Uffelman v. Boillin

• Citation: 82 S.W.2d 545
• Parties: UFFELMAN et al. v. BOILLIN et al.
• Decision Date: 07 February 1935
• Court: Tennessee Supreme Court

82 S.W.2d 545

UFFELMAN et al. v. BOILLIN et al.

Court of Appeals of Tennessee, Middle Section.

February 7, 1935.

Certiorari Denied by Supreme Court May 17, 1935.

COPYRIGHT MATERIAL OMITTED

Appeal from Chancery Court, Montgomery County; V. H. Holmes, Chancellor.

Bill by H. Z. Uffelman and others against Joseph A. Boillin and others, wherein E. R. Tandy and others filed an intervening petition. From a decree, all parties appeal.

Modified in part, and, as modified, affirmed, and reversed in part and remanded.

Horace B. Stout, of Clarksville, and Seay, Stockell & Edwards, of Nashville, for complainants Uffelman and others.

Collier Goodlett and John S. Daniel, both of Clarksville, for defendants Boillin and Laurent.

Trabue, Hume & Armistead, of Nashville, for defendants Cheek and administrator of Hail, deceased.

Wilson, Kyser, Armstrong & Allen, of Memphis, and Chas. V. Runyon, of Clarksville, for defendants Dunlop and wife.

FAW, Presiding Judge.

This is a suit by stockholders of the Dunlop Milling Company, a Tennessee corporation, formerly operating a flour and feed mill at Clarksville, Tenn., for many years, including the period covered by the transactions involved in this case, to recover the sum of $130,650, with interest from May 3, 1926, because of an alleged unlawful and ultra vires expenditure of that amount of the funds of the corporation in the purchase by the defendant directors, for the corporation, of 1,005 shares of the common stock of the corporation from Jo P. Dunlop and wife, Laura Dunlop, and other members of their family, and the receipt and retention by the Dunlops of the amount received by them of the funds of the corporation for the alleged unlawful sale by them of said stock.

In their bill the complainants also sought to recover for losses sustained by the corporation through alleged mismanagement of its business by its officers and directors; but this feature of the case was abandoned in the court below, and is not before this court.

The original bill by which this suit was instituted was filed in the chancery court of Montgomery county on October 18, 1930, by H. Z. Uffelman, Charles George Smith, Dr. J. A. Gholson, and Joe R. Stewart, all of whom, as stockholders of the Dunlop Milling Company, sue in their own right and for the use and benefit of the Dunlop Milling Company and all of the stockholders of that corporation, of all classes, similarly situated.

The complainants, respectively, own stock in the Dunlop Milling Company as follows: H. Z. Uffelman, 125 shares of common stock acquired in 1922 or 1923; Charles George Smith, 10 shares of common stock acquired in 1922; Dr. J. A. Gholson, 10 shares of preferred stock acquired in 1907 or 1908; Joe R. Stewart, 10 shares of common stock acquired about the middle of May, 1926.

The defendants to the original bill are Joseph A. Boillin, E. E. Laurent, L. C. Westenberger, Leslie Cheek, Nashville Trust Company (a Tennessee corporation), administrator with the will annexed of Eustice A. Hail, deceased, and Dunlop Milling Company, a corporation as aforestated.

It is, in substance, alleged in the original bill that defendants Boillin, Laurent, Westenberger, Cheek, and Eustice A. Hail, now deceased (the intestate of Nashville Trust Company, administrator etc.), constituting the board of directors of the Dunlop Milling Company, on May 3, 1926, purchased 1,005 shares of the common stock of the Dunlop Milling Company from Jo P. Dunlop and his wife, Mrs. Laura Dunlop, and, pursuant to their instructions, the secretary of the corporation paid to said Dunlops the purchase price thereof, to wit, the sum of $130,650, out of the funds of the corporation, and in this manner said amount of the funds and assets of the corporation was wrongfully and illegally expended by said defendants and said Hail, and the capital stock of the corporation was thus reduced; that since that time said 1,005 shares have remained in the vault in the office of the corporation; that such reduction of the capital stock was not effected in the manner provided by law, but by the arbitrary, unauthorized, and unlawful action of said directors, and amounted to a conversion or misapplication of the corporation's funds; that the defendants, neither as directors nor as officers of the corporation, had any authority to thus use the funds of the corporation; that the corporation itself could not lawfully buy or own its own stock, and the aforesaid acts of the defendants were ultra vires, against public policy, and void.

Complainants further allege in the original bill that, by said purchase of stock from the Dunlops, said Boillin, Cheek, Laurent, and Hail acquired control of the Dunlop Milling Company, and since that time the prosperity of said corporation has steadily declined and its business has lost until it has become insolvent; that it now owes the First National Bank in St. Louis, Mo., and the American National Bank of Nashville, Tenn., approximately the sum of $300,000, and complainants allege, on information, that on October 15, 1930, the officers of the Dunlop Milling Company met with the representatives of the aforesaid banks at Nashville, Tenn., and admitted the insolvency of the corporation and its inability to pay its debts, and agreed with the representatives of the banks that the corporation should be immediately liquidated and its assets sold and used to pay its debts; that complainants believe that the assets, if properly liquidated, should pay the debts in full, but they are informed and believe that little or nothing will be left to pay on the preferred stock, and absolutely nothing left for the common stockholders of the corporation; that complainants believe and allege that if the $130,650 had not been withdrawn from the assets of the corporation in the unlawful and unauthorized manner hereinbefore set out, that the money thus available would have carried the corporation over its difficulty and it would now be in sound financial condition, entirely successful, and a valuable going concern.

The original bill contains numerous other allegations with respect to the history of the Dunlop Milling Company and the connection of the defendant directors and Jo P. Dunlop and his family therewith, which, so far as deemed necessary, will be stated later herein.

On November 14, 1930, the complainants filed an amended and supplemental bill against the defendants to the original bill and, in addition, making Jo P. Dunlop and Mrs. Laura Dunlop, nonresidents of the state of Tennessee, E. L. Carney, a resident of Montgomery county, and the First National Bank, a national banking corporation with its situs in Clarksville, Tenn., defendants thereto.

It is alleged in the amended and supplemental bill that of the 1,005 shares of the stock of the Dunlop Milling Company purchased by the defendant directors from the Dunlops as alleged in the original bill, 544 shares were purchased from Jo P. Dunlop and the certificate for same transferred by him to the corporation, and 280 shares thereof were purchased from Mrs. Laura Dunlop and the certificate for same transferred by her to the corporation; that the remaining shares making up the 1,005 shares thus purchased were purchased from other members of the family of Jo P. Dunlop; that said defendant directors paid to said Jo P. Dunlop for himself and for said Mrs. Laura Dunlop $130 per share for said stock, thus making the payment to said Jo P. Dunlop $70,720 for his stock and a payment of $36,400 to said Mrs. Laura Dunlop for her stock; that said purchase from Jo P. Dunlop and Mrs. Laura Dunlop were beyond the powers of the corporation, unlawful, and opposed to the public policy of the state of Tennessee, and the said Jo P. Dunlop and Mrs. Laura Dunlop, as well as the directors of the corporation participating in the transactions, and named as defendants herein, are now personally liable for the funds of the corporation paid to them in said purchase.

It is further alleged that complainants did not name the said Jo P. Dunlop and Mrs. Laura Dunlop as parties defendant to their original bill for the reason that they were then and still are nonresidents of the state of Tennessee and residents of Asheville, N. C., and service of process on them could not be secured, but that complainants have learned that said Jo P. Dunlop and Mrs. Laura Dunlop own certain property in Montgomery county, Tenn., which property (consisting of several tracts of land in Montgomery county and some houses and lots in the city of Clarksville), is described in the bill.

Complainants further allege that the said Jo P. Dunlop is the owner and holder of a promissory note executed to him by the defendant E. E. Laurent for the approximate sum of $182,000, which note was executed for the purchase of common stock of the Dunlop Milling Company from said Dunlop by the said Laurent, and the note is secured by one or more certificates of the common stock of the Dunlop Milling Company issued to the said Laurent and aggregating 2,000 shares thereof, and that this note, with said certificates attached, is now either in the possession of the defendant First National Bank or E. L. Carney, having been left with either said bank or the said Carney by the said Dunlop.

Complainants pray, in their amended and supplemental bill, for a decree against the said Jo P. Dunlop for the said sum of $70,720, with interest from the date of the sale of the stock to the said Dunlop Milling Company, and for a decree against the defendant Mrs. Laura Dunlop for the sum of $36,400, the amount paid her for her stock in said Dunlop Milling Company.

Complainants also pray that the First National Bank of Clarksville and E. L. Carney be enjoined from delivering to either the said Jo P. Dunlop or the said Mrs. Laura Dunlop, or to any other person for them or either of them, any property of any kind whatever or choses in action, belonging to either the said Jo P. Dunlop or Mrs. Laura Dunlop, that th...