the 13th to 17th of February, 1925, and about the 13th of February, 1926, and February 14, 1927; that none of said property was appraised by the executive council and the procedure used was a conspiracy to evade the provisions of the articles of incorporation and the statute, and a fraud upon all subsequent stockholders who acquired stock in good faith in reliance that said corporation was duly incorporated according to law.
Following the above, paragraph 6 of the petition alleges the failure of the corporation when issuing stock to file a certificate under oath with the secretary of state within ten days after such issuance and that the only filing which was made in accordance with statute was with reference to the issuance of 272 shares at various times in 1923. This paragraph 6 was struck out on motion on September 18, 1944, but the petition was amended on December 9, 1944 by paragraph 6-A alleging failure of the officers of the corporation to comply with the provisions of the articles of incorporation and failure to file the certificate with reference to the issuance of capital stock and claiming that the corporation never became a corporation de jure or corporation de facto.
The petition alleges, in paragraph 7, that none of the certificates of stock issued by the corporation contained any certificate or statement as to whether the same was paid for in money or property, as provided by law; that contrary to the articles of incorporation the corporation has declared and paid dividends on the preferred stock in the form of written debentures which constitute a diversion of funds contrary to the statutes and articles of incorporation.
Paragraphs 9 and 10 of the petition were struck out by the court on motion. They allege, first, that the Anthes Force Oiler Company was never lawfully incorporated or authorized to engage in business as a corporation; that the manner and methods of payment of its capital stock constituted a fraud upon the state and upon subsequent purchasers of stock; that it never complied with the laws of the state of Iowa sufficiently to act as a corporation; that the directors and officers dealing with themselves were acting contrary to the statutes of Iowa; that said parties, directors, officers, and incorporators entered into a conspiracy to engage in irregularities that were contrary to the statute, and that the whole procedure constituted a fraud and the stock issued is null and void; that the Anthes Force Oiler Company without authority of law is claiming to act as a corporation, is exercising powers not conferred upon it and that the certificate of incorporation thus obtained constituted a fraud, and said certificate was issued by the secretary of state in ignorance of the fact that the stock so issued is null and void and should be cancelled.
Plaintiff prays for the cancellation of the shares of stock issued to Garrison P. Anthes, George P. Anthes, J. H. Axt, and C. B. Anthes, and for decree against the corporation forfeiting its original franchise and annulling the same, and for the ouster of the corporation and exclusion from its franchises, for its dissolution and for the appointment of trustees.
The petition was first attacked by defendants' motion to set aside the order authorizing suit, which was overruled. Various motions were filed to the petition. Of these the court found it necessary to rule on only two; a motion for more specific statement, and a motion to strike certain parts of the petition. Following the court's ruling sustaining the motion for more specific statement plaintiff set out, as an amendment, the original articles of incorporation, a certificate of amendment to such articles dated November 24, 1937, showing a change in the capital stock in Article 14 thereof from shares at par value, to 750 shares of no-par common stock, and 250 shares of preferred stock of the par value of $100; also set out the renewal on February 26, 1943, of the articles of incorporation for a period of twenty years from January 9, 1943. The motion to strike, filed at the same time, was sustained on the ground that the action was not brought by the proper party and should have been brought by the attorney general. The court, as stated, further struck out paragraphs 6, 9 and 10 of the petition.
Another amendment to the petition, filed March 22, 1945, alleges that plaintiff acquired knowledge and notice of the facts alleged in the petition shortly prior to the institution of the action, and that the facts alleged in the petition came to the knowledge and notice of the plaintiff within six months prior to the filing of the petition.
Thereafter, defendants filed, with other motions, a motion to dismiss, which, as amended, is the motion in controversy, and which was sustained in part by the court.
As heretofore shown, the petition is based on a violation of certain parts of Chapter 385 of the Code of Iowa 1939. The sections, so far as this action is concerned, are:
Section 8413 requires that if payment for any shares of capital stock shall be proposed to be made in any property other than money, application must be made to the executive council for leave to do so, setting forth specifically such property.
Section 8414 requires that the executive council must investigate and determine the value a corporation may receive in payment for capital stock.
Section 8416 requires that within ten days after the issuance of any capital stock a report must be made to the secretary of state stating the date and amount issued, how much was received therefor, or the property or thing taken other than money.
Sections 8417 and 8418 provide for the penalty for violation.
The court, in its ruling, found that stock issued in violation of these sections would be voidable rather than void. The court also found, as it had theretofore found in its ruling on the motion to strike, that the action for the violation of the statutes was wrongly brought.
The ruling of September 18, 1944, on the motion to strike, was made a part of the court's ruling of April 24, 1945 on defendants' motion to dismiss. The court, in the latter sustained the motion so far as it related to the violation of Chapter 385 of the Code, on the grounds of waiver and laches, not only because of lapse of time but because of the filing by the defendant corporation with the...
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