Saunders v. McDonough

• Decision Date: 07 November 1914
• Docket Number: 743
• Citation: 191 Ala. 119,67 So. 591
• Parties: SAUNDERS v. McDONOUGH et al.
• Court: Alabama Supreme Court

67 So. 591

191 Ala. 119

SAUNDERS v. McDONOUGH et al.

No. 743

Supreme Court of Alabama

November 7, 1914

On Rehearing, December 17, 1914

Appeal from Chancery Court, Jefferson County; A.H. Benners Chancellor.

Bill by Warwick Saunders against R.N. McDonough and others to restrain and enjoin the selling, pledging, or transferring of certain shares of capital stock and bonds of the Self-Fluxing Ore & Iron Company, and for an accounting and other relief. From a decree sustaining demurrers to the bill, complainant appeals. Affirmed in part, and reversed and rendered in part.

The averments of the bill sufficiently appear from the opinion of the court. Exhibit A to the bill is as follows:

This memorandum of agreement made in triplicate, bearing date November 26, 1912, the same being in lieu thereof and as substitute for the terms of an agreement heretofore entered into between W.F. Aldrich and associates. of the one part and John J. Shannon and R.N. McDonough, for themselves and associates, of the other part, said substituted agreement expiring January 1, 1913, wherein the said Aldrich and associates are to sell, and said Shannon and McDonough and associates are to buy, a certain tract of about 1,550 acres. [ [Here follows description by government subdivision.] We the said W.F. Aldrich and associates [John Towers] propose and offer as follows: That for and in consideration of one dollar in hand paid and other valuable consideration, the receipt whereof is hereby acknowledged, to convey by general warranty deed free from all incumbrance, and with good and sufficient merchantable title, all of said lands to the McDonough Ore & Mining Company or such other corporation as the grantors may designate, on or before January 2, 1913, as the grantee may elect, and accept as full and complete payment therefor three thousand dollars in first mortgage, thirty-year, semiannual, 6 per cent. gold bonds to be issued by the grantee corporation: Provided said bond issue shall constitute the entire issue and to be of the denomination of one thousand dollars each. The said interest to begin January 1, 1913, and payable semiannually thereafter. And provided further that said bonds shall be the first mortgage lien on said lands to be hereby conveyed as aforesaid. And provided further that said corporation shall take the necessary and substantial steps to develop and operate the said property within a reasonable time, now estimated to be within the next ninety days. And provided further that said grantee corporation shall provide in said bond issue an adequate sinking fund to retire the said bonds at maturity, said sinking fund to begin within five years from date of said bonds. And provided further that said bonds are subject to call and cancellation by said grantee corporation at any interest bearing date upon giving sixty days' notice at per plus 5 per cent. The title deeds to be deposited with the Birmingham Trust & Savings Bank, who are to be the trustees under the above said mortgage and bond issue. Said deeds to be delivered to said grantee corporation at the same time the bonds are delivered to said parties of the first part. And as further purchase price of said lands, the said grantee corporation agrees to issue or pay to said parties of the first part, W.F. Aldrich and John Towers, fifty thousand dollars in the capital stock of said grantee corporation, the same to be taken out of the treasury stock of said grantee corporation at the same price the said treasury stock shall be offered for sale. And provided further that the said grantee corporation hereby agrees to lend or negotiate loans for said parties of the first part, to wit, W.F. Aldrich and John Towers, as follows: Twenty-five thousand dollars by January 2, 1913, fifteen thousand by February 1, 1913, and ten thousand by March 1, 1913. Each of said loans payable on or before date of said loans at 6 per cent. interest. The said parties of the first part, W.F. Aldrich and John Towers, in order to secure said loans, hereby agree to furnish for each of said loans the said first mortgage bonds as collateral on a basis of seventy-five cents on the dollar and in sufficient amounts to equal the amount of each of said loans, together with their, the said first parties, W.F. Aldrich and John Towers, personal notes for like amounts of each of said loans and running for the same length of time and bearing the same rate of interest of 6 per cent. However, it is expressly agreed by parties hereto that the said grantee corporation shall have the right to retire and cancel said fifty thousand dollars or any number thereof of said bonds so used as collateral security for said loans at par and accrued interest, and the proceeds from such redemption of said bonds to be applied as payment on said loans. It is hereby mutually agreed and understood by and between all parties hereto that all conveyances, bonds, mortgages, and such other papers and documents as may be necessary to the closing of the foregoing transaction shall be prepared, and the same executed and exchanged as early as practicable, and not later than January 2, 1913. It is mutually understood and agreed that all parties hereto shall, at their option, be elected to and remain directors of the said grantee corporation, or its assigns, for the term of three years from its organization. It is also agreed that Attorney E.J. Smyer shall be the attorney to pass upon the title of said lands and all other papers necessary and incident to the completion of this transaction. The above clause and all corrections and interlineations were made before signing.

Tillman, Bradley & Morrow and W.B. White, all of Birmingham, for appellant.

Garber & Garber and H.C. Selheimer, all of Birmingham, for appellees.

SOMERVILLE J.

"The subject of joint adventures is of comparatively modern origin. It was unknown at common law, being regarded as within the principles governing partnerships. While some courts hold that a joint adventure is not identical with a partnership, it is regarded as of a similar nature, and governed by the same rules of law. One distinction lies in the fact that, while a partnership is ordinarily formed for the transaction of a general business of a particular kind, a joint adventure relates to a single transaction, although the latter may comprehend a business to be continued for a period of years. *** The principal distinction, however, is that in most jurisdictions, where any is regarded as existing, one party may sue the other at law for a breach of the contract or a share of the profits or losses or a contribution for advances made in excess of his share; but this right will not preclude a suit in equity for an accounting. The contract need not be express, but may be implied from the conduct of the parties." 23 Cyc. 453, A. This text is well supported by the numerous authorities cited.

So far as the questions of mutual good faith and accountability are concerned, the authorities are unanimous in holding that the relation of coadventurers is governed by the law of partnerships, which exacts of all the utmost good faith and fairness in the prosecution of the common enterprise, and forbids the accrual of any profit or advantage therein to one member which is not shared by his associates. Berry v. Colborn, 65 W.Va. 493, 64 S.E. 636, 17 Ann.Cas. 1018, and note; Jones v. Kinney, 146 Wis. 130, 131 N.W. 339, Ann.Cas. 1912C, 200, and note: Botsford v. Van Riper, 33 Nev. 191, 110 P. 705; Edwards v. Johnson, 90 S.C. 90, 72 S.E. 638; 23 Cyc. 455, A.

The complainant's bill, in its primary aspect, seeks an accounting by certain of the respondents for the proceeds of an alleged joint adventure, undertaken by complainant and the said respondents as his associates, and completed by his associates alone without his participation in its final stages; the allegation being that his said associates have received in that behalf $1,000,000 in certificates of corporate stock, in which complainant is entitled to share equally with them, and from which he has been by them excluded.

In its secondary aspect, the bill seeks, by alternative prayer, to compel the specific performance of a certain contract, by the terms of which he and his associates were to buy, and the other respondents, Aldrich and Towers, were to sell to them, a valuable tract of mineral land, to be conveyed to a corporation to be organized, and which land was to be the basis for the issuance of the capital stock in which complainant and his associates were to share; the allegation being that this contract had been wrongfully breached and repudiated by the vendors, who, however, shortly afterwards executed the contract in a modified form for and with complainant's said associates, without complainant's participation therein. These vendors, and complainant's four alleged coadventurers, and also the corporation organized by them to hold and develop the lands purchased, are made parties respondent to the bill.

The foundation for complainant's rights, as here asserted, are in substance thus stated by the bill:

The respondents R.N. McDonough, J.H. McDonough, W.A. Porter, and J.J. Shannon, had an option for the purchase of certain lands from the respondents Aldrich and Towers, and in February, 1912, McDonough and associates engaged complainant as a broker to market and sell these lands. Later, in July, 1912, they gave him an exclusive written commission to procure a sale. This commission, accepted and signed by complainant, contained these stipulations:

"This agreement will be considered in force and effect until the l5th day of November, 1912. We will further agree that, in the event we decide it is to the best interest of all parties to this agreement to form a corporation with the view of

...