Cole v. Birmingham Union Ry. Co.

• Decision Date: 11 May 1905
• Citation: 143 Ala. 427,39 So. 403
• Parties: COLE v. BIRMINGHAM UNION RY. CO. ET AL.
• Court: Alabama Supreme Court

39 So. 403

143 Ala. 427

COLE v. BIRMINGHAM UNION RY. CO. ET AL.

Supreme Court of Alabama

May 11, 1905

Appeal from Chancery Court, Jefferson County; John C. Carmichael Chancellor.

Suit by Charles M. Cole against the Birmingham Union Railway Company and others. From a decree dismissing the bill, complainant appeals. Affirmed.

The bill in this case was filed by appellant, who avers himself to be the owner of 75 shares of the capital stock of the Birmingham Union Railway Company, and seeks to set aside a transfer of the assets of said corporation, alleged to have been made in 1891, to the Birmingham Railway & Electric Company. The bill further seeks to set aside another transfer of the assets of the corporation made by said Birmingham Railway & Electric Company in February, 1893, to the Birmingham Railway, Light & Power Company, an Alabama corporation. It is shown that in each sale, the assets of the vendor corporation were paid for by issuing stock of the vendee corporation to the owners of stock of the vendor corporation. The complainant alleges that he did not assent to either of these transactions; that each of the sales was ultra vires; and as to him were and are void. The bill further alleges that complainant bought his stock in April 1890, and that it is now of great value, and has earned large dividends since said sales. That under and by virtue of the several consolidations that were effected by the sales described in the bill, the several corporations, to wit: the Birmingham Railway & Electric Company, and the Birmingham Railway, Light & Power Company, have executed several series of bonds secured by mortgages on all the properties attempted to be consolidated by them, including the property of the Birmingham Union Railway Company; and that the property of the Birmingham Union Railway Company, included in said mortgage, is the most valuable portion of the property attempted to be mortgaged by the said Birmingham Railway &amp Electric Company, and by the said Birmingham Railway, Light &amp Power Company. The bill further alleges that the owners and purchasers of the said bonds took the same with full knowledge of the invalidity of the said securities as far as the property of the Birmingham Union Railway Company is concerned. The bill further avers that complainant is, and at all times has been, a resident of the state of Tennessee, and that he was not aware of the true condition of matters until within the last few months. It is further stated that said Birmingham Union Railway Company has had no meeting of its stockholders since 1893. The bill alleges further that the facts and circumstances connected with the consolidation of said several companies are wholly within the knowledge of the parties who have manipulated the same; that complainant has made diligent efforts to ascertain the details of said transactions, but has been unable to procure the books of the company showing the same, if they are shown by said books, or to elicit any information from said parties having knowledge thereof. A copy of the charter of the Birmingham Union Railway Company; a copy of an act of the Legislature of Alabama, entitled "An act to confirm, amend and enlarge the charter of the Birmingham Railway & Electric Company, and to ratify and confirm the consolidation of the Bessemer & Birmingham Railroad Company with other corporations therein named" (Acts 1890-91, p. 584); a copy of an act of the Legislature conferring additional powers on the Birmingham Railway & Electric Company (Acts 1892-93, p. 794), were attached as exhibits to the bill. The Birmingham Union Railway Company, the Birmingham Railway & Electric Company, the Birmingham Railway, Light & Power Company, and the trust companies, acting as trustees under said several mentioned mortgages, are made parties defendant. The bill prays for the appointment of a receiver to take charge of all the assets of the Birmingham Union Railway Company, and that the Birmingham Railway, Light & Power Company be ordered to surrender and transfer such assets to said receiver; and that the mortgages executed since said alleged consolidation be set aside and held for naught in so far as they affect the rights and property of the Birmingham Union Railway Company; and for an accounting by the several defendants of the assets of the Birmingham Union Railway Company which have come into their respective hands. The defendants demurred to the bill on the ground of the laches of the complainant.

John F. Martin and A. Latady, for appellant.

Walker, Tillman, Campbell & Walker, for appellees.

HARALSON J.

The defense relied on is, that having delayed for more than ten years in seeking relief, allowing conditions to change, and the rights of third parties to intervene, defendant is barred by his laches, of any relief prayed.

The question of laches as applicable to this case, has been so often considered and approved by this and other courts and law writers, as to leave nothing new to be originated on the question. It will suit our purposes as well, if not better therefore, to refer to some of these authorities bearing directly on the case, and repeat the language employed in some of them found to be applicable. In the case of Rabe v. Dunlap, 51 N. J. Eq. 40, 25 A. 959, in point in many of its phases, it is said: "But stockholders, to be entitled to the summary interference of the court in cases where they seek protection against acts which are merely in excess of the powers of the corporation, and are not prohibited by law, must be diligent. They must apply so recently after the doing of the act of which they complain that the court may stop or undo the wrong to them without doing equal or greater wrong to some other person. The principle which must control the action of a court of equity in cases where the defense is laches, was laid down by Lord Camden many years ago in these words: 'Nothing can call forth the activity of a court of equity but conscience, good faith and reasonable diligence. Where these are wanting, the court is passive, and does nothing. Laches and neglect are always discountenanced, and, therefore, from the beginning of this jurisdiction, there was always a limitation to suits in equity.' Smith v. Clay, reported in a note to Delvraine v. Brown, 3 Brown, Ch. 639, 2 Amb. 645. This principle, as it is applied to stockholders who are tardy in seeking protection against acts ultra vires of the corporation, was expressed by Sir John Romilly, master of the rolls, in Gregory v. Patchett, 33 Beav. 595, 602, in this form: 'Shareholders cannot lie by, sanctioning, or by their silence at least acquiescing in, an arrangement which is ultra vires of the company to which they belong, watching the result--if it be favorable and profitable to themselves, to abide by it, and insist upon its validity; but, if it prove unfavorable and disastrous, then to institute proceedings to set it aside.' And Lord Justice Turner's statement of the rule is equally pertinent to the case in hand. In Great Western Ry. Co. v. Oxford, W. & W. Ry. Co., 3 De Gex, M. & G. 341, 359, he said: 'Where the summary interference of this court is invoked, in cases of this nature, it must be invoked promptly. Parties who have lain by, and permitted a large expenditure to be made, in contravention of the rights for which they contend, cannot call upon the court for its summary interference. The jurisdiction to interfere is purely equitable, and it must be governed by equitable principles. One of the first of those principles is that parties coming into equity must do equity, and this principle more than reaches to cases of this description. If parties cannot come into equity without submitting to do equity, a fortiori, they cannot come for the summary interference of the court when their conduct before coming has been such as to prevent equity being done.' The cases in which this principle, as it is applied to stockholders, has been discussed are numerous. The doctrine they establish is, that where an act is done openly, and especially on notice, and without evil intent, though clearly in excess of the power of the corporation, a nonassenting stockholder will not be allowed to pause to speculate upon the chances--to wait until he can see whether such act is likely to result in profit or loss--but, to be entitled to the summary interference of the court, he must ask for it promptly, and before the act of which he complains has become the foundations of rights or equities which must be destroyed, or greatly impaired, if the act be nullified or undone. Or, stated with greater brevity, and in its simple essence, the rule is this: If he wants protection against the consequences of an ultra vires act, he must ask for it with sufficient promptness to enable the court to do justice to him without doing...