Americanized Finance Corporation v. Yarbrough

• Citation: 223 Ala. 266,135 So. 448
• Decision Date: 18 June 1931
• Docket Number: 6 Div. 753.
• Parties: AMERICANIZED FINANCE CORPORATION v. YARBROUGH.
• Court: Alabama Supreme Court

135 So. 448

223 Ala. 266

AMERICANIZED FINANCE CORPORATION v. YARBROUGH.

6 Div. 753.

Supreme Court of Alabama

June 18, 1931

Appeal from Circuit Court, Jefferson County; Romaine Boyd, Judge.

Action for money had and received by W. B. Yarbrough against the Americanized Finance Corporation. From a judgment for plaintiff, defendant appeals.

Reversed and remanded.

Hugh A Locke and F. V. Wells, both of Birmingham, for appellant.

Arlie Barber and Amzi G. Barber, both of Birmingham, for appellee.

THOMAS J.

The suit was for money had by the defendant for the use of the plaintiff. The pleas were the general issue and in short by consent.

The several assignments of error challenge the action of the court in ruling on the admission of evidence and giving and refusing requested charges.

The court instructed the jury, among other things, that, "in substance and effect, the plaintiff alleges in count one of the complaint that the defendant, by its agents, fraudulently represented to plaintiff that, if he would purchase the stock in question, the defendant would return the purchase money to the plaintiff upon the plaintiff returning or surrendering the stock to the defendant within a reasonable time thereafter; and that such representation was made by the defendant with no intention of complying with same, knowing at the time it would not be complied with, or recklessly with the intention of deceiving and inducing plaintiff to purchase the stock; and the plaintiff relied on said representation and was thereby induced to purchase said stock; that, thereafter, in a reasonable time, when plaintiff offered to return the stock and requested that the purchase money be returned to him, he discovered the fraud, and thereupon, promptly rescinded said sale. *** Some of the material questions for you to determine in this case are, among other things, what representation was actually made to the plaintiff. Did the defendant's agent represent to the plaintiff, as alleged, that the defendant would return the purchase money upon the plaintiff's returning and surrendering the stock to the defendant? If he did, within a reasonable time, did the agent of the defendant make that representation with no intention of complying with same, or knowing it would not be complied with, or recklessly, with the intention of deceiving and inducing the plaintiff to purchase the stock? If he did, then the further question, did the plaintiff rely on that representation? Was that a material inducement to him in purchasing the stock? And the further question, if there was fraud, and if the plaintiff discovered it, as stated, did he then rescind, if there was a fraudulent representation, as alleged, relied on by plaintiff? In order to recover in an action of this kind-this is not an action for breach of contract. This is an action for the recovery of money had by the defendant for the use of plaintiff; that is, fraud and rescission upon the discovery of the fraud. And, in order to recover, the law says that a person, upon discovering the fraud, must rescind; that is, he must offer to return what he had gotten in the sale. So, you will have for your consideration, among other things, whether or not there was a rescission or an offer to restore what he got under it to the defendant and offered to return the stock; or, if there was not, whether or not you are reasonably satisfied from the evidence that the defendant did not receive the return of the stock had it been so tendered."

Such were the issues of material fact submitted and determined by the jury and verdict for the plaintiff, for the amount sued for with interest thereon.

The witness Yarbrough, having detailed the facts or words of inducement incident to the purchase of the instant stock in the corporation, was asked: "Just tell the jury what other or further statements were made to you by these men with reference to refunding the money or taking back the stock."

To which he answered: "They said: 'That is all right. You can get it back.' They said: 'You can carry that to the bank and they will pay you the money on it, just throw it down in the bank and they will pay you the money on it, or carry it to the company.' *** They just told me Mr. Yeilding sent them up there; that is, W. J. The president of the corporation sent them there to get me to take that stock. This Mr. Yeilding here (indicating) told me that. He told me he was a nephew of his. Every time they came, they told me about getting my money back on the stock. I said: 'I am liable to need my money.' They said: 'You can get it any time; that is our plan; we pay it back.' 'Most of these companies,' I said, 'if I go to them, I am liable to have a suit against them.' 'No; we don't do that.' That is what I said. I said: 'I am liable to have to sue you.' 'No; we pay it back. When a man wants it, we give it to him; don't have to sue this company.' I got a hundred dollars and something back. Sixteen hundred is what it calls for."

In the admission of this evidence over the objection of defendant, there was no error; the question and answer were material to the issues of fact submitted to the jury. Appellant's brief says that "both plaintiff and defendant rely upon the evidence offered by plaintiff in support of their respective contentions."

The witness Yarbrough further stated that he made demand on rescission to Mr. Yeilding, the president of said company; was asked what Mr. Yeilding said to him, and was permitted to answer, over defendant's objection and exception: "I just went in and asked Mr. Yeilding about it. I told him I was needing the money, I had bought a farm and I wanted the money. He said: 'You can't get that money at all.' I said: 'What did you say,-can't get that money at all?' I said: 'Your agents told me I could get it any time, that was your plan, that when anybody called for the money, they could come in and get it.' *** He said: 'If you had come to me, I could have told you better."'

These statements were material and competent as to rescission and failure and refusal to return the purchase price under the alleged contract of purchase. And in this ruling there was no error.

The insistence of error in refusing the general affirmative instructions requested by defendant is without merit. The authorities need not be recited as to when such instructions may be given or refused. McMillan v. Aiken, 205 Ala. 35, 40, 88 So. 135.

The real question is presented by the refusal of defendant's requested written charge H and affirmative instructions refused. As to the refusal of charge H, it may be said that the office of certificates of stock in corporations is discussed in Randle v. Winona Coal Company, 206 Ala. 254, 89 So. 790, 19 A. L. R. 118, and Hall & Farley v. Alabama Terminal & Improvement Co., 173 Ala. 398, 56 So. 235. Under the last-cited decision there was no error in refusing charge H. It is only when a corporation purchases shares of its own capital stock in an attempt to discharge the liability of its original stockholders on unpaid subscriptions, by the use of assets of the corporation, that fraud upon its creditors is presumed; and in this respect it was declared that if it operates as a fraud on its creditors, that will be taken into account on due application of such creditors. The initial case of Hall & Farley, Trustees v. Henderson, 126 Ala. 449, 28 So. 531, 61 L. R. A. 621, 85 Am. St. Rep. 53, recognized the right of a corporation to buy in its capital stock, if such transaction of the corporation does not impair its ability to pay its debts, and held if it was not a fraud on its creditors, and did not involve the elements of an estoppel as affecting others subscribing for stock on the faith of such subscription in question, such purchases may be made.

In Hall & Farley, Trustees v. Alabama Terminal & Improvement Co., 143 Ala. 464, 481, 39 So. 285, 291, 2 L. R. A. (N. S.) 130, 5 Ann. Cas. 363, the court said of the purchase of its stock by a corporation: "Such a diversion of corporate property is, in respect of creditors, essentially a gift to the shareholders whose shares are purchased by the company, a purely voluntary transfer of corporate assets in fraud of corporate creditors, fraudulent and void as to creditors, and this, regardless of the intention actuating the company and the selling shareholders. 2 Morawetz on Corporations, §§ 789, 790, 793, 794; 2 Thompson on Corporations, § 2054 et seq.; Hall & Farley, Trustees v. Henderson, 126 Ala. 449, 480-482, 28 So. 531, 61 L. R. A. 621, 85 Am. St. Rep. 53, and authorities there cited."

And in Dacovich et al. v. Canizas, 152 Ala. 287, 293, 294, 44 So. 473, 474, it is observed:

"*** Under the facts stated, it was a purchase by the officers of the company, for the company. The court has said, under such a purchase, 'though perhaps binding inter partes, which, however, we do not here decide, it is very certain that it was voidable at the instance of creditors of the corporation.' Hall & Farley, Trustees, etc., v. Henderson, 126 Ala. 481, 28 So. 531, 61 L. R. A. 621, 85 Am. St. Rep. 53.

It is stated to be the general doctrine that a corporation may, in the absence of statutory prohibition, purchase and hold its own capital stock, provided it be done in good faith and works no injury to creditors or other stockholders. 7 Am. &amp Eng. Ency. Law, pp. 818-820. Again, it is stated that, while there is a difference of opinion in this country as to the right of a corporation to purchase its own stock, 'if the stockholders do not object there is no reason why the net profits of a corporation should not be applied to purchasing its stock, instead of being used for a dividend,' and that even in England, where the power is denied. 'if the sale is completed, the stock...