Birmingham Bond & Mortgage Co. v. Lovell

• Decision Date: 07 February 1936
• Docket Number: No. 7868.,7868.
• Citation: 81 F.2d 590
• Parties: BIRMINGHAM BOND & MORTGAGE CO. v. LOVELL. LOVELL v. BIRMINGHAM BOND & MORTGAGE CO.
• Court: U.S. Court of Appeals — Fifth Circuit

81 F.2d 590 (1936)

BIRMINGHAM BOND & MORTGAGE CO. v. LOVELL.

LOVELL v. BIRMINGHAM BOND & MORTGAGE CO.

No. 7868.

Circuit Court of Appeals, Fifth Circuit.

February 7, 1936.

R. H. Scrivner, of Birmingham, for appellant Birmingham Bond & Mortgage Co.

Frank E. Spain, of Birmingham, Ala., and Caroline C. Lovell, in pro. per., for appellee.

Before FOSTER, HUTCHESON, and WALKER, Circuit Judges.

FOSTER, Circuit Judge.

Appellee and cross-appellant, Mrs. Caroline C. Lovell, brought this suit against appellant and cross-appellee, Birmingham Bond & Mortgage Company, to rescind the sales of certain shares of stock of said company, hereafter to be referred to, and to recover damages of $15,000, on the ground that the purchases had been induced by false representations. The parties will hereafter be referred to as they appeared in the District Court. The jury returned a verdict in favor of plaintiff for $8,110 on which judgment was entered. The pleadings are very lengthy, occupying some 75 pages of the printed record. There are 47 assignments of error by defendant and 31 assignments of error by plaintiff. We may consider the appeals together, and will not attempt to review the pleadings nor to discuss the assignments of error of either party in detail.

The material facts appearing from the record are these. Birmingham Bond & Mortgage Company was incorporated under the laws of Delaware with very broad powers, but primarily for the purpose of loaning money on mortgages secured by real estate in Birmingham, Ala. It was admitted to do business in Alabama and complied with the requirements of the State Securities Commission. The capital stock was divided into 125,000 shares, 40,- 000 shares preferred and 85,000 common, both of no par value. The charter provided: That the stock should not be sold by the company for less than $50 per share for preferred and not less than $1.00 per share for common; that a cumulative dividend of $3.50 per share should be paid annually on the preferred stock, out of net profits; that the company should have the right for 3 years to redeem the preferred stock at not less than $50 per share and accumulated dividends; that the holders of the preferred stock should have no voice in the management of the company, the sole voting power being vested in the common stock.

A prospectus published by defendant contained these statements, among others:

"The Birmingham Bond & Mortgage Company is one of the few companies doing business in Birmingham to-day which is not a `closed corporation.' By that we mean it invites all the stockholders to share in its full earnings. The investor has an equal opportunity to participate in the entire profits.

"The Birmingham Bond & Mortgage Company does only one thing — directing its whole effort to the loaning of money on Birmingham real estate."

There was evidence to the effect that defendant endeavored to get an account from an insurance company to act as its correspondent and loan money on its behalf; that such an arrangement was made with the John Hancock Life Insurance Company, but said company was not willing to lend money in Alabama until it could establish an agency for the writing of life insurance; that defendant established this life insurance agency, in the name of one of its directors, Jay Smith, on June 8, 1926, and advanced $28,000 for that purpose; that it made loans for the insurance company on which it earned gross commissions of approximately $75,000; that the cost of establishing the agency was reduced to $19,000; that in 1932 defendant also organized the Vulcan Investment Company to take over and handle real estate defendant had acquired through foreclosure; that defendant owned all the stock of this company; that in 1932 defendant also organized a fire insurance company, in the name of the Smith Insurance Agency, for the purpose of saving on insurance premiums, all profits to belong to defendant. There was evidence tending to show that the operation of the two insurance agencies and the Vulcan Investment Company were beneficial and profitable to defendant; that all the treasury stock of defendant was sold prior to September 22, 1927; that dividends were paid on the preferred stock up to July 1, 1931; that in January, 1934, the market value of preferred stock was $5, and common stock had no value at all; that at the time of trial defendant owned 158 pieces of real estate, of the book value of $780,000, a large part of which was rented. It was not shown that defendant was insolvent.

On April 24, 1926, through her husband, W. S. Lovell, acting as her agent, plaintiff bought 100 shares each of common and preferred stock of defendant, paying $50 per share for the preferred and $8 per share for the common; a total of $5,800. On June 2, 1926, she bought an additional 25 shares of each class of stock at the same price; a total of $1,500. On March 1, 1927, she agreed to buy an additional 25 shares of each class of stock for $1,550, to be paid for in monthly installments. On this last purchase she paid $809.88 cash. This stock was all bought direct from defendant, through H. A. Crane, an employee of E. W. Saucier. Saucier was one of the directors and organizers of the company, who had been made general manager and given the right to make exclusive sales of stock for two years.

In February, 1929, plaintiff acquired the purchaser's rights of one Glass for 25 shares each of common and preferred stock. Glass was paid $1,244 on this transaction, and $105.98 was paid defendant. In June, 1929, plaintiff had a similar transaction with one Pickens by which 15 shares each of common and preferred stock were purchased. On this transaction $210 was paid to Pickens and $554.01 to defendant.

From September 4, 1931, to February 22, 1932, both dates inclusive, plaintiff purchased 84 shares of preferred stock and 75 shares of common stock through brokers, paying a total of $1,830.50.

Mr. W. S. Lovell testified, in substance, that he was interested in securities, particularly those of local concerns; that he had...