Wallace v. Pierce-Wallace Publishing Co.

Deemek, J.

1 The Pierce-Wallace Publishing Company is a corporation organized under the laws of this state, having its principal place of business in the city of Des Moines. The stock is owned in equal shares by plaintiff and the defendant J. M. Pierce, and these parties are the sole directors and officers of the corporation; Pierce being the president and business manager, and Wallace the secretary and treasurer and editor. This corporation owns one hundred and eighteen shares of the capital stock of another corporation known as the Homestead Company, and also owns and conducts two newspapers, — one known as the Wisconsin Farmer, conducted and carried on at Madison, Wis.; and another known as the Live Stock Indicator, published at Kansas City, in the state of Missouri. The one hundred and eighteen shares of stock owned by the Pierce-Wallace Company in the Homestead Company, is a majority of the stock in the latter company. The other stock is owned by S. F. Stewart, Frank Dunning, A. G-. Lucas, and Pierce and Wallace in their individual capacity. In his original petition the appellee asked for a dissolution of the corporation and a distribution' of its assets, but this he afterwards amended by striking out the prayer for dissolution, and the relief asked when the case was tried was the appointment of a receiver, and such equitable relief as the facts would warrant. His claim in this court is (using the language of his counsel): “(1) That Pierce and Wallace were the sole and equal owners of the stock in the Pierce-Wallace Publishing Company. (2) That between these two men differences of a personal nature had arisen, and from an .accumulation of causes had become so intensified that nothing in the way of conference or communication between them was possible. (8) That in consequence, no meeting of the board of directors or stockholders could be had, and no authoritative direction could be given in the affairs of the corporation. (4) That Pierce had taken possession of and assumed control over the affairs and property of the corporation, and by one means and another, was excluding Wallace therefrom. (5) That in many respects, the management by Pierce was not only contrary to the views of Wallace, but, having taken sole possession, and maintaining it by such means as might be required, he was manipulating matters in his own interest, and utterly disregarding the rights and wishes of Wallace.” And he contends that the order appointing the receiver, should be sustained.

2 We are at a loss to know whether or not appellee is asking for the dissolution of the Pierce-Wallace corporation. He struck out this part of the prayer from his original petition, and does not expressly insist upon this relief, although his contention seems to be that at the final hearing he should have such a decree as would practically amount to a dissolution of the corporation. It may be that the reason why he does not ask that the corporation be dissolved is to be found in the fact that his counsel are of the opinion that such relief cannot be had under the facts as' they are disclosed by this record. • But, whether this be the fact or not, it is certainly true that, in the absence of express statutory authority, jurisdiction of courts of equity does not exist over corporate bodies to such an extent as to justify them in dissolving .corporations, or of winding up their affairs and sequestrating their property. This seems to be so well settled that there is scarcely a dissenting voice in authority. See High, Rec. (3rd Ed.), sections 288, 289; Beach, Rec., section 403; 20 Am. & Eng. Enc. Law, p. 57; Morawetz, Priv. Corp., sections 282, 283; French v. Gifford, 30 Iowa, 153; Thompson, Corp., sections 4538,4539,6703. Our statutes do not, in terms, authorize the appointment of a receiver for the purpose of winding up a going corporation. The only provision we have is general in character, and does not relate to any specific class of cases. It is as follows: “On the petition of either party to a civil action or proceeding, wherein he shows he has a probable right to or interest in any property which is the subiect of the controversy, and that such property or its rents or profits are in danger of being lost or materiallyinjured or impaired, * * * the court, * * * if satisfied that the interests of one or both parties will be thereby promoted and the substantial rights of neither unduly infringed may appoint a receiver to fake charge of and control such property under its direction during the pendency of the action and may order and coerce the delivery of it to him.” Code, section 2903. We have heretofore held that this section does not authorize the dissolution of the corporation by a court of equity, nor the placing of its property in the hands of a receiver which practically accomplishes the same purpose. French v. Gifford, supra. We have also held, however, that one who brings himself within the provisions of section 2903, may have a receiver appointed as well of the effects of a corporation as of an individual or co-partnership. Dickerson v. Bank, 95 Iowa, 392 (64 N. W. Rep. 395). And we also said in French v. Gifford, that there are cases in which a receiver will be appointed for the property of a corporation, as, for instance, where the officers have been guilty of a misappropriation of the funds or a breach of trust in the discharge of official duties.

3 Turning now to the record, to discover the facts upon which appellee relies for the appointment of a receiver, we find that his complaints are: (1) That Pierce had arrogated to himself the active management of the corporation, and excluded appellee therefrom, and withheld and refused to give appellee any satisfactory information as to the condition of the business, and had deprived him of the funds of the corporation, and of the management of its financial affairs, as treasurer of that concern. (2) That irreconcilable differences exist between appellee and Pierce, which render it impraticable and impossible for them to transact business with each other, or to consult together upon any business proposition. (3) That the corporation is indebted to each of the stockholders in the sum of five thousand five hundred dollars, and by reason of the feeling existing between these parties, no provision has been or can be made for the liquidation of this indebtedness. (4) That no adequate provision can be made for the maintenance, operation, and continuance of the newspapers published by the corporation in Wisconsin and Missouri. (5) That the business of the corporaton cannot be carried on as intended and provided for in its articles of incorporation, and that the objects of the corporation and the intendment of its stockholders are completely frustrated. These are the substance of the allegations of the petition. The evidence adduced in support of them shows that the state of feeling between these men is very bitter, and that they scarcely ever meet without some fuel being added to the flame. But it seems that their trouble grew out of, and largely, if not wholly, relates to, the management and control of the Homestead Company. Various and sundry disagreements arose between Pierce and Wallace as to the conduct and policy of this paper; and Wallace, who was until recently its editor, was finally deposed by action of its board of control. This and numerous other suits followed, and a train of unfortunate litigation is impending.

4 In considering the case we must carefully distinguish between the various corporations which are more or less involved in the proceedings. The suit is against Pierce and the Pierce-Wallace Publishing Company;-not against the Homestead Company, nor its stockholders or officers. Of it, therefore, we have no jurisdiction. And we should approve of no order which will have the effect of controlling its management or directing its affairs, unless it of necessity results from giving effect to a proper order made in a proceeding against the Pierce-Wallace Company. The only difference between the parties relating to the Pierce-Wallace Company, grew out of the publication, in the Wisconsin paper, of some essays delivered at a session of the Farmers’ Institute, in that state, in advance of their official publication under the auspices of the dean of the University of Wisconsin. This difference arose in May, 1894, more than one year prior to the bringing of this suit, and seems to have been satisfactorily adjusted; at least the parties continued in business for many months after this dispute, and it was so inconsequential in character that no court would be justified in appointing a receiver on account, of it. Wallace says that Pierce deposited all the funds of both the Homestead Company and the Pierce-Wallace Company in his own name, and assumed all the duties of treasurer of both corporations, although he (Wallace) was the duly elected treasurer. The record discloses that Pierce did deposit the funds of both corporations in his own name, and for a time drew his checks against the deposits; that this was done at the suggestion of Wallace, or at least with his acquiescence, until more serious difficulties arose between the parties as to the conduct and management of the Homestead Company, at which time Wallace insisted upon recognition of his rights as treasurer. His demands were acceded to in so far as the depositing of the funds was concerned, with some little delay, which is at least partially explained; and at the time of the commencement of this suit the funds of the Pierce-Wallace Company were deposited in the name of that company. After Wallace’s deposition as editor of the Homestead, he brought a suit to compel Pierce to turn over to him, as treasurer, the funds of the Pierce-Wallace Company. After the suit was commenced, Pierce agreed to turn over these funds, and, for aught that appears in the record, this agreement has been complied with,

These are all the matters of difference between these parties as to the Pierce-Wallace Company, and it is manifest from the order made by the lower court, that he did not regard them as sufficient to justify the appointment of a receiver of all property of this corporation, for he directed the receiver to take charge of nothing but the one hundred and eighteen shares of stock of the Homestead Company. And, if there were any doubts about the matter, they would be dispelled by appellee’s own testimony, wherein he says-: “We have never had any disagreement with reference to the matters of the Pierce-Wallace Publishing Company except the one I have referred to. We continued to run the affairs of this company from February, when this controversy arose, until February in the next year. During this year there was never a controversy with reference to any matter pertaining to the Pierce-Wallace Company’s affairs, except at the very start in this Wisconsin business, for the reason that during that year, after this started, I knew little or nothing about the affairs of the company. I don’t know whether we would have had a controversy if I had known anything about it. I stated that as- the reason why we did not have a controversy. I do not know any more about them now than I did then.” It is perfectly apparent, that appellee has no right to a dissolution of the Pierce-Wallace Company, and that a receiver should not be appointed for all its property, nor any part of it, unless there be something in the controversy with reference to the Homestead Company matters which is a justification for the order authorizing the receiver to take charge of the stock of that company, owned by the Pierce-Wallace corporation.

5 6 7 8 9 With reference to the Homestead Company, we find there are decided differences between the members of that company, which-are, apparently irreconcilable; bat they relate to matters intra vires, and, except as hereafter noted, do not have reference to the Pierce-Wallace Company. These disputes are quite largely, if not wholly, related to the editorial management of the newspaper published by the Homestead Company; Wallace insisting, that he should control the utterances of that department, while Pierce, and the other stockholders and directors, were asserting the right of supervision, and, to a certain extent, at least, control, of the- editorial columns. The breach caused by this difference widened until it led to the deposition of plaintiff, by the regular vote of the directors of the corporation, from the editorial management of the paper. Now, without going into the merits of this unfortunate controversy, and without indicating our views as to who is at fault, we simply say, that if it be conceded that the. managers and directors of the Homestead Company were at fault, it would give the plaintiff no right to the appointment of the receiver. The Homestead Company is not a party to this suit. It is an in dependent corporation, composed of different stockholders from those who own the stock in the Pierce-Wallace Company, and is managed by other officers. Again, no actionable fraud is charged against the officers of the Homestead Company. Plaintiff was deposed by a regular majority vote, and as a minority stockholder or officer, he has no cause for complaint. It is a general rule that a minority cannot dictate the policy of the corporation, and no interference with its management in their behalf, can be justified, unless it be absolutely necessary to the attainment of justice. Peatman v. Power Co., 100 Iowa, 245 (69 N. W. Rep. 541). But we have already said too much as to the power to appoint a receiver for the Homestead Company, for such relief is not asked, anfi the receiver was not granted in a suit against it. The appointment was made with directions to the receiver to take charge of a part of the property of the Pierce-Wallace Company, to-wit, the stock owned by it in the Homestead Company; and the part of this opinion referring to this last named corporation, is designed to make plain the difference which exists in these two bodies, and to show, if we can, that a dispute as to the management of the Homestead Company will not of itself authorize the appointment of a receiver for the other corporation. We take it from the record that the lower court concluded that there were such differences between Pierce and Wallace as to the management of the Homestead Company that they could not act together in matters relating to the Pierce-Wallace Company, and could not properly represent the latter corporation in the meetings of the Homestead Company; and it seems that the receiver was appointed in order that it might be represented at the meetings of the stockholders of the Homestead corporation. It further appears that the court below did not think there were such differences as would hinder the Pierce-Wallace corporation in the exercise of its functions, except in relation to the Homestead stock, for he denied the receivership as to all the property save this stock; and we may say, in justification of the court’s refusal, that we think it was right in so doing. Plaintiff has not been denied any right in this corporation. He is still at liberty to handle the funds and to perform his duties as a stockholder, director, and officer. What have we, then, as to the management of the stock in the Homestead Company ?

10 It appears, that after Wallace’s deposition as editor of the Homestead paper, he demanded a meeting of the board of directors. Pierce called the meeting, but Wallace was out of town. It is said that Pierce did not know of his absence, but this is immaterial, for the reason that a second meeting was called shortly afterward, when Wallace was in the city, and this he refused to attend. As soon as the meeting Was called, Pierce drew up a resolution, which gave to each of the parties a proxy to vote one-half of the Homestead Company stock at the meeting of that corporation. This resolution was submitted to Wallace in advance of the meeting, as indicating Pierce’s views; and it seems that Pierce was anxious that all matters with reference to the action of this corporation should be agreed upon, to avoid any possibility of difficulty. Now, it seems to be held by some of the English courts that a receiver will be appointed where there is such a dispute among the members of a governing body as prevents the affairs being carried on properly. See Featherstone v. Cooke, L. R. 16 Eq. 298; 2 Cook, Stock, Stockh. & Corp. Law, section 684; Morawetz, Priv. Corp., sections 284, 285. Mr. Cook says, however, the court will not interfere unless the corporation is in a condition in which there is no proper governing body, or there are such dissensions in the governing body, as that it is impossible to carry on the business with advantage to the parties interested. “In such a case the court will interfere, but only for a limited time, and to as small an extent as possible.” There are other authorities holding to a contrary doctrine. American Loan & Trust Co. v. Toledo, C. & S. Railway Co., 29 Fed. Rep. 416; Coal Co. v. Hooper (Ala.) 17 So. Rep. 118; Einstein v. Rosenfeld, 38 N. J. Eq. 309. And it is manifest that courts are loath to appoint a receiver for the mere purpose of carrying on the business of a corporation which is being conducted by its proper officers, although not to the profit or satisfaction of its stockholders, for the reason, as said by Judge Thompson, in his work on Corporations, at section 6834, “that the sovereign does not furnish public agencies for the carrying on of private enterprises.” But, whatever may be the true rule with reference to this matter, it appears that the Pierce-Wallace Company is being managed by the officers selected for that purpose, just as it was before plaintiff was deposed, except that he has voluntarily refused to attend its meetings, or to participate in the management of its business. There has been no such disagreement between the officers of this corporation, with reference to its affairs, as to render it impossible for it to carry on the business for which it was organized. The record shows but one meeting of the directors after plaintiff’s deposition as editor of the Homestead, and this he refused to attend. Not, as we understand it, because of any disagreement between the directors or stockholders as to the management of this corporation, but because of the effect it might have upon the affairs of the Homestead Company. Evidence is abundant to the effect that all essential differences grew out of difficulties which arose with reference to the management of the Homestead; and that these litigants are not at variance with reference to the management of the Pierce-Wallace Company. Plaintiff, as we believe, failed to attend the meetings of the latter corporation simply because he did not wish to have the stock held by it in the Homestead Company represented at the meeting of this last-named concern, and would not agree to the appointment of proxies, as suggested by Pierce, solely because of the effect it might have upon the Homestead difficulty.

11 Whether there will, in the future, be such dissensions and differences between these parties as will authorize the appointment of a receiver, — conceding that one may be appointed for these causes, — is almost wholly a matter of conjecture. It does not follow that because of trouble in the management of the Homestead, the business of the defendant corporation cannot be carried on. If differences should arise in the future, it will then, be time to consider the rights of the parties. We have already mentioned the fact that claim is made that the corporation is indebted to plaintiff and defendant Pierce. The evidence established this claim. But it does not appear that this indebtedness has been reduced to judgment, or that any lien exists against the property of the corporation. And it is clearly shown that the corporation is perfectly solvent, and able to meet its obligations. Plaintiff has no right as a creditor to the appointment of a receiver. This is a familiar doctrine and requires no citation of authorities to support it.

Reference has been made to the case of Dickerson v. Bank. In that case it was found that there was such an action pending as justified the appointment of a receiver. It appeared, however, that the corporation was insolvent; that the officers were continuing the business at a loss, and were allowing the assets to be scattered, so that they could not be realized upon without great sacrifice; and that plaintiff, as a stockholder, was subject to a double liability under our statute. No one of these facts are present in this case. The only claim which has any merit is that there are dissensions among the stockholders and directors which render it impossible for the corporation to carry on its business.

12 13 14 15 The relief asked is, in effect, the dissolution of the corporation, or, if this be not the prayer, it is that the management of the corporation be taken out of the hands of the officers who have been conducting its business, and placed in the hands of an officer of the court for some indefinite period. It has already been seen that this is rarely, if ever, done; and, if such practice should be approved in this court, it is well to inquire, how long should the receivership be continued? There qre but two stockholders in this corporation, plaintiff Wallace and defendant Pierce. Now, a court of equity has no power to make them agree; and, if their differences are such as that it is impossible for them to carry on their business, it is not likely that the appointment of a receiver will bring about a reconciliation. It is practically conceded that a court of equity has no power, in the absence of a statute, to dissolve a going corporation. What, then, must result? Either that a court must carry on this business for the interest of the stockholders until the corporation is dissolved by lapse of time, or that one of the parties should sell his stock, or such portion thereof, as will give a majority to one or the other of these litigants. We have already seen from the cases cited, that it is with great reluctance that, any court authorizes the appointment of a receiver because of dissension in the governing bodies, and when it does “it will only interfere for a limited length of time, and to as small an extent as possible.” It is not necessary to decide whether the rule announced in Featherstone v. Cooke is applicable in a state where the statute enumerates the causes for which a receiver may be appointed, for, if we accept it as correct doctrine, we do not think it applies to the facts of this case. It may be unfortunate that there is no remedy other than a sale of his stock by one or the other of the stockholders, but, if this be the case, it is a situation into which the parties voluntarily placed themselves; and, so long as no actual legal wrong is committed by either, they must be content with their condition. Our conclusions find support in the following, among other authorities: Hinkley v. Blethen, 78 Me. 221 (3 Atl. Rep. 655); Pond v. Railroad Co., 12 Blatchf. 280, Fed. Case No. 11,265; State v. Ross (Mo. Sup.) 25 S. W. Rep. 947; Loomis v. McKenzie, 31 Iowa, 425; People v. Weigley (Ill. Sup.) 40 N. E. Rep. 300; Strong v. McCogg (Wis.) 13 N. W. Rep. 895; Hinckley v. Pfister (Wis.) 53 N. W. Rep. 21; French Bank Case, 53 Cal. 495; Republican Mountain Silver Mines v. Brown, 7 C. C. A. 412 (58 Fed. Rep. 644); Spelling, Priv. Corp., section 851; Jones v. Bank, 10 Colo. 464 (17 Pac. Rep. 272). The district court was in error in appointing the receiver and its order is REVERSED.

Case Details

Case Name: Wallace v. Pierce-Wallace Publishing Co.

Court Name: Supreme Court of Iowa

Date Published: Feb 11, 1897

Citation: 101 Iowa 313

Court Abbreviation: Iowa