Roman v. Woolfolk

• Citation: 13 So. 212,98 Ala. 219
• Parties: ROMAN ET AL. v. WOOLFOLK ET AL.
• Decision Date: 16 May 1893
• Court: Alabama Supreme Court

13 So. 212

98 Ala. 219

ROMAN ET AL. v. WOOLFOLK ET AL.

Supreme Court of Alabama

May 16, 1893

Appeal from city court of Montgomery; Thomas M. Arrington, Judge.

Bill by S. Roman and six others, who are a minority in number and value of the shareholders of the Alabama Terminal &amp Improvement Company, (a body corporate,) against J. W Woolfolk, W. E. Woolfolk, George B. Shellhorn, S. B. Stern A. C. Saportas, F. W. Hoodley, Charles Henderson, the Farley National Bank, L. B. Farley, J. L. Hall, the Montgomery Tuscaloosa & Memphis Railroad Company, (a body corporate,) and the said Alabama Terminal & Improvement Company hereinafter styled the "Terminal Company." The interests of the Terminal Company are sought to be protected by the suit. On account of alleged grievances, hereinafter referred to, the bill prays for the appointment of a receiver of its assets, for an accounting by defendants, and a dissolution and final winding up and settlement of the affairs of the corporation. The chancellor overruled defendants' motion to dismiss the bill for want of equity, but granted the motion to dissolve the injunction, and refused the application for a receiver. Complainants appeal. Affirmed.

Two of the complainants, viz. S. Roman and A. St. C. Tennille, and six of the respondents, viz. J. W. Woolfolk, W. E. Woolfolk, S. B. Stern, Charles Henderson, George B. Shellhorn and A. C. Saportas, constitute the board of directors of that company. J. W. Woolfolk is, and has been since the organization, president and general manager. J. B. Knox, one of the complainants, is secretary. The connection with the case of the Farley National Bank (with whom, in interest, are said L. B. Farley and J. L. Hall) and the Montgomery, Tuscaloosa & Memphis Railroad Company will be shown hereafter. The Terminal Company was organized in 1887 under the general laws of this state then in force, and among its charter powers is the power to build and equip railroads. In fact, the moving purpose of its organization was to build the Alabama Midland Railroad, under contract with the Alabama Midland Railroad Company, organized for the construction of a railroad from Montgomery, Ala., to Bainbridge, Ga.,-a distance of 175 miles. It secured the contract for the building and equipment of that road, and was to receive, and did receive, for the work, the mortgage bonds of the Midland Company, at the rate of $15,000 per mile, and all its capital stock, except the stock subscribed for by cash subscribers; also, all other subscriptions to capital stock, obtained or to be obtained, and all its property real, personal, and mixed, except rights of way, and certain other excepted properties. The Terminal Company then sublet the construction of the road to J. M. Brown & Co., railroad builders, who completed and delivered it in May, 1890. When the Terminal Company was organized it received from a large number of persons, subscribers to its capital stock, their notes for their subscriptions, amounting in the aggregate to about $300,000. The complainants are among these subscribers, and their notes are yet unpaid. These subscription notes, and the assets and properties received from the Midland Company as the consideration of the construction of the Midland road, constituted, in the main, the assets of the Terminal Company, with which it was enabled to engage the services of Brown & Co. to build the road. These assets had to be utilized to that end. It seems from the history given by this record that from the beginning the enterprise was almost entirely confided to the direction, control, and management of J. W. Woolfolk, the president and general manager. The directors resided in different states, and there appears to have been difficulty in securing meetings of that body, so that the financial policies and plans of operation were left very largely to be designed and executed by Woolfolk, without much aid from them; and there seems to have been a general disposition on the part of directors and shareholders to acquiesce in and ratify whatever he did while the Midland road was being constructed. It is unnecessary to state in detail the various transactions had by Mr. Woolfolk in New York, by which funds were realized upon the Terminal Company's holdings. To state generally, he floated the Midland bonds by guarantying the payment of the interest for a certain number of years, securing the guaranty by pledge of the subscription notes and other assets, which were deposited with the Metropolitan Trust Company of New York, and afterwards, in 1890, sold to the Plant Investment Company, in New York, the Terminal's stock, etc., and other property in the Midland road, and in a belt-line street road in Montgomery, for $500,000, and in the transaction secured release from the guaranty of interest on the Midland bonds, and return of the securities held by the Metropolitan Trust Company; the subscription notes then unpaid, and so returned, amounting to about $265,000. These transactions were all authorized or ratified by the company, and there seems to have been no real complaint of Woolfolk's management in reference to them, except that, after the authorization of the sale to the Plant Investment Company, some of the complainants who had voted in its favor afterwards objected, and sought to prevent the sale, which action caused another meeting of the stockholders, which again authorized the sale. In fact the allegation of the bill is that on the completion of the Midland road great success in the Terminal's enterprise was developed, leaving the company in the possession of large assets, representing actual profits realized. About the time of the sale to the Plant Investment Company, Woolfolk rendered a statement to the Terminal Company of its assets and liabilities, showing estimated assets, $1,544,705.92, and liabilities, $847,263.72. It is shown, however, by Woolfolk, that these estimated values suffered an enormous decline in the general commercial depression, affecting peculiarly enterprises of this character, which followed the failure of Baring Bros. in the fall of 1890,-Woolfolk placing the decline at over $400,000. He gives a detailed statement by which he reaches that result.

In November, 1887, Woolfolk procured to be organized a railway company known as the Alabama Great Northwestern Railway Company, for the purpose of building a road from Montgomery to Tuscaloosa, and on to a point on the Alabama & Mississippi line in Lamar county, Ala. Woolfolk's transactions in connection with this latter company form the principal subject-matter of complainants' complaint. The scheme of this organization, devised by Mr. Woolfolk, evidently, was to establish a connection with the Mobile & Ohio Railroad, or the Illinois Central, at some point in Mississippi, to penetrate the coal fields of Alabama, and supply a missing link between the Alabama Midland, then under his construction, and terminal facilities to the northwest, and it was believed the road, when constructed, would be very valuable, and early disposed of, to advantage, to some of its connecting lines. Upon organization the capital stock of this company was placed at $50,000. The subscribers were W. F Joseph, 5 shares; E. B. Joseph, 5 shares; R. P. Tallman, 50 shares; J. W. Woolfolk, 200 shares; James S. Negley, 150 shares; P. C. Smith, 5 shares; W. G. Hutcheson, 20 shares; and M. E. Pratt, 5 shares. These persons, except Negley, were elected directors. W. F. Joseph was elected president; J. W. Woolfolk, vice president and general manager; and W. G. Hutcheson, secretary and treasurer. In April, 1889, the name of the company was changed to the Montgomery, Tuscaloosa & Memphis Railway; and at an election under the new organization held in July, 1889, the two Josephs, Pratt and Woolfolk and W. S. Chisholm and Morris Jessup, were elected directors; W. F. Joseph, president; J. W. Woolfolk, vice president and general manager; J. C. Woolfolk, secretary and treasurer; and W. C. Giles, assistant secretary. On October 16, 1889, Jessup resigned as a director, and C. C. Munroe was elected in his stead; and on the same day Woolfolk resigned as vice president, and said Munroe was elected in his stead on October 24th. On November 11, 1889, W. F. Joseph resigned as president, and J. W. Woolfolk was elected. He continued in office until November 12, 1889, when he resigned, both as president and director. W. F. Northington was elected a director in his stead. Pratt and Chisholm having died, I. B. Newcombe and W. W. Van Voorhis were elected to succeed them on December 19, 1890, and, at an election held that day, C. C. Munroe was elected president; J. B. Newcombe, first vice president; and E. B. Joseph, second vice president. The bill charges, on information and belief, in reference to this organization, that Woolfolk and his brother, W. E. Woolfolk, Shellhorn, Saportas, F. W. Hoadley, Chester C. Munroe, or some of them, and others unknown, formed some agreement, or entered into some combination, for the purpose of building a railroad called the Montgomery, Tuscaloosa & Memphis Railroad, extending from Montgomery northwest to Tuscaloosa, thence northwest in the direction of Memphis, and organized a corporation to own and operate said railroad, which company was and still is under the control of the above-named parties, and other associates and confederates acting with them and in their interest. That these parties, under some understanding and arrangement unknown to complainants, entered upon the construction of said railroad, and had prior to the 20th day of July, 1890, expended a large amount of money, and contracted heavy obligations, in the undertaking, and at that time, finding themselves cramped for means, and seeing that their contract and undertaking would be ruinous...