Malvern Brick & Tile Co. v. Alexander, 5-432

• Decision Date: 18 October 1954
• Docket Number: No. 5-432,5-432
• Citation: 272 S.W.2d 77,224 Ark. 74
• Parties: MALVERN BRICK & TILE CO. and A. B. Alexander, Appellants, v. Verna Cook ALEXANDER, Appellee.
• Court: Arkansas Supreme Court

Page 77

272 S.W.2d 77

224 Ark. 74

MALVERN BRICK & TILE CO. and A. B. Alexander, Appellants, v. Verna Cook ALEXANDER, Appellee.

No. 5-432.

Supreme Court of Arkansas.

Oct. 18, 1954.

Rehearing Denied Nov. 22, 1954.

Cole & Epperson, Malvern, Barber, Henry & Thurman and Leffel Gentry, Little Rock, for appellants.

House, Moses & Holmes, Little Rock, Wootton, Land & Matthews, Hot Springs, for appellee.

ROBINSON, Justice.

The principal issues involved in this cause are the ownership of two certificates of corporate stock of the appellant Malvern Brick & Tile Company, and the further issue of whether appellee Verna Cook Alexander is indebted to her husband, A. B. Alexander, for a part of the purchase price of corporate stock bought from her sister, Mrs. Dorothy Baker, and her mother, Mrs. Essie Cook. The Chancellor held Mrs. Alexander, the appellee, to be the owner of the two stock certificates in question, and also held that she is not indebted to Mr. Alexander for a portion of the purchase price of the stock bought from Mrs. Cook and Dorothy; Mr. Alexander has appealed from that decree.

A. B. Cook died in August, 1934, leaving as survivors his widow, Essie Bordis Cook, and two daughters, Dorothy Cook (now Dorothy Baker) and Verna Cook (now Verna Alexander, the appellee herein). At the time of his death, Cook owned 4,998 shares of the corporate stock of the A. B. Cook Company, a corporation engaged in the lumber business. One share of stock was owned by his wife Essie and one share by his daughter Dorothy, making a total of 5,000 shares, which constituted all of the stock issued by the corporation. Subsequently the corporate stock structure was changed by reducing the number of outstanding shares to 400. Cook also owned 405 shares of a total of 1,000 shares of stock issued by the Malvern Brick & Tile Company. He also carried life insurance of which his wife was the beneficiary to the extent of approximately $350,000 which was duly paid.

Appellant A. B. Alexander had moved to Hot Springs, Arkansas, from Spartanburg, South Carolina, in 1932 for the purpose of establishing a residence in order to secure a divorce. In October, 1934, following Mr. Cook's death in August, Alexander and Verna Cook were married and moved to Spartanburg. At the time of Cook's death the A. B. Cook Company and the Malvern Brick & Tile Company were heavily indebted and Cook himself owed debts of considerable amount, for which his stocks were pledged as security. In his will he left 1/3 of his estate to each of his daughters and 1/3 to his widow. Mrs. Cook used a considerable portion of her insurance money to relieve the financial condition of the two corporations, and to recover the stock which had been put up as security by Cook. 1/3 of the stock had been left to each of the daughters, and they therefore pledged the income from their stock to Mrs. Cook to secure their portion of the debt, $32,000 each. Mrs. Cook also loaned to the A. B. Cook Company $50,000 secured by a mortgage. Also Mrs. Cook bought all of the outstanding stock of the Malvern Brick & Tile Company, consisting of 595 shares, which Mr. Cook did not own at the time of his death. All during the depression and in fact until Mrs. Cook and Dorothy sold their interests in the corporations in December, 1946, Mrs. Cook and the daughters received a substantial income from the corporations, a salary of $500 per month for Mrs. Cook and $250 per month to each of the daughters in addition to certain dividends.

In 1943 appellant herein, A. B. Alexander, husband of Verna, was employed as manager by the two corporations which were owned entirely at that time by Mrs. Cook and the two daughters. In the latter part of 1946, Alexander and his wife Verna decided to attempt to buy the interests of Mrs. Cook and Dorothy. Dorothy owned 1/3 or what had been left by her father, and Mrs. Cook owned 1/3 plus the 595 shares of Malvern Brick & Tile Company stock acquired by her subsequent to Cook's death.

Knowing how much stock Dorothy and Mrs. Cook each owned, Mrs. Alexander became apprehensive that Alexander might purchase for himself this stock from her sister and mother which would give him a little better than 2/3 or a controlling interest in the corporations. Therefore she asked him to write her a letter showing her ownership of one-half of what they might acquire by the purchase of Mrs. Cook's and Dorothy's stock. Pursuant to this conversation he executed and delivered to her the following agreement:

'December 4, 1946

'For the sum of one dollar and love and affection I hereby sell one half interest that I have or may acquire in the A. B. Cook Co. and the Malvern Brick & Tile Co., both of Malvern, Arkansas, to my beloved wife Verna Cook Alexander.

'(signed) A. B. Alexander'

Alexander then went to Pass Christian, Mississippi, where he entered into negotiations with Mrs. Cook and Dorothy for the purchase of their stock in both corporations, and succeeded in purchasing Mrs. Cook's stock for the consideration of $100,000, 1/3 in cash and the balance in deferred payments, and Dorothy's stock for $50,000, 1/3 in cash and the balance in deferred payments. At this time Mrs. Alexander was in a hospital in Baltimore due to an operation for an impacted tooth.

It is contended by Alexander that he bought all of the stock of both corporations from Mrs. Cook; that not only did she have the right to sell her own stock, but she had the authority as trustee under the terms of Mr. Cook's will to sell the stock of Verna and Dorothy, and did sell it. It is the contention of Mrs. Alexander that Alexander bought for the two of them only the interests of Mrs. Cook and Dorothy, that neither she nor Mr. Alexander contemplated that Mrs. Alexander's stock would be sold by Mrs. Cook, and that it was not sold by her.

Subsequent to the purchase of the stock from Mrs. Cook and Dorothy, Mrs. Alexander gave Mr. Alexander her promissory note in the sum of $25,000 dated December 14, 1946. Also Mr. Alexander introduced in evidence what he says is a written contract between him and Mrs. Alexander with reference to the purchase of the stock from Dorothy and Mrs. Cook. However, this alleged agreement is not signed by Mrs. Alexander. Alexander contends it is a valid note and contract; Mrs. Alexander contends it was not a valid transaction but merely done to avoid the possibility of gift taxes.

Mr. and Mrs. Alexander made a trip to Malvern, Arkansas, where they obtained from Mrs. Cook's safe, with her permission, all of the corporate stock of the Malvern Brick & Tile Co. and the A. B. Cook Co. They also obtained the stock books and took both the books and the stock certificates back to Spartanburg. Later they re-issued the stock, 50% to each.

Now comes one of the principal disputes between the parties, and the testimony on this point is in irreconcilable conflict. Mrs. Alexander contends that it was recognized by both her and Mr. Alexander that she owned her original 1/3 interest left by her father plus 1/2 of whatever interest was acquired from Mrs. Cook and Dorothy; hence that she owned approximately 2/3, but that Mr. Alexander did not want the stock issued approximately 2/3 to her and 1/3 to him because he stated that the employees of the company would then know that he did not own the controlling interest and therefore their services would not be as satisfactory as otherwise. She further says that for this reason and at his suggestion, the stock was issued 50% to each; and he in turn endorsed and delivered one certificate in each corporation to her at the time of the issuance of the stock certificates; that the two certificates of stock signed and delivered to her by Mr. Alexander represented enough shares to show her ownership of approximately 2/3 in each corporation. However, the shares of stock represented by the two certificates in issue give Mrs. Alexander a little over 2/3 ownership in both corporations. Mrs. Alexander further contends that she placed these two certificates of stock transferred to her by Alexander, along with the other stock that had been issued to her, in a lock box to which both she and Alexander had access; and later without her knowledge or consent Alexander removed from the box the two certificates of stock he had transferred to her.

Alexander's version of the transaction is that the stock was issued 50% to each at the time, and at a later date Mrs. Alexander, being apprehensive of difficulty she might have with Mr. Alexander's former wife, insisted that he endorse the two certificates to her in order to give her control of the corporations in event of his death; that he did sign the certificates over to her by endorsement thereon, but that he did not at any time deliver these two certificates to Mrs. Alexander but placed them in his private lock box at the Alexander Music Company in Spartanburg; and that Mrs. Alexander did not have access to that box.

Later is was decided to merge the two corporations, and while in Florida Mrs. Alexander saw a letter received by Mr. Alexander from a certified public accountant in Little Rock asking for the stock so that the merger could be completed. Mrs. Alexander spoke to Mr. Alexander about this matter, and he stated that he had mailed all the stock, including his and Mrs. Alexander's, to himself at Malvern. Mrs. Alexander was going with their son as far as Dallas on his way to school at Tucson; upon leaving Dallas, instead of returning to Florida she went to Malvern. There she had a colored man who had been in the employ of the Cook family for about 30 years, go to Mr. Alexander's desk at the lumber company office with instructions to get a large brown envelope, rather bulky, from Mr. Alexander's desk if it was there, and bring it to her at the old home in Malvern. The colored man found the envelope which Alexander had mailed to himself at Malvern and took it to Mrs. Alexander. It contained all the stock certificates of both corporations. She...