I am unable to concur in the opinion of the majority herein and respectfully dissent.
Obviously, the briefs and arguments of counsel have presented for our consideration many novel and intriguing questions of law. The majority of this court, in undertaking to dispose of such questions, have, in my judgment, wandered somewhat afield. The result is a complex and complicated opinion which is difficult to analyze or understand. As I see it, the decisive questions are not nearly as difficult as the majority opinion would seem to indicate nor are the facts as complicated *Page 841 as it makes out. The facts presented to us are determined from the allegations of the petition and the complications arise by reason of inferences which are drawn from conclusions of the pleader, some of which were stricken below but are held to be proper pleading by this court.
According to the petition, the defendant's predecessor was organized about December 21, 1916, as the Centerville Light and Traction Company under the laws of Maine. On February 12, 1923, the name of the Maine corporation was changed to Iowa Southern Utilities Company of Maine. On the same day, February 12, 1923, the defendant, Iowa Southern Utilities Company, was organized under the laws of Delaware and thereafter undertook to acquire the assets of the Maine corporation.
On March 27, 1923, the transfer of assets between the two corporations was authorized as well as the issuance of capital stock therefor in the sum of $1,160,800 and this was approved by the executive council of Iowa. On September 30, 1924, the executive council of Iowa approved another application for the issuance of stock amounting to $1,520,000 by the Iowa Southern Utilities Company of Delaware for property instead of cash. Accordingly, the petition alleges that the executive council of Iowa authorized the issuance of stock by the Iowa Southern Utilities Company of Delaware for property to the extent of $2,680,000.
Plaintiff contends that stock to the extent of $638,500 was issued for property over and above the amount authorized by the executive council of Iowa. Plaintiff also asserts that 10,000 shares of stock were issued for no-par value during the years 1923, 1924 and 1925 and contends that there was no authority under the laws of Iowa for the issuance of such stock. All of the stock referred to in this paragraph is asserted to be void ab initio and to have had no voting rights.
Plaintiff also asserts that since August 15, 1925, 12,550 shares of stock have been issued, part of which was issued without receiving full par value in cash; plaintiff does not say exactly how much of said stock was so issued, but contends that it was approximately of the face value of $600,000. *Page 842
Plaintiff also contends that on January 12, 1927, the articles of incorporation were amended to provide for the issuance of 100,000 shares of common stock of no-par value and for the exchange of outstanding stock for this new stock; plaintiff contends that all of the stock issued pursuant to such authorization is void ab initio.
Plaintiff also contends that on August 1, 1938, at a stockholders' meeting, all outstanding stock was recapitalized, that at said meeting stockholders were permitted to vote whose stock was void ab initio, the plan of recapitalization was not submitted to the executive council of Iowa or approved by it. Plaintiff claims that all of the stock issued pursuant to this plan of recapitalization is void ab initio and he seeks the appointment of a receiver to prevent the execution of such plan.
The prayer of the petition is lengthy and involved. The relief sought, however, is substantially the following:
1. That the court determine what stock of the Iowa Southern Utilities Company of Delaware is valid and what is void.
2. That stock issued in the amount of $586,761.77 in connection with the issuance of 12,550 shares about May 31, 1933, be determined to have had no voting rights ab initio.
3. That 100,000 shares of common stock of no-par value be determined to have had no voting rights ab initio.
4. That the court decree that the holders of all preferred stock for which full par value was not paid in cash had no voting rights on August 1, 1938.
5. That all common stock claimed by plaintiff to have been void ab initio be decreed to have had no voting rights on August 1, 1938, and all stock issued pursuant to the plan of recapitalization of August 1, 1938, be decreed to be void ab initio with no voting rights.
6. That the officers of the corporation be enjoined from putting into effect the plan of recapitalization of August 1, 1938.
7. That a receiver be appointed for the Iowa Southern Utilities Company of Delaware forthwith.
8. That an accounting be had with reference to dividend transactions of the corporation.
*Page 8439. That the corporation be dissolved and its affairs wound up.
10. That the plaintiff have general equitable relief.
Of course, the prayer of the petition is not as concisely stated as I have undertaken to put it. I am persuaded, however, that the foregoing is a proper statement of what the plaintiff is driving at.
Plaintiff alleges that he is a citizen of Iowa. He makes no other claim as a basis for his right to maintain this action. He asserts no interest in the corporate affairs other than that which may be implied from his citizenship. The defendants, other than the Iowa Southern Utilities Company, are alleged to be stockholders and some of them officers and directors, but there is no claim that all stockholders that might be adversely affected by this litigation have been made parties to the action.
As pointed out by the majority, ground 1 of the motion to dismiss contends that the petition fails to state a cause of action against the defendant corporation and ground 2 asserts that the plaintiff is not entitled to the relief demanded upon the facts stated in the petition.
Ground 11 of the motion to dismiss asserts:
"Until adjudged void by a court of competent jurisdiction in an appropriate proceeding, the capital stock of this corporation in any event is valid and, pending such an adjudication, is fully vested with all of the rights and privileges of valid stock; and any corporate action had upon the affirmative vote of such stock, including the plan of re-capitalization adopted by the stockholders at a meeting held August 1, 1938, was valid, and the validity of any stock issued under such plan of recapitalization cannot be attacked directly or collaterally."
Ground 15 of the motion to dismiss asserts:
"The plaintiff does not have legal capacity to bring this action, for the reason that it is beyond the constitutional powers of the legislature of the State of Iowa to delegate to a private citizen of the State the right to bring an action in the name of the State of Iowa, and to exercise the powers of the state in the manner allegedly authorized by Chapter 387, Code of Iowa, 1935, and particularly is this true in a situation where a private citizen has no legal or equitable interest in *Page 844 the subject matter of the action, or where the approval of the Attorney General of the State of Iowa, or some other properly designated official of such state, or of court, is not required to be first obtained."
In the majority opinion, this action is sustained by reason of the provisions of chapter 387 of the Code, 1939. Section 8433 provides that sections 8412 to 8416, requiring approval of the executive council to the issuance of stock for property other than cash, are made applicable to foreign utility companies. The basis of plaintiff's petition is that certain stock was issued without complying with said sections. Plaintiff contends that, by reason of that fact, the stock is rendered absolutely void ab initio. The majority opinion sustains such contention. The decisive factors, as I see it, are whether this contention is sound and whether plaintiff, as a private citizen, is authorized to maintain an action to secure such an adjudication.
Section 8417 provides as follows:
"The capital stock of any corporation issued in violation of the terms and provisions of sections 8412 to 8416, inclusive, shall be void, and in a suit brought by the attorney general on behalf of the state in any court having jurisdiction, a decree of cancellation shall be entered; and if the corporation has received any money or thing of value for the said stock, such money or thing of value shall be returned to the individual, firm, company, or corporation from whom it was received, and if represented by labor or other service of intangible nature, the value thereof shall constitute a claim against the corporation issuing stock in exchange therefor."
It will be noted that the foregoing section applies to the capital stock of any corporation issued in violation of the provisions of sections 8412 to 8416, inclusive. If this language is given effect literally, then the majority opinion is erroneous because it holds that section 8417 has no application whatever to the controversy presented herein.
As noted by the majority, this court, in the case of Sherman v. Smith, 185 Iowa 654, 656, 169 N.W. 216, 218, held that *Page 845 stock issued contrary to sections 8412 to 8416, inclusive, is not void ab initio, but voidable only, stating as follows:
"We are of opinion that, when the statutes are read together, as they should be, it was not the legislative intention to make stock issued under the conditions at bar ipso facto void, but to make violations of this chapter a cause for having the stock cancelled at the suit of the attorney general, and to inflict other punishments for the violation, which, however, do not include that the stock issue shall be void, instead of voidable. The failure to have the approval of the executive council has been dealt with in this court, and it was held, in First Nat. Bank v. Fulton, 156 Iowa 734, that the clear purpose of the particular statute provision dealing with this point was `to protect the corporation, as such, against the issue of its corporate stock in payment for property or services or other things at fictitious value.' And it is expressly ruled that a note given for corporate stock issued in violation of this provision may be collected. We have not had occasion to deal with the other violation — the false certificate. But in the law generally, the words `void' and `voidable' are frequently used by legislatures interchangeably; and where the word `void' is used to secure a right to or confer a benefit on the public, it will, as a rule, be held to mean null and incapable of confirmation; but, if used respecting the rights of individuals capable of protecting themselves, it will often be held to mean voidable. See Van Shaack v. Robbins, 36 Iowa 201, and cases cited; and numerous authorities to like effect may be found in our own reports * * * The consideration here was shares of stock. They had infirmities for which they might, on proper action by the attorney general, have been cancelled, and, after being cancelled, they would have furnished no consideration. But, while the shares were issued without complying with all statute directions on the subject, they were still shares of stock whose validity might never be attacked by the authorities of the state."
The foregoing pronouncement is in accord with repeated pronouncements of this court cited in the majority opinion. What is now section 8417 of the Code, 1939, was section 1641-d *Page 846 of the Supplement of 1913. In pointing out that the word "void" there used has been repeatedly held to mean "voidable", this court states in Bankers Trust Co. v. Rood, 211 Iowa 289, 295,233 N.W. 794, 797, 73 A.L.R. 1421, as follows:
"Previous consideration has been given by this court to Section 1641-d of the foregoing statutes. Central Distrib. Co. v. Mulroney, 196 Iowa 38; Lone Tree Bank v. Timmerman, 193 Iowa 1320; Sherman v. Smith, 185 Iowa 654; First Nat. Bank of Ottumwa v. Fulton, 156 Iowa 734. Our conclusion upon each occasion was that the word `void,' used in said section, means `voidable,' in fact. The section, it was held in the above cited cases, is for the benefit of the corporation. A note given for stock is collectible, although compliance has not been made with this section of the statute."
Again, at page 297, we state:
"Business necessity demands that transfers of these stock certificates be sustained unless unsurmountable legal barriers prevent. Estoppel against the corporation issuing the stock is the principle applied to protect the innocent transferee thereof. [Citing numerous authorities.]"
And, at pages 299 and 300, we state:
"Here there is presented a case where the corporation, before it had exercised its option to declare its issuance of the stock void, permitted the holder of such stock to pledge the same to an innocent transferee for a valuable consideration. The stock not being void from its inception, but only voidable, it is apparent that the corporation has estopped itself from exercising the statutory option. [Citing cases.]"
The foregoing pronouncements of this court are sound and should not be ignored. The opinion of the majority assumes at the outset that section 8417 has no application whatever to the cause of action asserted herein, notwithstanding the fact that section 8417 specifically provides that it is applicable to "the capital stock of any corporation issued in violation of the terms *Page 847 and provisions of sections 8412 to 8416, inclusive," and the further fact that the only alleged infirmity in the stock of the defendant corporation that is asserted herein arises by reason of the alleged failure to strictly comply with the provisions of sections 8412 to 8416, inclusive. I cannot agree with such holding. It seems to me that there are many reasons why section 8417 should apply to the situation herein presented to us.
While, of course, the petition does not specifically so allege, it must be a reasonable implication that, with the tremendous amount of stock involved, some of it must have been purchased in good faith for full value after it had been issued originally under the circumstances described by the petition. As to such purchasers in good faith, under the repeated interpretations of section 8417, the corporation would be estopped to deny the validity of such stock in the hands of innocent purchasers for value. This is a just rule. The opinion of the majority, however, holds as a matter of law that such purchasers acquired absolutely nothing and their rights, if any, are speculative indeed. The majority opinion holds that the only people entitled to any consideration are those who hold stock issued strictly in accordance with the provisions of the statutes. In my opinion, this is harsh and unjust.
There is another item to be considered. Section 8417 is the only statute that specifically provides for the cancellation of stock issued in violation of sections 8412 to 8416, inclusive. It provides that such cancellation is to be secured in an action brought by the attorney general. There is merit in such a provision. Section 8417 also provides that, where such stock is cancelled, the money paid or the value of the property delivered for the stock shall be returned to the holder of the stock. This is just and equitable. The majority opinion affords no such protection to such holders of stock herein.
The principal reason given for ignoring section 8417 and giving to section 8437 an entirely different interpretation as to the word "void" is the admonition contained in the last clause of section 8437 that courts and juries "shall construe this chapter so as to prevent evasion and to accomplish the intents and purposes thereof." I am unable to agree that such clause *Page 848 should be held to support such a drastically different interpretation of section 8437 from that repeatedly given by this court to section 8417.
If section 8417 controls as to the remedy herein sought, then the decree should be affirmed because this action is not brought by the attorney general. If, however, this court is to hold that section 8417 does not apply and that section 8437 alone applies, it seems to me that, in interpreting section 8437 as applied to the facts presented by the record herein, we should interpret the word "void" as meaning "voidable". The situation presented herein is the identical situation which is covered by section 8417. It seems to me, therefore, that the rights and liabilities of the parties should be the same no matter which section is applied thereto. The majority opinion in effect says that, whereas a stockholder in a domestic corporation who has acquired stock, which was originally issued in violation of sections 8412 to 8416, has acquired stock that is voidable only and can be cancelled only in an action to which he is a party, a stockholder in a foreign corporation such as the appellee herein, who has acquired stock that was originally issued in violation of sections 8412 to 8416, acquires nothing because his stock is void ab initio and can be cancelled in an action brought by a citizen who has no interest in the corporate affairs and without the stockholder, whose investment is wiped out, being made a party thereto. I can see no just reason for any such distinction.
As pointed out by the majority opinion, the right of the courts to exercise visitorial powers over a foreign corporation does not present a question of jurisdiction or power of the court to act but rather a question of discretion in the court as to whether it will exercise such jurisdiction. On that issue, I am in accord with the position taken by Judge Mitchell in his dissenting opinion herein. It seems to me a strange doctrine that a court should assume jurisdiction to permit a citizen, who claims to have no interest in the corporate affairs of the appellee herein, to bring an action, the avowed purpose of which is to declare invalid the interests of stockholders who are not parties to the litigation and to secure either a reorganization *Page 849 of the corporation or its dissolution after such strangers to the litigation have been deprived of their rights in the corporate affairs. It seems to me that the trial court exercised a wise discretion in refusing to entertain such an action. I would affirm.
WENNERSTRUM, J., concurs in this dissent.