Hayes v. Belleair Development Co.

• Decision Date: 01 July 1935
• Citation: 162 So. 698,120 Fla. 326
• Parties: HAYES v. BELLEAIR DEVELOPMENT CO. et al.
• Court: Florida Supreme Court

162 So. 698

120 Fla. 326

HAYES v. BELLEAIR DEVELOPMENT CO. et al.

Florida Supreme Court, Division B.

July 1, 1935

Suit by the Belleair Development Company and others against Lucy P Hayes, as executrix of the estate of Rutherford P. Hayes deceased. From an adverse order, defendant appeals.

Reversed. Appeal from Circuit Court, Pinellas County John U. Bird, judge.

COUNSEL

Jackson Dupree & Cone, of Tampa, and Gage & Polhill, of Clearwater, for appellants.

D. G. Haley, of Sarasota, and Ed S. Whitson, of Clearwater, for appellee Belleair Development Co.

Kelly & Casler and W. H. Wolfe, all of Clearwater, for appellee Pinellas Properties Inc.

OPINION

TERRELL Justice.

Appellee Belleair Development Company was incorporated in 1924 by Carley, Conklin, and Kelly for the purpose of buying and selling real estate. The parties so named owned a majority of the stock, were the officers of, and constituted the board of directors of, the corporation. Rutherford P. Hayes purchased 780 shares of stock in said corporation, and in June, 1925, commenced a suit in equity against it, alleging as a postulate therefor fraud, mismanagement, and wrongdoing in the management of its affairs. This suit was settled and dismissed by compromise in April, 1926. By the terms of the settlement, Belleair Development Company agreed to purchase Hayes' stock in the company for $78,000, paying him $5,000 cash and two promissory notes for $36,500 each. Hayes retained the stock as security for payment of the notes and dismissed his suit. The first note was paid with interest July 1, 1926, but the second note has never been paid. Hayes died testate July 31, 1927, and his wife, Lucy P. Hayes, the appellant, was named and qualified as his executrix.

In August, 1928, Carley and Conklin were ousted as officers and directors of the corporation, and a new board of directors and officers were elected in their stead. Soon after their election and qualification, in December, 1928, the new officers repudiated the agreement and settlement made in April, 1926, between Rutherford P. Hayes and the corporation and filed a claim against Lucy P. Hayes, as executrix, demanding that she return to the corporation all moneys paid her intestate pursuant to said settlement. This demand was refused. No further steps were taken until September, 1931, when the bill of complaint was filed in this cause praying for cancellation of said agreement, accounting, and for return to the corporation by Lucy P. Hayes as executrix of the estate of Rutherford P. Hayes of all funds paid to the latter by virtue of said agreement. The bill of complaint was later amended, a motion to dismiss was denied, and this appeal is from that order.

It is contended here that the statute of limitations had run against the claim sued for, that, if a valid claim ever existed in favor of complainant, it is barred by laches; that this suit cannot be maintained because the parties cannot now be restored to their status quo ante; that complainant has not offered to do equity; and that the allegations of the bill do not trace the fund sued for into the hands of the defendant.

In our view, the bill of complaint fails to state a cause of action. It is grounded on the theory that the money paid by complainant to Rutherford P. Hayes was a trust fund for the benefit of creditors of the corporation. It was paid him in April and July, 1926, and this suit was not filed until September, 1931, more than five years later. Relative to possession and location of the amount claimed, the bill merely alleges that the estate of Hayes is solvent and was appriased at a sum larger than the amount paid him for the stock. In view of the lapse of time the death of Hayes, and other shifts and changes affecting the subject-matter that may have taken place in the meantime, an allegation of such general character fails completely to trace the alleged trust fund into the hands of the defendant or to in any way bind her to restore it.

Complainant in its bill of complaint rested its case on the so-called trust fund doctrine; that is to say, a rule of equity whereby all the assets of an insolvent corporation pass to the receiver to be equitably distributed among the innocent creditors of the corporation. State v. Associated Packing Co., 210 Iowa, 754, 227 N.W. 627. Under this rule, when a court of equity takes into its possession the assets of an insolvent corporation, it will administer them on the theory that in equity they belong to the creditors and shareholders, rather than to the corporation itself. United States of America v. Butterworth-Judson, 269 U.S. 504, 46 S.Ct. 179, 70 L.Ed. 380.

The trust fund doctrine as thus stated has been approved and is followed in many states and was incorporated into the law of this state by chapter 10096, § 43, Acts 1925, section 6569, Compiled General Laws 1927. It had not been approved nor followed here prior to this act. Gray v. Standard Dredging Co., 109 Fla. 87, 111 Fla. 149, 149 So. 733. Appellee having been organized under the law as it existed prior to the enactment of chapter 10096, Acts 1925, its assets were not a trust fund in the hands of its officers, but could become such only when taken in hand by a court of equity for administration which has not yet been done.

Much was said in the briefs of counsel in condemnation of the agreement between the corporation and Rutherford P. Hayes, the point being that it amounted to a purchase by the corporation of its own stock which was unauthorized.

A few states have enacted statutes forbidding corporations from purchasing their own stock. Where such statutes are in force, the courts have uniformly held agreements in violation of them to be void abinitio and subject to rescission at the suit of the corporation itself, whether solvent or insolvent. Duddy-Robinson Co. v. Taylor, 137 Wash. 304, 242 P. 21; Darnell-Love Lumber Co. v. Wiggs, 144 Tenn. 113, 230 S.W. 391.

The weight of authority appears to be that, unless forbidden by charter or statute, a corporation is at liberty to purchase shares of its own stock. If such purchases are made when the corporation is insolvent, regardless of the rights of creditors and stockholders therein, we have found no case wherein a court, as between the stockholders making the sale and the corporation, has held them invalid and subject to avoidance at the suit of the corporation. Republic Life Ins. Co. v. Swigert, 135 Ill. 150, 25 N.E. 680, 12 L. R. A. 328; Medical Arts Building Co. v. Southern Finance & Development Co. (C. C. A.) 29 F. (2d) 969; Fletcher on Corporations, vol. 2, p. 2104.

The Corporation Act of 1925 (chapter 10096, § 8, Acts 1925 Florida, section 6534, Compiled General Laws 1927) in terms prohibits a corporation from purchasing shares of its stock. Whether section 4086, Revised General Statutes 1920, section 6015, Compiled General Laws 1927, or any other law in force prior to the adoption of the Corporation Act of 1925 prohibited, or amounted to a prohibition on, a corporation from purchasing shares of its stock, is unnecessary for us to...