169 So. 280 | Ala. | 1936
The complaint was against the defendants as promoters and directors of a corporation. It alleges a breach of duty as such promoters occupying a fiduciary relation to prospective subscribers for the corporation's stock.
The questions for consideration are thus stated by appellant's counsel: "* * * that the defendants, while promoters, and inviting the plaintiff and others to subscribe to the stock, and having secured for themselves special prices and advantages and control of the voting stock of the company, caused the plaintiff to be solicited as a subscriber without disclosing to her in the prospectus, caused by the defendants to be issued, or otherwise, that the defendants had secured their stock upon more advantageous terms than the stock was being offered to the plaintiff and the public, and without disclosing that the defendants had procured at the outset control of the company by acquiring a majority of the voting stock, and that plaintiff was mislead and thereby caused to subscribe to stock of the company for which she would not otherwise have subscribed, and was damaged thereby; that this suit was brought within one year of the time that the fraud was discovered by the plaintiff."
A phase of this controversy presented by plaintiff's suit against the corporation for damages sustained in several purchases of its capital stock, is reported in Birmingham Bond Mtge. Co. v. Lovell (C.C.A.)
"Plaintiff assigns error to the action of the court in excluding the stock bought from brokers from consideration by the jury, and in charging there was no fraud in the prospectus. Defendant assigns error to the refusal of the general affirmative charge.
"We agree with the District Court that it was not shown that any statements in the prospectus were fraudulent and calculatedto deceive plaintiff. At the time the prospectus was shown to Lovell, none of the subsidiaries had been established. The establishment of these subsidiaries was to a certain extent germane to the main business of defendant, loaning money on Birmingham real estate, and the evidence was undisputed that they were profitable to the defendant and therefore beneficial to the stockholders; nor would the ownership of a large amountof common stock by the directors, sufficient to control thecorporation under ordinary circumstances, convert defendantinto a closed corporation.
"We also agree with the District Court in ruling against plaintiff as to recovery on the stock bought from brokers. Before *630 that time all the treasury stock had been sold by defendant. Defendant received nothing from these sales, and the brokers were not its agents. Plaintiff was charged with knowledge that the market value of the stock was constantly going down. When she initially purchased her stock it was at the rate of $58 for a unit of one share of preferred and one share of common. The price paid Glass was approximately $54 for the same unit. The price paid Pickens was approximately $51 per unit, and the average price of the stock bought from brokers was approximately $22 for the same unit. Furthermore, plaintiff had ample opportunity, through her husband as her agent, to familiarize herself with the business of defendant. No obstaclewas put in her way to examine the books and ascertain thefinancial condition of the company. Notwithstanding the falsestatements of Crane, the stock for a time was worth all thatshe paid for it. It would be stretching presumption too far tosay that the stock purchased from brokers was bought on thefaith of Crane's statements. Cheney v. Dickinson (C.C.A.) 172 F. 109, 28 L.R.A.(N.S.) 359." (Italics supplied.)
Demurrer being sustained to the several counts as amended in this suit against the several defendants, plaintiff declined to plead further on account of the adverse ruling of the court. This appeal is taken to review the action of the court in sustaining the demurrer.
The complaint shows that the mortgage company was organized under the laws of Delaware on September 16, 1925, by Jay Smith, E. W. Saucier, and Ed S. Moore, with an authorized capital of 125,000 shares of nonpar stock, 85,000 shares of common and 40,000 shares of preferred stock, each, under authority of law, without nominal or par value (Randle v. Winona Coal Co. et al.,
In the face of purchase by plaintiff it is alleged that the defendants failed to disclose that they had acquired the controlling interest in the mortgage company's capital stock, and that they concealed this information from her.
The complaint does not show that any one of the defendants was instrumental in selling plaintiff any of the shares of stock to which reference is made — the first three purchases being made direct from the mortgage company and the subsequent purchases made on the open market. This is the effect of the pleading when construed most strongly against the pleader.
The complaint further alleges the matters contained in the prospectus, which is exhibited, as follows:
"(14-c) That the defendants caused a prospectus to be issued by the company on to-wit, the 1st day of February, 1926, and prior to the first subscription of its stock by the plaintiff on April 26, 1926, addressed to the public as an invitation to invest in its securities, one of said prospectuses was handed to the plaintiff's agent, W. S. Lovell, by an authorized agent of said Company, which said prospectus stated among other things the following: 'This Company differs from similar companies in that it is not a closed corporation, and that the invited subscriber is permitted to purchase its common stock "with full voting rights and all privileges of a stockholder." ' Also, 'The Officers of the Birmingham Bond Mortgage Company would like to have you numbered among its active stockholders, both as a preferred stockholder, receiving 7 per cent annual dividends on your investment, and as a common stockholder, sharing in the earnings of the Company, with full voting rights.' Also, 'The owner of the common stock is one of the Company, with voting rights and all privileges of a stockholder.' Also, You are invited to become an owner of a portion of the original capital of this thriving institution.' Also, 'Any officer or director will be glad to explain in greater detail the working plan upon which the Birmingham Bond Mortgage Company has been organized and the reasons which impel those who are directing its activities, to believe so confidently in its continued success.' *631
"(15-c) That said prospectus showed prominently on its cover page the names of all the defendants as officers and directors, which prospectus was circulated among the public.
"(16-c) That the statement in the prospectus and its implication that the subscriber is permitted to purchase its common stock with full voting rights and all privileges of a stockholder was by reason of the matters herein stated untrue; that the statement therein and the implication that a common stockholder sharing in the earnings of the company with full voting rights was untrue as shown by the facts alleged herein; that the statement that the owner of the common stock is one of the company with voting rights and all privileges of a stockholder and its implication was, for the facts herein alleged, untrue; that the statement 'you are invited to become an owner of a portion of the original capital of this thriving institution' and its implication was untrue by reason of the facts herein alleged.
"(17-c) That the defendants did not disclose or cause to be disclosed in said prospectus, as was their duty to do, that defendants had previously secured to themselves, for a nominal or small sum as herein shown, the voting control of this company under terms and conditions not permitted to any other subscriber or stockholder, and at a more favorable price and terms so as to annul at all stockholders' meetings any effective vote on the part of the non-director stockholder, even if they voted as a unit, the 40,000 votes held by them, nor did the defendants disclose the existence of said contract entered into by the Company with Saucier on to-wit the 6th day of October, 1925, as was their duty. On the contrary the defendants concealed said matters.
"(18-c) That at no time prior to January 31, 1934, had the plaintiff discovered the plan and promotion and the purchase by the defendant directors of the common stock or the terms of such purchase, but at all times up to January 31, 1934, relied upon the fact that said defendants who were occupying fiduciary and confidential relations to her, and the public who were invited to buy the company's stock, were not deriving any advantage over other stockholders or prospective stockholders without a full and fair disclosure of the entire transaction, and that they were not the beneficiaries of any secret profits or advantages made or secured by their confidential and fiduciary relation."
It is well observed that the averments are not that the directors conspired and acted in such manner and effect to deprive other holders of common stock of any voice in the management of the corporation; or that the defendants assumed exclusive control and management of said corporation and voted their capital stock contrary to the best interest of the corporation. National Park Bank v. L. N. R. R. Co.,
In the absence of fiduciary relations imposing the duty to disclose, it is established: (1) that there must be some act or conduct calculated to mislead, deceive, lull into repose, or prevent inquiry, to bar the running of the statute of limitations; (2) that fraud is discovered within the contemplation of law when it is readily discoverable or when a party is put on notice thereof. Peters Mineral Land Co. v. Hooper,
In National Park Bank v. L. N. R. R. Co.,
"Count E alleges the same conspiracy, and attempts to aver how defendant's influence with connecting carriers exercised to procure the delivery of cotton upon *632 false bills of lading amounted to a fraud on plaintiff. The averment is: 'By willfully deceiving, or willfully causing to be deceived, or making false representations, or causing false representations to be made, or fraudulently suppressing or fraudulently causing to be suppressed the truth from the holders of such false and spurious bills of lading when their complaints or inquiries in reference to the cotton therein purported to have been shipped were referred to him as agent of the defendant and in the line and scope of his duties as such agent,' etc.
"It was thus sought to allege a course of business, established by Knight, Yancey Co. and the defendant, by which the former were enabled to sell a large number of their drafts with bills of lading attached. To base an action for fraudulent concealment, a duty to disclose the truth must be shown, that the disclosure was not made when opportunity to speak and inform was presented, and that the party to whom the duty of disclosure was due was induced thereby to act to his injury. 1 Story, Eq.Jur. § 207, p. 216; 2 Pom.Eq.Jur. § 900; Griel v. Lomax,
In Griel v. Lomax,
These principles and statutes were given statement in an action on the case in Brasher v. First National Bank of Birmingham, ante, p. 340,
So much for the sufficiency of allegations of a complaint to constitute fraudulent concealment. Facts necessary to constitute a fraudulent concealment must be material, made to induce another to act, and upon which he does act to his injury. §§ 5677, 8050, Code.
This being a foreign corporation, it was required, (section 7209, Code) before doing business, to file with the secretary of state, a certified copy of its articles of incorporation, designating one known place of business in this state. Construing the pleading against the plaintiff, a copy of the mortgage company's charter was available to her, and there was evidence showing that such provisions of the charter, as to purchases in the open market, which were a matter of record, were known to her and open to her inspection before and at the time of her purchases. *633
There is no confidential relation between directors of a corporation and prospective purchasers of its capital stock. As declared by Mr. Justice Somerville in Williams et al. v. Riddlesperger,
We are of the opinion that the fact that defendants had purchased a controlling interest in the capital stock did not impose upon them the duty to inform plaintiff when no information concerning such purchases was concealed or sought. Beitman v. Steiner Bros.,
The fact that the defendants paid only a part of the purchase price in cash and had extended to them credit or partial payment terms resulted in no injury to the plaintiff. The stock so purchased and issued in good faith, secured by the superior statutory lien for the balance due thereon, was no fraud upon plaintiff. Crawford et al. v. Twin City Oil Co.,
It is not averred that the defendants acted as promoters in the sale of the capital stock in question to plaintiff. Moore et al. v. Warrior Coal Land Co.,
The complaint fails to aver facts that show the corporation to have been what the old books calls a closed corporation. The definition of such corporation is, "where the major part of the persons to whom the corporate powers have been granted, on the happening of vacancies among them, have the right of themselves to appoint others to fill such vacancies, without allowing to the inhabitants or corporators, in general, any vote or choice in the selection of such new officers." McKim v. Odom, 3 Bland (Md.) 407, 416, 418, where the Chancellor observes: "A corporation not being, like a natural person, one of the elements of society, of which government is formed, can only be considered as a creature of the law. It is the law alone which gives to it a personality distinct from that of each of its members, and confers on it the right to act by its president, directors, or agents, in a manner analogous to that in which the government itself acts by its regularly constituted functionaries. This individuality of character, and the right so to act is, then, nothing more than a portion of the power of the government with which it has been invested."
It appears that the voting power was inherent in the holders of the common stock, and the fact that the directors acquired the majority thereof does not constitute it a closed corporation. The complaint discloses certain original holders and directors had died or resigned, and the counts do not aver that the directors owned a controlling interest in the common stock of the company at the time of plaintiff's purchases, or now. The observation made by the Circuit Court of Appeals in Birmingham Bond Mortgage Co. v. Lovell,
We are of the opinion and so hold upon the facts averred, that there was no fraudulent or untrue statement in the prospectus as exhibited in the complaint; nor is it shown that special benefits were secured to defendants and for which the defendants were under duty to account to the mortgage company or any of its stockholders. The complaint does not show that defendants did not comply with the statute as to their holdings of capital stock. Sections 9877, 9882, 9883, 9884, 9886, 9887, 9893, Code. In the absence of a request, before and at the time of purchase, no other disclosure was required to be made — the disclosure required by the statute being sufficient. Sims v. Tigrett,
It results that the demurrers to the several counts of the complaint were sustained without error.
Affirmed.
ANDERSON, C. J., and BROWN and KNIGHT, JJ., concur.
