McKinstry v. Thomas

Decision Date30 April 1953
Docket Number6 Div. 477
Citation64 So.2d 808,258 Ala. 690
PartiesMcKINSTRY et al. v. THOMAS et al.
CourtAlabama Supreme Court

Irvine C. Porter and Gibson & Gibson, all of Birmingham, for appellants.

Wilkinson & Skinner, Birmingham, for appellees.

PER CURIAM.

The question on this appeal is the sufficiency of a bill in equity to withstand the attack made on it by demurrer.

The bill was filed by appellees as complainants on May 30, 1952. The respondents are the Alabama Pine Company, a partnership composed of Thomas S. McKinstry and his two sons, Jerome D. McKinstry and W. D. McKinstry. The suit is also against said persons individually and against Mrs. Jessie D. McKinstry, the wife of respondent Thomas S. McKinstry, who had been a partner in the business of Alabama Pine Company, but had ceased to be such a partner since January 1946.

The chief equity of the bill is the establishment of a constructive trust on the property and business of Alabama Pine Company and also on certain undescribed property of the other respondents, into which it is vaguely alleged that said assets of Alabama Pine Company, upon which the trust sought to be established, had been invested, and for a personal judgment against all the respondents. A discovery is sought to ascertain the facts as to the investment of said property of Alabama Pine Company.

Allenson J. Gray died in 1931. Before his death he had created and operated an extensive business, known as the Jefferson Lumber Company. He left as his descendants and heirs only a widow and one daughter, a minor, the complainants here. They knew nothing about business management. After the death of Mr. Gray in 1931, James N. Merrill, an uncle of Mrs. Gray, was appointed administrator of his estate on May 29, 1931. The circuit court, in equity, entered a decree authorizing the continued operation of the business, and appointed trustees to operate it. They operated it until January 28, 1935, when the trustees petitioned the court to discharge them as such, and filed an account for settlement. The court approved the account and settlement and discharged those trustees and appointed complainant Mrs. Rose Lee Gray (Thomas) as guardian of complainant Carol Gray (Balog).

On February 6, 1935, the business was incorporated under the same name as Jefferson Lumber Company with seven hundred and fifty shares of stock. Mrs. Gray and Carol Gray were the stockholders, each having three hundred and seventy-five shares, less three shares held by members of the family and friends for convenience, including E. E. Evins, who had been one of the trustees. Mr. Evins was made president and general manager from the date of said incorporation until June 17, 1936. He resigned on June 26, 1936. On that day T. S. McKinstry, a respondent in this suit, was elected president, general manager and a member of the board of directors. The management and control of the corporation were turned over to him completely.

The bill further alleges that T. S. McKinstry had been associated with Mr. Gray before he died as a trusted and well paid employee, being paid a salary of $10,000 a year. That complainants had great confidence and trust in him. He was an experienced lumberman and had demonstrated that he was capable of successfully operating said business. That he told complainant, now Mrs. Thomas, prior to his election as stated above, that he would operate the business for her benefit and that of her daughter; and that she trusted him and had full confidence in him. That he operated the business as its president and general manager from June 26, 1936 until October 30, 1940, when it became apparent that the business would make a substantial profit that year, which turned out to be $23,275.37.

The bill then alleges that in operating the Jefferson Lumber Company, Mr. Gray had maintained his principal office in Birmingham where he conducted a sales agency to carry on the business of a lumber broker. He also had a manufacturing operation at Hanceville where he manufactured lumber, and another of a similar sort at Alabama City. (The Alabama City plant was disposed of in 1939, and the Hanceville plant in 1944.)

On October 30, 1940 said T. S. McKinstry formed a partnership, in which his wife and two sons, Jerome D. McKinstry and W. D. McKinstry, joined him, calling the partnership Alabama Pine Company, and was for the purpose of competing with the Jefferson Lumber Company which was under his management. That T. S. McKinstry, with the assistance of his said sons, has operated said partnership business continuously since that time for said purpose. Said partnership conducted its business of a sales agency as a lumber broker. For the years 1940 and 1941, said T. S. McKinstry for the Alabama Pine Company used the office of the Jefferson Lumber Company, and all the expenses of the operation of the partnership were paid out of the Jefferson Lumber Company's funds. That his two sons, respondents here, were employed by the Jefferson Lumber Company, acting through said T. S. McKinstry, and so was his wife, Mrs. Jessie D. McKinstry, until about May 1942. The sons were so employed until the corporation was dissolved June 30, 1946. That during the period from January 1, 1941 through June 30, 1946, the said T. S. McKinstry, his wife and two sons received from the Jefferson Lumber Company $101,595, and they also received profits from the Alabama Pine Company of $470,226.52; and that during that time these complainants, owning all the stock of Jefferson Lumber Company, were paid $26,519.99 in salaries and withdrawals, but that no dividends were paid on their stock during said period.

The bill further alleges that the said McKinstry never disclosed to the complainants that the Alabama Pine Company was competing with the Jefferson Lumber Company or that he would divert customers from the Jefferson Lumber Company to the Alabama Pine Company, and they never knew of such conduct until the 31st day of December 1951; and that said conduct and course of dealing was never authorized or approved by the directors of the Jefferson Lumber Company or by the complainants. It is then alleged that the Jefferson Lumber Company under the management of McKinstry earned materially less each year from 1941 to 1945. That in 1941 it earned, to wit, $29,567.23, and substantially less each year until 1945 when there was a loss of $13,550. Whereas, during that time Alabama Pine Company was earning substantially more than Jefferson Lumber Company, and in 1945 instead of a loss it earned $18,823, and that in 1946 under said management of McKinstry the Jefferson Lumber Company lost $4,416, and in the same year the Alabama Pine Company under McKinstry made a net profit of $72,000. Substantially all of that profit was the result of the efforts of McKinstry while he served as general manager of the Jefferson Lumber Company, and in its exclusive charge and control, and that for the years 1947-1951, the Alabama Pine Company made a large profit each year--the figures being given in the bill--all of which was earned under said management. During said time the Jefferson Lumber Company was not operating, having liquidated June 30, 1946 at the suggestion of McKinstry. That for several years before its dissolution, McKinstry repeatedly advised the complainants to dissolve the Jefferson Lumber Company and discontinue its operation, to which they finally yielded on account of their confidence in McKinstry. That upon the dissolution of the corporation complainants received the capital they had invested in it or its equivalent.

By an amendment filed July 25, 1952, complainants allege that during said period from January 1, 1941 through June 30, 1946, McKinstry, his wife and two sons invested large sums of money, which they obtained from Alabama Pine Company, in real and personal property, which is now held by them, and that said property represents the moneys paid over to them by the Alabama Pine Company derived from the real and personal property which in equity and good conscience is the property of the complainants. They seek a discovery of it.

The prayer of the original bill is that upon final hearing the court adjudge and decree that Alabama Pine Company, Thomas S. McKinstry, his two sons Jerome D. and W. D. McKinstry, and Mrs. Jessie D. McKinstry are each indebted to the complainants in the sum of $571,821.52 with interest, and in addition that they be required to pay complainants a sum equal to the profits that had been earned by the Alabama Pine Company subsequent to December 1, 1951 up to the date of the final decree and, further, that the court adjudge and decree that the business, property and assets of the partnership known as the Alabama Pine Company is the property of the complainants, and that the title to all the property and assets of the Alabama Pine Company be divested out of respondents and be vested in complainants. Complainants offer to do equity. The prayer added by the first amendment is for a decree that the real and personal property acquired by the individual respondents since the organization of Alabama Pine Company was acquired with the funds of said partnership, which in equity and good conscience belong to the complainants, and that the title to the same be divested out of them and invested in the complainants. A second amendment to the bill was filed August 7, 1952, and repeats the averments that the shares of stock issued to the other stockholders in the Jefferson Lumber Company, other than complainants, were issued to them for the convenience of Mrs. Gray (Thomas), as she paid for said shares of stock and they were transferred and surrendered to her before the corporation was dissolved on June 30, 1946. The amendment has attached a copy of the minutes of the meeting of the stockholders of Jefferson Lumber Company on said day, and it further alleged that when said corporation was dissolved these complainants owned...

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