McDonald v. U.S. Die Casting & Development Co.

• Decision Date: 10 March 1989
• Citation: 541 So.2d 1064
• Parties: John W. McDONALD v. U.S. DIE CASTING & DEVELOPMENT COMPANY and David J. Slyman. 87-1036.
• Court: Alabama Supreme Court

Page 1064

541 So.2d 1064

John W. McDONALD v. U.S. DIE CASTING & DEVELOPMENT COMPANY and David J. Slyman.

87-1036.

Supreme Court of Alabama.

March 10, 1989.

Robert H. McKenzie of Holt, McKenzie, Holt & Mussleman, Florence, for appellant.

Steve A. Baccus of Almon, McAlister, Ashe, Baccus & Tanner, Tuscumbia, for appellees.

MADDOX, Justice.

This is an appeal from a summary judgment entered against the plaintiff, John W. McDonald, on a finding that McDonald had no standing to bring his claims of fraud, breach of a stock purchase agreement, and improper issuance of a dividend. The summary judgment did not affect the plaintiff's claim of breach of an employment contract or his claim for moving expenses. The trial judge made the summary judgment final pursuant to Rule 54(b), Ala.R.Civ.P.

FACTS

On May 6, 1985, plaintiff, John W. McDonald, and defendant David J. Slyman entered into a written agreement wherein McDonald was to be hired as an employee of a corporation to be formed by Slyman with its principal office to be located in Sheffield, Alabama. The corporation was to produce aluminum die cast parts at a former Ford Motor Company plant in Sheffield. McDonald was hired as president and Slyman was chairman of the board. At the time this agreement was executed, both parties were residents of the State of Ohio. The corporation, U.S. Die Casting & Development Company, was incorporated as an Ohio Corporation on or around July 12, 1985, with 300 shares of capital stock issued, and with David J. Slyman becoming the majority stockholder with 200 shares of the issued stock, and with John W. McDonald becoming the minority stockholder with 100 shares of the issued stock.

On August 20, 1985, three separate written agreements were executed, as follows: An "agreement" entered into by John W. McDonald, David J. Slyman, and U.S. Die Casting & Development Company; an "employment agreement" entered into by U.S. Die Casting & Development Company and John W. McDonald; and a "stock purchase agreement" entered into by John W. McDonald, David J. Slyman, and U.S. Die Casting & Development Company. The "stock purchase agreement" is one of the main subjects of this appeal.

On December 27, 1985, Slyman hand-delivered to McDonald a letter that read as follows:

"Pursuant to Article I of the Stock Purchase Agreement which we executed on August 20, 1985, I hereby exercise my option to purchase the one hundred (100) shares of U.S. Die Casting & Development Co. which you own. I am enclosing a bank check for $300,000 in full payment of the purchase price. Please sign your stock certificate on the back and deliver it to me forthwith.

"Time is of the essence in this transaction.

"Very truly yours,

"s/David Slyman

"Hand Delivered"

McDonald on that date refused to accept the check for $300,000 offered by Slyman on the grounds that it was not clear to him that the check represented Slyman's personal funds, as opposed to funds of the corporation. On or around February 28, 1986, a check drawn on U.S. Die Casting & Development Company was deposited by a representative of the company into the personal checking account of John W. McDonald. This was done without the knowledge or consent of McDonald, but he did use at least some of the funds.

McDonald contends that Slyman took substantial undeclared or constructive dividends from the corporation in the manner of expenses reimbursed, advances, or otherwise, and that Slyman took an undeclared dividend from the corporation when he used corporate funds in the sum of $300,000 to exercise his personal option to purchase McDonald's stock, and that in doing so Slyman breached the separate agreements of August 20, 1985, and December 27, 1985, concerning the stock purchase, and that Slyman defrauded McDonald in using corporate funds to purchase the McDonald stock.

According to an affidavit filed by McDonald, he and Slyman had experienced problems and disagreements almost from the start regarding the interest McDonald would have in the corporation. ¹ Unquestionably McDonald had a one-third equity interest.

I

McDonald filed suit, alleging breach of the stock purchase agreement and his employment contract, fraud in the sale of the stock, and the improper payment of a dividend to Slyman in the form of the stock purchase price. One of the main issues before this Court concerns the significance of the origin of the purchase price money.

II

McDonald, in his brief on appeal, summarizes his argument why summary judgment was inappropriate in this case:

"It is submitted by the plaintiff, that the foregoing unequivocally creates an issue of material fact as to whether or not Slyman breached the original 'Stock Purchase Agreement' and the subsequent 'Stock Purchase Buy-Sell Agreement' by using corporate funds to exercise his personal option to purchase the plaintiff's stock, and further, whether or not Slyman defrauded the plaintiff by representing and warranting that he was exercising his personal option to purchase the said stock and then using corporate funds to do so. This issue is further supported by the Corporate Balance Sheet of June 30, 1986, which shows that instead of Slyman purchasing the plaintiff's stock for his own account, and with his own personal funds, that the stock is shown on said balance sheet as being treasury stock of the corporation purchased in February of 1986 (lower right column). The plaintiff was obviously damaged by Slyman's breach of said agreements and/or his fraudulent representations in that, the plaintiff under said 'stock purchase agreement,' had no obligation to sell his stock to anyone or any entity, including the corporation, other than to Slyman personally for the $300,000.00 amount. The plaintiff's damage is further supported by the corporate 'Audited Financial Statements' of September 30, 1985, which shows on page three thereof, that the total stockholders' equity as of said date was $1,785,517.00 or that as of said date, the plaintiff's one-third ( 1/3) equity interest as represented by his stock was worth in excess of $595,000.00. The plaintiff's damage is further supported by the aforestated 'Corporate Balance Sheet', which shows that as of June 30, 1986, the shareholders' equity in the corporation was at that time $2,743,339.00 or an increase of approximately $1,000,000.00 from September 30, 1985, which would indicate that as of February 20, 1986, the date on which the $300,000.00 was deposited to the plaintiff's account that his equity interest was in excess of the $595,000.00 figure."

III

The terms of the stock purchase agreement are clear and unambiguous; therefore, its construction may be properly determined by summary judgment. Terry Cove North, Inc. v. Baldwin County Sewer Authority, Inc., 480 So.2d 1171 (Ala.1985); Warrior Drilling & Engineering Co. v. King, 446 So.2d 31 (Ala.1984). The option to purchase states, "McDonald gives and grants unto Slyman an exclusive option to purchase the McDonald stock, any part thereof, from time to time on or before July 31, 1990, for the sum of three thousand dollars ($3,000.00) per share." McDonald's argument that this agreement granted Slyman a personal right to buy the stock and that the funds had to come from Slyman personally is not supported by the plain language of the agreement. The source of payment for the stock is nowhere specified in the document. If a contract in its terms is plain and free from ambiguity, there is no room for construction, and it is the duty of the court to enforce it as written. Kinnon v. Universal Underwriters Ins. Co., 418 So.2d 887 (Ala.1982). McDonald, therefore, has no basis for his breach of contract action.

Concerning his action for improper payment of a dividend, we note that McDonald was not a stockholder after the purchase price had been paid in accordance with the terms of the agreement; therefore, he could not bring a shareholder's derivative suit. One bringing a derivative action must be a stockholder not only at the time the alleged wrong was committed, but generally also at the time suit was commenced. Dehaas v. Empire Petroleum Co., 435 F.2d 1223 (10th Cir.1970); Werfel v. Kramarsky, 61 F.R.D. 674 (S.D.N.Y.1974); Green v. Bradley Const., Inc., 431 So.2d 1226 (Ala.1983).

IV

We now address the question whether McDonald can sue in his own name. We think he can. Ordinarily, a stockholder may not bring an action in his own name for an alleged fraudulent transfer of corporate property to another stockholder; such a suit must be by or in behalf of the corporation. Green v. Bradley Const., Inc., 431 So.2d 1226, 1229 (Ala.1983); quoting 19 Am.Jur.2d Corporations § 534 (1979). However, if the stockholder alleges that wrongs have been committed by the corporation as a direct fraud upon him, and that such wrongs do not affect other stockholders, that one stockholder may maintain a direct action in his individual name. Green v. Bradley Const., Inc., supra, at 1229.

The facts of this case present that very situation. While agreeing to sell his stock to Slyman for $3,000.00 per share, McDonald had a right to expect, while he was a stockholder, that the directors of the corporation would act reasonably with regard to the management of the corporation and that dividends, if declared, would not be disproportionate. The rule regarding the corporation's obligation to pay dividends is stated in Wolfe v. Underwood, 96 Ala. 329, 333, 11 So. 344, 345-46 (1891), as follows:

"The fact that profits have accrued in the transaction of the corporate business does not necessarily impose upon the directors the duty of distributing them as dividends to the stockholders. The directors are entrusted with the management of the property and business of the corporation, and in the exercise of their functions are vested with a large discretion. Their relations with the corporation and its stockholders are of a fiduciary character. They are under the duty to the stockholders to exercise their judgment...