Blythe v. Enslen

• Decision Date: 30 May 1929
• Docket Number: 6 Div. 746.
• Citation: 219 Ala. 638,123 So. 71
• Parties: BLYTHE ET AL. v. ENSLEN ET AL.
• Court: Alabama Supreme Court

123 So. 71

219 Ala. 638

BLYTHE ET AL. v. ENSLEN ET AL.

6 Div. 746.

Supreme Court of Alabama

May 30, 1929

Rehearing Denied June 27, 1929.

Appeal from Circuit Court, Jefferson County; William M. Walker Judge.

Bill in equity by Sylvester V. Blythe and others against Eugene F Enslen and others. From a decree sustaining a demurrer to the bill as amended, and dismissing it, complainants appeal. Reversed and remanded.

Jerone Edmundson and John W. Altman, both of Birmingham, and Wert &amp Hutson, of Decatur, for appellants.

Cabaniss, Johnston, Cocke & Cabaniss, of Birmingham, for appellees.

THOMAS J.

This is the fourth appeal. Sylvester Blythe et al. v. Enslen et al., 203 Ala. 692, 85 So. 1; Id., 209 Ala. 96, 95 So. 479; Id., 212 Ala. 463, 102 So. 621. The effect of the former rulings is stated in the last decision. Since the opinion in 209 Ala. 96, 95 So. 479, the complainants amended their bill, alleging fraud of the directors. And on the third appeal, 212 Ala. 463, 102 So. 621, it was held (October 16, 1924) that complainants' action to recover money wrongfully paid to respondents in the form or guise of dividends could not be maintained, because all the stockholders of the old bank took the benefit, and wrongful declarations of dividends only injuriously affected the creditors. 212 Ala. 464, 102 So. 621. And in response to that decision complainants amended in such wise as to claim subrogation of the new bank to the rights of the creditors of the old bank.

The complainants, in October, 1924, materially amended their bill, charging fraud and averring the ownership of complainants' stock. They were not required to aver when and from whom they purchased the stock in defendant company ( Montgomery Light Co. v. Lahey, 121 Ala. 131, 25 So. 1006); alleged fraud and payment of creditors out of the corpus from stockholders.

It is now insisted that the right of the new bank is twofold, in that it rested upon (1) the assignment to it of the claims and assets of the old bank, and (2) the subrogation of the rights of the creditors of the old bank; in that the new bank assumed the payment of the creditors and has paid them out of assets that it received from the stockholders of the new bank; that is to say, the latter bank acquired the assets of the old from the superintendent of banks by virtue of an agreement with that official and approved by the court, in and by which and pursuant to the purpose of its organization the new bank took over all the assets and assumed the obligations of the old bank, and duly discharged such obligations from its current or available funds.

The former pleading, and several rulings thereon, are thus summarized by Mr. Justice Sayre (212 Ala. 463, 464, 102 So. 621):

"It follows, to summarize our previous holdings and our present judgment of the case, that the alleged liability of the defendants was not an asset of the old corporation collectible at its suit or at the suit of its stockholders. In this situation the further charge of fraudulent purpose in the declaration of dividends has added nothing of interest or benefit to the substance of the bill so far as concerns the right of the new bank or of complainants who are undertaking to proceed in its right and stead, for such declarations of dividends could have injuriously affected creditors only. The Circuit Court of Appeals for the Fifth Circuit so held in a similar case. Houghton v. Enslen (C. C. A.) 261 F. 113.

"The court has taken cognizance of Buck v. Gimon, 201 Ala. 619, 79 So. 51, and concludes that the difference in the facts there shown suffices to distinguish that case from this."

In Buck v. Gimon, 201 Ala. 619, 71 So. 51, the pertinent holding was that, where a national bank made a lawful assignment to another national bank, which was to liquidate its affairs, any right of action of the assigning bank, or its stockholders, against directors for negligence, was vested in such assignee bank, and the violation of that assignee's obligation to enforce such claim would not reinvest in the assignor bank or its stockholders the right of action against such directors; that such right of action thus given would exist as against the assignee bank so violating its obligation under the terms and relations created by the assignment.

If, or whenever, a demurrer sets forth facts which do not appear on the face of the bill, and which, if true, show that complainant's cause of action is barred, or that the bill should be dismissed, introducing new or foreign matter, it is termed in the decisions a "speaking demurrer." It merely presents a defense available (only) by way of a plea or answer. Martin v. Baines, 217 Ala. 326, 116 So. 341; Alabama Power Co. v. Hamilton, 201 Ala. 62, 67, 77 So. 356; Blount County Bank v. Harvey, 215 Ala. 566, 112 So. 139; Oden v. King, 216 Ala. 504, 509, 113 So. 609, 54 A. L. R. 1413; Bromberg Bros. v. Heyer Bros., 69 Ala. 22; Sims, Ch. Pr. § 444.

Complainants insist in this connection that certain of the stockholders of the old bank received dividends, did not know the true facts under which the same were declared, and, if any one of that group of shareholders received the dividends in ignorance of the true facts, he would not be concluded by the fact of receipt of dividends, not knowing that it was declared and paid out of the capital, and not from the surplus profits. Gaffney v. Colvill, 6 Hill (N. Y.) 567, 576; King v. Livingston Mfg. Co., 192 Ala. 269, 68 So. 897.

This result follows from the assumption that stockholders have a right (in the absence of contrary knowledge or notice) to rely upon the fidelity of the trustee or directors of the trust. Such stockholders are not bound to know, or, without knowledge of facts putting upon them the duty of inquiry, to exercise reasonable diligence to discover facts which it was the duty of directors to disclose in the discharge of such duty, or by reason of the position of the director of the trust. Farwell v. Pyle-Nat. Electric Headlight Co., 289 Ill. 157, 124 N.E. 449, 453, 10 A. L. R. 363; King v. Livingston Mfg. Co., 192 Ala. 269, 68 So. 897; Farwell v. Great Western Tel. Co., 161 Ill. 522, 44 N.E. 891; Voorhees v. Campbell, 275 Ill. 293, 114 N.E. 147; Williams v. Riddlesperger, 217 Ala. 62, 64, 114 So. 796; 10 Cyc. 834.

When the dividends were declared by the directors without knowledge of facts to the contrary, the stockholders had the right to presume they were legally declared and warranted by the acting directors to be made out of the surplus, and not from the capital. Gen. Acts 1911, p. 85, § 42. If not so declared, it unlawfully and unwarrantably impoverishes the holdings of the stockholders, who become such parties in interest, or may be interested, at different times and at different market values.

The definition of stock in a corporation is that it is evidence of the right of the holder or owner in the proceeds of the corporation's property, and stands for the aliquot part of the corporation's property or the right to share in its proceeds "when distributed according to law." Hall & Farley v. Alabama Terminal & Imp. Co., 173 Ala. 398, 414, 56 So. 235, 241; Randle v. Winona Coal Co., 206 Ala. 254, 257, 89 So. 790, 19 A. L. R. 118; section 234, Constitution. Acts 1911, p. 85, provided:

"Any director of an incorporated bank who concurs in any vote or act of the directors of such bank by which it is intended (1) to make a dividend except from the surplus profits arising from the business of the bank or to make a loan with the stock of the lending bank as security therefor; or (2) to divide, withdraw, or in any manner pay to the stockholders or any of them any part of the capital stock of the bank, or to purchase or reduce such capital stock except in pursuance of law; or (3) to discount or receive any note or other evidence of debt in payment of any installment of capital stock actually called in and required to be paid, or with intention to provide the means of making such payment, or (4) to receive or discount any note or other evidence of debt, with the intent to enable any stockholder to withdraw any part of the money paid in by him on his stock; or (5) to apply any portion of the funds of such corporation except as allowed by law, directly or indirectly to the purchase of shares of its own stock, is guilty of a misdemeanor," etc.

See Riles v. Coston-Riles Lumber Co., 208 Ala. 508, 95 So. 43; Randle v. Walker, 17 Ala. App. 211, 84 So. 551.

Thus by this phase of the demurrers is presented a question of law and fact as to the positions of the stockholders as to dividends, which should be heard by way of defense, and not by a speaking demurrer; that is, complainants insist that the bill does not show that all stockholders of the old bank were benefited alike, or bound by the acceptance of the dividends declared and received. Grounds of demurrer (No. 23, p. 127-A, Transcript) to this end should have been overruled as a speaking demurrer; and the facts of defense-that distribution of dividends was and affected all stockholders alike-as to right of maintenance of this action should be duly presented by answer or plea, as prescribed by rule and procedure designated for a court of equity.

A defense in bar must be made by plea or answer, unless the facts which constitute the bar appear on the face of the bill or the complaint. Sanders v. Wallace, 114 Ala. 259 21 So. 947. This ground should have been overruled by the court, since the facts of the bill do not show that each and every stockholder of said bank (1) received each and every dividend of which complaint is made, as being unwarranted by the facts when declared and paid as to such stockholder; (2) that the benefits derived by the payment of those dividends were as to each stockholder...