State ex rel. Mullan v. Syndicate Land Co.

• Decision Date: 18 March 1909
• Citation: 120 N.W. 327,142 Iowa 22
• Parties: STATE EX REL. MULLAN, ATTY. GEN., v. SYNDICATE LAND CO.
• Court: Iowa Supreme Court

142 Iowa 22

120 N.W. 327

STATE EX REL. MULLAN, ATTY. GEN.,

v.SYNDICATE LAND CO.

Supreme Court of Iowa.

March 18, 1909.

Appeal from District Court, Polk County; A. H. McVey, Judge.

Suit in equity, brought by the State, on the relation of the Attorney General, to wind up the affairs of the defendant, a corporation organized under the laws of this state, for the appointment of a receiver, and for other equitable relief. The trial court found that the corporation had been acting beyond its powers and illegally, but that it was also engaged in a large legitimate business which would be ruined by the appointment of a receiver. It decreed that the defendant abandon its illegal business, but denied the application for a receiver. The state appeals. Reversed and remanded.H. W. Byers, Atty. Gen., and George Cosson, Asst. Atty. Gen., for the State.

Henry & Henry and Hager & Powell, for appellee.

DEEMER, J.

Defendant is a corporation organized under chapter 1, tit. 9, of the Code; its object being, as stated in its articles: “To acquire, purchase, take, and hold real estate and personal property, whether for its own use or to protect existing interests therein, or for other purposes; and to mortgage, lease, sell and convey the same; to negotiate, purchase, hold and sell mortgages, stocks, bonds, and other securities and personal property; to invest money in real estate for itself and for other parties; to loan money; to accept and execute such trust as may be committed to it by any individual company, corporation, partnership, association, organization or court; to receive money for investment or other purposes; to issue debentures or bonds, which may be secured by pledge of any of the assets of the corporation; to act as agent, trustee, executor, administrator or guardian, assignee, or receiver, as may be now or hereafter authorized by law in any state or country in which it may carry on its business, and it shall have all powers necessary for the carrying out of these objects, now or hereafter conferred on such corporations by law.” It was incorporated November 27, 1901, and entered upon the discharge of its functions.

The state, on the relation of its then Attorney General, brought this suit charging: That defendant had “issued a large number of installment land contracts aggregating several thousand. That the holders of said contracts have paid large sums of money thereon to the defendant corporation. That said contracts have never been canceled or redeemed by said corporation. That upon the passage of chapter 66, p. 57, Acts 30th Gen. Assem. 1904, the defendant corporation failed to comply with the provisions of that act, and failed to deposit with the auditor of state a bond, approved by the executive council, for the faithful performance of all the contracts entered into by the corporation, or other securities approved by the executive council, in the amount of $25,000, or in any other amount whatever, and wholly failed at the end of the calendar year following the passage of said act to deposit with the auditor of state of the state of Iowa securities of the kind provided in said act equal to all of the liabilities of the corporation to persons residing in the state, and wholly failed to keep a deposit of such securities with the auditor of state, as provided in section 6 of said act. That defendant corporation had printed upon its letter heads, envelopes, and upon the books and pamphlets sent out to the public, the following statement: ‘Incorporated under the laws of Iowa. Capital stock $1,000,000.’ That the officers and agents of the defendant corporation solicited various persons through the state to enter into land contracts, and represented to said persons that the corporation had a capital stock of $1,000,000, and that it had large securities deposited with the auditor of state of the state of Iowa. That the said agents exhibited to said persons the statements heretofore referred to upon the printed pamphlets, folders, and stationery--all for the purpose of inducing said persons to believe that the defendant corporation was actually possessed of a capital of $1,000,000, and that the said defendant corporation had proper securities deposited with the auditor of state. That the oral statements made by the defendant's agents and the representations made upon the authorized and official stationery of the said defendant did cause a large number of persons within this state to believe that the said defendant had a capital of $1,000,000, and that it had securities deposited with the auditor of state, and, relying upon said statements and said representations, said persons were induced to take out installment land contracts with the said defendant and to pay said defendant large sums of money thereon. That the representations, both oral and written, made by the said defendant, were false, and known by the defendant to be false, and that a large number of individuals relied upon said false statements and representations to their injury. That the defendant corporation by its officers was guilty of intentionally and wrongfully diverting the funds of the corporation and appropriating large sums to themselves and charging an excessive amount of expenses to the contract holders.”

The plaintiff, in an amendment to its petition, alleged: “That one Wm. Wilkinson, one Alexander MacRae, and one B. C. Bowman purchased a large tract of land in the Dominion of Canada and paid thereon but a small part of the purchase price; the remaining part of the purchase price being an incumbrance thereon. That thereafter the said parties organized the Syndicate Land Company and were made the officers and directors of said corporation and had the sole management thereof. That the said Wilkinson, Bowman, and MacRae held a meeting of the board of directors, and by a resolution, acting on behalf of the corporation, they purchased the aforesaid tract of land from themselves acting for themselves as grantors in an individual capacity, and acting for the corporation in a representative capacity as purchasers. That the said Wilkinson, Bowman, and MacRae passed a resolution, as the board of directors of the defendant corporation, that said corporation should issue to the said Wilkinson, Bowman, and MacRae $98,000 of the stock of said corporation and execute and deliver to them the obligation of said corporation to pay to the said Wilkinson, Bowman, and MacRae the sum of $63,000 in cash for the land contracts assigned by them to said corporation. That the said Wilkinson, Bowman, and MacRae, as directors of said corporation, issued to other persons certificates of stock amounting in the aggregate to about the sum of $12,000, and that the land contracts so assigned and transferred to said corporation by the said Wilkinson, Bowman, and MacRae, and the $12,000 paid for the certificates of stock issued to other persons as aforesaid, constituted the entire assets of such corporation. That 60 per cent. of the entire amount of money received upon said land contracts was appropriated to other persons by the managing officers of the defendant corporation and was not invested in lands according to the written, printed, and oral statements made by the officers and agents of said defendant.”

Defendant admitted that it had entered into installment land contracts, admitted that it had failed to comply with the requirements of chapter 66 of the acts of the Thirtieth General Assembly, but claimed that the act was never constitutionally adopted, and denied the other allegations of the petition and the amendment thereto. On these issues the case was tried to the court, resulting in the decree hitherto stated.

That the case may be properly understood, we here quote the applicable provisions of the statute (Code):

“Sec. 1620. Intentional fraud in failing to comply substantially with the articles of incorporation, or in deceiving the public or individuals in relation to their means or their liabilities, shall be a misdemeanor, and shall subject those guilty thereof to fine and imprisonment, or both, at the discretion of the court. Any person who has sustained injury from such fraud may also recover damages therefor against those guilty of participating in such fraud.

Sec. 1621. The diversion of the funds of the corporation to other objects than those mentioned in its articles and in the notice published, if any person be injured thereby, and the payment of dividends which leaves insufficient funds to meet the liabilities thereof, shall be such fraud as will subject those guilty thereof to the penalties of the preceding section; and such dividends, or their equivalent, in the hands of stockholders, shall be subject to such liabilities. If the directors or other officers or agents of any corporation shall declare and pay any dividend when such corporation is known by them to be insolvent, or any dividend the payment of which would render it insolvent, or which would diminish the amount of its capital stock, all directors, officers or agents knowingly consenting thereto shall be jointly and severally liable for all the debts of such corporation then existing, but dividends made in good faith before knowledge of the occurring of losses shall not come within the provisions of this section.

Sec. 1622. Any intentional violation by the board of directors or the managing officers of the corporation of the provisions of the two preceding sections shall work a forfeiture of the corporate privileges, to be enforced as provided...