First Nat. Bank v. Forman

• Decision Date: 28 February 1935
• Docket Number: 7 Div. 280
• Citation: 230 Ala. 185,160 So. 109
• Court: Alabama Supreme Court
• Parties: FIRST NAT. BANK OF BIRMINGHAM v. FORMAN.

160 So. 109

230 Ala. 185

FIRST NAT. BANK OF BIRMINGHAM v. FORMAN.

7 Div. 280

Supreme Court of Alabama

February 28, 1935

Rehearing Denied March 28, 1935

Appeal from Circuit Court, Etowah County; J.H. Disque, Jr., Judge.

Bill for injunction by C.B. Forman against the First National Bank of Birmingham and others. From a decree overruling a demurrer to the bill and motion to dissolve the injunction, the named respondent appeals.

Affirmed.

Cabaniss & Johnston and K.E. Cooper, all of Birmingham, for appellant.

Horace C. Wilkinson, of Birmingham, for appellee.

KNIGHT Justice.

The bill in this cause was filed by C.B. Forman, appellee, on behalf of himself, and all other stockholders of the Gadsden Ice & Fuel Company, a corporation, "who care to join therein," against the Gadsden Ice & Fuel Company, T.G Jordan, Otto Agricola, J.R. McCleskey, and the First National Bank of Birmingham.

It is made to appear from the averments of the bill that the said Gadsden Ice & Fuel Company was organized under the laws of the state of Alabama on the 21st day of September, 1923, with an authorized capital stock of $100,000, divided into 1,000 shares. That the original incorporators were the complainant and J.R. McCleskey, Otto Agricola, and J.H. Lester; each of said parties owning 250 shares of the stock in said corporation.

As originally organized, the officers of the corporation were J.R. McCleskey, president and general manager; C.B. Forman, vice president; J.H. Lester, treasurer; and Otto Agricola, secretary; and said four named persons constituted the board of directors. Later, the said McCleskey resigned as president and as a member of the board of directors, and the said T.G. Jordan was elected to succeed the said McCleskey, both as president of the corporation, and as a member of the board of directors. Still later, the said C.B. Forman, appellee, owing to ill health retired as a director. This occurred in October, 1929, and at which time Otto Agricola, T.G. Jordan, and J.R. McCleskey were elected directors to serve for the ensuing year; and that in said month of October, 1929, the said T.G. Jordan was elected president, and the said McCleskey and Agricola were elected vice president and secretary, respectively, of said corporation, and have continued in their respective corporate offices since that date to the present time.

No dividends on the stock of the Gadsden Ice & Fuel Company have been paid since the 1st day of September, 1928, and the bill avers that: "The failure to pay dividends was declared by the officers and directors to be because of business conditions and the inability of the corporation to earn sufficient profits to pay dividends; that complainant accepted said statement as true and relied thereon ***."

It appears from the bill that the directors and officers of said corporation have been guilty of many wrongs in the management of the affairs of the corporation; that they have paid to Jordan, the president of the corporation, grossly excessive salaries, voting to him a bonus during each of the years 1929, 1930, 1931, 1932, and 1933, to the amount of many thousand dollars, when the condition of the company would not justify it.

It is averred in the bill that in 1929 the complainant borrowed a large sum of money from the First National Bank of Birmingham, and "delivered to the said bank a promissory note evidencing his indebtedness, together with a stock certificate evidencing his ownership of 333 1/3 shares of the capital stock of the Gadsden Ice and Fuel Company, 60 shares of stock in the Attalla Bank and to-wit, 120 shares of the capital stock of the First National Bank of Gadsden, Alabama, as collateral security for said loan."

It is further made to appear that the complainant, from time to time, made payments on said note, and that at the time of the filing of the bill the principal sum had been reduced to $28,500.

It is also averred in the bill: "That during the period of time the bank has held said note and said stock, it has been familiar with the conditions and affairs of the Gadsden Ice and Fuel Company; that it learned of the wrongful, illegal and fraudulent acts of T.G. Jordan, Otto Agricola and J.R. McCleskey herein complained of several months ago, and failed or neglected to inform complainant of said situation or to disclose any information about the same to complainant and failed and neglected to take any steps or action to protect complainant's rights under his said 333 1/3 shares of stock held by it as collateral security, and neglected and failed to take any steps towards recovering the amount said stock was entitled to receive as dividends from the Gadsden Ice and Fuel Company, when appropriate action on its part would have resulted in a dividend on said stock approximately equal to complainant's indebtedness to said bank. And complainant further avers that said bank has recently conspired or colluded with the said Otto Agricola, or the said T.G. Jordan, or both of them, to cause complainant to lose his said 333 1/3 shares of stock held by said bank as collateral security, and has agreed with them in acquiring said stock, either by foreclosing its pledge on said stock, in such way as that they may purchase it for the amount of complainant's debt, or by a sale of complainant's said note with stock attached, so they can foreclose the same and purchase it, although appropriate action on its part would have long since resulted in said bank having been paid or practically paid its indebtedness, and said stock being saved for complainant. And complainant is informed and believes and therefore charges and states on such information and belief that the said T.G. Jordan or the said Otto Agricola, or both of them, are now arranging to acquire, and that they, or one of them, will acquire said 333 1/3 shares of stock pledged by complainant to said bank as collateral from said bank, unless restrained from so doing by an appropriate order of this court."

In paragraph 19 of the bill it is averred: "Complainant further avers that he is advised, informed and believes and on such advice, information and belief charges and states that the first National Bank of Birmingham, Alabama, is colluding with the said T.G. Jordan, and said Otto Agricola to enable them to acquire complainant's stock in the Gadsden Ice and Fuel Company, in an effort to coerce complainant in abandoning his claim against the Gadsden Ice and Fuel Company, the said T.G. Jordan, the said Otto Agricola and the said J.R. McCleskey, or to force him to dispose of his stock in the Gadsden Ice and Fuel Company for a sum greatly less than its value."

The prayer of the bill, among other things, was for a decree directing the said Jordan, Agricola, and McCleskey to restore to the corporate treasury of the said Gadsden Ice & Fuel Company the moneys wrongfully paid out or appropriated by them; that a lien be decreed upon their stock to secure the payment of said money, and the stock sold to satisfy the said lien; "that the court will order that, upon said sum being paid into the corporate treasury, it be immediately disbursed to the stockholders of said corporation as a dividend on their holdings in said corporation, and the sum paid on complainant's stock as a dividend be paid over to the First National Bank of Birmingham, Alabama, and by it credited upon complainant's indebtedness to said bank, and if the amount thereof does not equal or exceed the amount of complainant's indebtedness to said bank, that complainant be allowed to pay the balance due, and redeem his said stock." "And the complainant submits himself to the jurisdiction of the court, and offers to do equity towards all parties respondent to this bill ***."

The judge of the circuit court, on presentation to him of this bill, which was duly sworn to, granted a temporary injunction as prayed, enjoining and restraining the First National Bank of Birmingham from disposing of the 333 1/3 shares of stock of the Gadsden Ice & Fuel Company issued to the complainant, and by him pledged to the said bank, until the further orders of the court. The court also granted a temporary injunction against the Gadsden Ice & Fuel Company, its officers, agents, attorneys, and employees, from paying to the said T.G. Jordan any sums of money until the further orders of the court, and also directed the issuance of a temporary injunction restraining the said T.G. Jordan, Otto Agricola, and J.R. McCleskey, and each of them, from acquiring the said 333 1/3 shares of stock of the Gadsden Ice & Fuel Company, issued to the complainant.

The First National Bank of Birmingham duly appeared, and demurred to the bill of complaint, and "to each paragraph thereof, separately and severally," and also filed answer to the bill, and moved the court to dissolve the injunction issued against it.

The particular grounds of the motion here insisted upon are (1) that there is no equity in the bill, and (2) the denials of the answer.

The court, on submission on demurrer and motion of the First National Bank of Birmingham, overruled the demurrer and also the motion to dissolve the injunction issued against the bank. From this decree, which was rendered after notice, the present appeal is prosecuted.

On this appeal, we are only concerned with the bill as it affects the rights of the appellant the First National Bank of Birmingham and Dr. Forman.

We entertain no doubt of the equity of the bill as against the respondents the Gadsden Ice & Fuel Company, T.G. Jordan, Otto Agricola, and J.R. McCleskey.

A court of equity will assume jurisdiction at the suit of a stockholder to correct abuses in the corporate management by the board of directors, whether the abuse consists in improperly increasing their own salaries...