Red Bud Realty Co. v. South

• Citation: 241 S.W. 21
• Decision Date: 01 May 1922
• Docket Number: (No. 335.)
• Parties: RED BUD REALTY CO. v. SOUTH.
• Court: Supreme Court of Arkansas

241 S.W. 21

RED BUD REALTY CO. v. SOUTH.

(No. 335.)

Supreme Court of Arkansas.

May 1, 1922.

COPYRIGHT MATERIAL OMITTED

Appeal from Circuit Court, Baxter County; Sam Williams, Special Judge.

Action by J. C. South against the Red Bud Realty Company, W. V. Powell, the Missouri State Life Insurance Company, and the Dixie Power Company, in which the defendant Insurance Company filed a cross-complaint. Decree for plaintiff against defendants Red Bud Realty Company and Powell, for defendant Red Bud Realty Company against defendant Powell, and for the defendant Insurance Company on its cross-complaint, and the defendant Red Bud Realty Company appeals. Decree for Insurance Company affirmed, decree for Red Bud Realty Company against Powell affirmed, as modified, and decree for plaintiff against the Red Bud Realty Company and Powell affirmed, as modified.

Allyn Smith, of Cotter, for appellant.

W. C. Alley, of Okmulgee, Okl., and John T. Castle and Frank Pace, both of Little Rock, for appellee.

WOOD, J.

The Red Bud Realty Company, hereafter called corporation, is a domestic corporation having a capital stock of $50,000, divided into 2,000 shares, of the par value of $25 each. The corporation was organized in 1903 for the purpose of transacting a general real estate business. The assets of the corporation consisted originally of a tract of 202 acres of land situated along the White River branch of the St. Louis, Iron Mountain & Southern Railway Company, in Baxter county, Ark. A town site was established on the tract of land called Cotter, and the town was laid out into lots and blocks. The situs of the corporation was the town of Cotter, and its principal business was the sale and disposition of lots in that town. At the organization of the corporation W. V. Powell was elected president, J. C. South, secretary, and Thomas Combs, treasurer. In 1907 J. C. South, who was a minor stockholder, instituted an action against the corporation and the majority stockholders to require the president to account for large sums of money which it was alleged he had misappropriated. The litigation resulted in placing the corporation in the hands of a receiver. At the end of this litigation in 1910 (see Red Bud Realty Co. v. South, 96 Ark. 281, 131 S. W. 340) the receivers made settlement of the affairs of the corporation, and turned the assets in their hands over to the corporation.

On April 11, 1911, there was a regular meeting of the stockholders at Cotter. At this time Powell controlled three-fifths of the capital stock of the corporation, less one share, South owned one-fifth plus one share, and Judge J. B. Baker owned the balance. All of the stockholders were present at this meeting in person or by proxy. J. C. South was represented at the meeting by Z. M. Horton. At this meeting Powell was again elected president, and John M. Rose, to whom Powell had given four shares of stock, was elected secretary and treasurer. At this meeting of the stockholders John M. Rose moved that the offices of the corporation be moved from Cotter to Little Rock, which motion was carried. At the April term, 1917, of the chancery court of Baxter county South filed a complaint in which he named the corporation, W. V. Powell, the Missouri State Life Insurance Company (hereafter called insurance company), and the Dixie Power Company (hereafter called power company) as defendants. Among other things he alleged that Powell, since the 10th of June, 1911, had fraudulently sold and appropriated to his own use more than $10,000 of the property of the corporation, and had refused to account to the corporation or its minority stockholders, of whom plaintiff was the principal one; that he had without any consideration fraudulently sold lots to his wife, Kate V. Powell, of the value of $1,800; that he had fraudulently conveyed various tracts and lots, the property of the corporation, to other parties without consideration and for secret consideration; that he had failed to pay the taxes on the property of the corporation for the year 1914, although he had ample funds in his hands belonging to the corporation, and allowed the lands to be forfeited and sold for taxes, costing the corporation the sum of $1,000 to redeem the lands from the tax sale; that, pretending to act as president of the corporation, he had borrowed from W. F. Eatman in the year 1913 the sum of $1,250 and had fraudulently executed a promissory note for same signed by the corporation; that he had fraudulently converted the money to his own use; that, as president of the corporation, he had borrowed the sum of $3,000 from the insurance company, and had fraudulently, and without authority from the corporation, executed a mortgage on the lands of the corporation to cover same, and had converted the proceeds to his own use; that he had fraudulently and without authority of the corporation attempted to convey to the power company 10 acres of its lands.

He further alleged that the corporation, by reason of the above acts of its president, had ceased to transact the business for which it was chartered. He asked that Mrs. Kate V. Powell be made a party, and prayed that a receiver be appointed to take charge of the assets of the corporation; that an accounting be had between Powell and the corporation and its stockholders; that a lien be declared upon Powell's stock for the amount found to be due by him to the corporation; that the mortgage and various alleged fraudulent conveyances be set aside and title vested in the corporation; that the corporation be dissolved, its debts liquidated, and its assets distributed to the stockholders according to their respective interests.

W. V. Powell and the corporation joined in an answer, in which they specifically denied all the material allegations of the complaint, and set up, among other things, that the suit was brought in Baxter county, where the corporation had no office, and where none of its officers resided; that the principal office or place of business of the corporation was in Little Rock, Pulaski county, where process was served upon its officers; that therefore the Baxter chancery court had no jurisdiction. The answer detailed at length the transactions of the corporation and Powell, its president, and alleged that everything had been done regularly and according to the rules and by-laws of the corporation, and in good faith. It set up that South, the plaintiff, from the organization of the corporation to 1915, had been a stockholder and member of the board of directors of the corporation, and had been notified to attend all of the meetings, both of the stockholders and directors; that he had persistently refused to attend the meetings except the one mentioned above, where he attended by proxy; that the membership of the board of directors was then reduced from five to three by proper amendment to the by-laws; that South had never protested to the directors or stockholders as to the policy of the corporation, and had never applied to them for relief from any of the wrongs of which he now complains. The answer further set up, among other things, that the bylaws of the corporation from the time of its organization provided for the payment of a secretary, and that, after John M. Rose was elected secretary in 1911, the sum of $50 per month was paid him up to the time of his death, and that he had drawn a salary in excess of the sum of $3,000. The answer set up that the corporation, with the express consent of South, had purchased and had become a subscriber in the sum of $1,100 for the stock of the power company, which was paid out of the proceeds of the sale of the lots; that the corporation, for the purpose of aiding the power company to build a dam across White river at Cotter entered into a contract to convey to it certain riparian rights.

The insurance company answered, and by way of cross-complaint set up its notes and deed of trust, and asked for judgment and foreclosure. This cross-action was answered by South. By agreement of the parties a master was appointed to take depositions and state an account, which he did, and made his report. Before the answer was filed motions attacking the jurisdiction of the court were made, and these were reserved also in the answer.

The cause was heard upon the pleadings, the statements of the accounts of the master, the oral evidence of the parties, their witnesses, admissions, agreements, and exhibits. The court rendered judgment finding that Powell fraudulently managed the affairs of the corporation, substantially as alleged in the complaint, and that he was indebted to the corporation in the sum of $11,262.02; that the deed to the power company was fraudulent; that the deed to Mrs. Powell was fraudulent, and that Powell should be charged with the value of the lots deeded to her which had passed into the hands of innocent purchasers; that the attempted removal of the situs of the corporation from Cotter to Litle Rock was fraudulent and void; that the insurance company was entitled to judgment in the sum of $4,409.80 on its mortgage, with 10 per cent. interest from date thereof, which was a first lien on the property described therein, and directed that the property be sold to satisfy the same, and execution had against the corporation to satisfy any residue. The court also rendered a decree in favor of South in the sum of $2,257.63 — his distributive share of the amount of the judgment against Powell and the corporation. The court, in its decree, directed that Powell's stock be sold to satisfy his debt to the corporation; that out of the proceeds the decree in favor of South should first be satisfied, and the balance, if any, retained by the receivers and special master, subject to the further orders of the court. The court also entered a decree canceling the deeds from the corporation to the power company, and dissolving the corporation, and directing that any assets remaining after the judgments...