Case Name: B. Kosman et al., Plaintiffs, v. Lester L. Thompson, Judge. Defendant
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1927-01-11
Citations: 204 Iowa 1254
Docket Number: 
Parties: B. Kosman et al., Plaintiffs, v. Lester L. Thompson, Judge. Defendant.
Judges: Evans, C. J., and Faville, Db Graff, and Albert, JJ., concur. . ,
Reporter: Iowa Reports
Volume: 204
Pages: 1254–1266

Head Matter:
B. Kosman et al., Plaintiffs, v. Lester L. Thompson, Judge. Defendant.
January 11, 1927.
Opinion on Rehearing September 20, 1927.
Rehearing Denied December 17, 1927.
O..M- Brockett, S. G.-VanAuken, M. A. Roberts, and S. W.. Livingston, for plaintiffs. ; , . .
' Parrish, Cohén, Guthrie,' Watters <&' Halloran, Charles Hutchinson, and Bradshaw, Schenk & Fowler, for defendant.

Opinion:
Kindig, J.
-The Associated Packing Company, on October 10, 1918, filed' articles of incorporation with the secretary of state, 'providing for an authorized capitál' of two million dollars, " and accordingly, said'state official issued in re- , turn a certificate or incorporation. ' By ámend- . . , tiient to said original articles, the capital stock was increased, on March 28, 1919, to five million dollars. Afterward, under such certificate, the company employed a large number of agents and other representatives, acquired considerable real estate,. did business with many Iowa banks, entered into contractual relationships with a multitude of Iowa citizens, and assembled (including its stock subscription notes) resources of a value in excess of three million dollars.
During February, 1920, the attorney-general instituted an action in equity in the district court of Polk County in the name of the state, praying for the dissolution of the corporation and the appointment of a receiver to wind up its business, and alleging: (1) Yiolations of statutes; (2) fraud practiced by the promoters upon the state in the application for the charter; (3) conspiracy between the officers of the Associated Packing Company and those of the Associated Finance Company, an incorporated fiscal agent of the packing company; and (4) other irregularities. Trial was had, resulting in a decree as asked. Upon qualification, the receiver took charge of the assets. Claims were filed by numerous creditors, including the Linden Bank, the amount of the latter demand being $216,751.10. Total indebtedness of the institution is such that the assets outside of unpaid stock subscriptions are insufficient to pay corporate obligations.
Finally, February 28, 1925, upon application of the Linden Bank, the district court ordered and directed the receiver to commence an action in equity in Polk County against all subscribers to capital stock who had not then paid their subscriptions in full: (1) To assess such "subscribers" in an amount sufficient to pay all claims established against the corporation, together with the expense of administration, and (2) to recover judgment on said assessment. Obediently, on April 23, 1925, the receiver commenced such action in equity in said county against more than 800 alleged subscribers, demanding: (1) An assessment for 17% per cent, or for such other percentage as may be necessary, in order to pay the indebtedness, and (2) judgment against each of said subscribers for the amount of the assessment so fixed.
I. At the threshold it is urged that the district court is without, and acting beyond, its jurisdiction in the premises, for the reason that said proceedings instituted by the attorney-general for dissolution were equitable in nature, under Section 8402 of Code of 1924, and not in law, under the provisions of Section 12428 and supplemental paragraphs of said Code. Said first Code reference reads:
"Courts of equity shall have full power, on good cause shown, to dissolve or close up the business of any corporation, and to appoint a receiver therefor, An action therefor may be instituted by the attorney-general in the name of the state, reserving, however, to the stockholders and creditors all rights now possessed by them."
A determination of this controversy involves an interpretation of said sections, as well as the establishment of their relationship to eaeh other, and an exposition of their uses to the state and the individual litigant. No impediment is confronted in this task because of the sacredness of said law proceeding afforded by constitutional protection. Unhampered, therefore, the legislature was free to enact such remedies for the occasion by it, deemed wise and convenient.
Quo warranto, actions in the nature of quo warranto, remedies provided by said Section 12428 and kindred laws, may be entirely abdicated, and substitutions made in place thereof. State ex rel. Cates v. Standard Oil Co., 120 Tenn. 86 (110 S. W. 565); Ames v. State ex rel. Johnston, 111 U. S. 449 (28 L. Ed. 482) ; Louisville & N. R. Co. v. State ex rel. Gravy, 154 Ala. 156 (45 So. 296); State v. Atchison, T. & S. F. R. Co., 176 Mo. 687 (75 S. W. 776); State v. McLain, 58 Ohio St. 313 (50 N. E. 907); State v. Evans, 33 S. C. 612 (12 S. E. 816); Wright v. Lee, 4 S. D. 237 (55 N. W. 931).
Since governments have been formed, some men have been inclined to encroach upon the prerogative of the sovereign or state. To prevent this, and maintain governmental power and order, a remedy has been found necessary, to prevent infringement. Law alone need not be selected for protection in this regard, and there is no prevention of the state's calling to its rescue the elasticity and emergency-usefulness of equitable proceedings. Plainer v. Kirby, 138 Iowa 259; State v. Fidelity L. & Tr. Co., 113 Iowa 439; State ex rel. Mullan v. Syndicate Land Co., 142 Iowa 22; Chicago Mut. Life. Ind. Assn. v. Hunt, 127 Ill. 257 (20 N. E. 55). Evolution has tended to produce broader and more easily manipulated laws for the purposes here under con sideration; Ames v. State ex rel. Johnston, State ex rel. Cates v. Standard Oil Co., supra.
As a historical investigation will reveal, at common law there were two modes to ascertain or enforce the forfeiture of a charter of a corporation for misuser or nonuser. The one was by scire facias, where there was a legal existing body, capable of acting, which abused its power. The other was by quo warranto, or an information in the nature of a quo warranto, and applied where there was a body corporate de facto only, exercising a franchise without authority, or an association assuming to act as a corporation-, without even color of right. 14a Corpus Juris 1134, Section 3768. -Little is known of the origin of quo warranto, its history being obscured in antiquity. It was used at least as early as Richard I. State ex rel. Dunlap v. Stewart, 6 Houst. (Del.) 359. Recitation of its future development and change is-interestingly made in State ex rel: Cates v. Standard Oil Co. and Ames v. State ex rel. Johnston, Supra.
Events in this state leading up to the legislation in question have been well catalogued by Mr. Justice McClain in Platner v. Kirby, supra, wherein he concludes as to what is now Section 8402, as ^follows: -
"The legislative intent seems to have been to- authorize what was not previously authorized with reference to corporations in general, an action in equity by the attorney-general, in the name of the staté and ihthe interests of the public, to dissolve a corporation on account of violation by it of the laws of the state, and to leave to the stockholder such remedy as he already had."
Support for this pronouncement is furnished by the statements and holdings in State v. Fidelity L. & Tr. Co., State ex rel. Mullan v. Syndicate Land Co., supra, Crow v. Bond & Mtg. Co., 202 Iowa 38.
The state,' in its province as a sovereignty, had a right to choose between -the procedure afforded for its convenience and protection by said sections, and adopt the'one- most to'its liking. Plaintiffs cahnot complain. These sections-wére not provided for their use, and the-effect on them is incidental only. Wallace v. Pierce.-Wallace Pub. Co., 101 Iowa 313, Platner v. Kirby, Crow v. Bond & Mtg. Co., supra. Manifestly, it is quite immaterial to the state whether the business of the corporation be wound up by three trustees or one receiver. Prejudice to the plaintiffs, if any, in-either evént is-not controlling', when compared with the • rights and liberties of all'the. people who constitute' and are the state. Such action in-equity on- the part -of the state does not . deprive plaintiffs of any-'right belonging to them.. - Said Section 8402 expressly reserves to them such "rights" as-similar litigants enjoyed at- the time of -the legislative enactment. Platner v. Kirby, supra. For enlightenment as to what these individual "rights" were, reference is made to French v. Gifford, 30 Iowa 148; Dickerson v. Cass County Bank, 95 Iowa 392 ; Crow v. Bond & Mtg. Co., supra.
Argument is advanced that, because the law- action affords the relief- of ouster; while the equitable- process accomplishes dissolution, the action in- the case at bar -must have been under said Section -12428;' This contention does not receive our approval. Under the.proceedings in the nature of quo warranto there are two forms of ouster: total, Section 12428, and partial, Section . 1-2429. See, also, State v. Capital City Dairy Co., 62 Ohio St. 350 (57 N. E. 62) ; State ex rel. Barrett v. First Nat. Bank, 297 Mo. 397 (249 S. W. 619); Attorney-general ex rel. City v. Toledo & M. Railway, 151 Mich. 473 (115 N. W. 422). Total "ouster" necessarily results in death of The corporation. The being suffocates for want, of prerogative breath: On the other hand, "dissolution," under Section 8402, acéomplishes the same result. There, demise is- caused by direct sentence-. State v. Fidelity L. & Tr. Co. supra. Por the general law, see Farish v. Cieneguita Copper. Co. 12 Ariz. 235 (100 Pac. 781); Imperial Film Exch. v. General Film Co., 244 Fed. 985; Matthews v. Bank of Allendale, 60 S. C. 183 (38 S. E. 437); Lyons-Thomas Hdw. Co. v. Perry Stove, Mfg. Co., 86 Tex. 143 (24 S. W. 16); Theis v. Spokane Falls Gas Light Co., 34 Wash. 23 (74 Pac. 1004).
In the. ev.ent: that-liberty and sovereignty - are'in jeopardy, requiring for their 'salvation or security total destruction of the .offending corporation, either method -off extinguishment ib avail•'able: -One-is concurrent with the other,: when confined to the transgressing. corporate status-hereinafter defined, and'within •the limitationspresentl-y to-be made. -Decisions-relating to public -or quasi-phblic- corporations are not-in- point. Different statutory provisions furnish a distinction •
- "Good-cause shown" (a prerequisite-df said Section 8402) for the basis of equity jurisdiction may include any or all violations and irregularities which give rise to the action at law, as well as others. Platner v. Kirby, supra; State v. Fidelity L. & Tr. Co., supra; State ex rel. Mullan v. Syndicate Land Co., supra. If the ground for procedure under said law course justifies total ouster, the same facts would amount to ' 'good cause ' ' for equity. On the other hand, conditions warranting only , partial ouster under said law channel will or will not furnish equity relief, as the situation may appear. State v. Capital City Dairy Co., State ex rel. Barrett v. First Nat. Bank, Attorney-general ex rel. City v. Toledo & M. Railway, supra.
Primarily, it is contended that said "corporate status" of the Associated Packing Company was not that of a corporation de jure or de facto, and consequently Section 8402 cannot apply. A corporation de jure is a legal entity which has a to corporate existence and to exercise corporate powers of which it cannot be deprived even by the state in a direct assault contrary to the terms of its charter. Floyd v. State ex rel. Baker, 177 Ala. 169 (59 So. 280); Brown v. Atlanta R. & P. Co., 113 Ga. 462 (39 S. E. 71); International Harv. Co. v. Eaton Circuit Judge, 163 Mich. 55 (127 N. W. 695); Capps & McCreary v. Hastings Pros. Co., 40 Neb. 470 (58 N. W. 956); Alder Slope Ditch Co. v. Moonshine Ditch Co., 90 Ore. 385 (176 Pac. 593) ; Board of Education v. Berry, 62 W. Va. 433 (59 S. E. 169). On the other hand, a de facto corporation exists so that the legality of its subsistence cannot be attacked collaterally where: (1) There is a special act or general law under which such a corporation may lawfully live, (2) a bona-fide attempt to organize under the law in colorable compliance with the statutory requirements, and (3) actual user or exercise of corporate powers in pursuance of such law, and attempted organization. Wood v. Staton, 174 N. C. 245 (93 S. E. 790) ; Gibbs's Estate, Hallstead's Appeal, 157 Pa. St. 59 (27 Atl. 383); Tulare Irr. Dist. v. Shepard, 185 U. S. 1 (46 L. Ed. 773) ; Alabama Fid. Mtg. & Bond Co. v. Dubberly, 198 Ala. 545 (73 So. 911); Vallejo & N. R. Co. v. Reed Orchard Co., 169 Cal. 545 (147 Pac. 238); Duke v. Taylor, 37 Fla. 64 (19 So. 172); Brooke v. Day, 129 Ga. 694 (59 S. E. 769) ; Imperial Bldg. Co. v. Chicago Open Board of Trade, 238 Ill. 100 (87 N. E. 167); Jennings v. Dark, 175 Ind. 332 (92 N. E. 778); Newcomb-Endicott Co. v. Fee, 167 Mich. 574 (133 N. W. 540) ; Healey v. Steele Center Cream. Assn., 115 Minn. 451 (133 N. W. 69); Lusk v. Riggs, 70 Neb. 713, 718 (102 N. W. 88); Franke v. Mann, 106 Wis. 118 (81 N. W. 1014); Kwapil v. Bell Tower Co., 55 Wash. 583 (104 Pac. 824). See, also, Troutman v. Council Bluffs St. Fair & C. Co., 142 Iowa 140; Nelson v. Consolidated Ind. Sch. Dist., 181 Iowa 424.
Books disclose judicial pronouncement to the effect that, where the.provisions of the statute have been in form complied with, and a charter, or certificate of incorporation, which is made the evidence of due incorporation,; has been duly granted by a court or officer, under the statute, de faoto existence of the corporation cannot be attacked collaterally for fraud or bad faith in obtaining the charter or- certificate or in organizing thereunder. Cason v. State, 16 Ga. App. 820 (86 S. E. 644) ; Foster v. Hip Lung Ying Kee & Co., 243 Ill. 163 (90 N. E. 375); Gunderson v. Illinois Tr. & Sav. Bank, 199 Ill. 422 (65 N. E. 326); Boatmen's Bank v. Gillespie, 209 Mo. 217 (108 S. W. 74).
But whether this be so or not, it is enough for us to hold that the action on the part of the organizers of the Associated Packing Company, preliminary to and including the filing of the articles of incorporation, together with the subsequent action of the secretary of state in issuing, and delivering the certificate of incorporation, created such "legal status" as to amount to a "corporation," within the contemplation of said Section 8402; and this is so regardless of the secret intentions of the incorporators. There was such "corporation" so far as anyone was concerned except the state. It alone could say otherwise. And had the sovereign so elected, said institution could have continued to exist and operate under its charter.
; Wherefore,- we are constrained to-hold that the district court in equity had jurisdiction under said section to, and did, totally dissolve said Associated Packing Company, cancel its charter, forfeit its franchise, and appoint a receiver to wind up, its business.
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.
II.' With the exception of the action of the district court in refusing plaintiffs a change of place of trial to the counties of their respective residences and a-transfer from equity to law, we cannot consider other and additional points and' propositions urged, because (1) of the statute of limitations relating to certiorari (Code of 1924, Section 12467), and (2) the scope of the particular review sought is limited (Code of 1924, Section 12456). See, also, Dickson Fruit Co. v. District Court, 203 Iowa 1028, and other cases therein cited. Attention is now directed to the express reservations.
III. Defendant, at this stage of the controversy, urgés that plaintiffs have waived, and are barred from claiming, the right to a change of place- of trial to the several counties of their respective' residences within the state, for- the reasons that they appeared generally in said cause, filed motions, asked to have orders set aside, and went to trial on decisive issues of law. Statutory enactment has determined this debate adversely to these contentions. Code of 1924, Section 11053. Plaintiffs have not answered, and are entitled to said change if said section is applicable. Burke v. Dunlap, 185 Iowa 949.
IV.That division of the motion seeking to obtain a change of place of trial on the part of the receiver's application for an •assessment was properly overruled. So far as the subject here under consideration is concerned, it is immaterial whether the obligation sought-to be enforced is designated an assessment on a stock subscription Or the amount due on a contract of purchase. The object, in any event, is to recover for the unpaid par value of stock. : What bearing, if any-, such distinction may have on other phases of the controversy not here involved, we do not decide: Exigency of the case- demands findings of fact concerning the Associated Packing Company as follows: (1) -Amount of the assets and liabilities, (2) aggregate of unpaid stock subscriptions, (3) a determination of the proportional amount to-be enforced against each stock subscriber, and (4) possibly other preliminaries.
Said redress was exclusively within the jurisdiction of the district court in the original proceeding in equity for the dissolution of-the corporation. Paine v. Mueller, 150 Iowa 340; Williams v. McCord, 204 Iowa 851; Britton v. Andrews, 8 Fed. (2d Series) 950.
V. Proper venue of 'litigation to collect said assessment necessitates a transfer 'of the- separate'causes of- action to the counties wherein the respective plaintiffs reside. This disputé is ' n0* foréclosed by Lex v. Selway Steel Corp., 203 Iowa 792, for in said ease this court expressly reserved the point, in the following language':
"We are not now called upon to determine whether motions' made in the creditor's suit, to transfer the causes of 'action against individual defendants to the' Counties of their residence, were properly overruled . "
Code of 1924,' Section 11049, requires:
' ' Personal actions, except as otherwise provided,' must be brought in a county in which some of the defendants actually reside ."
Three questions must be determined':' (1) Is the "action" personal? (2) Is'there more than a-single-defendant to the "action,'-' one of whom resides in Polk County? and (3) Is there any principle of equity making the statutory provision inapplicable?
Prayer for judgment is against the individual personally,' under a contract to purchase stock, executed by two parties \ (1) the Associated Packing Company, and (2) said'identical purchaser. Recovery sought is merely for a sirm 'of money, the amount of which will - be definitely fixed by the' assessment; Elaboration is not necessary to convince that' said statute applies. Kell v. Lund, 99 Iowa 153; Britton v. Andrews, supra.
"Some of the defendants," as used in said Section 11049, contemplates parties in Polk County jointly liable or necessarily joined with a co-defender residing in some other county. Previous examination of said contract makes further discussion unnecessary, to reach'the inevitable result' that there is no such "co-party." :Inapplicability here of that statutory exception is readily seen, for there are no joint or other necessary defendants living in Polk County, and a single subscriber besides elsewhere.
- • Insistence' is- made that equity can- overcome the statutory provision upon- either dr all' of three theories: (1) To avoid mul tiplicity of suits; (2) because of the trust-fund doctrine; and (3), having obtained jurisdiction, equity will grant complete relief. With this logic, applied to the case at bar, we' are compelled to disagree. In Iowa, judicial opinion has partly, if not entirely, solved the problem. Direction may be found in Richmond v. Dubuque & S. C. R. Co., 33 Iowa 422, where this language is used:
" It is said that equity will take jurisdiction of this case in order to avoid a multiplicity of suits between the parties. We do not understand the mere fact that there exists divers causes of action, which may be the foundation of as many different suits between the parties thereto, is a ground upon which equity may be called upon to assume jurisdiction arid settle all such matters in one suit. ' '
Further substantiation is supplied by the case of Kell v. Lund, supra, where it is said:
' ' We think that the defendant has the right to make his defense in the county of his residence. Whatever may be the rule elseAvhere, to require him to answer in another county is contrary to the established procedure in this states It has been held elsewhere that the liability of a stockholder with respect to unpaid shares is an individual and independent obligation, and may be greater or less, depending on the contract between stockholder and the corporation."
Federal courts harmoniously reach a similar conclusion. Britton v. Andrews, supra; Carey v. McMillan, 289 Fed. 380; Hale v. Allinson, 188 U. S. 56 (47 L. Ed. 380). Rutenbeck v. Hohn, 143 Iowa 13, is not discordant. Said section for removal Avas not involved in that case. The motion was to transfer from equity to law. Moreover, a careful analysis of the facts involved in the Rutenbeck suit discloses that the subscription was a joint contract, provisions of the articles of incorporation were peculiarly material, and the object really was to assess, so that the motion to transfer went to that part of the equitable suit, and, as before suggested, did. not ask for the transfer of the controversy under said statute so far as it related to enforcement of the mere money demand to be fixed by the "assessment." Ample reasons exist why trial should be at the individual residences, some of which are: No equitable relief is necessary; there is no community of interest; necessarily there will be different defenses, requiring unidentical witnesses, large expense for transportation, and maintaining them away from home; and finally the historical policy of granting trials at the defendants' residences. Additional itemization will add nothing. We are convinced that said statute is not overcome in this case by the urgency of avoiding a multiplicity of suits. Whatever the rule may be elsewhere, such legislative enactment must control, unless overcome.
Nor is said written law avoided by reason of any trust fund. So far as a particular "subscriber" is concerned, a "trust fund," if any there be, arises from said individual contract of purchase. In that there is no community relationship. Supposing such separate fund were a trust (but it is not), the total result would be, not one large "trust fund," in which all parties are interested, but rather an aggregation of single and individualized accounts, wherein one producer is not responsible to and has no interest in the other. Distinction must here be kept in mind between a trust fund, sufficient to support equity jurisdiction, and the "trust-fund doctrine," utilized as a basis for recovery by a creditor of the corporation against an alleged stockholder thereof. That ' ' trust-fund doctrine, ' ' if there be one here (a point which we do not decide), fails to prevent a change of the place of trial under said Code section.
Proposition 3 does not apply to the enforcement of the separate contracts in question. Such step is separate from and incidental to said original receivership. Britton v. Andrews, supra. Equity may continue jurisdiction to grant full relief even in law, but that refers to the initial action and parties, and not to those which are secondary and independent. Poe v. Munich Re-Insurance Co., 126 Md. 520 (95 Atl. 164). See, also, Smith v. Waterloo, C. F. & N. R. Co., 191 Iowa 668; Harris v. Smith, 133 Ark. 250 (202 S. W. 244) ; Old Dominion Tr. Co. v. First Nat. Bank, 252 Fed. 613; India Rubber Co. v. Consolidated Rubber Tire Co., 117 Fed. 354; Shaw v. Beaumont Co., 88 N. J. Eq. 333 (102 Atl. 151).
VI. After the action to collect said assessment has been separated into single suits, and each such several causes removed to the county of the residence of the respective defendants, should the trial then proceed in equity or in law? In that final event, why should it be in equity ? The demand will have been reduced to just a request for money. No equitable relief will then be asked or required. Rutenbeck v. Hohn, supra,'is not a prevention. ' Equitable jurisdiction protected in that case has been previously" afforded here in the preliminaries leading up to and including the assessment, so far as possible under said Code Section 11049.
"If there were but a single stockholder against whom recovery was sought, the form of the procedure clearly should be air action at law, ' ' Carey v. McMillan, supra.
"After the assessment is made, the receiver may then bring actions at law against the various subscribers for the stock; and such is the proper course. ' ' Britton v. Andrews, above.
"The right of'trial by jury shall-remain' inviolate * Section 9', Article I, Constitution of Iowa.
Misjoinder, camouflage, • or subterfuge cannot deprive the plaintiffs of this right. Cotter v. Gilman, 191 Iowa 795.
If and after said assessment is made, plaintiffs' motion should then be sustained, (1) to separate said suits, and (2) to transfer (a) said actions to collect said assessment to said respective'counties, and (b) from equity to law. And the writ in such' contingency and to that extent is' allowed; otherwise it is annulled. — Allowed in pairt; annulled in part.
Evans, C. J., and Faville, Db Graff, and Albert, JJ., concur. . ,
-Morling; J., not participating.