Security Life & Acc. Ins. Co. v. Carlovitz

• Decision Date: 13 January 1949
• Docket Number: 1 Div. 332.
• Citation: Security Life & Acc. Ins. Co. v. Carlovitz, 38 So.2d 274, 251 Ala. 508 (Ala. 1949)
• Parties: SECURITY LIFE & ACCIDENT INS. CO. et al. v. CARLOVITZ et al.
• Court: Alabama Supreme Court

38 So.2d 274

251 Ala. 508

SECURITY LIFE & ACCIDENT INS. CO. et al. v. CARLOVITZ et al.

1 Div. 332.

Supreme Court of Alabama

January 13, 1949

Howell & Johnston and Caffey, Gallalee & Caffey, all of Mobile, for appellants.

Outlaw, Seale & Kilborn, of Mobile, for appellees.

BROWN Justice.

The bill in this case was filed by Carlovitz, Taylor and Congleton as minority stockholders against Security Life and Accident Insurance Company, a corporation organized under the statutes of this state in April, 1946, Title 28, § 245 et seq., Code of 1940, seeking injunctive relief, the appointment of a receiver and final dissolution of the corporation and the distribution of its assets.All the stockholders other than the complainants are made partiesdefendant with the corporation.

It appears from the allegations of the bill and the proof that the incorporators, fourteen in number, all of whom were experienced insurance salesmen, except three who were experienced business men in other fields of endeavor organized the corporation in pursuance of a dream of security and continuous employment, each and all taking stock.The total capital stock of the corporation amounts to $25,000 represented by 2,000 shares at the par value of $12.50 per share, all of which was subscribed and paid in.Although the dream was freely discussed during the organization of the corporation, it was not crystalized into a binding obligation on the part of the corporation or the several stockholders.The complainants Carlovitz and Taylor each own and hold 250 shares of the capital stock and the complainant Congleton owns 125 shares, aggregating 625 shares.At the beginning of the business of such corporation, it seems the management undertook to carry into effect the dream of the organizers giving employment to the insurance salesmen in the field of their experience and to the others in the business features of the corporation.After a time internal strife developed resulting in the creation of two factions, each seeking to obtain control of the corporation and finally the majority named as defendants obtained control of the corporation, elected their officers including a general manager, and conferred on him the power to discharge employees and in pursuance of that power the complainants were discharged and denied employment.

After their discharge the complainants gave written notice to the corporation and through it to the other stockholders of their desire to sell their stock, inviting bids therefor from any of the other stockholders who desired to purchase within a week after such notice was given.This notice and invitation to purchase said stock was referred by the secretary of the corporation to the general counsel who advised each of the complainants that their offer to sell did not meet the requirements of the provisions of the following by-law of the corporation regulating the transfer of stock and suggested that they amend their application to sell strictly in compliance with the provisions of such by-law.The by-law reads:----

'Article III Section 2.Transfer of stock shall be made either in person or by attorney only on the books of the corporation in a transfer book kept for that purpose, and upon the surrender of the old certificates.Written notice shall first be given to the Secretary of the Corporation requesting the transfer of stock, which notice shall contain the name and address of the stockholder, number of shares to be transferred, and name and address of the proposed transferee.No stock shall be so transferred until the expiration of sixty (60) days from the date that said written application has been received by the Secretary of the corporation.It shall be the duty of the Secretary of the corporation within five (5) days from the receipt of such notice, to mail written notice of same to each stockholder of the corporation, which notice shall include all of the information contained in said Application.It shall then be the privilege of each stockholder to have an opportunity to purchase the stock thus sought to be sold and transferred, and to signify his desire to so purchase, he shall give written notice to the Secretary on or before forty-five (45) days from the date on which the application for transfer is received by the Secretary.Should any stockholder so notify the Secretary within said forty-five (45) days period, such stock cannot be transferred to the stockholder so signifying his desire to purchase.The purchase price, in the absence of an agreement to the contrary shall be the book value of said stock as determined by the last audit of the books of the corporation.Should more than one of the stockholders of the corporation desire to purchase the stock so sought to be transferred, then the said stock shall be divided equally between them on a per capita basis.'

In the notice and offer of complainants inviting the other stockholders to bid and giving them a week's option to do so, it was asserted that complainants had been given legal advice that the said bylaw was unenforceable.Said notice was given on January 28, 1948, and the bill was filed on the 1st of March, 1948.The trial was before the court on evidence given ore tenus and at the conclusion of the trial the bill was amended eliminating all features thereof except insofar as it sought a declaratory judgment as to the validity of said bylaw and its effect as a restriction on the sale of stock by individual stockholders.On submission for final decree on pleading and proof the trial court entered a decree declaring said bylaw invalid except insofar as it required the transfer to be entered on the books of the corporation by the owner or his attorney in fact.The appeal in this case is prosecuted from that decree.

Able counsel for appellant, who seem to have made a thorough study of the question, concedes in brief: 'It is only when a bylaw unreasonably restricts the right to transfer stock, or when the making of such a bylaw is unauthorized, or is against public policy as prohibited by statute expressly or impliedly that it is held invalid as a bylaw.If the restriction is reasonable such bylaw is entirely valid.'Appellants insist that a 'restriction of the sort here involved is reasonable and is highly proper to insure the continued operation of the corporate business by a qualified and friendly personnel.'

Our interpretation of said bylaw is that it confers on two or more stockholders the power, by withholding their consent, to force a stockholder who desires to sell his stock to sell at book value, regardless of the reasonable market value thereof.The crux of the bylaw is: 'Should any stockholder so notify the Secretary within said forty-five (45) days period, such stock can not be transferred to the stockholder so signifying his desire to purchase.The purchase price, in the absence of an agreement to the contrary shall be the book value of said stock as determined by the last audit of the books of the corporation.Should more than one of the stockholders of the corporation desire to purchase the stock so sought to be transferred, then the said stock shall be divided equally between them on a per capita basis.'[Italics supplied.]

A refusal of any two or more of said stockholders to agree on a reasonable price would compel the offering stockholder to accept the 'book value'.This limits the field to those who can purchase on that basis and then no sale could be effected unless such other stockholders consented to purchase at that value.

Section 62,Title 10, Code of 1940, provides inter alia: '* * * there shall be no restriction upon the transfer of shares so represented by virtue...