McMillan v. Dozier

• Decision Date: 17 April 1952
• Docket Number: 3 Div. 596
• Parties: McMILLAN et al. v. DOZIER.
• Court: Alabama Supreme Court

Page 563

59 So.2d 563

257 Ala. 435

McMILLAN et al. v. DOZIER.

3 Div. 596.

Supreme Court of Alabama.

April 17, 1952.

Rehearing Denied June 26, 1952.

Wm. J. Fuller and Wm. J. Fuller, Jr., and Lawrence J. Fassman, Jr., all of Montgomery, for appellants.

Rushton, Stakely & Johnston, Montgomery, for appellee.

LAWSON, Justice.

On April 24, 1947, the Dixie Provision Company, Inc., a corporation, executed its mortgage and notes to the Union Bank & Trust Company of Montgomery to secure a loan by the bank to it in the sum of $50,000. The Dixie Provision Company, Inc., a corporation, will be referred to hereafter as the Dixie Company. The mortgage was of the 'open-end' type, containing a provision to the effect that any additional sums loaned the Dixie Company by the bank would be secured by the mortgage. The packing plant of the Dixie Company was then under construction and all its stockholders by separate written instrument guaranteed repayment of the indebtedness to the bank to the extent of $50,000, the amount of the initial loan. As to the extent of liability of each of the stockholders, the instrument of guaranty provided:

'It is understood and agreed, however, that the guaranty of each of said parties shall extend only to the percentage set out opposite his or her name below, which percentage represents the proportion of the capital stock of said Dixie Provision Company owned by each of the undersigned.'

As of August 19, 1947, the Dixie Company owed the bank $62,000. It had exhausted the proceeds of the bank loans and the funds derived from the sale of its capital stock in the construction of the plant. Additional funds were needed to complete the plant, which funds could not be obtained from the bank.

A joint meeting of the stockholders and directors of the Dixie Company was held on August 19, 1947. S. A. Douglas, one of the stockholders, was president of the Dixie Company and at this meeting he explained its financial difficulties and stated that he had been negotiating with W. A. Dozier of Hurtsboro, Alabama, for a loan of $150,000 'on the security of the personal endorsement of the stockholders, plus a transfer of the existing 'open-end' mortgage then held by the Union Bank & Trust Company.' The following resolution was adopted at this meeting:

'Be It Resolved that the officers of the Company are hereby authorized to enter into a financing contract with W. A. Dozier of Hurtsboro, Alabama, on substantially the following terms:

'Witnesseth:

'Whereas, The Provision Company has nearly completed its plants in North Montgomery and is about to go into production, and desires to borrow money as needed for said purposes, and

'Whereas, said Dozier desires to furnish said money as needed in accordance with the terms hereinafter provided;

'It Is Therefore mutually agreed:

'1. Dozier will lend the Company as required by it the sum of not exceeding One Hundred Fifty Thousand and No/100 ($150,000.00) Dollars.

'2. One Hundred Thousand and No/100 ($100,000.00) Dollars of said sum less 3,800.00 Dollars commission is to be made available by Dozier on the date of this agreement and additional sums in units of Five Thousand and No/100 ($5,000.00) Dollars or multiples thereof within thirty days after requisition by The Provision Company.

'3. As security the Provision Co. will cause the transfer to Dozier of the existing open-end mortgage upon the plant and its equipment now held by the Union Bank & Trust Co. Montgomery, Alabama, and will execute to Dozier the note of the Company in an amount equal to One Hundred Thousand and No/100 Dollars ($100,000.00) minus the amount of the indebtedness presently secured by said mortgage. Said note to bear five per cent ($5%) interest on the net amount and to be secured by said mortgage. As additional sums are furnished additional notes bearing the same rate of interest will be executed and delivered and added to said mortgage debt. Ten per cent (10%) of the total principal amount due Dozier plus interest to date on all sums received will be repaid to Dozier on each anniversary of this agreement, beginning with the second until all indebtedness is fully paid.

'4. The Company reserves the right to pay all the indebtedness hereby secured or any part thereof in units of Five Thousand and No/100 ($5,000.00) Dollars or multiples thereof on 30 days notice.'

It is to be noted that although the president of the Dixie Company, S. A. Douglas, in advising the other stockholders of his negotiations with W. A. Dozier stated that the loan from Dozier, if obtained, was to be secured in part by the 'personal endorsement' of the stockholders, the resolution authorizing the officers of the Company to enter into a financing contract with Dozier contained no such provision.

S. A. Douglas continued his negotiations with W. A. Dozier and on August 29, 1947, he signed under the seal of the Dixie Company a written financing agreement with Dozier whereby Dozier agreed to lend the Dixie Company, not $150,000 as discussed in the meeting of August 19, 1947, but the sum of $100,000 'as of September 1, 1947,' to be repaid in ten installments of $10,000 each, beginning September 1, 1948, with interest at the annual rate of five per cent on unpaid balance. The only part of this financing agreement set out in the record is paragraph 3, which reads:

'As security the company will cause to be transferred to Dozier the existing open end mortgage upon its plant and equipment now held by the Union Bank & Trust Company of Montgomery, Alabama, and recorded in Book 611, pages 125-129 in the Office of the Judge of Probate in Montgomery County, Alabama. It is agreed between the parties that for the amount of indebtedness secured by said mortgage the amount, due dates and rate hereinabove specified in paragraph 1 are in addition and in substitution for the indebtedness presently secured thereby, but that no other change in the lien, terms or other conditions thereof, nor in the proportionate liability of the endorsers thereon is intended to or shall be made or effected. In addition an appropriate resolution of the stockholders and directors and of each individual stockholder will be adopted ratifying this agreement and all the terms hereof.'

On the following day, August 30, 1947, W. A. Dozier turned over to the Dixie Company the sum of $96,200, the amount of the loan less the commission. This sum was deposited in the Dixie Company's account at the Union Bank & Trust Company. On the same day the bank sold, assigned and transferred its mortgage to Dozier, without recourse. The mortgage, the notes, and the guaranty of the stockholders which had been executed to the bank under date of April 24, 1947, and certain insurance policies upon the mortgaged property were delivered to Dozier with the instrument transferring the mortgage. It appears that the bank was paid with a part of the money furnished by Dozier and deposited in the bank in the Dixie Company's account.

Thereafter on September 9, 1947, pursuant to due notice, a meeting of the stockholders and directors of the Dixie Company was held and the following document was signed by the directors and stockholders:

'Be It Resolved by the stockholders and directors of the Company that, whereas, heretofore, on August 19, 1947, the officers of this Company were authorized and directed to enter into a financing contract with W. A. Dozier of Hurtsboro, Alabama, a copy of which appears upon the corporate minutes of the Company for that date, and

'Whereas, it proved impossible to negotiate with said W. A. Dozier a contract substantially in the terms of said resolution, and

'Whereas, another contract has been negotiated with the said W. A. Dozier by the Officers of the Company, copy of which is hereto attached marked Exhibit 'A', and

'Whereas, said contract is satisfactory to the stockholders and directors of the Company;

'Now, Therefore, be it resolved that the stockholders of the Company acting in their respective capacities and each stockholder of the Company in his or her individual capacity does hereby ratify said substituted contract hereto attached, marked Exhibit 'A', and does each for himself agree that prorata guaranty of the performance of the conditions of the mortgage in the payment of the substituted amount, substituted due date and at the substituted rate of interest and all its other terms are hereby accepted and adopted as the contract of each individual stockholder.

'And each of the stockholders and directors do hereby waive notice of the special meeting of stockholders and of directors at which this resolution is adopted and this individual liability is undertaken.'

The stockholders signed the following instrument, dated September 9, 1947, which was shortly thereafter delivered to the lender, W. A. Dozier:

'State of Alabama

'Montgomery County}

'Know All Men by These Presents: That the undersigned being all the stockholders of Dixie Provision Company, Inc., for value received of W. A. Dozier, Hurtsboro, Alabama, do hereby unconditionally guarantee the payment, principal and interest, of those certain mortgage notes in the principal sum of One Hundred Thousand Dollars ($100,000.00), dated 1 September 1947, and of the notes bearing interest at the rate of five per cent (5%) on the balances due after that date, given by Dixie Provision Company, Inc., to said W. A. Dozier and secured by mortgage recorded in Book 611, page 125, in the Probate Office of Montgomery County Alabama.

'It is understood and agreed, however, that the guarantee of each of the said parties shall extend only to the percentage of said indebtedness which represents the proportion of the capital stock of said Dixie Provision Company, Inc., owned by each of the undersigned.

'Each of the undersigned specifically waives all exemptions to which he or she may be entitled under the laws of the State of Alabama in regard to the above described indebtedness.

'Witness our hands and seals this 9th day of ...