155 So. 371 (Ala. 1934), 6 Div. 511, Bankers' Fire & Marine Ins. Co. v. Sloss

Docket Nº:6 Div. 511.
Citation:155 So. 371, 229 Ala. 26
Opinion Judge:THOMAS, Justice.
Party Name:BANKERS' FIRE & MARINE INS. CO. v. SLOSS et al.
Attorney:H. H. Grooms and Coleman, Spain, Stewart & Davies, all of Birmingham, for appellant. Wm. S. Pritchard, Jas. W. Aird, Thos. H. Fox, and David R. Solomon, all of Birmingham, for appellees.
Judge Panel:ANDERSON, C.J., and BROWN and KNIGHT, JJ., concur.
Case Date:June 07, 1934
Court:Supreme Court of Alabama

Page 371

155 So. 371 (Ala. 1934)

229 Ala. 26



SLOSS et al.

6 Div. 511.

Supreme Court of Alabama

June 7, 1934

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

Suit by the Bankers' Fire & Marine Insurance Company against A. Page Sloss and another. From a decree sustaining a demurrer to the bill and dismissing it, complainant appeals.

Reversed and remanded.

H. H. Grooms and Coleman, Spain, Stewart & Davies, all of Birmingham, for appellant.

Wm. S. Pritchard, Jas. W. Aird, Thos. H. Fox, and David R. Solomon, all of Birmingham, for appellees.

Page 372

THOMAS, Justice.

The action of the trial court in sustaining demurrers to the bill and in dismissing the same on failure to amend, is assigned as error.

The bill was by the Bankers' Fire & Marine Insurance Company, a corporation, to restrain respondents from conspiring and in concert unlawfully interfering with the business of the complainant, and from interfering and disturbing the harmonious relations existing between the complainant and its stockholders.

That pleading and its exhibit, with the usual leave of reference, will be taken in its entirety, and the exhibit will illustrate, explain, and supplement when the bill is tested by demurrer. Grimsley v. First Ave. Coal & Lumber Co., 217 Ala. 159, 115 So. 90; Webb v. Sprott, 225 Ala. 600, 144 So. 569; Woodall v. Southern Mfg. Co., 223 Ala. 262, 135 So. 446; Hobson v. Robertson, 224 Ala. 49, 138 So. 548; United States Fidelity & Guaranty Co. v. First Nat. Bank of Lincoln, 224 Ala. 375, 140 So. 755; Gains v. Griffin, 225 Ala. 130, 142 So. 513; Snellings Lumber Co. v. Porter, 225 Ala. 164, 142 So. 560; Schwab v. Carter, 226 Ala. 173, 145 So. 450.

The contract, among other things, provided for action or proceedings for dissolution of the corporation and liquidation of the corporate business, for the creation of an irrevocable proxy, and to hold stockholders cooperating with them harmless of costs and expense. The manner of respondents' wrongful acts and interference with complainant's right to continue and conduct its lawful business in the enjoyment of its good name and will, the solvency of the corporation and conduct of its going business, are well stated in the bill as amended.

The subject of good will in business and professions has been discussed in this jurisdiction, and authorities collected. 14 Alabama and Southern Digest, Good Will, pp. 268-270; 22 Cyc. 771; 28 C.J. 738, 747; Collas v. Brown, 211 Ala. 443, 100 So. 769, prayed for injunction to protect; 82 A. L. R. 1031; Maxwell v. Sherman, 172 Ala. 626, 55 So. 520; Knowles v. Jones, 182 Ala. 187, 62 So. 514; Saxon v. Parson, 206 Ala. 491, 90 So. 904.

A casual examination of the contract exhibited will show that it is not a lawful "voting trust" such as is recognized by the well-considered authorities. 3 Bouvier Law Dictionary, 3410; 10 Cyc., page 343, § 19; 40 Cyc., page 228; 14 C.J. 915. The definition and holdings of such a trust, however, may be stated to be an agreement which accumulates in the hands of a person or persons, the shares of stock of several owners, in trust for the purpose of voting them, in order to control the corporate business and affairs, and differs from a proxy or reciprocal proxy in that it does not make either party the agent of the other. Manson v. Curtis, 223 N.Y. 313, 119 N.E. 559, Ann. Cases 1918E, 247. It has been declared in this jurisdiction, that a voting trust is not per se unlawful; that the most familiar illustration of a voting trust which may be lawful, is where the object is to carry out a particular lawful policy of the corporation, with the view to promote the best interests of all stockholders, determined by the propriety and justness of the ultimate corporate purpose sought to be accomplished, when the character of the agreement or means to accomplish the end contemplated is of equal importance. Mobile & Ohio Railroad Co. v. Nicholas, 98 Ala. 92, 12 So. 723; Moses v. Scott, 84 Ala. 608, 4 So. 742; Chapman v. Bates, 61 N. J. Eq. 658, 47 A. 638, 88 Am. St. Rep. 459; Boyer v. Nesbitt, 227 Pa. 398, 76 A. 103, 136 Am. St. Rep. 890; 14 C.J., page 915, note 82.

In Mary Lee Coal & Railway Co. v. Knox & Co., 110 Ala. 632, 638, 19 So. 67, 69, the Nicholas Case, supra, was cited with approval, saying: "In one sense, corporations are entities; but corporations and the stockholders are not separate and distinct entities for all purposes and in all respects. A corporation is a collective body composed of different persons. * * * Mor. Corp. § 227. Whatever is of benefit to the corporation, as a collective body, is a benefit to the stockholders or persons of which it is composed." (Italics supplied.) Corey v. Wadsworth, 118 Ala. 488, 25 So. 503, 44 L. R. A. 766.

And in Mobile & Ohio Railroad Co. v. Nicholas, 98 Ala. 92, 118, 12 So. 723, 731, this court made significant observation of a voting trust, as follows:

"There is no rule of law which requires contracts to be upheld, which are void as against public policy, in order to preserve 'good faith' or 'innocent parties.' The rule of estoppel is often applied to prevent undue advantage by one person over another, but the rule does not extend to contracts which are void because contravening public policy. Considering the opinion ( Hafer v. New York, Lake Erie & Western R. R. Co., 14 Weekly Law Bulletin, page 68, 19 Abbott's New Cases (N. Y.) 454) as an entirety, we do not regard it as authority to the proposition

Page 373

that an agreement which provides for a separation of the right to vote from the holder of the stock is 'per se,' at all times, and under all circumstances, contrary to public policy, and void. We have examined case after case, and find generally that the agreements declared void by the courts, where the power to vote was separated from the stockholder, and vested in third persons, were under circumstances which showed that the purpose to be accomplished was unlawful,-such as the courts would not sanction if the principal had voted, and not a proxy; and, in case of a mere dry trust, it is held that the stockholder might revoke a power of attorney in form irrevocable. * * *

"Certainly, the case of Griffith v. Jewett, 15 Wkly. Law Bul. 419 (19 Abbott's New Cases (N. Y.) 457), or of Moses v. Scott, 84 Ala. 608, 4 So. 742, do not sustain complainants' contention in this respect. If there were no precedents, upon principle, we would hold that, in determining the validity of an agreement which provides for the vesting of the voting power in a person other than the stockholder, regard should be had to the condition of the parties, the purpose to be accomplished, the consideration of the undertaking, interests which have been surrendered. rights acquired, and the consequences to result."

The case of Moses v. Tompkins, 84 Ala. 613, 4 So. 763, held that equity will interfere by injunction to restrain trustees and directors from illegally voting certain stock, which they claim the right to vote, when the effect of such vote will be to control the election of directors, which is otherwise provided by law. Walsh v. State ex rel. Cook, 199 Ala. 123, 126, 74 So. 45, 2 A. L. R. 551. Mr. Chief Justice Stone observed in his concurring opinion, that injunction was the only efficient remedy to prevent the two directors from doing authorized acts until the rehabilitation of the corporation could be perfected by legitimate corporate methods.

In Moses v. Scott, 84 Ala. 608, 611, 612, 4 So. 742, 744, Mr. Chief Justice Stone says:

"* * * It can make no difference if several stockholders uniformly vote together, or so vote in obedience to a prior agreement that they will do so. The vote when cast is but the expressed wish of the stockholder, or, at least, must be so regarded, and no other stockholder can be supposed to be injured thereby. To hold otherwise would greatly abridge the voter's right to cash his ballot as he pleases. Cook, Stocks, § 618; Faulds v. Yates, 57 Ill. 416, 11 Am. Rep. 24; Barnes v. Brown, 80 N.Y. 527; State ex rel. v. Smith, 48 Vt. 266; Woodruff v. Wentworth, 133 Mass. 309; Pender v. Lushington, [L. R.] 6 Ch. Div. 70.

"Whether an agreement to vote as a unit, or as an agreed majority may dictate, for any given length of time, is a contract so binding in its terms that no party to it can withdraw from it, or disregard it, without the consent of his fellows, may be a very different question. Possibly public policy may exert an influence in the solution of this problem. Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. 173 [8 Am. Rep. 159]; Miss. & Mo. R. R. Co. v. Cromwell, 91 U.S. 643 [23 L.Ed. 367]; Moon v. Crowder, 72 Ala. 79; Danforth v. Phil. & C. M. Railway Co., 30 N. J. Eq. 12.

" And even if such contract be lawful, and, upon its naked face, exert a continuing force, the grave question comes up, will a court of chancery, in its enlightened discretion, lend its aid in the enforcement of a contract of so doubtful policy? Fisher v. Bush, 35 Hun (N. Y.) 641; Miss. & M. R. R. Co. v. Cromwell, 91 U.S. 643 [23 L.Ed. 367]." (Italics supplied.)

In South & North Alabama Railroad Co. v. Gray, 160 Ala. 497, 49 So. 347, Mr. Chief Justice Anderson makes the observation that stockholders have the right to vote stock as they wish; cited with approval Judge Stone's observations from Moses v. Scott, supra, and says:

"* * * There is an exception to the rule, and courts will restrain the holder of a majority of the capital stock in a company from voting that stock for the purpose of oppressing or defrauding the minority stockholders, but the courts will not restrain such holder of a majority of the stock from...

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