State ex rel. Weede v. Iowa Southern Utilities Co. of Delaware

Decision Date10 February 1942
Docket Number45458.
Citation2 N.W.2d 372,231 Iowa 784
PartiesSTATE ex rel. WEEDE v. IOWA SOUTHERN UTILITIES CO. OF DELAWARE et al. (THATCHER et al., Interveners).
CourtIowa Supreme Court

[Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted]

Havner, Flick & Powers and Margaret I. Cunningham, all of Des Moines, and V. H. Morgan, of Newton, for appellant.

Bradshaw, Fowler, Proctor & Fairgrave, of Des Moines, Valentine & Valentine, of Centerville, and Cross & Hamill, of Newton, for appellee Iowa Southern Utilities Co. of Delaware.

Burke N. Carson, of Iowa City, for appellee Celia Carson, executrix, and trustee of Estate of George S. Carson, deceased.

Lane & Waterman, of Davenport, for appellee Davenport Bank & Trust Co., trustee under will of George S. Carson, deceased.

Clark, Pryor, Hale & Plock, of Burlington, for appellees Ila Faye Thatcher and Nancy Rosseau.

Cross & Hamill, of Newton, for appellees Martha R. Bechtel, George M. Bechtel, Harold R. Bechtel, Edward L. Shutts, H. W. Deininger, D. D. Bentzinger, M. G. Stover, Charles Westbrook and Elery Scott.

BLISS, Chief Justice.

The trial court found that the suit, as pleaded in the petition, could not be maintained, and, without specifying which of the eighteen grounds of the motion to dismiss it based its ruling upon, sustained the motion generally. The facts of the case must, therefore, be ascertained solely from the petition. Before attempting to set out a fairly complete summary of the pleaded facts, and the grounds of the motion, a brief foreword of the nature of the suit, as gathered from the petition, may be helpful.

The defendant Iowa Southern Utilities Company of Delaware was first organized as the Centerville Light and Traction Company under the laws of Maine, in December, 1916. An amendment to its Articles, filed about February 12, 1923, changed the original name of the company to "Iowa Southern Utilities Company of Maine." Later the corporation was reorganized under the laws of Delaware as the Iowa Southern Utilities Company of Delaware. The corporation has at all times been engaged in the business of a public utility in Iowa, with its principal place of business at Centerville, Iowa, and with all of its property, except some of its bank accounts, located in said State. The defendants, other than the Utilities Company, are all residents of Iowa, and are stockholders, directors and officers of the company, and include the president, vice-president, chairman of the board of directors, and secretary of the company.

The relator, J. B. Weede, is a citizen of Iowa. In his petition, filed November 29, 1939, he alleged in substance that the company had violated the provisions of Chapter 387 of the Code of Iowa by issuing a large part of its capital stock for something other than money, without the approval of the Executive Council of the State, without receiving par value therefor, and without filing certificates of the issuance of such stock with the Secretary of State, setting out the details of the transactions, and what was received for the stock. Because of these violations of the statute, he alleged that the stock so issued is void, and the holders thereof have no lawful right to exercise the powers of, nor to receive the benefits of, shareholders, and that certain pretended corporate actions amending the Articles of Incorporation providing for a substitution of stock issues, and for a plan of recapitalization were illegal and of no force and effect. He prayed for a decree declaring which stock was valid and which was invalid, for an order restraining defendants from further executing their unlawful plans, and for a receiver for the company.

As we have stated, the suit is based upon certain statutory provisions, a knowledge of which is necessary for a proper understanding of the case.

Chapter 387 of the Code first appeared as Chapter 136 of the Laws of the 35th General Assembly, Senate File 119. Section 8433 of the 1924, and subsequent Codes was Section 1641-1 of the 1913 Code Supplement. In the Codes of 1935 and 1939, section 8433 is as follows:

"Capital stock and permit. Sections 8412 to 8416, inclusive, and 8420 to 8428, inclusive, are hereby made applicable to any foreign corporation which directly or indirectly owns, uses, operates, controls, or is concerned in the operation of any public gasworks, electric light plant, heating plant, waterworks, interurban or street railway located within the state, or the carrying on of any gas, electric light, electric power, heating business, waterworks, interurban or street railway business within the state, or that owns or controls, directly or indirectly, any of the capital stock of any corporation which owns, uses, operates or is concerned in the operation of any public gasworks, electric light plant, electric power plant, heating plant, waterworks, interurban or street railway located within the state, or any foreign corporation that exercises any control in any way or in any manner over any of said works, plants, interurban or street railways or the business carried on by said works, plants, interurban or street railways by or through the ownership of the capital stock of any corporation or corporations or in any other manner whatsoever, and the ownership, operation, or control of any such works, plants, interurban or street railways or the business carried on by any of such works or plants or the ownership or control of the capital stock in any corporation owning or operating any of such works, plants, interurban or street railways by any foreign corporation in violation of the provisions of this chapter is hereby declared to be unlawful."

Sections 8412 to 8416, referred to in the section, provide in substance as follows: Section 8412. No corporation organized under the laws of the state, except building and loan associations, shall issue any share of capital stock until the corporation has received par therefor. Section 8413. If payment in anything other than money is proposed, permission to accept it must be obtained from the Executive Council, upon application setting out the facts of the proposition. Section 8414. The Executive Council, after investigation, shall fix the value of the property and the amount of the issue. Section 8415 provides what factors may be considered by the Council in arriving at values. Section 8416 states: "It shall be the duty of every corporation (except corporations qualified under chapter 386 or chapter 417) [parenthesis supplied], to file a certificate under oath with the secretary of state, within ten days after the issuance of any capital stock, stating the date of issue, the amount issued, the sum received therefor, if payment be made in money, or the property or thing taken, if such be the method of payment."

The words included in the parenthesis were inserted in the section by the Acts of the 43rd General Assembly, cc. 14, 15, effective July 4, 1929. This is to be kept in mind because the appellee contends that by reason of the amendment it was thereafter not required to file certificates of stock issues.

Sections 8420 to 8428, referred to in section 8433, have to do with the application of a foreign corporation for a permit to transact business in Iowa, and what must be done to procure such permit, and other matters incident thereto.

Section 8434 provides: "Holding companies. The provisions of this chapter are hereby made applicable to all corporations, including so-called 'holding companies' which by or through the ownership of the capital stock in any other corporation or corporations or a series of corporations owning or controlling the capital stock of each other can or may exercise control over the capital stock of any corporation which owns, uses, operates, or is concerned in the operation of any public gasworks, electric light plant, electric power plant, heating plant, waterworks, interurban or street railway located in the state, or the business carried on by such works or plants."

Section 8435 provides that all corporations within the purview of the chapter shall pay annual fees, and make annual reports as provided in Chapter 388.

The provisions of the remaining sections of Chapter 387 are as follows:

"8436. Sale of capital stock. The provisions of this chapter are hereby made applicable to the sale of its own capital stock by any corporation subject to the provisions of this chapter whether said capital stock has been heretofore issued by said corporation or not, including the sale of so-called 'treasury stock' or stock of the corporation in the hands of a trustee or where the corporation participates in any way or manner in the benefits of said sales, and also to the sale of any of the obligations of any corporation subject to the provisions of this chapter, the payment of which is secured by the deposit or pledge of any of the capital stock of said corporation."

"8437. Violations--stock void. Shares of capital stock of any corporation owned or controlled in violation of the provisions of this chapter shall be void and the holder thereof shall not be entitled to exercise the powers of a shareholder of said corporation or permitted to participate in or be entitled to any of the benefits accruing to shareholders of said corporation, and sections 8430 to 8432, inclusive, are hereby made applicable to violations of the provisions of this chapter; and courts and juries shall construe this chapter so as to prevent evasion and to accomplish the intents and purposes thereof."

"8438 Dissolution--receiver. Courts of equity shall have full power to dissolve, close up, or dispose of any business or property owned, operated, or controlled in violation of the provisions of this chapter; to dissolve any...

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