Court Opinion

ID: 6516560
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:27:12.60951+00
Date Added: 2024-06-11T15:55:02.544565
License: Public Domain

ON Application pop Rehearing.
HEAD, J.
In our former opinion we considered the *289propriety of the appointment of a receiver upon the allegations of the bill alone, reaching the conclusion, for the reason stated, that the complainant had not shown himself entitled to a receiver. In the body of the bill, there was no reference to any election of directors of the Development Company, except that which took place at the organization of the company, and that on November 8, 1893, when the board in office at the time of the filing of the bill was elected. No other was pointed out in the brief for complainant, and respondent’s counsel, in their brief, stated, as an undisputed fact, that there had been no other. There was, however, annexed to the bill, as an exhibit, a somewhat voluminous copy of all the recorded proceedings of the stockholders and directors, from the time of the organization of the company to the filing of the bill. On application for a rehearing, our attention is called to the fact, which appears by this exhibit, that there was an election of directors on November 8, 1892, when Aldhouse, Cunningham, Gunter, Olcott and Messiter were elected. Three days later, Aldhouse was elected president, Cunningham, treasurer, and Messiter, secretary. So it is, that of the board in office when the bill was filed, Aldhouse and Cunningham had been directors from the organization of the company in October, 1891, and Olcott since November 8, 1892. Johnson and Messiter became directors, for the first time, at the election on November 8, 1893.
As set forth in the former opinion, the bill makes many charges of negligence and misconduct on the part ol those in control and management of the Development Company. We have examined the answers and affidavits of the respondents and others in their behalf, and find them to contain, in the main, only very general denials of any of the charges, and express admissions of the most important ones. The record establishes the fact that the Development Company was projected, promoted and organized by the officers and others managing and controlling the Bridgeport Land & Improvement Company — a body corporate already organized and owning a large body of land, at Bridgeport. That company, it seems, paid Cunningham and Henry Morgenthan 150 city lots to organize the Development Company. Olcott was president of the .Improvement Company, and Aid-house was made vice-president of the Development *290Company. At the organization of the latter, thirty-four cash subscribers to stock had been obtained, aggregating $153,000, the authorized capital being $300,000. The remainder, except $15,000, was subsequently issued, of which $119,000 was issued to the Improvement Company, to which reference will again be made. There is nothing due the company on any of these stock subscriptions. According to the record, $170,000 in money was received for stock. A few days after the organization of the Development Company, it purchased from the Improvement Company 300 lots at $250 each, aggregating $75,000, and also 900 additional lots, at the same price, aggregating $225,000, the latter payable as follows: $55,000, February 10, 1892; $55,000, May 10, 1892; $55,000, August 10, 1^92, and $60,000, August 10, 1892. The first two of these instalments were paid in moirey, and afterwards, the remainder, viz., $115,000, was paid in stock of the Development Company, at par. Thus it appears that the actual holdings of the Development Company were represented by the 1,200 lots so purchased and paid for, the cash paid in by the subscribers being more than covered by .the amount paid, in money, for the lots. In these lots, the substantial interest of the cash subscribers was represented by $170,000, which they paid in, in money; and the substantial interest of the Improvement Company was represented by $115,000 paid for its stock, in lots. The Improvement Company, hmvever, for money paid, held $4,000 of the $170,000 of stock above referred to, making its total holding of stock $139,000, against $166,000 held by the other stockholders. The contract for the purchase of these lots was executed by said Olcott, as president of the Improvement Company, and said Aid-house as vice-president of the Development Company. The latter company, as its charter shows, was organized to buy and sell real estate, to erect buildings, to sell or rent the same, and to have, enjoy and exercise all the powers conferred upon such corporations by Chap. II, Title I, Part 2 of the Code of Alabama.
We thus have a general'view of the status of the company when it began business, and the field of administration which lay before it. The subsequent administration, occupying the time from October, 1891, to October, 1894, is the subject matter of the complainant’s *291complaint. The original opinion sets forth, in detail, the grievances complained of. It may be said that, for the purposes of a proceeding of this kind, many of them have been satisfactorily explained by the respondents. We will confine our consideration to those which seem to be of controlling importance, and about which there is practically no dispute. It is not deniable that the two corporations — the Improvement Company and the Development Company — were, substantially, under a common management. In point of government they were practically one. Those in actual control of the two bodies were, peculiarly, in a position to consult self interest, and to shape the transactions of either in the way that might best subserve that interest. That relation the law deplores, and, in respect of it, lays down very strict rules to bind those occupying it. These respondents, occupying this relation, and having confessedly blended, in matters of importance, the operations of- the two companies, have given us, in answer to the many charges of misconduct, very vague and imperfect information concerning their transactions, except in answer to those charges which they could not do otherwise than admit. For instance, they have given no account of how many lots they have sold, what they received for them, nor what they did with the proceeds ; no account of what buildings they erected nor rents received for the same. No account of expenses paid, or for what incurred. It is admitted that (being essentially the representatives of both companies) they knowingly purchased for the Development Company from the Improvement Company, and paid therefor, about 200 lots, at $250, each, to which the selling company had no other title than the right to pay the purchase money it owed for the same, and receive a title ; and these lots were suffered to be sold for the purchase money under decrees obtained against the Improvement Company by its vendors. They relied, they say, upon the warranty of the Improvement Company — a reliance so implicit that they paid that company $185,000 in cash and $115,000 in stock for the lots, without taking any steps to remove the incumbrances, or protect the company under the warranty. Those lots became lost to the Development Company.
It is again admitted that to secure money borrowed *292in New York by the Improvement Company, tlie Development Company executed its notes for about $45,000, the culmination of which was that, in February, 1893, there was a balance due the Natioual Park Bank of New Yoi*k, of about $10,000, and to secure the same the Development Company endorsed the negotiable note of the Improvement Company for $10,000, due at three months. The Development Company was made the payee of this note, and the transaction thus given the appearance of a discount of the paper by the National Park Bank for the use of that Company. Olcott also endorsed it, and he now testifies that his endorsement was for accommodation, and secondary to that of the Development Company. As to him, he places the company in the position of a primary debtor, though it is admitted that the sole consideration was the balance due for money borrowed by, and for the use of, the Improvement Company. The Development Company was, in fact, no less an endorser for accommodation than he. It is claimed that the company, at the times it entered into these surety-ships, was largely indebted to the Improvement Company, for purchase money of lots, yet it is not pretended that it received any benefit of such suretyships by way of reduction of its indebtedness,, or otherwise. It, in fact, paid its indebtedness to the Improvement Company in full, leaving its liability, if liable at all, to the Park Bank still outstanding. In June, 1893, instigated by Olcott, the Park Bank sued the Improvement Company as maker and the Development Company as endorser of this note, in New York, serviug the process, in the first named case, on Olcott, as vice-president, and in the second on Aldhouse, as president. .Judgment by default was rendered in each case in August, 1893. Olcott was not sued on his endorsement. In July, 1894, judgment was obtained against the Development Company, in Bridgeport, Ala., in an action hy the Park Bank, on the said New York judgment. Execution issued thereon, and was levied upon all the lands of the Development Company, and the same were advertised to.be sold on a day shortly after the filing of this bill. There is considerable testimony emanating from the complainant tending to show that this was a scheme to have the lands sold and bought in by favored parties, at a sacrifice, but the respondents fully deny *293the charge. It is certain, however, that all the lands of the company were about to be sold (and would have been but for this suit) upon a judgment rendered upon an accommodation indorsement which the company had no legal capacity to make; and it is undeniable, also, that the entire proceeding was controlled, in large measure, by a purpose to protect Olcott, who, from November 9, 1892, was a director of the company. We do not decide the question now, but upon the facts stated by the respondents themselves, or some of them, it is by no means clear that the Park Bank was such a holder of the paper as that the invalidity of the company’s in-dorsement could not have been successfully interposed in bar of the action upon it. If the allegations of the bill are true, the defense could have been made. A majority of the board of directors in office when the bill was filed, including Olcott, were directors at the time of these suits and proceedings. They were chargeable with the wrongs of involving the company in these suretyships, and were in no position to protect the company when sued, or to take any steps for redress. Indeed, their attitude in this case, is one of positive antagonism to any redress against the demands of the Park Bank. Constituting a majority of the board, as it now appears, and, of course, having the power to control its action, it would be idle for a stockholder to seek relief through them ; and so involved as they are in interests adverse to the Development Company, and such their past management of its affairs, we are now of opinion that the court below properly assumed control of its assets. In less than two years after organization they suffered all the lands of the company to be sold for taxes for the year 1892, and though fourteen months had passed since the sale, there had been no redemption, and the taxes for 1893 were still unpaid. The lands were, also, all advertised for sale on a small judgment against the company, for office rent.
Upon these considerations, ■ we are constrained to grant the application for a rehearing. Our former judgment of reversal will be set aside, and a judgment here rendered affirming the order sustaining the appointment of the receiver.
Affirmed. .