Holcomb v. Forsyth

• Decision Date: 26 May 1927
• Docket Number: 6 Div. 853
• Citation: 216 Ala. 486,113 So. 516
• Parties: HOLCOMB et al. v. FORSYTH.
• Court: Alabama Supreme Court

113 So. 516

216 Ala. 486

HOLCOMB et al. v. FORSYTH.

6 Div. 853

Supreme Court of Alabama

May 26, 1927

Rehearing Denied June 30, 1927

Appeal from Circuit Court, Jefferson County; William M. Walker Judge.

Bill to restrain dissipation of corporate assets by A.R. Forsyth against J.H. Holcomb, Jr., the Britling Cafeteria Company Inc., and L.G. Mason. From a decree denying motions to dissolve temporary injunction, respondents appeal. Affirmed.

E.L. All, John S. Coleman, and Bradley, Baldwin, All & White, all of Birmingham, for appellants.

Horace C. Wilkinson, of Birmingham, for appellee.

BROWN J.

This bill was filed by the appellee Forsyth, a minority stockholder in the Britling Cafeteria Company, Inc., in his own behalf and the behalf of all other minority stockholders who may desire to join therein, against Holcomb, the majority stockholder, Mason, and the corporation, to restrain the alleged maladministration of the corporate affairs and a dissipation and wasting of the corporate assets. On the filing of the bill, a temporary injunction was granted in accordance wth its prayer, and, on the coming in of the answer, the respondents, appellants here, submitted their separate motions to dissolve the temporary injunction for want of equity in the bill and on the denials of the answers and on the hearing the circuit court denied these several motions, and from that decree this appeal is prosecuted.

On motion to dissolve an injunction on the ground that the bill is wanting in equity, the court considers the substance of the averments--the facts stated--not the form of the bill, the manner of stating the facts nor the specific relief prayed, and all amendable defects are treated as amended. Chambers et al. v. Alabama Iron Co., 67 Ala. 353.

And, when the motion is grounded on the denial in the answer, the allegations of the bill will be taken as true, unless self-contradictory, or positively denied, and matters in avoidance will not be considered. Moses v. Tompkins (Moses v. Woodson) 84 Ala. 613, 4 So. 763.

In considering the question of dissolution on the denials of the answer, the court is invested with a wide discretion, and will weigh the relative degree of injury or benefit to the respective parties which may ensue from the maintenance of the injunction on the one hand or its dissolution on the other, and especially so where the discretion of the lower court has been apparently exercised without abuse. Harrison v. Yerby, 87 Ala. 185, 6 So. 3; Profile Cotton Mills v. Calhoun Water Co., 189 Ala. 181, 66 So. 50.

The bill as last amended, in so far as is material to the questions now presented, avers, in substance:

That the Britling Cafeteria Company, Inc., is a domestic corporation engaged in the business of operating three cafeterias at which food is served to the public for cash consideration, and is doing a profitable business, with a profit of $6,000 per month. That the capital stock consists of 500 shares of preferred stock, with a par value of $100 per share, drawing interest at the rate of 7 per cent. per annum and 1,000 shares of common stock of no par value. The preferred stock is without right to participate in the management of the affairs of the corporation unless default is made in the payment of the interest, and no such default has occurred.

The common stock, which controls the business policies of the corporation, as appears from the books of the corporation, is held as follows: Holcomb, 508 shares, Forsyth, 310 shares, Krug, 180 shares, Kidd, 1 share, and Mason, 1 share, but in truth and in fact Holcomb owns the shares standing on the books in the name of Kidd and Mason. That said shares of Kidd and Mason were transferred to them by Holcomb without any valuable consideration for the purpose of having Kidd serve as vice president and Mason as a member of the board of directors, and as such director to carry out such policies as may be initiated and dictated by Holcomb. That Holcomb is the president of the corporation, and Holcomb, Mason, and Krug constitute the board of directors. That in truth and in fact the said P.C. Kidd and said L.G. Mason are what is commonly known as "dummy stockholders," and are holding their stock at the pleasure of the said Holcomb. That Holcomb dominates and controls the majority of the directors and the business transacted by the directors and the voting of the stock held by Kidd and Mason. That the defendant corporation, acting through said Holcomb as its president, so circumstanced, has undertaken and proposes to expend large sums of money in enlarging and expanding its business, which is wholly unnecessary and ill-advised, "and will in truth and in fact amount to a waste of the corporate assets, and has retired or redeemed a large block of the preferred stock of the corporation in advance of its maturity.

That said individual defendants, Holcomb and Mason, acting as the majority of the board of directors, over the protest of the minority, amended the by-laws of the corporation authorizing the consolidation of the offices of president and treasurer, and making the president ex officio general manager, with large powers in respect to the conduct of the corporate business, and authorizing the consolidation of the office of vice president and secretary. At the same meeting of the board of directors, said Holcomb and Mason as such majority, and over like protest, ratified, among other acts, that of Holcomb in redeeming and retiring the 100 shares of preferred stock in advance of its maturity, ratified the act of Holcomb as president in taking out insurance on his life in the amount of $25,000 payable to his estate, and transferred to the corporation the premiums to be paid by the corporation.

At the same meeting of the board, and in like manner, a resolution was passed fixing the salary of the president at $15,000 per year, payable monthly in installments of $1,250, and fixing the salary of the secretary at $1,200, per year payable in monthly installments of $100 per month, and electing Holcomb as president and Mason as secretary.

At this same meeting motion was made by Mason that a special meeting of the stockholders be called "for the purpose of considering, approving, rejecting, or taking action upon the amendment of the by-laws of the corporation adopted by the directors at this meeting and upon the adoption of the same by the directors." This motion, like other matters above recited, was adopted by Holcomb and Mason voting in the affirmative and Krug in the negative.

At the same meeting of the directors, Krug in behalf of himself and the complainant Forsyth, made "formal demand upon the board of directors *** to declare a dividend out of the funds on hand and available for that purpose," but it appears that the meeting adjourned without action on this demand.

At the special meeting of the stockholders following, the action of the board in amending the by-laws was then ratified, the stock of Holcomb and Mason voting for confirmation and that of Krug voting in the negative.

"Complainant further avers that the diversion and conversion of the corporate funds above eferred to, by J.H. Holcomb, Jr., the election of himself as president at a salary of, to wit, $1,250 per month, and the election of L.G. Mason as secretary of the corporation at a salary of $100 per month, which is in turn, according to information and belief of complainant, paid over to said J.H. Holcomb, Jr., and the proposed expenditure of corporate funds for the proposed extension referred to, and the retirement of the preferred stock six months in advance of its retirement date, are all part of a plan or scheme on the part of the said J.H. Holcomb, Jr., to defraud the stockholders of said corporation out of the dividends to which they are entitled from the net earnings of said corporation. Complainant further avers that the salary voted J.H. Holcomb, Jr., by himself, is exorbitant, unreasonable, and unfair, and so grossly excessive as to constitute a fraud against the minority stockholders; that his services are not reasonably worth one-third of said amount; that said salary is greatly in excess of any sum ever paid said Holcomb prior to the action above referred to; that the said Holcomb was without experience in the cafeteria business prior to his connection with the respondent corporation; that the payment of said sum to said J.H. Holcomb, Jr., for salary constitutes a fraud on the stockholders and a fraud on the creditors of the corporation, and is in truth and in fact a diversion and waste of the corporate assets; that the proposed extension of the business of the corporation located on First avenue at the address above described is unnecessary and a part of a plan or scheme on the part of J.H. Holcomb, Jr., to heavily involve the corporation and to consume its net profits, increase the overhead expenses and liabilities, in order to have some color of authority for refusing to declare a dividend out of the net earnings of the corporation, all in an effort to keep the net earnings of the corporation at such figure as will permit the payment of the aforesaid salaries to J.H. Holcomb, Jr., and L.G. Mason, and, after payment of same, leave nothing with which to pay dividends to the common stockholders of the corporation."

The corporation was formed on February 1, 1925, and had conducted a profitable business up until the filing of the bill, without declaring dividends on the common stock; yet it is clear from the admitted averments of the bill and the proof offered on the hearing of the motion to dissolve that some dividends might have been declared out of the surplus profits without embarrassing the corporate business.

Our decisions recognize the prevailing rule that courts of equity, in...