Orkin Exterminating Co. of North Ala. v. Krawcheck
| Citation | 123 So.2d 149,271 Ala. 305 |
| Decision Date | 19 May 1960 |
| Docket Number | 6 Div. 409 |
| Parties | ORKIN EXTERMINATING COMPANY OF NORTH ALABAMA et al. v. A. S. KRAWCHECK. |
| Court | Supreme Court of Alabama |
Maurice F. Bishop, Birmingham, and Irving K. Kaler, Atlanta, Ga., for appellants.
Winston B. McCall, Victor H. Smith, Pritchard, McCall & Jones, Birmingham, for appellee.
Complainant, Krawcheck, filed a bill in equity seeking discovery, accounting and a declaratory judgment. Respondents filed demurrers which were sustained. Complainant amended his bill and demurrers to the amended bill of complaint were overruled. From this latter ruling respondents appeal.
The facts alleged in the amended bill of complaint, insofar as material here, are:
The bill is filed by complainant, Krawcheck, a resident of Jefferson County. Respondents are Otto Orkin; Orkin Exterminating Company, Inc., a Georgia corporation whose principal place of business is in Atlanta; Orkin Exterminating Company of North Alabama, an Alabama corporation; and Orkin Exterminating Company of South Alabama, an Alabama corporation. The demurrers of the last named two corporations are involved on this appea.
Respondents Otto Orkin and the Orkin Exterminating Company, Inc. of Georgia had not been served when the decree appealed from was rendered, but were subsequently served.
The bill alleges that for many years prior to January 2, 1942, Otto Orkin, by means and through the agencies of numerous corporations (among which was the Orkin Exterminating Company, Inc., an Alabama corporation), was in the business of eradicating or controlling vermin, insects, etc.; that Orkin was the beneficial owner of all of the capital stock of the Alabama corporation and was its president and dominated and controlled its business.
The bill also shows that contracts were entered into between Orkin, the complainant Krawcheck, and the Alabama corporation, whereby complainant was employed as General Manager of the business of the Alabama corporation. Various agreements were entered into between these parties, but the primary agreement of employemnt was entered into between them January 2, 1942. This agreement is attached to the bill and made a part thereof and marked 'Exhibit 2'.
This agreement provides that Otto Orkin is the owner and holder of the majority of the capital stock of the Alabama corporation and its President, and that said Orkin and the complainant would continue to manage the business and affairs of that corporation and desired to enter into a working agreement; and it was agreed in substance as follows:
1) That the corporation employed complainant who agreed to work for it for the term of five years from the date thereof as General Manager of that corporation and that during the term of this agreement he should devote his entire time and energy to the furtherance of the business of the corporation.
2) As consideration for said active employment, he should receive from the corporation the sum of $700 monthly as a salary, payable semimonthly, or at such salary or commission as may hereafter or from time to time be agreed upon in writing.
3) That Otto Orkin should continue to be President of the corporation and receive $625 per month as salary, or at such salary or commission as may hereafter from time to time by agreed upon in writing, and shall give to this corporation just such time and attention as he thinks may be necessary.
4) That various steps would be taken in the event of insufficient funds in the company's bank account to pay the salaries.
5) That during the life of the contract the complainant would not act in an advisory, financial, or other capacity for competiors of Otto Orkin and the corporation in cities in which Orkin and the corporation have an interest or business.
6) That neither Orkin nor the complainant shall have the right to draw on the funds of the corporation deposited in Alabama for personal use, other than the amount specifically set out in the contract unless agreed to in writing by all of the parties.
7) That all cash on deposit in Alabama to the credit of the corporation in excess of $500, as of June 30 and December 31 of each year, representing company net profits, shall be divided equally between the complainant and the corporation and be payable June or July of each year during the life of the agreement; payments to the corporation to be made by depositing its share of the excess cash to a special bank account in Atlanta, Georgia, which funds should be subject to future action of the officers and directors of the corporation and against which complainant should have no claim. That in the event the agreement was terminated, the $500 bank balance should be divided equally between complainant and the Alabama corporation.
8) That upon death or permanent incapacity of complainant prior to the termination of the agreement, any salary or additional compensation due him as his share of the cash profits at such time should be payable to him or his estate, and on the death of Orkin, the party designated by the corporation should stand in his place until the termination of the agreement.
9) That in addition to salary, the corporation should pay Orkin a monthly charge of $100 to cover the cost of keeping books, records and auditing expenses, and for his reimbursement for reasonable postage, telephone and telegraph expense.
10) That $50 a month allowance be given to complainant to cover cost of entertaining customers.
11) That nothing in the agreement should be construed as cancelling any restrictive covenant that existed between complainant and Orkin.
12) That at the expiration of the five year term of the agreement of December 31, 1946, it should be automatically renewed for an additional period of five years to December 31, 1951, unless a minimum of 12 months' notice by registered mail were given by either of the parties to the other, of his or its desire that the agreement be not renewed; that if such notice is given, the agreement should expire as of December 31, 1946.
13) That in the event the agreement was renewed to December 31, 1951, it should be automatically renewed for an additional period of five years to December 31, 1956, unless a minimum of 12 months' notice by registered mail was given by either of the parties to the other of his or its desire that the agreement be not extended.
The bill alleges that at the time the contract shown by Exhibit 2 was executed on January 2, 1942, Otto Orkin operated his exterminating business in the southeastern states by means of various local corporations, including Orkin Exterminating Company, Inc., the Alabama corporation, and that corporate stock of each of said corporations was owned by or for the benefit of Orkin; that the volume of business at first was comparatively small, but the business and profits progressively increased; that income tax for the corporations, including the Alabama corporation, was made on the accrual basis; that in practice, in carrying out the several contracts between the complainant and the respondent, Orkin, and the Alabama corporation, prior to the execution of Exhibit 2, one-half of the cash in bank at the time of making annual and semi-annual settlements belonged to the local manager of the particular corporation (in case of the Alabama corporation, one-half belonged to complainant and the other one-half belonged to the respondent, Orkin); that at the end of the respective fiscal years of the Alabama corporation, there were uncollected but collectible accounts receivable due that corporation, the amount of which progressively increased, which were collected subsequent to the end of the fiscal year and were divided between complainant and Orkin in the particular year the same were collected; that the amount which was drawn by Orkin and by complainant was charged as expenses; consequently, there was no income tax chargeable to the corporation on that account; that the amount represented by the corporate accounts receivable during the tax year, after charging off depreciation etc., was treated as taxable income of the corporation, and the tax so due was paid out of the corporate bank account as an expense, and which was considered in dividing the cash in the bank in the particular year; that the federal and state tax authorities disapproved and refused to recognize the method of charging one-half of the cash in bank as a salary to Orkin, some time before Exhibit 2 was executed.
The bill further shows that when Exhibit 2 was entered into, its tax impact on the profits of the Alabama corporation which would accrue to complainant was not computed or fully considered; but that the respondent, Otto Orkin, and his agents, acting on his behalf, in negotiating the contract shown by Exhibit 2 with complainant, assured complainant that his half of the profits of the Alabama corporation would not be reduced or affected by reason of any increased corporate income tax on account of the other half of the profits being placed in the special bank account referred to in Paragraph 7 of Exhibit 2, which money had been previously drawn as a salary by Orkin. It is averred that complainant was not a lawyer, nor an accountant, nor was he familiar with the tax laws and their application to the business, or their effect on the amount of money which would accrue to him for his half of the profits of the corporation; that he relied upon the representations and assurances of respondent Orkin and his agents, and entered into the contract shown by Exhibit 2, in reliance thereon.
Various other instruments are made exhibits to the bill, which complainant alleges either modified or clarified the primary employment agreement entered into between the parties and set forth in material aspects above.
The complaint further avers that when the income taxes of the Alabama corporation were computed for the fiscal year following the execution of the employment agreement ...
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