Ex parte R.A. Brown & Co.

• Decision Date: 10 October 1940
• Docket Number: 6 Div. 707.
• Citation: 240 Ala. 157,198 So. 138
• Court: Alabama Supreme Court
• Parties: EX PARTE R. A. BROWN & CO.

198 So. 138

240 Ala. 157

EX PARTE R. A. BROWN & CO.

6 Div. 707.

Supreme Court of Alabama

October 10, 1940

Original petition of R. A. Brown & Company for mandamus to J. Fritz Thompson, as Judge of the Circuit Court, Jefferson County requiring him to enter an order transferring from the law side to the equity side of said Circuit Court the cause entitled The Forum, Inc., Plaintiff v. R. A. Brown & Company Inc., Defendant.

Mandamus awarded.

Wm. S Pritchard and David R. Solomon, both of Birmingham, for petitioner.

D. H. Markstein, Jr., and J. J. Cocciardi, both of Birmingham, for respondent.

FOSTER, Justice.

This is an original proceeding to review the action of the circuit court in refusing to transfer an action at law to the equity docket on motion of defendant. The suit is by "The Forum, Inc.," a corporation, and is against R. A. Brown and Company, a corporation, on the common counts for money had and received.

The answer of the trial judge to the rule nisi shows that on hearing the motion to transfer, the facts on which the motion is based, as he analyzed them, are briefly that in 1938, E. J. Miller, an agent for defendant, a real estate broker, and three others, Fiore, Rumore and Paradiso, conspired to defraud a corporation which the last three men, above named (whom we will here call the promoters), proposed to incorporate having other stockholders who would be the ultimate victims of the fraud. The promoters would act by using defendant's name as a conduit for the purchase of an item of real property, making an advance payment with money loaned the plaintiff corporation by them. The purchase was to be at one figure and the sale to the corporation was at another and larger figure. The corporation was formed with said promoters as principal officers, but with other innocent stockholders. The three men named above with Miller thus undertook to defraud their own corporation, so as to make the loss extend to the innocent stockholders. The contract was between plaintiff however and defendant. Pursuant to it, plaintiff paid defendant $7,500, all of which was paid out under the direction of the promoters, except $750, as a fair commission to defendant for its services as a broker.

The plaintiff corporation discovered the fraud before the scheme was consummated, rescinded the transaction and sued defendant for the $7,500 on the common counts.

Upon the theory that it has a remedy in equity in this situation, not available at law, defendant moved to transfer the cause to equity as we have stated. If this respondent has any rights on account of that situation, they are not available at law.

The suit is by a corporate entity to redress a wrong done it as such. The fact that its principal officers are alleged to be the chief perpetrators of the wrong does not deprive the corporation from maintaining an action against them and all others who participated in it or who are responsible for it. This power to maintain a suit at law is emphasized by the fact that some of the stockholders are supposed to be innocent of any wrong, and are those on whom the burden of it would most heavily fall. This theory is fully supported by the case of Davis v. Las Ovas Co., 227 U.S. 80, 33 S.Ct. 197, 57 L.Ed. 426, cited by the trial judge in his answer to the rule nisi. So that if defendant has any right it is available in equity only.

We inquire into equity remedies to determine if there is any available. Sometimes for one purpose or another a court of equity will declare a corporate set up as a sham or subterfuge where substantially all of its stockholders organized it for a personal purpose, subversive of the rights of others. Appelbaum v. First National Bank, 235 Ala. 380, 179 So. 373; Christian & Craft Grocery Co. v. Fruitdale Lumber Co., 121 Ala. 340, 25 So. 566; Felsenthal Co. v. Northern Assurance Co., 284 Ill. 343, 120 N.E. 268, 1 A.L.R. 602, note page 611; Western Securities Co. v. Spiro, 62 Utah 623, 221 P. 856, 859.

There was no such corporation here involved. But it was the corporation itself which it is alleged the promoters sought to defraud. That apparently included themselves as being thereby adversely affected as a part of the scheme to put the larger part of the burden on other and unsuspecting stockholders to be inveigled into the trap. On such a state...