King v. Livingston Mfg. Co.

• Decision Date: 28 November 1912
• Citation: 60 So. 143,180 Ala. 118
• Parties: KING v. LIVINGSTON MFG. CO. ET AL.
• Court: Alabama Supreme Court

60 So. 143

180 Ala. 118

KING v. LIVINGSTON MFG. CO. ET AL.

Supreme Court of Alabama

November 28, 1912

Appeal from Chancery Court, Sumter County; Thomas H. Smith Chancellor.

Bill by R. L. King against the Livingston Manufacturing Company and others. Decree for defendants, and plaintiff appeals. Affirmed.

The original bill was filed by King, as a stockholder, for himself and for other stockholders, against the corporation and its board of directors, and alleges that the corporation was capitalized at $50,000, and was so capitalized and organized in the year 1903, and that $40,000 was actually paid in before operations were begun; that the parties named were directors of said company, and that orator, having full faith in the integrity and ability of the above-named directors, and relying on their good faith and attention to business, invested a large sum, to wit, $2,000, in the capital stock of the company; that after the plant was organized, T. L. Smith was made general manager, and one J B. Barnes was employed as superintendent in the making of comforts, and that he only stayed with the plant about one year, and that the operation of the plant was continued under the management of Smith, with one Harkness as his assistant that Harkness has since left the state, that he is believed to be insolvent, and hence is not made a party; that the directors paid little or no attention to the business, kept no minutes of any directors' meetings, if any were held and left the entire charge, management, and control of the company to said Smith, who was inexperienced in that line of work, and to said Harkness, who was a man of known bad business reputation, and was inexperienced in this line of work; but the directors continued to report to the stockholders that the company was making money, when the fact was that it was losing money, and that the debts were growing larger, and that said company was during the time, or a part of the time, indebted to the banking house of McMillan & Co., a firm composed in part of A. C. McMillan and T. M. Tartt, who were members of the board of directors, in an amount larger than the capital stock of the company, and that the directors knew of this, and still permitted the business to continue, and reported to the stockholders that they were making money, and did pay a dividend, when they knew the truth to be that they were losing money, and had no property; that on July 27, 1906, the capital stock was increased from $50,000 to $100,000, with $75,000 fully paid in, for the purposes, stated by the directors, of giving a cash capital to work with. Previous to this, however, orator had received a letter from Smith, as general manager, inclosing a check for dividends, and stating that the company had earned 20 per cent. on the paid-in capital, and that, in view of the fact, orator invested $3,000 more in the capital stock at the time it was increased. The bill then alleges various reasons of incapacity and other things against the directors, and concludes with a prayer for a decree or judgment against the corporation and the directors for the total sum paid in by orator, with interest. The amended bill sets up practically the same state of facts, the additional facts showing an effort on his part to get a corporation to act, and its failure, and eliminates as parties defendant the members of the board of directors, but makes the corporation and T. L. Smith, individually and as manager of the corporation, parties defendant, prays for an accounting, and to that end attaches interrogatories, and asks for a decree against the respondents in the sum of $3,000, with interest. The demurrers raise the propositions discussed.

Thomas F. Seale and Patton & Patton, all of Livingston, for appellant.

James A. Mitchell and A. G. & E. D. Smith, all of Birmingham, for appellees.

SOMERVILLE J.

As we read the original bill, it must be regarded merely as a suit for damages of purely legal cognizance.

By amendment, however, it has become a bill for equitable discovery and relief, and we think the amendment works no departure from the original bill, since the relief sought is the same, and the discovery is merely in aid of that relief.

Where a purely legal claim is presented, equity will not entertain it, except by way of giving complete relief, where the bill exhibits some associated equity. And, with respect to equitable discovery, the bill is sufficient, if it shows that the information sought is material, indispensable to complainant in the prosecution of his suit, within the knowledge of the other party, and the proof not available to complainant by other means. Horton v. Moseley, 17 Ala. 794; Crothers v. Lee, 29 Ala. 337; C. L. Ins. Co. v. Webb, 54 Ala. 688; Shackelford v. Bankhead, 72 Ala. 476; Lawson v. Warren, 89 Ala. 584, 8 So. 141.

The amended bill fairly meets these requirements, and does not come within the ruling in Wolfe v. Underwood, 96 Ala. 329, 11 So. 344, that a stockholder must first resort to his remedy by mandamus to obtain access to the corporation's books, papers, and records, unless he charges that the matters inquired about are not fully and fairly shown thereby; for this bill does charge that no minutes of directors' meetings were kept, and some of the matters are not such as would naturally be found in the corporate records or archives. Of course, if on answer and proof the contrary appears, the equity of the bill would fail. It results from these considerations that there is equity in the amended bill of complaint.

For the purposes of discovery it is proper to join the officers of the corporation, who may know the facts sought. Hence there is no misjoinder of parties here, if the bill makes a case of deceit against the corporation and its manager, Smith, jointly. Each of the respondents, by demurrers separately filed to the amended bill, denies the sufficiency of its allegations to show fraud as to...