Carey v. Dalgarn Const. Co., Inc.

• Decision Date: 02 July 1930
• Docket Number: 30694
• Citation: 130 So. 344,171 La. 246
• Court: Louisiana Supreme Court
• Parties: CAREY v. DALGARN CONST. CO., Inc.

130 So. 344

171 La. 246

CAREY v. DALGARN CONST. CO., Inc.

No. 30694

Supreme Court of Louisiana

July 2, 1930

Rehearing Denied October 7, 1930

Appeal from Civil District Court, Parish of Orleans; M. M. Boatner Judge.

Suit by Thomas Carey against Dalgarn Construction Company, Inc. Judgment for defendant, and plaintiff appeals.

Affirmed.

J. C Henriques and Frank T. Doyle, both of New Orleans, for appellant.

Denegre, Leovy & Chaffe and Hubert M. Ansley, all of New Orleans, for appellee.

OPINION

THOMPSON, J.

This is an application by one of the three stockholders of the Dalgarn Construction Company, Inc., to have a receiver appointed under the provisions of Act No. 159 of 1898, and, in the alternative, for an involuntary dissolution of said corporation, and a judicial liquidation under the provisions of Act No. 250 of 1928.

The principal ground on which the application is made, is that the other two directors and stockholders have grossly mismanaged the affairs of the corporation, have misused, misapplied, and dissipated the funds to such an extent as to jeopardize and endanger the rights and interests of petitioner as a minority stockholder.

It is alleged that the two stockholders and directors have voted and paid themselves exorbitant salaries which were out of proportion to the services rendered and which was not justified by the work performed by them; that they have voted and paid themselves other funds out of the assets of said corporation which were not due them and which they had no right to. That they are gradually dividing between themselves the surplus funds of the corporation and in that manner liquidating the company in such a way that they will get all of the assets and petitioner will get nothing.

That said two stockholders have drawn $ 35 each per week, which had been allowed by resolution and which was to be carried on the books as "overhead," but at the end of the year to be deducted from the salaries received by them. That instead of charging such weekly payments to their salary account they have charged the same to profit and loss.

It is further alleged that L. M. Dalgarn, president of the corporation, did illegally and unlawfully charge said company and received from the funds of said company the sum of $ 21,120 as a commission for alleged services rendered the company by him in financing the work performed under a contract which the company had for certain work on the docks in the city of New Orleans.

These are substantially the major charges set out in the petition. There are some less important charges made, such as incompetency to manage the affairs of the corporation and failure to keep a proper set of books and accounts and the useless purchase of automobiles, etc.

The answer denies the general charge of mismanagement and misuse of the corporate funds by the two stockholders and directors, but admits that the two directors received the $ 35 per week each under the resolution in addition to the salaries, and that said amount was charged to profit and loss instead of being deducted from the salaries, as was provided in the resolution. It is alleged that it was understood at the time the salaries were fixed that the weekly sums should be paid in lieu of general expenses incurred in an endeavor to obtain business for the company.

It is denied that the salaries of the two directors were steadily increasing, and it is alleged that the salaries are the same as they were in the year 1927.

It is admitted that L. M. Dalgarn received from corporate funds the sum of $ 21,120, but it is alleged that said amount was authorized to be paid said L. M. Dalgarn for his services and aid in procuring the funds and credit for the material necessary to carry on and complete the contract then being executed by the company, which commission thus allowed and paid said Dalgarn amounted to about one-third of the profits made on the contract and was reasonable, proper, and customary compensation for the assistance rendered the company.

It is alleged that all of the work of the company had to be performed by the two directors after Carey had abandoned his work and ceased to have anything to do with the company.

The petition and two supplemental petitions contain twelve typewritten pages, and the answer contains a like number of pages. We have stated substantially, however, the main issues between the parties.

After a hearing the district judge rejected the demand of the plaintiff for a receiver or liquidator, but reserved to the plaintiff all such rights as a minority stockholder or the corporation may have against the two directors to set aside and recover or reduce the allowance made by way of salary, bonus, or for expenses, received by them.

The corporation was organized in 1919 with a capital stock of ninety-nine shares of the par value of $ 100 each. An equal amount of said stock was allotted to L. M. Dalgarn, his son J. R. Dalgarn, and to Thomas Carey. The three constituted the board of directors, with L. M. Dalgarn, president; Thomas Carey, vice president; and J. R. Dalgarn, secretary and treasurer. Their respective salaries were originally fixed at $ 7,000 per year. This salary was reduced at various times before Carey withdrew from any active management or work in the corporation on October 2, 1926.

Some differences arose between Carey and the other two directors early in 1924, but at a meeting on August 29, 1924, these differences were apparently satisfactorily arranged, and the affairs moved along smoothly until the withdrawal of Carey in October, 1926.

At the meeting in August, 1924, Carey and J. R. Dalgarn were each allowed a drawing account of $ 35 per week in addition to their salaries, the same to be carried on the books as "overhead," but to be charged each year to any amounts due them on their salaries. A like amount was drawn per week by L. M. and J. R. Dalgarn after Carey discontinued active participation in the affairs of the corporation, but, instead of deducting such amount each year from their salaries, the same was entered as "profit and loss."

After Carey severed his active connection with the company the remaining two directors fixed their salaries as follows: J. R. Dalgarn $ 8,400 per year, and L. M. Dalgarn $ 7,200 per year, or a total for the two of $ 15,600, which was $ 5,400 less than the aggregate original salaries of the three.

It is conceded by the plaintiff that the company did a successful business from the beginning of operations up till the time he quit the company and engaged in the same kind of business for himself.

And it is admitted by all parties that the corporation was perfectly solvent at the time the present application was filed.

Some time in the early part of 1926 the company obtained a contract for the construction of the Poydras and Girod street wharves from the commissioners of the Port of New Orleans at the price of $ 528,000. The work on this contract commenced sometime in the summer of 1926, Carey was in active charge of this work and continued until October of that year when he quit. The work was then a little more than one-third completed. The two remaining directors completed the work, and a net profit was made on the contract of about $ 78,000 according to plaintiff's statement and about $ 71,100 according to defendant's statement.

It is shown that, in order to finance the contract just mentioned, the company borrowed from the Canal Bank the sum of $ 50,000 for which the company's note was executed indorsed by the three directors personally. In addition to his indorsement, Carey put up as collateral certain mortgage paper of his own.

After Carey withdrew from active service in the company he demanded the return of his mortgage paper and that...