Belcher v. Birmingham Trust National Bank

OPINION IN LIEU OF FORMAL FINDINGS UNDER RULE 52 F.R.CIV.P.

*

GROOMS, District Judge.

After sundry preliminary hearings, the trial of this action began on May 17, 1965, and was concluded on July 27, 1966. Sixty days were devoted to the taking of evidence, the transcript of which, excluding exhibits, covers 9662 pages. Depositions received in evidence cover 6012 pages, not including exhibits. Over 1600 exhibits were tendered and most of them admitted in evidence. The Court files, six in number, contain 1450 pages. The briefs extend to a total of 1850 pages. Certain of the defendants and cross-defendants have provided the Court with proposed Findings and Conclusions of 288 pages. The Court’s penciled notes made during the course of the trial are 152 pages in length. These statistics are recited neither for the discouragement nor the enlightenment of those who must read them, nor for the elicitation of sympathy for the Court from the sheer size of the undertaking which has devolved upon it, but to account for the length of the opinion which follows, the time required for its preparation, and the resulting delay in' its issuance.

In the hope that perhaps the areas of decision, both as to facts and law, may be more succinctly detailed, the Court has chosen to state the facts chronologically and narratively, with the law applicable thereto, rather than in the usual numerical sequence common to Rule 52 findings and conclusions.

To avoid repetition, the facts found as to any issue are to be taken and considered as found as to any other issue to which they may be applicable.

In formulating its opinion, the Court has given careful consideration to the evidence and exhibits, the oral arguments, the excellent briefs, the entire proceedings, and issues submitted to it. The results speak for themselves.

HISTORY OF THE BELCHER ENTERPRISES TRUSTS AND ESTATES

The

W. E. Belcher Lumber Company

was founded by W. E. Belcher, Sr. during the early part of the century and was operated as a sole proprietorship until 1941. The Lumber Company (herein referred to as the Corporation) was incorporated in 1941 as the W. E. Belcher Lumber Company, Inc. The incorporators, who were also the original directors and stockholders, were issued 1,000 shares of stock of a par value of $50.00 per share, and were as follows:

W. E. Belcher 996 shares

Brady Belcher 1 share

H. H. Maxwell 1 share

A. Roland Belcher 1 share

W. E. Belcher, Jr. 1 share

W. E. Belcher was president, Brady Belcher — vice-president, and Roland Belcher — secretary. Upon the death of W. E. Belcher in 1945, Brady Belcher became president and has continued to serve as such. The original directors, other than W. E. Belcher, Sr., have continued to serve in that capacity, with the exception of Roland Belcher who retired from participation in the company business in 1949. Mrs. Robena Davis and

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Mrs. H. H. Maxwell have served as directors since that year.

Mr. Belcher, Sr. was survived by five children and his widow, Mrs. Ella Belch-er. These children in order of birth are: Brady, Mrs. Ruby Maxwell, A. Roland, W. E., Jr., and Mrs. Robena Davis.

Prior to 1949 all of the 996 shares of stock in the Corporation was transferred to the children of W. E. Belcher — the government accepting an estate valuation of $650.00 per share on the transfers. In 1949 the stock was held as follows:

Brady Belcher 201 shares

Mrs. H. H. Maxwell 199 shares

Mr. H. H. Maxwell 1 share

A. Roland Belcher 200 shares

W. E. Belcher, Jr. 200 shares

Mrs. Robena Davis 199 shares

Total ........ 1,000 shares

The business of the Corporation had flourished by the time of the death of Mr. Belcher in 1945. Some 80,000 acres of timber land had been acquired, and the operation had grown from a small sawmill to an extensive plant at Centreville, Alabama, manufacturing various lumber products.

On July 1, 1949, Roland conveyed 40 shares of his stock to the Corporation subject to an option to repurchase within ten years. On July 16, 1951, he conveyed to it 30 additional shares subject to a like option to repurchase. Neither option was exercised. The facts as to these options will appear in detail when the specific questions involving them are reached.

On July 16, 1951, Roland by deed of trust conveyed his remaining 130 shares to the Birmingham Trust National Bank, as Trustee, under an

inter vivos

trust. The options to repurchase, together with certain other property, were also set over to said trust.

On May 23, 1963, the Birmingham Trust sold 30 shares of the stock held by it in the trust to Fred H. Davis, the husband of Robena. The Corporation thereafter refused to transfer the ownership of this 30 shares upon its books. Title to this 30 shares is in dispute in this litigation. The facts as to the sale of the 30 shares will likewise appear later in these findings. Since the sale to Davis, W. E. Belcher, Jr. has transferred one share of his stock to his son W. E. Belcher, III. Mrs. Maxwell has transferred one of her shares to her daughter, Mrs. Fred Hallman. The 30 shares involved on the second sale by Roland were acquired upon the expiration of the option by the Belcher Lumber Sales Co., Ltd.

The

Belcher Lumber Sales Co.

was formed in 1944 as a general partnership. This partnership entered into an “output” agreement with the Corporation, by which it was to act as a sales agency to the Corporation. The purchase price of lumber payable to the Corporation was 8% less than the sales price with a credit period of 15 days to the Sales Company. The partners contributed capital to the Sales Company in the amount of $100,-000.00 in the following percentages:

Brady Belcher 34 %

Mrs. H. H. Maxwell 16.5%

A. Roland Belcher 16.5%

W. E. Belcher, Jr. 16.5%

Mrs. Robena Roby (Davis) 16.5%

100 %

The general partnership continued until July 16, 1951, when, with the consent of all the partners, Roland’s interest was conveyed to the Birmingham Trust. On July 23, 1961, the

Belcher Lumber Sales Company, Ltd.,

a limited partnership under the laws of Alabama, was estabiished and assumed the business of the existing general partnership. The Birmingham Trust became a special or limited partner. The percentages of ownership remained the same, but the capital was reduced by one-half, and the other one-half plus an earned surplus account of approximately $24,000.00 were set up in a paid surplus account. On January 1, 1952, all accounts were merged into a single partner’s account.

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On November 13, 1956, the

Belcher Wood Products, Ltd.

was formed for the purpose of purchasing non-merchantable timber products from the Corporation for conversion to wood chips for sale to paper manufacturers. The partners contributed $50,000.00 to the capital in the following percentages:

Brady Belcher 20%

Mrs. H. H. Maxwell 10%

Mrs. Fred Hallman 5%

Mrs. Ruby Maxwell Palmer 5%

W. E. Belcher, Jr. 20%

Mrs. Robena Davis 20%

Birmingham Trust 20%

Mrs. Palmer, not heretofore identified, is the daughter of Mrs. Maxwell. Birmingham Trust was and is a special partner.

In 1959 Brady, W. E., Jr., Mrs. Maxwell and Mrs. Davis organized a corporation known as

Engineered Structures, Inc.

Each of the stockholders owns 25% of the stock. This corporation was organized to use the Corporation products in the manufacture of wooden structural members, principally roof trusses. The corporation did not i,ntend to pay dividends, and the Birmingham Trust declined an invitation to become a partner.

In the 1940’s Brady Belcher, his wife Beulah, and his brother-in-law George Phillip White, an attorney, formed

Brady Belcher Interests, Inc.

This company owned a sawmill known as

Silas Lumber Company.

These parties were also the incorporators of the

Belcher Motor Company

and the

Centreville Oil Company.

The

Belcher Investment Company

is a partnership or joint venture organized in 1954 by Brady with a two-, thirds interest and by W. E., Jr. with a one-third interest.

* Southern Pine Homes, Inc.

was organized in 1954 by Brady, W. E., Jr., Lester Harris and Earl Furlong, with control resting equally in Brady and W. E., Jr. It was organized to engage in the house building business. All of the corporations referred to are Alabama corporations with their principal places of business in Centreville, Alabama.

J. L. Bell Company, Inc.

and

Norris Furniture Corporation

are Florida corporations, with their principal offices in Quincy, Florida, engaged in the manufacture and sale of furniture, respectively. The capital stock of these corporations was acquired in the name of Brady and W. E., Jr., who claim that the acquisition was as agents of the Sales Company. The Sales Company to a large extent, and the Corporation to a lesser, have financed these two corporations with alarming if not with disastrous results, and much of this controversy stems from this action. Those opposed to Brady and W. E., Jr. claim that they acted wholly without authority; that all of the transactions respecting said corporations were in fact the private undertaking of Brady and W. E., Jr. and not that of the Sales Company or Corporation.

After the institution of this litigation Brady Belcher caused a

Costa Rica Company

to be organized for the exploitation of a timber contract with the government

of

Costa Rica. The stockholders appear to be the nominees of Brady who purportedly hold the stock for the W. E. Belcher Lumber Company. It is charged that this endeavor was undertaken without authority of the Board of Directors of the Corporation.

In 1965

Forest Industries, Inc.

was incorporated in Iowa with its principal place of business in Moline, Illinois, for the purpose of manufacturing boxes and crates. Brady and W. E., Jr. subscribed to 51% of the capital stock in the name of the Sales Company and again it is claimed without any notice to the other partners of the Sales Company. The Sales Company at the instance of Brady and W. E., Jr.. has extended very substantial credit to this company, which is averred to be insolvent.

At the ti.me A. Roland Belcher established the trust referred to, which is known as Trust B, he also established another trust, known as Trust A. Plaintiff, Charles Donald Belcher, the only son of Roland and Charles’ mother, Mary Rogers Belcher, was the income benefi

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ciary of Trust A. Trust A was to terminate and be paid over to Charles at age 25. He was granted power to invade the corpus with the consent of his mother. There remains only $1.00 in Trust A.

In 1953 Trust B was amended to delay vesting in Charles until he attained the age of 25 as to one-half of the corpus, and until he attained the age of 30 as to the remainder. Roland reserved the income during his life. Thereafter the income was payable to Charles. Roland died February 7, 1959. The Birmingham Trust became his executor. Except for certain personal items, the testamentary estate poured over into Trust B. There were substantial debts of his estate, including estate taxes, since Trust B was included in the estate for estate tax purposes.

Brady, W. E., Jr. and H. H. Maxwell are the trustees of the

Estate of W. E. Belcher, Sr.

Income from the trust was payable quarterly to the fi,ve children of W. E. Belcher, Sr. and his widow Ella Belcher. After Roland’s death his share was payable to the plaintiff. Except for a small distribution right after Mr. Belcher’s death, no distribution of income has been made from the trust. This has accumulated and now amounts to a very substantial sum. Failure to distribute this income has become a poi,nt of controversy in this action as well as in a separate action in the state court.

HISTORY OF THE LITIGATION AND PARTIES

This litigation was instituted by Charles Donald Belcher, a citizen of Florida, on March 31, 1964, against Birmingham Trust National Bank, a corporation. By amendment of June 14, 1964, the following were added as parties defendant :

Brady Belcher, W. E. Belcher, Jr., Ruby B. Maxwell, H. H. Maxwell, Ruby M. Palmer, Julia M. Hallman, Robena B. Davis, W. E. Belcher Lumber Company, Inc., a corporation; Belcher Lumber Sales Company, Ltd., a limited partnership, whose general partners are Brady Belcher, W. E. Belcher, Jr., Ruby B. Maxwell and Robena B. Davis; Belcher Wood Products, Ltd., a limited partnership whose general partners are the same as those in the Sales Company with the addition of Julia M. Hallman and Ruby M. Palmer.

On August 6, 1964, the defendant Birmingham Trust National Bank, as Trustee, filed a cross-claim against all the parties defendant added by the amendment of June 18, except the two partnerships, and added as other cross-defendants: Beulah White Belcher, Clara Dukes Belcher, Fred H. Davis, W. E. Belcher, III, Belcher Investment Company, Belcher Motor Company, Inc., Brady Belcher Interests, Inc., Southern Pine Homes, Inc., Centreville Oil Company, Inc., and Ella Belcher.

On August 20, 1964, Mrs. Robena B. Davis filed a cross-claim against all the cross-defendants named in the Trustee’s cross-claim, including Mr. Davis, except her mother Ella Belcher. By amendment of the same date Birmingham Trust National Bank was made a cross-defendant to Mrs. Davis’ cross-claim.

On October 7, 1964, cross-defendant Fred H. Davis filed a cross-claim against all the cross-defendants named by Mrs. Davis, including Mrs. Davis, but not including Beulah White Belcher, Clara Dukes Belcher, the Investment Company, the Motor Company, Southern Pine, or Centreville Oil.

On May 13, 1965, Mary Rogers Belch-er, plaintiff’s mother, a citizen of Florida, intervened in the case as a party plaintiff adopting the allegations of the complaint of the plaintiff.

PLEADINGS AND RELIEF SOUGHT

The pleadings in this case are voluminous. The relief sought, except such as shown by the amplification encompassed by the order of April 13, 1965, and except such as sought by amendment since the pretrial order of May 14, 1965, is set out in the pretrial order.

Plaintiff in his original complaint seeks an equitable accounting and related relief as to the Trustee, Birmingham Trust. He charges breach of duty by

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the Trustee Bank as follows: (1) failure to collect income; (2) failure to preserve the trust property; (3) failure to control assets; and (4) breach of duty of care in the administration of the estate. As to the other defendants plaintiff seeks an accounting for alleged damage done to the plaintiff’s interest in the trust estate.

By i,ts cross-claim, as amended to date of the pretrial order, Birmingham Trust seeks the following relief: (1) a dissolution of the corporation, the Lumber Company; (2) a dissolution of the Sales Company and Wood Products partnership; (3) an accounting — (a) for sums owing to the Lumber Company in nine particulars, (b) upon dissolution for sums owing the two partnerships in twelve particulars, and (c) of funds of the estate and testamentary trust of W. E. Belcher, Sr.; (4) a declaration removing any cloud upon the Trustee’s title to any stock owned by it in the Corporation and the right to alienate same without limitation of the right of purchase by the Corporation; and (5) an indemnity or exoneration from the cross-defendants if it be held liable to the plaintiff.

By an amendment of June 21, 1966, to its cross-claim, identified as the “Florida Lands amendment,” the Bank challenges the legality of the action of Brady Belch-er, the Corporation, W. E. Belcher, Jr. and Ruby Maxwell (the latter two concurring with Brady), respecting the two sales of stock by Roland Belcher, and the subsequent acquisition of the shares by the Corporation and the Sales Company, as well as their action which culminated in the sale to Fred Davis of 30 shares in 1963. The challenge includes an alleged violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j(b). The Court reserved a ruling on the objections to the allowance of that aspect of the amendment relating to the Securities Exchange Act.

By a further amendment of June 29, 1966, the Bank seeks to establish a constructive trust on behalf of the Corporation in the Florida lands acquired by Brady Belcher allegedly with its corporate funds. It also seeks damages claimed to have been sustained on the sale of the 30 shares of stock to Fred Davis.

Mrs. Davis by her amended cross-claim seeks the same relief sought by the Trustee in (1), (2), (3), (4) and (5), except she does not seek relief as to salary and small loan business income paid to her mother Mrs. Ella Belcher. As to an accounting on the dissolution of the partnerships she seeks the same relief as the Bank respecting loss or damage suffered by reason of a breach of the general partners’ failure to disclose the true state of facts of the financial condition of the partnerships, denying any dereliction on her part as a general partner.

By a further amendment to her cross-claim filed June 30, 1966, Mrs. Davis seeks also to establish for the Corporation a constructive trust on the Florida lands.

By his cross-claim Fred H. Davis seeks: (1) to require the Corporation to transfer the 30 shares of stock, which he purchased from the Bank as Trustee, and a removal of any cloud to his title thereto or his right to alienate same; and (2) a dissolution of the Corporation.

The Court heard evidence on Forest Industries, Inc. and the Costa Rica Company, and acquisitions by that company and the claims respecting same are in issue.

The defendants, other than Birmingham Trust and Mrs. Davis, enter a general denial of the right of the plaintiff to any relief. They also assert among other defenses that the plaintiff is without right to maintain this action without a joinder of the Bank, as Trustee, an indispensable party plaintiff, and that there should be a realignment of the Trustee with the plaintiff, and that when the parties are thus realigned the Court is without jurisdiction since the Trustee and the defendants are citizens of Alabama. Such defendants also charge that there is collusion between the Trustee and plaintiff benefici,ary.

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For answer to the complaint and to the cross-complaint of the Birmingham Trust National Bank, the defendant Robena B. Davis pleads (1) the general issue; (2) the statute of limitations; (3) laches; (4) waiver and estoppel; and (5) contributory fault on the part of the plaintiff and the intervenor.

For answer to the complaint the Birmingham Trust National Bank pleads (1) the general issue, except as otherwise admitted in its written answer; (2) the statute of limitations; (3) laches; (4) waiver and estoppel; (5) as to any lack of diligence on its part, which it denies, it pleads the contributory fault on the part of the beneficiari.es and each of them; (6) ratification by the conduct of the Trust settlor, A. Roland Belcher, during his lifetime; and (7) to the extent that the plaintiff fails to sustain his claim against the defendants, it would not be liable to the plaintiff.

For answer to the cross-clajm of the Birmingham Trust National Bank with respect to the dissolution of the Corporation and the partnerships, the cross-defendants, other than Robena B. Davis and Fred H. Davis, say that such relief is not within the scope of Rule 13(g) of the Federal Rules of Civil Procedure and that the cross-claimant is not entitled to any relief upon sai,d claims, and in the alternative the defendants say that if cross-plaintiff is entitled to any such relief it should be realigned with the plaintiff in this action, thereby defeating diversity jurisdiction. The defendants also plead: (1) lack of jurisdiction of the cross-claim under Rule 13(g) due to improper alignment; (2) failure to comply with the conditions of Rule 23(b); (3) the general issue; (4) statute of limitations; (5) laches; (6) waiver and estoppel; (7) ratification; and (8) contributory fault on the part of the plaintiff, intervenor and cross-complainants.

The cross-defendants assert: (1) that said cross-claim of Fred H. Davis is not a legal cross-claim under Rule 13(g); and (2) when the claim is properly aligned the Court will be deprived of jurisdiction of the said claim insofar as dissoluti,on of the Corporation is sought. For the remaining answers, the defendants adopted all of the answers asserted to the counterclaim of the Birmingham Trust National Bank.

At the outset the Court is met with the jurisdictional question above referred to both with respect to the claims asserted by the plaintiff to the plaintiff’s cause of action as well as to the claims lai,d in the cross-complaints.

JURISDICTION

Brady Belcher and those arrayed with him as defendants and cross-defendants filed motions to dismiss both the original suit and the cross-claims challenging,

inter alia,

the diversity jurisdiction of the Court. They insist that the defendant Birmingham Trust should be realigned with the plaintiff and that such realignment would place residents of Alabama on opposite sides in the litigation thereby destroying diversity. By orders of July 23 and September 21, 1964, the Court overruled the motions assailing jurisdiction. In initially disposing of the jurisdictional question on the motions the Court followed the five-four majority opinion in Smith v. Sperling, 354 U.S. 91 , 77 S.Ct. 1112 , 1 L.Ed.2d 1205 , which held that the trial court should determine the issue of antagonism, between a party and the party sought to be realigned with him, “by the pleadings and the nature of the dispute.” The Court does not construe Smith v. Sperling as holding that if it be determined in the course of the trial on the merits that in fact there is no diversity its lack is proscribed by the Court’s initial ruling on the motion holding the presence of diversity from the pleadings and the nature of the controversy. In view of this construction the Court permitted the filing of answers both as to the original and cross-claims asserting the issue of jurisdiction. The parties have briefed the question at length.

Plaintiff contends that Section 95 of Title 7 of the Code of Alabama, 1940, has conferred upon him substantive

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rights as beneficiary to maintain this action against his Trustee, Birmingham Trust. This section provides that:

“A remainderman or reversioner of personalty may maintain an action against a wrongdoer for any injury going to destroy the existence or ultimate value of the property. In such cases the tenant in possession, and remainderman or reversioner, may sue jointly for the injury to the entire estate, the recovery being held under like limitations.”

This section was applied in Mudd v. Lanier, 247 Ala. 363 , 24 So.2d 550 , where it was held that beneficiaries of trust shares of a corporation’s common stock had a right as contingent remaindermen to sue for cancellation of a consent decree, authorizing the issuance of preferred stock to another common stockholder in satisfaction of the latter’s money judgment against the corporation, where there was want of a valid consideration for the judgment.

Where a trustee commits a breach of duty, third parties who benefit thereby or who participate therein and who are cognizant of such breach become trustees

in invitum,

and the beneficiary may hold them accountable separately or along with the trustee. Leach v. Gray, 201 Ala. 47 , 77 So. 341 ; Saunders v. McDonough, 218 Ala. 207 , 118 So. 389 . This common law principle as to such third party liability finds lodgement in Title. 58, Section 44, Code of Alabama, which provides:

“All persons aiding and assisting trustees of any character, with a knowledge of their misconduct, in misapplying assets, are directly accountable to the persons injured.”

Rule 18(a), Federal Rules of Civil Procedure, provides:

“A party asserting a claim to relief as an original claim, counterclaim, cross-claim, or third-party claim, may join, either as independent or as alternate claims, as many claims, legal, equitable, or maritime, as he has against an opposing party.”

Rule 20(a) provides in pertinent part as follows:

“All persons . . . may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all defendants will arise in the action. A plaintiff or defendant need not be interested in obtaining or defending against all the relief demanded. Judgment may be given for one or more of the plaintiffs according to their respective rights to relief, and against one or more defendants according to their respective liabilities.”

Rule 13(g) provides that:

“A

pleading may state as a cross-claim any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein or relating to any property that is the subject matter of the original action. Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.”

Based upon the averments of his pleadings and under the Alabama statutes and decisions plaintiff has a substantive right of action agaipst the Bank and the other defendants, and may pursue his right in accordance with the procedures provided for in the above quoted rules, subject, of course, to the jurisdictional limitations upon this Court.

The Court will not attempt to analyze the cases pro and con on the issue of jurisdiction and alignment. Limited by the sweep of certain general principles, each case must be posited at least upon its own pleadings and the nature of the controversy, if not upon the actual facts relating to jurisdiction.

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After reading and understanding the voluminous charges made by the plaintiff against the Bank, the briefs respecting the same, and after hearing the contentions of the parties, the Court concludes that the controversy between the plaintiff and the Bank is not feigned or collusive, but is actual and substantial, real and apparent. It is clearly apparent that if Brady Belcher and those arrayed with him had not been sued herein, the Bank could not seriously contend that there was no jurisdiction as between it and the plaintiff. It is equally clear that the controversy, so vigorously asserted, did not vanish with the appearance of the other defendants in the case.

It is also contended that plaintiff must obtain relief against the Bank before he can pursue his claim against the other defendants. This contention overlooks the fact that plaintiff has the right to pursue the Bank and the other defendants jointly as well as separately. It also appears to ignore Rule 18(b) which in material part provides that “whenever a claim is one heretofore cognizable only after another claim has been prosecuted to a conclusion, the two claims may be joined in a single action; but the court shall grant relief in that action only in accordance with the relative substantive rights of the parties.”

Plaintiff falls within the statutes and rules referred to. He could have maintained this action against the Trustee Bank, a citizen of Alabama, as sole defendant. He could have maintained it against the defendants added by the amendment of June 18, 1964, all citizens of Alabama, without joining the Trustee Bank. It follows that he can join them all in one action as here undertaken.

Jurisdiction does not fail nor is realignment required because some of the cross-claims of the Trustee Bank are related to the wrongful transactions and occurrences upon which plaintiff relies in asserting that wrongs were committed to the trust estate and property by one or more of the individual defendants added by the amendment of June 18. Also in the picture is the fact that the Trustee Bank seeks relief by its cross-bill not sought by the plaintiff, as for example, the dissolution of the Corporation, on the ground among others that the Corporation was the agency through which the wrongs were committed by Brady and W. E., Jr., and one or more of the other defendants aligned with them.

Although jurisdiction is not affected by the desirability of avoiding a multiplicity of actions, the fact that a joinder of claims as here undertaken will have that result attests the wisdom of the rules and principles of law permitting such joinder.

The hearing on the merits confirmed the rightness of the Court’s ruling on the motions to dismiss respecting jurisdiction. Consequently, the Court finds in favor of jurisdiction both on the motions and the merits. It follows that having sustained the jurisdiction as between the plaintiff and the defendants, the jurisdiction on the cross-claims is likewise sustained since the cross-claims do not depend upon diversity. Childress v. Cook, 5 Cir., 245 F.2d 798 .

The Court has not overlooked Dryden v. Dryden, 8 Cir., 265 F.2d 870 . That case under its facts does not in the Court’s opinion rule this case as a whole or the cross-claims seeking the establishment of constructive trusts and other relief.

FLORIDA LANDS

Although the oldest of the transactions involved in this litigation, the Florida lands were the last upon which evidence was taken. This was due to the fact that no other stockholder or officer of the Corporation knew that Corporation funds had been used by Brady Belcher to purchase such lands, until 1966. The claims of the Bank and Mrs. Davis based on the Florida lands were filed in June 1966. They seek to establish on behalf of the Corporation a constructive trust on these lands, and an accounting of profits derived therefrom.

By deed dated May 2, 1950, and recorded in Okaloosa County, Florida, on

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July 17, 1950, and in Walton County, Florida, on July 19, 1950, Brady Belcher acquired title to 18,880 acres of land lying in those counties. -Of this land 200 to 250 acres have been sold. Title to the remainder is in Brady.

The chronology of and the facts relating to the acquisition of the title to these lands are as follows:

On July 11, 1950, two sight drafts were drawn on Brady Belcher — one by Ewell N. Clark in the amount of $5,000.-00, and one by the trustees of the Brit-ton Lumber Company, the seller of the lands, for $65,830.00, or a total of $70,-830.00. Each of these drafts was payable “to the order of the Bank of Florala, Florala, Ala.”

The draft drawn by Clark was signed “as Trustee for Brady Belcher and the Trustees of Britton Lumber Co.” The draft drawn on behalf of the Trustees was signed by E. P. Rodwell, Jr. “as Trustee for Britton Lumber Company.” Clark was the attorney for Brady Belch-er. Rodwell in addition to being a Trustee was also an officer of the Bank of Florala. The occasion for handling the matter in this manner is explained in Mr. Clark’s letter of July 6, 1950, to Brady Belcher as follows:

“. . . Mr. E. P. Rodwell, Jr., acting for the Trustees of Britton Lumber Company has authorized me to submit the following arrangement to you for consideration and acceptance:

“(1.) Instead of the one draft on you in the amount of $70,830.00 now placed with the deed held by the Birmingham bank, Mr. Rodwell will forward two drafts to the said bank, one drawn by him for the Trustees of Britton Lumber Company for $65,-830.00 and one by me as trustee for you and said Trustees for $5,000.00, with instructions to said bank to deliver the deed to you upon payment of both drafts;

“(2) I will hold the $5,000.00 in a separate trust account with the Bank of Florala until the marketability of the title can be reasonably determined by me; . . .”

On July 12, the First National Bank of Birmingham wrote Brady that it had received from the Bank of Florala and then held these two drafts which were to be substituted for a draft for $70,-830.00

“with a deed attached

which we received for collection about 60 days ago.”

On July 14, Brady, who was the president and a director of the Corporation, W. E. Belcher Lumber Company, drew a check for $48,750.00 on the Corporation’s account at the Peoples Bank of Centreville payable to that Bank. This check on its back bears the notation, “B’ham. draft.” The proceeds of this cheek were used to purchase a draft in the amount of $48,750.00 on the Peoples Bank’s account with the First National Bank of Birmingham payable to the latter Bank. This draft bears a “paid” stamp of July 15, 1950, and a notation that it was used to pay an item held for collection, and was not a bank asset of the First National. On the same day the amount of the draft was charged by the First National to the Peoples Bank account with it.

On July 14, the Bank of Florala wired the First National to reduce the larger of the two drafts to $64,019.73 and to release the deed upon payment of the drafts. This reduced the collection item to $69,019.73. On July 15 the deed was released to Brady Belcher, and the Bank of Florala’s account with the First National was credited with the latter sum. The purchase price of the land was $69,-019.73.

The Corporation’s disbursement journal shows a debit to the local ledger and a credit to Peoples Bank in the amount of $48,750.00. The Corporation’s disbursement journal does not otherwise identify the person, corporation or account charged with the $48,750.00 disbursement. The local ledger is in fact a group of independent cards or sheets, and the testimony given by Brady and Furlong was to the effect that some of those local

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ledger cards were missing, and that the cards or sheets relating to the period preceding October 30, 1950, are missing, and that the cards or sheets pertaining to Brady’s personal participation in the local ledger are missing and cannot be found. Under present procedures if the Corporation was paying its own debt there would not be a charge to the local ledger. There is no evidence that the procedures have ever been different. The only debt owed by the Corporation to the Peoples Bank in July 1950, was the sum of $39.47, and an official of the First National was unable to locate any records which reflected an indebtedness of the Corporation to the First National as of July 15, 1950. The Corporation’s records do not reveal that the $48,750.00 check was applied to any corporate purpose.

In answer to. plaintiff’s interrogatories given on February 10, 1966, Brady stated that he had paid $70,793.93 for the lands in Florida and that he did not recall obtaining funds from the Corporation for use in their acquisition, and that no records were found to indicate such to be the case. He made no mention of missing records. Upon further answers made pursuant to an order of the Court he answered that records had been located which indicated that at the date of the payment for the lands he was not indebted to the Corporation. Later when ordered to produce the records he failed to do so, claiming that those records were missing and could not be found. The evidence upon trial firmly established the fact that Brady was indebted to the Corporation on October 31, 1950, in the sum of $34,684.29, which, by entry made near the end of the Corporation’s fiscal year ending on that date was reflected as “cash on hand $34,684.29.” Others in the Corporation knew nothing of this indebtedness. The sum was paid on April 16, 1951, by a loan from the First National Bank of Birmingham. Brady was unable to state whether this sum constituted any part of the $48,-500.00, or for what purpose the latter sum was drawn from the Corporation.

Finally Brady testified that he did not know where the money came from to buy the Florida lands, or whether or not he used Corporation funds for that purpose; and that he did not keep $70,-000.00 in cash lying around. There was no explanation of the source of the balance of the purchase price of $20,269.73. Brady had no recollection of paying any sums in connection with these lands other than the two drafts. These drafts were finally produced from Brady’s personal files. They bear the “paid” stamp of the First National Bank of Birmingham. The memorandum of Furlong, chief accountant of the Corporation, of November 12, 1958, made in connection with a Revenue Agent’s investigation confirms the fact that the deed to these lands was acquired by the payment of the two drafts.

The credit files of the First National Bank of Mobile of July 12, 1950, reveal that that Bank refused Brady a loan for $50,000.00 to purchase the Florida lands.

Although the records of the First National Bank show a credit on its account with the Bank of Florala on July 15 of the sum of $69,019.73, there is no like debit during the month of July 1950. There are no records of the Bank of Florala in evidence to show the transmittal of any funds from that Bank to the seller of the lands by debiting its account with the First National, nor are there any records showing disbursement from other accounts of the Bank of Florala.

Considering the large amount of funds involved in the purchase of the Florida lands and in his indebtedness to the Corporation, Brady’s testimony as to the same reflects so much more adversely on his veracity than on the dimness of his memory that the Court cannot accept his testimony in those particulars.

As initially stated, none of the other stockholders or officers of the Corporation knew that any of its money had been used by Brady to purchase the Florida lands. None of these individuals had any knowledge of the issuance of the Corporation’s check for $48,750.00.

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Although not technically trustees, the duties of officers and directors are analogous to those of trustees. They are required to act with fidelity and in good faith, subordinating their personal interests to the interests of the corporation. Holcomb v. Forsyth, 216 Ala. 486, 490 , 113 So. 516 . See statutory declaration, Title 10, § 21(97), Alabama Code. They occupy a

quasi fiduciary relation

to the corporation and its stockholders. Holcomb v. Forsyth; Ingalls Iron Works Co. v. Ingalls Foundation, 266 Ala. 656 , 98 So.2d 30 . The defense of laches and the statute of limitations must be weighed in the light of these relationships.

Section 20 of Title 7 of the Code of Alabama, 1940, provides that “actions for the recovery of lands, tenements, or hereditaments, or the possession thereof,

except as herein otherwise provided,”

must be commenced within ten years. (Emphasis supplied)

Section 42 of Title 7 provides that:

“In actions seeking relief on the ground of fraud where the statute has created a bar, the cause of action must not be considered as having accrued until the discovery by the aggrieved party of the fact constituting the fraud, after which he must have one year within which to prosecute his suit.”

The statute of limitations of ten years, Section 20, governs actions to establish resulting and constructive trusts. Haavik v. Farnell, 264 Ala. 326 , 87 So.2d 629 .

Section 20 like other sections is subject to the additional period allowed by Section 42.

Haavik

does not hold to the contrary. In

Haavik

there was no occasion for applying Section 42 since the claim was within Section 20. Section 42 was applied in Averett v. Averett, 243 Ala. 357 , 10 So.2d 16 , where a bill for the cancellation of a deed was filed eleven years after the transaction, but within one year of the acquisition of knowledge of respondents’ claim. There the court said:

“Treating the bill as one seeking relief upon the ground of fraud, these averments bring complainants within the one year limitation after discovery of the fraud. Code of 1940, Title 7, § 42. Parties so demeaning themselves as to keep those far from the scene of action, in the dark cannot set up lack of diligence, such as non-examination of records disclosing respondents’ claim of title derived as here alleged.”

In Northwestern Land Association v. Grady, 137 Ala. 219, 224 , 33 So. 874 , 875, the court said:

“The nature and purpose of this proceeding is to enforce a constructive trust in lands. In such a case, it has been held by this court that the statutes of limitations of three and six years as a defense, are not applicable, though the statute of ten years would be,

if the case was not excepted from its operation by fraudulent concealment of the facts,

or some other saving clause of the statute. Stoutz, Adm’r, v. Huger, 107 Ala. 253 , 18 South. 126 .” (Emphasis supplied)

A corporate officer charged with wrongdoing of which the other directors and officers know nothing and whom he knows to be ignorant of the wrongdoing “cannot escape liability under the shelter of the statute of limitations.” Coxe v. Huntsville Gas Light Co., 106 Ala. 373 , 17 So. 626 ; Greenleaf v. Profile Cotton Mills, 235 Ala. 530 , 180 So. 582 .

In Hart v. The First National Bank of Birmingham, 373 F.2d 202 , decided by the Fifth Circuit on February 20, 1967, there was involved a question of the ten year statute of limitations as applicable to a constructive trust. The court concluded its opinion by saying:

“Finally, if the plaintiffs did not discover the sale to Ellinor because the banks fraudulently concealed the sale, Alabama Code, Title 7, § 42 (Recomp. 1958) extends the statute of limitations when there has been fraudulent concealment of any right of action. The period for suit in such instances

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of concealment is extended to run for one year from and after the date of notice or discovery of the fraudulent concealment. Mere ignorance of the cause of action is not sufficient to invoke this provision. Peters Mineral Land Co. v. Hooper, 1922, 208 Ala. 324 , 94 So.2d 606 ; Fletcher v. First National Bank of Opelika, 1943, 244 Ala. 98 , 11 So.2d 854 ; Hudson v. Moore, 1940, 239 Ala. 130 , 194 So. 147 .”

In the cited

Fletcher

case the court said:

“As was said in Tillison v. Ewing, 91 Ala. 467 , 8 So. 404 : ‘The ignorance must be superinduced by the fraud of defendant.

In the absence of a fiduciary relation between the parties, imposing the moral and legal duty to disclose,

there must be some act or conduct calculated to mislead or deceive, or to lull inquiry. Porter v. Smith, 65 Ala. 169 ; Holt v. Wilson, 75 Ala. 58 .’ ” (Emphasis supplied)

And in-

Moore,

where the doctor denied that he had knowledge that he had left a sponge in the abdomen, it was stated:

“Where confidential relations exist, as between physician and patient, the duty to disclose may render silence fraudulent,

but knowledge of the facts is a necessary element of fraudulent concealment.” (Emphasis supplied)

No entry was made on the corporate books that would charge other stockholders and directors with knowledge that Brady had advanced himself $48,750.00 from corporate funds. The financial statements for 1950 do not show that Brady had advanced himself $48,750.00 by way of loan or otherwise. The fact of the use of the $48,750.00 was concealed from other stockholders and directors. The only means that they had of acquiring knowledge of the source of the funds was through Brady. The fact that the conveyance was recorded would give constructive notice that record title was in Brady, but these records did not disclose the source of the funds employed in making the purchase. As stated in the brief of the attorneys for Brady: “This [the funds used] became an issue for the first time in June 1966, after the records of the Belcher Companies, and of Brady Belcher personally, had been subjected to the most extensive and repetitive discovery examination by opposing lawyers and the accountants of Arthur Andersen & Company.” The basic facts rested in Brady’s personal files and in the files of third parties, none of which were available short of discovery in a court proceeding. The other stockholders and officers had a right to rely in good faith upon the books of accounts or reports made to the Corporation by its president. Section 21(31), Title 10, Code of Alabama, 1940.

The defense of laches is not available to a director of a corporation when called upon to account for his wrongdoing not approved or acquiesced in by the corporation. Jacksonville Public Service Corp. v. Profile Cotton Mills, 236 Ala. 4 , 180 So. 583 .

In

Greenleaf, supra,

the court said:

“True, the bill does not expressly negative knowledge of the misconduct at the time of each and all of the infractions, but the facts averred show that its means of acquiring the knowledge were through the respondent who is charged with the wrongs and derelictions. In other words, limitations or laches could not be charged to this complainant so long as the respondent’s relation with it existed and which was not terminated until 1934.”

In McKinstry v. Thomas, 258 Ala. 690, 700 , 64 So.2d 808, 815 , the court held:

“Ignorance by complainants of their rights, and the existence of confidential relations qualify the consequences of what might otherwise be laches. Fowler v. Alabama Iron & Steel Co., 164 Ala. 414 , 51 So. 393 . Laches is founded upon acquiescence in the assertion of an adverse right for an unreasonable period of delay on the part of one who would assert it to the prejudice of the adverse party, and does not operate against a complainant on the averments of his bill which show that he had no previous

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knowledge of such right now sought to be enforced.”

While in Hagood v. Knight, 257 Ala. 64 , 57 So.2d 616 , the court held:

“Acquiescence involves actual or imputable knowledge. A person cannot be said to be guilty of laches until he has knowledge of the facts which entitles him to relief and thereafter manifests a want of diligence in asserting his rights.”

Under these and other authorities the action as to the Florida lands is not barred by either laches or limitations.

A review of the authorities in both Alabama and Florida reveals that the law with respect to the establishment of constructive trusts is substantially the same in both states. See Costell v. First National Bank of Mobile, 274 Ala. 606 , 150 So.2d 683 ; Wadlington v. Edwards, 92 So.2d 629 (Fla.); and Doing v. Riley, 5 Cir., 176 F.2d 449, 457 , where the court states the general rule with citation of Florida cases. The rule as stated in

Costell

is as follows:

“It is a general rule in most jurisdictions that if the funds of one person are wrongfully used by another in the purchase of real estate in his own name, or in the improvement of his real estate, a constructive trust in the property purchased or improved will arise in favor of the one whose money was wrongfully used, whether the relation at the time of the misuse or misapplication of the funds was a fiduciary one, or that of employer and employee, or whether they stood to each other as strangers;

>1

The rule applies as well to officers of a corporation. See 89 C.J.S. Trusts § 151, at 1066, 1067, where it was said:

“Such principle has been applied with respect to impressing a constructive trust on profits derived from the conduct of a competitive business, the securing of a lease, or the purchase of property for the officer’s own account, especially where the officer wrongfully used corporate funds to purchase the property, . . .”

There is no evidence that the monies used were subsequently repaid to the Corporation. Even so, this would appear to make no difference, nor would a constructive trust depend upon the general state of accounts between the officer and the corporation where the money has been used without the knowledge of the other directors. Shearer v. Barnes, 118 Minn. 179 , 136 N.W. 861 ; Milner v. Rucker, 112 Ala. 360 , 20 So. 510 . Nor would the fact that the officer used his own or other funds as a part of the purchase price prevent the attachment of the trust to that proportion of the property and its profits measured by the amount of corporate funds so used in relation to the total purchase price, provided there is no doubt as to the proportion of funds actually invested. Shearer v. Barnes,

supra.

Whatever funds that were employed by the trustee must be traced into the property purchased. It must be shown that the funds can be located in some particular fund or

property.

Holloway v. Osteograf Co,, 240 Ala. 507 , 200 So. 197 .

The relation between the seller of the lands and the First National Bank of Birmingham, which held the drafts for collection with deed attached, was that of principal and agent. Hutchinson v. National Bank of Commerce, 145 Ala. 196 , 41 So. 143 .

By virtue of Section 33 of Title 47 of the Code of Alabama livery of seizin as at common law is dispensed with “and the property and possession of the grantor pass as fully by his conveyance as if seizin had been formally delivered.” The delivery of the deed by the First National as agent of the seller upon the payment of the drafts to the First National was just as legally effective as if delivered directly by the seller.

As already seen the two drafts were payable to the Bank of Florala, and they were so paid by the First National Bank

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by crediting the former’s account with the latter in the amount of $69,019.73, the total purchase price of the property.

Once the funds were traced to the First National, which held the deed, as agent of the seller and delivered it when the purchase price was paid by the payment of the drafts to the Bank of Florala as directed by the seller, the funds of the Corporation need not be further traced to satisfy the principle of tracing. To hold that it is necessary to trace these funds out of the Bank of Florala’s account at the First National into the hands of the seller, would be to go even beyond the “ear-marked” theory, which was long ago repudiated. Hanover National Bank v. Thomas, 217 Ala. 494, 498 , 117 So. 42 . Conjecture could be, but will not be, made as to how the Bank of Florala settled with the seller. The law is clear that when a vendor delivers a deed to his agent, it is the agent’s duty to deliver the deed in exchange for the purchase price. The agent’s receipt of the purchase price constitutes payment to the principal. 30 A.L.R.2d 805 , 820.

The chronological sequence and the juxtaposition of events coupled with the certain fact that $48,750.00 of the Corporation’s funds on deposit with the Peoples Bank of Centreville moved out of its account with that Bank to the First National Bank of Birmingham at the instance of Brady Belcher and was received by the latter Bank as a part of a larger sum in exchange for a deed to the Florida lands, which was delivered to Brady Belcher, leads but to a single conclusion that Corporation funds in that amount were used to acquire those lands. This conclusion is buttressed by the testimony as to the absence of any record or evidence of debt due from the Corporation to the First National Bank or use of the money for any corporate purpose. Brady could not, without the knowledge or authority of the other directors, thus satisfy any debt due him. Milner v. Rucker,

supra.

The testimony reveals the absence of any record or evidence of debt due Brady. In fact Brady owed the Corporation $34,684.29 at that time.

As already noted, the Florida lands transaction came into this lawsuit in the later stages of the trial. This was at a time when the lines had become sharply and firmly drawn between the contending parties, and to have required the Bank as Trustee and Mrs. Davis to make demand upon W. E. Belcher, Jr. and Mrs. Maxwell and Mr. Maxwell to join with them in an action against Brady to establish a trust upon the lands, as a condition to the assertion of this claim, would mock reality.

In Ellis v. Vandergrift, 173 Ala. 142, 152 , 55 So. 781, 784 , the court said:

“No demand or request of the corporate authorities is required to be made, as a condition to suit by the stockholder, where it can be inferred with reasonable certainty that it would be refused, actually or virtually, or where, being the wrongdoers, a majority of the governing body would control the litigation so requested or demanded.”

The Bank, as Trustee, and Mrs. Davis are entitled to have established on behalf of the Corporation a constructive trust upon the Florida lands to the extent of 48.750/69.019.73 of the interest and title of Brady Belcher and Brady Belcher Interests, Incorporated therein, and are entitled to an accounting as to any waste committed by them with respect to such land and of the net profits derived from the sale of said land, rents and income, and income otherwise received therefrom in the same proportion.

Where an accounting is required the duty and manner of an accounting is clearly stated in Bynum v. Baggett Transportation Co., 5 Cir., 228 F.2d 566, at 573 , as follows:

“[H]aving the obligation to account, one whose accounts are demonstrated to be defective and inadequate must shoulder a substantial obligation diligently to make a correct account.

“To account is to do just that. The one obliged to account does not fulfill

*86

his duty by supplying only that which the beneficiary requests, that which is conveniently accessible, or remaining silent in the face of the beneficiary’s inevitable difficulty in trying to construct or reconstruct accounts which ought to have been kept and available.”

At the time of the hearing the latest accounting available on the Florida lands established income of $156,568.48 and expenses of $79,986.50 for the years 1950 through 1965.

Brady executed a mortgage on the lands to the City National Bank of Tuscaloosa as security for money loaned him by that Bank. The exact balance due thereon is not shown, but as between Brady and the Corporation, the latter is entitled to be exonerated therefrom and relieved from all payments required to be made thereon, and upon a sale, or sales, thereof is entitled to have the proceeds due it freed from the lien of said mortgage and charged against the interest of Brady derived from said sale, or sales.

Brady and his wife, Mrs. Brady Belcher, and Brady Belcher Interests, Incorporated will be required to execute and deliver to the Corporation a good and sufficient deed conveying to the Corporation an undivided 48.750/69.019.-73 interest in and to said lands not heretofore conveyed by them, all as more particularly described in the exhibits to the decree filed herewith.

The master to be appointed by separate decree will receive evidence as to whether the Florida lands can be equitably divided between or among the owners to the end that the Court may determine whether a division or a sale may be required to afford complete relief to the Corporation.

RAMSAY LANDS

The Birmingham Trust, as Trustee, and Mrs. Davis seek, to the extent of one-fifth interest each, to establish a constructive trust on the Ramsay lands and an accounting of profits in like amount.

In the early part of 1954, the First National Bank of Birmingham, as executor and trustee of the estate of Erskine Ramsay, received bids, on its offer of sale of about 7500 acres of land in fee simple and mineral rights to 2200 acres adjacent thereto located in Jefferson County, Alabama. The land was unimproved acreage with timber growing thereon. There were coal deposits on part of the land. The coal was of low grade and had not been subject to commercial development for many years.

On January 12, 1954, the Sales Company at the instance of Brady Belcher made a bid of $201,666.66 for the Ramsay lands. This was the highest bid received by the Bank, and the Sales Company became the successful bidder.

In July or August 1954, there was a “Saturday meeting,” consisting of the adult members of the Belcher family, who were general partners of the Sales Company and stockholders of the Corporation. At this meeting Brady informed those present that the Sales Company was the successful bidder for the Ramsay lands. He also gave them certain general information about the lands. H. H. Maxwell, husband of Ruby, was present at the meeting and stated in effect that neither his wife nor Mrs. Davis wished the Sales Company to participate in the purchase. Brady, who had made the bid for the Sales Company without the knowledge of the other partners except perhaps W: E., Jr., stated that having made the bid he did not feel that he could back out and that he would personally go through with the transaction, but that he would require the loan of some money from the Belcher companies for the down payment.

Mrs. Davis denied any recollection of the Saturday meeting. However, prior to that meeting she was consulted as to whether she was interested in the purchase of the Ramsay lands. She discussed the matter with Mr. Maxwell, and admits she authorized him to advise Brady and W. E., Jr. that she wasn’t interested in going into the house building business.

*87

It appears that it was a part of the plans of Brady to develop part of the Ramsay land for homes. To carry out this development and to construct such homes it would require that the participants put up some additional money for the capital of a development corporation. Southern Pine Homes, Inc., with control in Brady and W. E., Jr., was subsequently organized as a development corporation, but has not functioned ip. that respect.

After the Saturday meeting, Brady offered W. E., Jr. a third interest in the Ramsay lands. W. E., Jr. agreed to this participation, to be handled through a partnership known as the Belcher Investment Company.

Following the Saturday meeting and on August 23, 1954, the Sales Company borrowed $130,000.00 from the Corporation. A distribution of $80,000.00 of this money was made to the partners of the Sales Company, with the limited partner, Birmingham Trust, receiving its pro rata share of 16%%, or $13,200.00. The balance of the $50,000.00 of the money so borrowed was loaned by the Sales Company to Brady and W. E., Jr. and used by them as down payment on the land. There was nothing said as to interest, if any, to be paid on this loan.

On August 24, 1954, the First National Bank, as executor and trustee, conveyed by a single deed a one-third and a two-thirds interest in the Ramsay lands to W. E., Jr. and Brady, respectively, except 40 acres thereof which was conveyed directly to Southern Pine Homes, Inc. This deed was promptly recorded. The sale was closed by a total down payment of $53,666.66, and a purchase money mortgage of $148,000.00.

By contract dated in December 1954, Brady and W. E., Jr. sold the timber on the Ramsay lands to Belcher Land and Timber Company, which was owned by the W. A. Belcher family of Birmingham, for $150,000.00, consisting of cash of $50,000.00 evidenced by check of December 30, 1954, and two notes of $50,-000.00 each dated March 1, 1955, and payable to the Belcher Investment Company. In the latter part of February or early March 1955, the two notes were purportedly transferred to the Corporation by Brady and W. E., Jr. On December 3, 1955, the mortgagor paid the two notes with interest at 4%%. The checks paying same were payable to Brady and W. E., Jr. and endorsed by them to the Corporation. The $50,000.-00 loan made by Brady and W. E., Jr. was repaid by the Belcher Investment Company to the Sales Company on January 28, 1955, without interest. At that time the Sales Company was paying interest on money which it had borrowed at the rate of 5%.

On September 29, *1956, W. E., Jr. caused a check to be drawn on the Sales Company account at the First National Bank of Mobile to the order of the Belcher Investment Company. The proceeds of this check were also used to effectuate payment on the purchase mortgage debt. It was repaid on September 5, 1958. The check was for $1,400.00.

The January 31, 1957, statement of the Sales Company lists the item of $1,-400.00 under “Notes Receivable” as “Belcher Investment Company $1,400.-00.”

The October 31, 1955, statement of the Corporation lists the item of $100,000.00 under “Notes Receivable — W. A. Belcher Lbr. Co. — $100,000.00.”

Through December 31, 1963, Brady and W. E., Jr. had realized a net gain from sales of timber and land of $207,-892.50. Since the date mentioned they have sold 437 acres to Southern Pine Homes, Inc. for $137,500.00, and it in turn sold the same land to T. C. McCarter for $151,000.00. There were certain other smaller sales.

On December 2, 1953, Pomeroy and McGowin, forest managers, gave the First National Bank a written report on the amount of timber on the Ramsay lands and estimated the value of timber and surface rights at $288,531.40. On March 11, 1953, Arthur J. Blair, geologist, gave the Bank a written report estimating the value of the minerals at $70,000.00. These reports were made

*88

available to Brady Belcher, and the former report to Lester Harris, the Corporation’s chief forester, before the bid was submitted on behalf of the Sales Company. A tax and valuation study made by Furlong and Wilson, the Corporation auditor, indicated that a fair value of the entire property was $820,-000.00.

Following a telephone dicussion between Furlong and B. A. Monaghan, Birmingham attorney, and on August 16, 1954, Furlong made a memorandum stating:

“Present proposition. Land to be purchased by Sales Company, timber to be sold immediately. Then land and mineral rights, and mortgage, transferred to W. E. Belcher, Jr. at the remaining values.

This is to he done at request of other partners.

Proposition. Could land be sold directly to Brady and W. E., the Sales Co. endorse the mortgage (if necessary), advance down payment ($50,000.00) to W. E. and Brady. Questions: (1) The sale of the timber, immediately, will be no more than a reduction of the value of the land and timber in the hands of W. E. & Brady.” (Emphasis supplied)

Following the telephone conversation Furlong visited Monaghan and on his return wrote a memorandum making substantially the same recitation as that quoted above under “present proposition.” There was then a conversation by him with Brady as to which he noted:

“1. Take title to property in name of Brady and W. E. Advantages: 1. Six months holding period.

2: No shadow is cast on tax returns of other partners.

3. The Sales Company books are not confused with the transaction.

“2. Borrow down payment from Sales Company on a note. Interest of 4% could be paid at a cost of $2,000.00 per year; however, loan shouldn’t last that long. Anyway, 50y2% of this will be returned to you and W. E. Jr.”

On July 19, 1954, M. G. Borland, Corporation auditor, wrote Brady Belcher as to the new contemplated development corporation stating:

“In discussing this proposed Corporation and its purposes with Mr. Turner Rice, he told me that he did not believe the Birmingham Trust as Trustee for Roland, would be permitted to participate in the Corporation as it is an untried venture and as you are well aware when a bank acts as Trustee they are restricted to the investment of trust funds only in iron clad securities. Therefore Roland would of necessity be left out of this venture. However, he would reap his share of the certain profits from the sale of both lumber and land to this Corporation. Mr. Rice later called me and stated that the matter of their participating for Roland was brought up in a meeting of the bank and was definitely ruled out.”

Mr. Borland further suggested that forty acres of the land be deeded direct to the new corporation and “the balance of the land to be deeded to Belcher Lumber Sales Company, or very much preferably to a Trustee for Belcher Lumber Sales Company, who would in turn sell to the new corporation such land as they would require from time to time.” He also suggested that the stock be owned one-fourth by each of the general partners, and that five thousand each be contributed by them by a regular drawing from the Sales Company, and fifteen thousand be loaned to the corporation to be formed.

In a memo of July 21, 1954, entitled “Survey of Building Corporation plans for development of Ramsay Estate Land,” Furlong refers to and summarizes Mr. Borland’s letter of the 19th and asks a question: “1. Has an attempt been made to get the feelings of Mrs. Maxwell, Mrs. Davis and W. E. Jr. about buying the stock?”

It is obvious that the Saturday meeting was held subsequent to that date, and that there was a changing of method for the consummation of the transaction between the dates of the memo of August 16 and the memo of the conver

*89

sation of Furlong with Brady. The latter memo is not dated, but could well have immediately followed the Saturday meeting, since title was taken as indicated and money was borrowed from the Sales Company to make the down payment. This memo is consistent with what the witnesses (other than Mrs. Davis) said took place at the Saturday meeting, and also consistent with the alternative suggested under the second “proposition,” set out in the August 16 memo. It would meet the objection of the dissenting partners against becoming involved in the transaction through a purchase direct by the Sales Company.

It is charged by the Trustee Bank and Mrs. Davis that Brady failed to disclose all the facts about the value of the Ramsay lands as those facts were disclosed to him by the Pomeroy and McGowin, and the Blair reports, and as revealed by the study of Furlong and Harris. Also that the matter was presented to them as a pui-chase for housing development through a new corporation and not as a purchase of timber lands.

No one knows exactly what was said at the Saturday meeting, which took place more than ten years ago. Memories fade, and the facts become jumbled and distorted in the focus of hindsight. There is a possible construction of the evidence that tends to support a failure to disclose all the facts about the value of the land and the object to which it was to be devoted.

The relation of partners with each other is one of trust, and as stated by the court in Goldsmith v. Eichold Bros. & Weiss, 94 Ala. 116, 119 , 10 So. 80 , 81:

“All its [partnership] effects are held in trust, and each partner is, in one sense, a trustee; a trustee for the newly-created entity, — the partnership, — and for each member of the firm, who thus becomes a beneficiary under the trust. He is more; he is a trustee and a

cestui que trust.

— A trustee, so far as his own duties bind him; a

cestui que trust,

so far as duties rest on his copartners.”

See also Moore v. Moore,

infra,

this section.

In Kimberly v. Arms, 129 U.S. 512 , 9 S.Ct. 355 , 32 L.Ed. 764 , it was stated:

“The law exacts good faith and fair dealing between partners, to the exclusion of all arrangements which could possibly affect injuriously the profits of the concern. Arms was not merely a partner of Kimberly; he was the agent of the firm for the transaction of its business, and as such was allowed a salary beyond the interest coming to him as partner. He therefore stood, in his relation to Kimberly, clothed in some respects with a double trust, both of which imposed upon him the utmost good faith in his dealings, so that he might never sink the interest of the firm into that of himself alone.”

As to the burden of proof where a confidential relationship is established, the court in Kyle v. Perdue, 95 Ala. 579 , 10 So. 103 , said:

“When such a [confidential] relationship is shown to exist if the one who was in a position to exert the influence claims the benefit of a contract with the person bestowing the confidence, the burden is cast upon the former to show affirmatively that the influence of his position was not unduly exerted; that the utmost good faith was exercised; and that all was fair, open, voluntary, and well understood. This rule as to the burden of proof is of familiar application to contracts by which benefits are conferred by a

cestui que trust

upon his trustee, by a ward upon his guardian, by a child upon his parent, by a client upon his attorney, by a patient upon his physician, or by any one upon his priest or spiritual adviser. It is not essential that any formal or technical relationship of a fiduciary character has been established between the parties.”

“[I]f it appear[s] that any advantage has come to the trustee in dealing with his cestui que trust, the burden will be thrown upon him to show that con

*90

fidence was not in fact abused.” Western Grain Company Cases, 264 Ala. 145 , 85 So.2d 395 , quoting with approval Colton v. Stanford, 82 Cal. 351 , 23 P. 16, 19 .

This is not simply a case of a partner selling to himself or loaning money to himself, divorced wholly from all knowledge of and absent any understanding or agreement of the other partners. The venture was a speculative undertaking. The partners were all competent. The law does not absolutely forbid every transaction between a partner and his firm, 68 C.J.S. Partnership § 100 p. 539, but places upon the partner, as a fiduciary, the duty of utmost frankness and fair play. Bogert on Trusts, Section 593.

Fraud is never presumed. In Henderson v. Gilliland, 187 Ala. 268 , 65 So. 793 , the court said:

“Fraud is never presumed; and to be accepted as the basis of judicial action ‘must be proved by clear and satisfactory evidence; and when a transaction is susceptible fairly of two constructions, the one which will support and free it from the imputation of impurity of intention will be adopted.’— Allen v. Riddle, 141 Ala. 621 , 37 So. 680 .”

Considering all the evidence, its tendencies, and the reasonable inferences to be drawn therefrom, the Court concludes that, (1) Brady and W. E., Jr. have freed themselves from any lack of frankness or fair play in the handling of the Ramsay land transactions, and (2) that the Trustee Bank and Mrs. Davis are not entitled to establish a constructive trust on the Ramsay lands and to an accounting of profits on sales of parts of the land.

The weight of the evidence convinces the Court that Mrs. Maxwell and Mrs. Davis declined to enter into the transaction, that there was an understanding by at least a majority of the general partners that money would be loaned to Brady to effectuate the purchase by him. The Bank in the course of time heard rumors that Sales Company money had been used i,n making the purchase of the Ramsay lands, but had no actual knowledge of the fact.

As noted in the memorandum of the conversation between Furlong and Brady, there was consideration given to the payment of 4% on the loan to be made by the Sales Company for the down payment. However, nothing was said in the Saturday meeting or at any other time about interest on the loan.

It is the general rule that a party is entitled to interest on an amount which he lends to another, although nothing was said about interest at the time of the transaction. 47 C.J.S. Interest § 10. It is also the general rule that where the contract is silent as to interest an extinguishment of the debt extinguishes the right to claim interest. 100 A.L.R. 105 . However, by virtue of Section 62 of Title 9, of the Alabama Code of 1940, “all contracts, express or implied, for the payment of money, . . bear interest from the day such money, . . . should have been paid.” .... “In Charles R. Shepherd, Inc. v. United States for Use and Ben. of Sullivan, Long & Hagerty, Inc.,

1

5 Cir., 292 F.2d 146 , the court said:

“No case cited by Shepherd holds that a claim for interest based on a statute, which claim has not been clearly waived, is extinguished by the acceptance of payment of the principal amount. In such a case, there is no conceptual difficulty in saying that the debt for interest exists independently of the principal obligation.”

Also, the Court cannot lose sight of the relationship of Brady and W. E., Jr. to the partnership in dealing with themselves both in receiving and in repaying the amount borrowed. There was a duty on them to fully account to the partnership for the principal as well as interest, the fruit of the loan. Members of a partnership, no more than officers of a corporation, can

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give away, or appropriate property, funds or credit to their own use, Textile Mills v. Colpack, 264 Ala. 669 , 89 So.2d 187 , nor profit personally from partnership transactions, or use partnership property for their own advantage. 68 C.J.S. Partnerships § 99, at 539.

The right to claim interest was not lost by laches or limitations. In Moore v. Moore, 255 Ala. 393 , 51 So.2d 683 , the court declared the rule of limitations and laches as between partners to be as follows:

“The relation of partners with each other with respect to the assets and liabilities and the profits and losses of the firm is a confidential one. Each is in a measure a trustee so long as the business continues and the partnership relation obtains. The statute of limitations does not run in favor of one or against the other.”

In support of this statement the court relied on Haynes v. Short, 88 Ala. 562 , 7 So. 157 , where it was held that a bill by one partner to recover $3500.00 advanced to the partnership fifteen years before dissolution was timely where filed within six years of actual dissolution.

The court further relied on Ellis v. Stickney, 253 Ala. 86 , 42 So.2d 779, 787 , where it was said:

“Mere delay which has resulted in no disadvantage to another or that has not operated to bring about changes in conditions or circumstances, in consequence of which ‘there can be no longer a safe determination of the controversy,’ will not [amount to laches so as] to bar complainant’s right or remedy.”

The Bank, as Trustee, and Mrs. Davis are entitled to an accounting from Brady and W. E., Jr. on behalf of the Sales Company of the unpaid interest on the $50,000.00 loan from August 24, 1954, to January 28, 1955, at the rate of 5% computed to the latter date, and at 6% on the sum of such interest until paid, and of the unpaid interest on the $1,400.00 loan from September 29, 1956, until September 5, 1958, at a like rate computed to the latter date, and at 6% on the sum of such interest until paid.

On August 23, 1954, Southern Pine Homes, Inc. was incorporated. Two hundred and forty-nine (249) shares each were issued to Brady and W. E., Jr. and one share each to N. E. Furlong and L. L. Harris. Each incorporator became a director. Brady was elected president and treasurer, W. E., Jr. vice-president and Furlong secretary.

On August 13, 1954, Brady without the knowledge of the other partners caused a check for $15,000.00 to be drawn on the Sales Company’s account at the First National Bank of Birmingham. This cheek was deposited in Brady’s account in the First National Bank of Mobile. He then drew a check on the latter account in the amount of $2,500.00 payable to Southern Pine Homes, Inc. for his subscription to the capital stock of Southern Pine Homes. This $2,500.00 together with a like sum representing the subscription by W. E., Jr. to the capital stock of Southern Pine Homes, together with $3,500.00 borrowed from W. E., Jr., covered the $8,000.00 purchase price of the 40 acres of Ramsay land conveyed by the First National Bank of Birmingham, as Trustee, to Southern Pine Homes. The payment was evidenced by check of August 24, 1954, drawn to the order of the First National Bank of Birmingham, as Trustee, by Southern Pine Homes on its account with the First National of Mobile. The item of $15,000.00 appears on the books of the Sales Company as a loan to Brady Belcher. The books show a credit against the loan of like amount on August 24, 1954.

Since the exact date of the Saturday meeting is not established, it is not known whether the $15,000.00 borrowed by Brady from the Sales Company on August 13 was obtained before or after the loan authorization. Consequently, it cannot be said that the $2,500.00 of said sum used by Brady to pay for his stock subscription in Southern Pine Homes was or was not within the scope of the authorization granted at the Saturday

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meeting. However, the $8,000.00 paid by Southern Pine Homes to the First National Bank, as Trustee, for the 40 acres was not an additional sum but a part of the total purchase price of the Ramsay lands. Although the Court does not put its seal of approval on the borrowing of Sales Company funds without authorization, it would appear to have been for the better interest of the Sales Company that Brady make use of some of the funds already borrowed, if such was the case, rather than to borrow new funds altogether, thereby increasing his debt to the Sales Company.

A loan of Sales Company funds having been authorized by at least a majority of the partners, it would make no difference as respects the relief here sought whether Brady substituted funds already borrowed from the Sales Company, if such was the case, for funds which he had authority to borrow, and used the same as a part of the purchase price, or whether he procured the entire proceeds of the loan out of subsequent borrowing.

A constructive trust will not be declared to exist on Brady’s interest in Southern Pine Homes or on the land purchased by it. Nor will an accounting be required of profits made on sales by it.

The amount of unpaid interest on the $2,500.00 for the ten-day period is negligible and a discussion or finding concerning same is pretermitted.

J. L. BELL COMPANY, INC. AND NORRIS FURNITURE CORPORATION

Brady Belcher first came in contact with J. L. Bell, principal owner of the J. L. Bell Company, in 1960. This contact related to a contract that Bell had for the purchase of South American logs. Bell was in financial difficulty and later in that year Brady borrowed $61,-064.17 in the Sales Company’s name from the First National Bank of Mobile and advanced this money for the benefit of Bell so that Bell could obtain a bill of lading covering a shipment of such logs. Beginning about that time Brady also caused moneys to be advanced directly by the Sales Company to the Bell Company.

In June 1961, Charles Arendall, an attorney of Mobile, at the request of Brady and W. E., Jr. prepared an option contract whereby the Sales Company was to obtain a 60% interest in the Bell Company. This contract was abandoned when it was learned that the Bell Company could not qualify for a Small Business Administration loan with such a large interest lodged in the Sales Company, since the latter was “big business,” within the meaning of the Small Business Loan Act.

After Brady’s unsuccessful attempt to interest Arendall and his brother in coming into the Bell Company, and after the abandonment of the contract referred to, Brady and W. E., Jr. on August 4, 1961, caused an application by the Bell Company to be made to the Small Business Administration for a determination as to the eligibility of the Bell Company to obtain a loan from that agency. This application recited that Arendall and his brother together with Brady and W. E., Jr.,

as stockholders,

had a combined interest in the Bell Company of 60%. Arendall, who had nothing to do with the application and knew nothing about the representations contained therein, was advised, as was Brady, by the S.B.A. that the application could not be accepted since Brady and W. E., Jr. were “big business,” and could not own together more than 49% of the stock of the applicant. Following this declination of the loan, the Bell Company reissued 24.5% of its capital stock to Brady and a like amount to W. E., Jr. A certificate for 11% was issued to Bell, together with another certificate for 40%. The latter certificate was left with Richard Gardner, the attorney of the Bell Company who resided in Quincy, Florida.

In September 1961, the Bell Company again applied for an S.B.A. loan. Both Brady and W. E., Jr. signed the application

as owners of 2^,5% each

of the Bell Company stock. This application was rejected in the following March. By that

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time the Bell Company’s financial condition had progressively, if not precipitously, worsened, and the Sales Company’s advances had increased proportionately. Brady had personally endorsed the Bell Company’s note at the First National Bank of Mobile. Bankruptcy for the Bell Company was considered. Brady

personally

borrowed money from the City National Bank of Tuscaloosa and lent it to the Bell Company, taking back a mortgage from the Bell Company in the amount of $230,000.00. The proceeds of this loan were used by the Bell Company to pay its note at the Mobile bank, which Brady had personally endorsed, and the balance was applied to other pressing obligations. At the same ti,me the Bell Company transferred to the Sales Company by warehouse receipts certain completed furniture in purported settlement of $80,255.88 of its debt to the Sales Company. At about the time of these transactions and on July 5, 1962, the Norris Furniture Corporation was formed. Brady and W. E., Jr. became owners of 60% of its stock. Brady’s personal and financial statements listed stock issued to him as an asset of his. The stock was paid for with a check drawn on his personal bank account.

The Norris Furniture Corporation entered into an “output” agreement with the Bell Company, whereby it agreed to purchase Bell’s production of furniture at a discount of 18% off the wholesale sales price. .

The Mobile bank on Brady’s personal endorsement continued to advance money to these companies, both of which were insolvent.

Brady caused the Sales Company to ship lumber to the Bell Company, and also arranged for local shipments which were pai,d for by the Sales Company and listed on the Sales Company’s accounts receivable ledger as though they had been shipments from the Sales Company.

The January 31, 1962, year-end statement of the Sales Company made no mention of any attempted acquisition of the Bell Company stock. The January 31, 1963, year-end statement of the Sales Company with footnotes attached indicated for the first time that the Sales Company had acquired an interest in the Bell and Norris Companies and that the Sales Company was contingently liable on the mortgage to Brady and W. E. Jr. This information first came to Turner Rice, the agent of the Trustee, in May 1963, following his invitation to bid on certain shares of the Corporation, when Arendall approached him as attorney for Brady and W. E., Jr. respecting the purchase of all of the Trustee’s stock holdings in the Corporation. At that time it was explained by Arendall that the Bell and Norris transactions might result in great loss to the Sales Company. So they have.

In the meantime and in February 1963, Bell assigned his certificate of stock for 11% in the Bell Company to Brady and W. E., Jr. At the same time he granted Brady and W. E., Jr. an option to buy his 40% stock interest in the Norris Corporation for $1,200.00. On March 20, 1963, Brady in the name of the J. L. Bell Company gave notice to Mr. Bell of the exerci,se of the option, and on the same day Brady caused the Sales Company to issue its check to J. L. Bell for the purchase price. Bell endorsed the certificate in blank. Brady caused the stock to be entered in the books of the Sales Company as an asset of the Sales Company.

For the year ending January 31, 1962, upon authorization of Brady Belcher, the Sales Company had extended credit to the Bell Company in the total amount of $82,064.16. $61,064.17 of this sum was reflected on the books of the Sales Company as of the date mentioned as “inventory.”

On January 30, 1962, the day before the Sales Company’s books were closed for the year there was a pay-down on the Bell Company’s account with the Sales Company in the amount of $75,-510.00. These funds were made available to the Bell Company by loans from the Mobile and Brent banks evidenced by notes endorsed by Brady personally.

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Exhibit 1030 dated July 3, 1962, purports to be a guarantee by the Sales Company of a note of the same date in the amount of $230,000.00 payable to Brady and W. E., Jr. and executed for J. L. Bell Company and J. L. Bell. This $230,000.00 was the proceeds of the loan obtained from the Tuscaloosa bank.

Exhibits 1032 and 1033, dated September 28, 1961, purport to be assignments by Brady and W. E., Jr. of 499.555 shares of stock each of the Bell Company to the Sales Company, and 1031, dated February 25, 1963, purports to be an assignment by Brady and W. E., Jr. of 224.29 shares in the Bell Company to the Sales Company.

After the four exhibits above referred to were made available by state court order Brady, W. E., Jr. and Furlong each claimed on his deposition and at the trial that he did not know whether they were prepared for signature or signed in 1961, 1962, or 1963. Furlong also claimed on his deposition that he did not know whether all of them were dictated on the same day or on different days. He claims to have written them and had them typed by his secretary, Mrs. Coburn. — Mrs. Coburn was not employed by the Company or Corporation until September 1962. He further testified that he had no idea when they were prepared or executed. He finally conceded that the four documents were prepared with the intention that, in any accounting with the Trustee Bank, such documents should be accepted by and deemed to be effective against the Trustee Bank as if the documents had in fact been signed on the respective dates they bore, and that he could not “rule out the possibility that all four of them were dictated, typed and signed during a recess in Brady’s deposition in the state court in 1963.” When asked at the trial if he had seen either of the exhibits before that deposition, W. E., Jr. answered that he didn’t know. On deposition in 1965, Brady stated that he didn’t remember when they were signed. Neither Brady nor W. E., Jr. claimed to have any memory whether they were all signed at one or at different times.

The typing and spacing of all four exhibits are the same. The Court finds that all these exhibits were prepared and signed on the same day for the purpose of being used against the Trustee Bank in any accounting wi,th the latter. Any testimony to the contrary is unworthy of credit.

In the September 29, 1961, application to the S.B.A. for an additional loan of $164,884.59, representations were made over the signatures of Brady and W. E., Jr. that they were then

owners

of 24%% each of the stock of the Bell Company, and they

personally guaranteed

the payment of $80,793.45 of the loan until the principal was reduced to $110,000.00.

Brady and W. E., Jr. did not ask for or receive any advice from Arendall respecting their statement of ownership of stock in the Bell Company contained in the application to S.B.A. It was not until May 1963, that Arendall learned that the partners of the Sales Company, other than Brady and W. E., Jr., had not been informed of the facts concerning the Sales Company’s “investment” in the Bell and Norris enterprises; and at no time was he requested to give an opinion as to the authority of the Sales Company to invest in the stock of Bell and Norris.

Mr. Gardner, who handled the legal services for the Bell Company in its dealings with Brady and W. E., Jr., and who had conferences with them, and Furlong and Bell, was not informed by anyone that Brady and W. E., Jr. held anything less than total beneficial ownership of the shares in the Bell Company.

On September 6, 1961, $4,000.00 of the then outstanding debt of the Bell Company was due to one of the salesmen, W. F. Mclnturff, for services rendered by him prior to the time the Belchers became involved in the Bell Company. To evidence that debt, the Bell Company executed and delivered a note to Mclnturff bearing an endorsement reading

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“Belcher Lumber Sales Company, Ltd. by Brady Belcher, General Partner.” On September 19, 1961, another note for $2,153.51 was executed by the Bell Company to Gregory Myripk, Inc. for a prior indebtedness of the Bell Company with a like endorsement. In the November following Mclnturff attempted to negotiate the note payable to him at a bank in Orlando, Florida. The bank inquired of Furlong of the authority of Brady to bind the Sales Company on the note. The legal question was referred to George White, attorney for the Sales Company, who wrote an opinion, expressing the view that one partner had no authority to endorse the note for the partnership without the consent of the other partners, except where there had been a ratification by implication from past conduct. According to information obtained by him such ratification by implication from past conduct did not exist. He advised the Sales Company that i,t would be the safest course to obtain written authority from the partners.

On December 5, 1961, the S.B.A. declined to make the loan as requested in the September 29, 1961, application for reasons including “lack of assurance of way to repay the loan; and disproportion of loan requested to tangible worth.” This action was taken notwithstanding the fact that $80,793.45 of the loan was personally guaranteed by Brady and W. E., Jr., and the entire amount of the additional loan was to be further secured by a mortgage on the plant, equipment and machi,nery of the Bell Company. Nevertheless, in spite of this refusal based as indicated, Brady and W. E., Jr. continued to assist the Bell Company by making funds of the Corporation and the Sales Company available to it, by permitting it to buy merchandise on open account from the Sales Company, by giving it the benefit of services of salesmen, whose salaries and expenses were paid by the Sales Company, and by permitting it to purchase goods from other concerns with a guarantee of payment by the Sales Company.

The Bell Company’s income tax return for the year 1961 prepared by Furlong and filed on March 14, 1962, recited that Brady and W. E., Jr. each owned 24%% of the stock of the Bell Company.

On March 27, 1962, Brady and W. E., Jr. caused a revised application for a loan to be submitted to the S.B.A. They again affirmed over their respective signatures that each of them owned 24%'% stock interest in the Bell Company. On May 29, 1962, S.B.A. again declined to make the loan applied for in the revised application for the reasons quoted with respect to the denial of the September 29, 1961, application. After the date of this further denial Brady and W. E., Jr. continued to assist the Bell Company with its finances, so that by mid 1962 the Bell Company was indebted to both the Sales Company and the Corporation for large sums, and was on the verge of bankruptcy, as heretofore noted. It was at this juncture that the Norris Corporation was organized. One of its purposes was to minimize the exposure of those financing the Bell Company in the event of the latter’s bankruptcy.

The Norris Corporation has never operated at a profit. Its operating loss was $42,142.66 in 1963, $28,888.58 in 1964, and $51,286.13 in 1965. The Sales Company was the principal source of funds for the Norris Corporation. Brady knew it to be insolvent. Even so, the Sales Company’s funds continued to be loaned to the Norris Corporation by Brady without consulting the general partners other than W. E., Jr.

The J. L. Bell Company has had an operating loss every year since 1957, the year of its organization. For 1958 it lost $69,570.67, for 1959 $28,072.18, for 1960 $112,653.94, for 1961 $79,120.06, for 1962 $128,406.56, for 1963 $130,226.25 and for 1964 $170,276.04. Its estimated loss for 1965 was at least $100,000.00. Its operating deficit through 1964 was $718,-365.15, and its net worth deficit was $514,467.47.

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Brady paid for his subscription to the capital stock of the Norris Corporation out of his personal funds. His personal general ledger recorded the stock as his personal asset, until it was removed by an entry of December 31, 1963. Furlong finally conceded that the entry was not in fact prepared until June 1964. Brady’s financial statement of December 31, 1962, furnished to banks as credit information recorded the 180 shares of Norris stock issued to him as a personal asset.

Funds loaned by Brady to the Norris and Bell Companies were recorded on his personal ledger as receivables due him. Brady filed his personal tax returns on an accrual basis and took interest on funds borrowed from the First National Bank of Mobile and the City National Bank of Tuscaloosa as a personal deduction, and reported as personal income accrued interest on the $230,000.00 loan to the Bell Company. His 1962 balance sheet lists this loan as a personal asset under “Note Receivable” — “J. L. Bell Company, $211,500.” He also listed in his personal ledger under “liabilities,” the loans due those banks.

On August 24, 1962, Brady agreed to personally guarantee certain debts of the Norris Corporation to induce the Trust Company of Georgia to factor receivables of that corporation.

In the summer of 1962, Brady and W. E., Jr. caused the Sales Company to give the Bell Company credit for $80,-225.88 for furniture transferred to the Sales Company. They then caused substantially all of this furniture to be commingled with like furniture belonging to the Norris Corporation and placed in a warehouse under negotiable warehouse receipts issued in the name of the Norris Corporation. These warehouse receipts were then pledged to the City National Bank of Tuscaloosa to secure a loan to the Norris Corporation evidenced by its note, which was endorsed by “Brady Belcher.”

In September 1962, Brady on behalf of the Sales Company guaranteed a $5,000.-00 loan by the Brent Banking Company to Mr. Bell. The proceeds of this personal loan were used by Bell to repay a $5,000.00 personal loan which Brady had caused the Norris Corporation to make to Bell on July 5,1962. Neither Mrs. Davis, Mrs. Maxwell, nor the Trustee authorized the guarantee to the bank.

Brady admitted on deposition that the January 31, 1962, financial statement of the Sales Company, which was ultimately placed in the hands of the other partners, did not fairly and truthfully represent the indebtedness of the Bell Company to the Sales Company.

On January 31, 1966, the contingent liability of the Sales Company for indebtedness of the Bell Company was $425,000.00, and for the Norris Corporation $309,407.97. On that date the Bell Company owed the Sales Company $288,-636.78, and the Norris Corporation owed it $31,134.62. The two were indebted to the Corporation for $6,838.58. The total that the Sales Company had at risk by virtue of the transactions of Brady and W. E., Jr. with the Bell and Norris Companies was $1,054,179.37

1a

. They have attempted to further commit the Sales Company to many more thousands of dollars of contingent liability.

There was almost a total lack of effort on the part of Brady and W. E., Jr. to ascertain the true situation with respect to the earning potential of the Bell Company. They apparently made no effort to verify the accuracy of Lewis Bell’s projection concerning its anticipated profits.

Brady and W. E., Jr. contend that the transactions by them with respect to Bell and Norris were as agents of the Sales Company. Those opposed to them in this litigation charge that Brady and W. E., Jr. were acting in their own behalf in initiating the transactions and continued to so act until they concluded that they could not make a go of these insolvent companies whereupon they decided to un

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load onto the Sales Company, thus requiring their partners to share with them the losses actual and potential.

Except for the abortive 1961 option agreement prepared by Arendall, and the 1962 discussions had by Brady with him as to what would happen as respected Brady’s personal endorsements on the Bell Company obligations in the event of the latter’s failure, and the response by Brady in effect that the Sales Company would reimburse him in such event, the series of events and the affirmative representations made by Brady and W. E., Jr. prior to the early months of 1963 and catalogued herein do not sustain their contention that they were acting as agents of the Sales Company, but establish those to the contrary. Until May 1963, none of the other partners were advised that the Sales Company had an interest in the Bell and Norris Companies. Such information was withheld from the S.B.A. in the applications for the loans. The affirmations there contained show ownership of the stock in Brady and W. E., Jr. The tax returns negate the fact of ownership in the Sales Company. The several banks from which substantial funds were borrowed by Brady and W. E., Jr. were not informed of any ownership in the Sales Company.

The Sales Company partnership agreement defines the business the partnership was organized to conduct as “a general wholesale lumber business,

buying and selling

lumber, lumber products, veneer, boxes, crates and products of mills producing lumber and by-products thereof.” (Emphasis supplied)

Paragraph FIFTH of the agreement provides that:

“The authority for the management of the business, in all respects and details, shall be vested in the general partners. The special partner shall have no managerial or other such rights in connection with the conduct of the partnership business, except those which are specifically allowed by law.”

By virtue of Section 8 of Title 43 of the Alabama Code, 1940, governing limited partnerships it is provided that: “The general partners alone are authorized to transact business, sign for the partnership, and to bind the same.”

Sections 21 and 22 are respectively as follows:

“The general partners are liable to account to each other, and to the special partners, for their management of the partnership, both in law and equity, as other partners.

“Every partner who is guilty of any fraud in the affairs of the partnership is liable, civilly, to the party injured, to the extent of the damage.”

Section 1 included under “General Provisions” of the title, “Partnership,” provides that:

“Every general partner is agent for the partnership in the transaction of its business, and has authority to do whatever is necessary to carry on such business in the ordinary manner, and for this purpose may bind his co-partners by an agreement in writing.”

And Section 2, setting out what a partner may not do, provides under subsection (7) that he may not “do any other act not within the scope of the preceding section.”

From an early date it has been held that a partner cannot bind the partnership in a transaction which is beyond the scope of the partnership. See Abraham v. Hall, 59 Ala. 386 (1877).

It is a general rule that one partner has no implied authority to bind his firm by subscribing for the stock of a corporation, even though the existence of such corporation will incidentally benefit the firm. 68 C.J.S. Partnership § 153.

Illustrative of the cases sustaining this principle is that of Barry v. Mattocks, 156 Miss. 424 , 125 So. 554 , where the lower court was reversed because it had sustained such a subscription on the ground that the objecting partner had entrusted the subscribing partner with

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full control and management. The court said:

“It is assigned as error that the chancellor held that Wingfield bound the partnership in the purchase of the Humphry-Coker Seed Company stock for a price of $1,250, and that the purchase of this stock by Wingfield was his individual transaction, and that Barry should not be charged with one-half of it, for the reason that the purchase of stock was not within the scope of the planting and mei-cantile partnership. . . . The appellee undertakes to sustain the action of the chancellor in this behalf, because W. S. Wingfield, in the handling of the partnership, had full control and management, and had been allowed by Mr. Barry during the many years of the partnership to conduct it as he pleased, and because during the war period Wingfield bought government bonds and Barry accepted his portion thereof. It is quite well settled that the act of a single partner in subscribing to stock of a corporation, where the ownership of such stock does not appear to be within the scope of the firm business, or where there was no special authority to make such subscription, does not bind the partnership. See Wright Bros. v. Merchants’ & Planters’ Packet Co., 104 Miss. 507 , 61 So. 550 , Ann. Cas. 1915C, 1111. We think it clearly appears that the purchase of this stock was not within the scope of the partnership, and that the partners did not consult together with reference to the purchase of the stock.”

Losses occasioned by the acts of partners which are beyond the scope of the firm business and not assented to or ratified by the other partners, must be borne by them alone. 68 C.J.S. Partnership § 97.

Generally in the absence of express authority a partner has only authority to bind his partnership on negotiable paper by a signature in the partnership name.

Id.

§ 161b at 605, f at 611-612.

In Lewis v. Isbell National Bank, 198 Ala. 484 , 73 So. 655 , where a partner had endorsed the name of the partnership for the benefit of a third person, the court declared the law to be as follows:

“(1,2) While it is the well-recognized rule that one partner, without the consent of the others, has no authority to indorse a note in the partnership name for the benefit of third persons, and that such an indorsement imposes no liability on the firm, as is disclosed by the above-cited authorities, yet it does not seem to be denied that if such a transaction comes within the knowledge of his copartners and is assented to by them, then it will be obligatory upon the firm. McNeill v. Reynolds, 9 Ala. 313 ; 30 Cyc. 515, 516.”

Neither Mrs. Davis, nor Mrs. Maxwell or the Trustee had any knowledge of the several transactions whereby Brady and W. E., Jr. sought to bind the Sales Company by their signature, whether by them individually or in the name of the Sales Company. Certainly neither Mrs. Davis nor the Trustee has ratified such transactions or assented thereto.

The relationship of partnership is fiduciary in character. This relationship imposes on each partner the obligation of the utmost good faith in their dealings one with another with respect to partnership affairs. 68 C.J.S. Partnership § 76, at 516-517.

Each partner has a right to know all that the others know regarding the partnership affairs.

Id.

at 518. And as declared in Smith v. Rosson, 233 Ala. 219 , 171 So. 375 :

“Partners stand in confidential relations in all matters pertaining to the partnership business. This relation imposed on each the obligation of entire good faith in disclosing facts known to the one and not the other. As a corollary,

the one may, without being chargeable with a want of diligence, fully accept the statements of the other in their dealings.”

(Emphasis supplied)

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The obligation imposed by the fiduciary relationship is especially stringent upon a partner who is managing the business. 68 C.J.S. Partnership § 76, at 517.

The Sales Company was not organized to conduct a furniture manufacturing or furniture selling business. It was without express authority to do so, and it lacked implied authority in that respect. It was without authority to subscribe to the stock of a corporation which was, or was to be, so engaged, or to organize a corporation for that purpose. The scope of the partnership business could not be so expanded to cover such an operation without the consent of the limited as well as the general partners.

In Kentucky Distilleries & Warehouse Co. v. Louisville Public Warehouse Co., 6 Cir., 19 F.2d 866 , it was held:

“While a majority of partners has implied power to bind the minority in matters within the scope of the business, yet this implication cannot prevail when it is inconsistent with limitations which are created by the partnership agreement; and those limitations may be express, or may be implied from an exclusive enumeration of granted powers.”

And in the early ease of Taylor v. Rasch, 23 Fed. Cases No. 13,800, it was said:

“No departure by the general partners, no matter how common or long continued, if not consented to or known and acquiesced in by the special partner, could have the effect to change or enlarge the scope of the business as specified in the articles. To hold the contrary would be to disregard plain provisions of law for the protection of special partners and the public, and would make a limited partnership one of extreme hazard to the special partner.”

Brady and W. E., Jr. were without authority to bind the Sales Company in respect to the Bell and Norris Companies by endorsement, assumption or guarantee of obligations or liabilities for or on their behalf. Their actions in becoming financially involved with insolvent and deficit producing foreign corporations should not and cannot be visited upon their partners without their prior knowledge, authority, consent, acquiescence or ratification. This record does not disclose such, except ratification by Mrs. Maxwell.

The acquisitions of Brady and W. E., Jr. of the capital stock of the Bell and Norris Companies were in the light of this record their own and not those of the Sales Company.

The facts are so glaringly apparent as to cause one to wonder why the insolvent Bell Company was chosen as the vehicle for the foray into the untried field of furniture manufacturing, why the other partners were not made acquainted with the venture, and why after the failure to breathe financial life into the moribund undertaking, efforts at resuscitation were so long continued.

It would be an exercise in wishful thinking to expect Brady and W. E., Jr. and Mrs. Maxwell, constituting a majority of the partners, to proceed against Brady and W. E., Jr. for relief on behalf of the Sales Company. Consequently, the relief to which the Sales Company is entitled is available to it through the intervention of Mrs. Davis and the Trustee as cross-claimants herein.

Brady and W. E. Belcher, Jr. are required to: (1) account to the Sales Company for its funds used by them for or on behalf of the Bell and Norris Companies; (2) save the Sales Company harmless from any and every loss incurred by it on behalf of said companies; and (3) indemnify the Sales Company against contingent liabilities and obligations purportedly incurred by it on behalf of said companies.

The relief granted on behalf of the Sales Company will extend to and encompass an accounting for the equivalent of any funds of the Corporation or the Wood Products Company that may have been, or may be, used to pay or reduce the indebtedness due the Sales Company,

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or to discharge the obligations of the Sales Company, made or incurred by Brady and W. E., Jr. on behalf of the Bell and Norris Companies.

MILLARD REYNOLDS

Millard Reynolds has for years conducted a pulpwood and timber business. The Corporation is a purchaser of lumber from Reynolds and over a period of many years it has lent or advanced large amounts of cash to Reynolds to finance his operations. Occasionally its cash was used by Reynolds for his own purely personal purposes. The aggregate amount of money involved in transactions between the Corporation and Reynolds since July 23, 1951, exceeds $3,000,-000.00, and as of July 31, 1964, Reynolds owed the Corporation $124,070.22 plus interest of $64,120.46, or a total of $188,190.68. The amount of interest has long been in dispute. The loans or advances were authorized by Brady Belch-er. W. E. Belcher, Jr. knew of them. Other stockholders, directors and officers had knowledge to some extent of their existence. The Trustee bank appears not to have been directly informed of these loans and their purpose, although there is evidence that by the exercise of reasonable diligence it should have known the material facts in connection with the transactions between the Corporation and Reynolds.

Except for $50,000.00 life insurance on the life of Reynolds, the Corporation has not been able to obtain security from Reynolds for the sums due it.

Some párt of the Corporation’s account with Reynolds existed perhaps as far back as 1950 and certainly as early as January 30, 1954. From time to time the sums advanced to Reynolds were entered on the Corporation’s books under “Advance account,” “Log account,” “Loan account,” “Interest account,” “Loader account,” “Lumber account,” “Brent account,” “Insurance account,” “Reserve account,” “Millard Reynolds— Reg. Acct. — Ret. acct.- — old acct.,” “Timber account,” “Tie account,” and “New account.”

Reynolds has known Brady and W. E., Jr. all his life. He owns no interest in the Corporation, the Sales or Wood Products Companies, nor do these companies or Brady or W. E., Jr. own any interest in his pulpwood and timber business. The headquarters of his business is located at Maplesville, a distance of about 20 miles from Centreville, the site of the main operations of the Belcher companies.

Reynolds buys pulpwood as standing timber in place and contracts with independent producers to cut and deliver it to his yard. Reynolds himself does not cut pulpwood. Some of the funds lent by the Corporation are used by him to purchase standing tracts of timber. During the last five years he has not cut more than 800 to 1000 cords of pulpwood from Corporation lands. Reynolds buys saw timber from time to time with money lent to him by the Corporation. The Corporation purchases lumber from Reynolds. For such purchases he is paid weekly.

From time to time the Corporation has endorsed Reynolds’ notes at the Bank of Maplesville and the Brent Banking Company. The Corporation has not had to make good on its endorsement. At the time of the trial there were outstanding balances owing by Reynolds at each of said banks on notes so endorsed.

The Corporation advanced money by check to Reynolds. These checks were deposited by the Corporation in accounts solely controlled by Reynolds.

An early agreement contemplated that the Corporation would get 250 per cord of pulpwood for the use of its funds. The advances exceeded the deliveries of pulpwood to the several paper companies. This resulted in a large balance owing by Reynolds. Beginning about 1961 or 1962 Reynolds began paying an additional 250 per cord to apply on the debt. In 1964 he also began paying $25.00 per carload on pulpwood delivered.

Reynolds now ships to seven paper companies, but it appears that the Corporation gets its 500 per cord only from one of these companies — Rome Kraft.

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The Corporation finances Reynolds at the rate of $250.00 on bill of lading for each car of pulpwood shipped. The original 250 has been variously referred to as being in lieu of interest, as a commission, and as a sharing of the profits of the Reynolds business, also as an amount to be paid to the Corporation for its getting the contracts with the paper companies, the purchasers of the pulpwood.

Payments received from Reynolds are applied on principal and not on interest, perhaps because there has never been an agreement as to the whole of the interest claimed by the Corporation. The Corporation is on an accrual basis and annually includes the Reynolds interest accruals (to the extent at least of the original 250 per cord) in its income tax return as taxable income.

Some of the agreements with the paper companies were made by Reynolds directly. Others were made through the agency of the Corporation. The value to the Corporation of maintaining these contacts is difficult to determine. The pulpwood sales of the Corporation have averaged only around $20,000.00 to $25,-000.00 per year for the past twelve. This is a small amount in relation to the total sales of more than $3,000,000.00, but in view of the fact that the Corporation has substantial pulpwood timber, the contacts with pulpwood purchasers, cultivated and maintained through the years, could inure to the considerable advantage of the Corporation. Reynolds has had considerable experience in the pulpwood field, and there is nothing to indicate that his relationships with pulpwood purchasers are other than satisfactory. He has, or there is available to him, considerable assets. His current net worth is more than sufficient to satisfy the indebtedness due the Corporation.

Much evidence was taken respecting the Reynolds’ indebtedness. In short summary the chief complaints are the lack of judgment in extending credit and making advances, inadequate formalization of the agreement between Reynolds and the Corporation, poor bookkeeping, failure to act diligently in collecting the sums owing, failure to obtain security for the debt, permitting Reynolds to convey assets to others without intervention on the part of the Corporation, and the crediting of sums received from Reynolds against principal first rather than interest. Conceding that there is some evidence to support these complaints, the Court finds that weighing all the evidence in the light of governing law there is a failure to meet the burden of proof on the part of cross-claimants.

In Van Antwerp Realty Corp. v. Cooke, 230 Ala. 535 , 162 So. 97 , the court stated the principle on which officers of a corporation may be held liable at the instance of minority stockholders as follows:

“We think a fair statement of the principles on which officers of a corporation may be held liable in such a suit is made in the text of 14a Corpus Juris, 102, 103, § 1869, as follows: ‘The directors owe a duty of managing the corporate affairs honestly and impartially in behalf of the corporation and all the stockholders. They are liable for losses of the corporation caused by their wilful and intentional departures from duty, their fraudulent breaches of trust, their gross negligence, or their ultra vires acts. They are not liable for losses happening through mere mistakes of judgment.’ ”

This principle was reaffirmed in the more recent case of Sellers v. Head, 261 Ala. 212 , 73 So.2d 747 .

The Corporation has very extensive charter objects and purposes, including the right “to loan money and extend credit in connection with the promotion of its businesses.”

From Waldrop v. Martin, 237 Ala. 556 , 188 So. 59 , the following declaration of the law as to the discretion of management in the conduct of corporate affairs is noted:

“Complainants are minority stockholders, and it is to be borne in mind that ‘those who embark in a corporate

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enterprise as stockholders do so under an implied agreement that the business shall be controlled and directed by a majority of the stockholders.’ Phinizy v. Anniston City Land Co., 195 Ala. 656 , 71 So. 469, 471 ; Dixie Lumber Co. v. Hellams, 202 Ala. 488 , 80 So. 872 ; 14-A Corpus Juris 1123.

“ ‘When the question is one of mere discretion in the management of the business or of doubtful event in the undertaking in which the concern has embarked, a remedy cannot be sought in a court of equity.’ ”

The transactions between Reynolds and the Corporation were matters within the sound exercise of business judgment on the part of management, and the errors and mistakes that have been made are not such as to fall within the interdiction of the principles announced in

Van Antwerp, supra,

and above set out, and cross-defendants are not liable.

The Court finds that cross-claimants’ right to maintain the claim as to the acts arising out of the Reynolds transactions is not defeated by a violation of or for a failure to comply with Rule 23. In view of the Court’s finding and conclusion of no liability arising from such acts, the Court will not decide the issues of laches and limitations.

BARBER SHOP RENTALS

In the 1920’s W. E. Belcher, Sr. erected a barber shop on land then owned by him. In September 1941, this land was conveyed by him to the Corporation. The land on which the shop is located is more particularly described as Lot 17 of Block C of Fair’s Addition to the Town of Centreville. The Corporation immediately went into possession of this particular property, has held the same adversely, and has throughout the intervening years assessed and paid taxes on the property. The Corporation has from year to year defrayed certain of the expenses incurred in the operation of the barber shop. Such expenses were reported by the Corporation as business expense in its income tax returns. The shop has been rented, and since Mr. Belcher’s death the rents in the form of cash have been collected by Brady at intervals of six months or more. Brady kept the rentals in a little tin box in his desk until February 16, 1965, at which time he caused $5,119.00, which he claims was the total of all rentals collected by him, to be deposited in the Brent Banking Company to the credit of Brady Belcher, W. E. Belcher and Mr. Maxwell as executors of and trustees under the will of W. E. Belcher, Sr. The deposit was made the day before Brady’s deposition was taken in this action. Brady, W. E. and Ruby Maxwell, the wife of Mr. Maxwell, are each beneficiaries under the will.

The estate tax returns filed by the executors of Mr. Belcher’s estate did not list Lot 17, or any property located thereon, or any rentals collected as assets of his estate.

The barber shop rentals were not listed on any federal or state income tax return until 1965, at which time they were reported as income of the estate of W. E. Belcher, Sr. The barber shop property was conveyed by the Corporation as security by the 1953 mortgage executed by it to the Equitable Life Assurance Society.

Brady kept no written records of the

money

placed in the tin box, except certain small notes reflecting the amount of money placed in the box from time to time, and these have been destroyed. He did not know the amount of money in the box at any given time. Mr. Hayes, the tenant, bought supplies for the barber shop out of the money before it was turned over to Brady.

Brady told no one, with the possible exception of W. E., Jr., that he was collecting the rent from the barber shop. No one else had access to the tin box, or was present when the rent money was removed and counted. There was nothing attached to or contained in the box to indicate the source of the funds, or to whom they belonged.

At his deposition in Case 370-B on November 29, 1963, Brady was asked to state the businesses, other than the lum

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ber business, in which the Corporation was engaged. In replying he omitted reference to the barber shop. On his deposition on February 17, 1965, he testified that the barber shop was situated on the “house property,” which belonged to his mother.

The barber shop rentals since the deposit on February 16, 1965, have been paid over to the estate. At the stockholders meeting held on December 15, 1965, Brady and those stockholders aligned with him defeated a resolution offered by the Trustee attempting to inquire into the status of the rentals already collected and those that would be collected in the future.

It certainly was not good business practice for the president of the Corporation over a period of twenty years to collect rents and accumulate them in a tin box, and fail to keep a record of them, and to report them as income for federal income tax purposes.

The barber shop and the land on which it is situated belongs to the Corporation and not to the estate of W. E. Belcher, Sr. The rents collected from the operation of the barber shop belong to the Corporation and not to said estate. Neither the officers, directors or majority stockholders of a corporation can give away the property of the corporation as was here attempted. This principle is fundamental in corporate law, and is the law of this jurisdiction as so pointedly announced in Textile Mills, Inc. v. Colpack, 264 Ala. 669 , 89 So.2d 187 , where it was said:

“The general rule is stated in 19 C.J.S., Corporations, § 768, p. 125, thusly: ‘ . . . The law does not permit the directors or officers of a corporation to give away its property except where they are the sole stockholders and no rights of creditors are impaired, and unanimous consent is given, . . . ’ ”

At the least the deposit of the funds to the credit of the executors and trustees of the estate of W. E. Belcher, Sr. was a gift, and as such contravenes the principle announced in the case referred to.

Cross-claimants on behalf of the Corporation are entitled to a judgment against the executors and trustees of the estate of W. E. Belcher, Sr. for the $5,119.00 received by them, with interest at the legal rate from February 16, 1965, and to an accounting for rents collected by them since that date. These rents should have been but were not included in the Corporation’s income tax returns for the years involved. Brady will be required to indemnify the Corporation against any interest and penalties to which it may be subjected on account of his withholding these rents. The defenses asserted by the cross-defendant lack merit and are disallowed.

BELCHER MOTOR COMPANY

Belcher Motor Company is a corporation. One per cent of its stock is owned by Brady Belcher, 98% by his wife Beulah, and 1% by his brother-in-law George P. White. Mrs. Belcher is president and treasurer. Brady is vice-president. The Belcher Motor Company uses all or parts of Lots 22-27, Block C of Fair’s Addition to Centreville, Alabama. Lots 24-27 were deeded to Mrs. Belcher by Brady on November 14, 1955. The Motor Company has since 1955 paid Mrs. Belcher $400.00 per month rent. Lots 22 and 23 are owned by the Corporation. The Corporation acquired the land from W. E. Belcher, Sr. by deeds of September 29, 1941, and October 10, 1944. The lots have been assessed to the Corporation since 1941. They are subject to the mortgage heretofore referred to from the Corporation to the Equitable Life Assurance Society. This mortgage was signed by Brady as president of the Corporation. George P. White has rendered an opinion that title to the lots is in the Corporation. There is now no dispute that the lots belong to the Corporation, that the Motor Company has asserted no title by adverse possession, that the Motor Company now occupies and has so occupied said lots since

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prior to the construction of the new building in 1954 or 1955, and has paid no rent to the Corporation for the use of these lots.

At the time of the construction of the new building there was a question as to where the Corporation’s property ended and Mrs. Belcher’s property began, but notwithstanding this question the building was constructed, and during the intervening years Brady and Mrs. Belcher were aware of the fact that perhaps the Motor Company occupied land that didn’t belong to it or Mrs. Belcher.

The Court finds that there were no negotiations between the Motor Company and the Corporation for the permissive use of Lots 22 and 23 by the former, and that there was no such permissive use granted to the Motor Company.

Since Brady was both president of the Corporation and vice-president of the Motor Company, and his wife was a substantial beneficiary of the income of the latter, he was under a special duty to deal fairly as between the Corporation on the one hand and the Motor Company and his wife on the other to the end that his obligations as president and director of the Corporation be not subordinated to his personal interests in the Motor Company. As heretofore noted:

“The directors or officers [of a corporation] cannot lawfully appropriate the corporate property, funds, or credit to their own use or make any self-serving disposition thereof . . .”19 C.J.S. Corporations § 768, at 125, quoted with approval in Textile Mills, Inc. v. Colpack,

supra.

The evidence establishes a fair market value of $750.00 per lot for each of the two lots involved. Rental value of the lots together was established at $25.00 per month as vacant property and of some greater value with a part of the Motor Company building located thereon. Just what this greater value is, is not shown in the evidence. Expert testimony as to value, though not of conclusive force, may be accorded some weight, Dayton Power & Light Co. v. Public Utilities Commission of Ohio, 292 U.S. 290 , 54 S.Ct. 647 , 78 L.Ed. 1267 , in determining the value of property, and although the testimony may be uncontradicted, the Court can exercise its independent judgment. The Conqueror, 166 U.S. 110, 131 , 17 S.Ct. 510 , 41 L.Ed. 937 .

Mrs. Belcher receives rent of $400.00 per month for four lots. However, this is not just ground rent. She constructed the building at an estimated cost of $60,000.00. The rent covers her total investment in the property.

In the absence of evidence of greater value by virtue of the fact that part of the building is located on Lots 22 and 23, the Court accepts the value of $25.00 per month as the reasonable rental value for the use and occupancy of said lots and so finds.

Under the facts here revealed and the authorities referred to, the Court finds no impediment by way of limitations, laches, or otherwise to cross-claimants, Mrs. Davis and the Trustee, maintaining this action against the Belcher Motor Company on behalf of the Corporation for an accounting of rents from January 1, 1955, at the rate of $25.00 per month, with interest at the legal rate on each monthly payment.

Since the structure permanently encroaches upon the lots and in effect renders the same of little or no value for other purposes, and therefore most probably unsaleable to persons or entities other than Mrs. Belcher or the Motor Company, the Corporation by appropriate corporate action is free to convey said lots to Mrs. Belcher or to the Belcher Motor Company, or to others, upon the payment to it of the fair market value of not less than $1,500.00. Otherwise, the Motor Company will continue to make rental payments to the Corporation until the amount of said rental be modified in appropriate proceedings to that end.

CENTREVILLE OIL COMPANY, INCORPORATED

The Centreville Oil Company was incorporated on May 16, 1951. The com

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mon stock of the company was and is owned 2% by Brady Belcher, 96% by his wife Beulah White Belcher, and 2% by his brother-in-law George Phillips White. Mrs. Belcher is president and treasurer and receives a salary of $500.00 per month. Brady is vice-president and receives a salary of $300.00 per year. Each stockholder is a director. Prior to its incorporation and beginning in the 1930's the Centreville Oil Company was operated by Brady Belcher. From that time to the present it has supplied the Corporation with substantially all its petroleum and allied products requirements.

Since 1939 Centreville Oil Company has been a “jobber” for Gulf Oil Corporation, and as such it buys and sells gasoline and diesel fuel for its own account. It is Gulf’s only “jobber” in the State of Alabama. In other places in the state the wholesale function is performed by “distributors,” who sell Gulf products for Gulf on commission.

Cross-claimants contend that those in control of the Corporation have failed to have it purchase gasoline and diesel fuels from one of the major oil companies, including Gulf, in substantial single deliveries of 8,000 gallons each, thus enabling the Corporation to qualify for a “transport” price, which is lower than the price at which the Corporation purchases these products from the Oil Company at wholesale. Under the existing setup the Corporation buys these and allied products at the same wholesale prices at which they are supplied to other wholesale customers of the Oil Company. Consequently the Oil Company makes the same profit on sales to the Corporation as to other wholesale customers. The price at which the Corporation buys gasoline is also the dealer’s tank wagon price, and is the same as that which the Oil Company sells to retail filling stations.

Transport prices are offered by some of the major oil companies to large consumers where such customers install their own storage facilities, different tanks being required for diesel fuel and gasoline. Separate tanks are also required for gasoline of different octane rating. Under the arrangement which has existed for so long the Oil Company furnishes at its own expense services and equipment which are not furnished under the transport price arrangement. The Oil Company has installed at its cost as its property the tanks of the Corporation, both at Centreville and Planters-ville. It also supplies without cost 55-gallon drums to the wood crews of the Corporation. All such equipment is maintained by the Oil Company. Allied products such as batteries and tires are not supplied under the transport price system.

Sales to the public are made from pumps located on the Corporation’s property at Centreville and Plantersville. Sales to the public are prohibited under the transport pricing system. Under the wholesale dealer system the Corporation is able to obtain advantage of frequent price wars at these two locations. The transport system does not take into account any price adjustment for gasoline price wars, although the transport purchaser is free to go and fill up at a service station at price-war prices. Those supporting the present arrangement for purchases from the Oil Company by the Corporation contend that these several factors and advantages offset any advantage attributable to the transport price system.

Gulf’s pricing system permits the Oil Company to buy regular gas at 1^ per gallon and premium gas at per gallon less than what the Corporation would pay Gulf at transport prices.

The Oil Company receives and almost invariably takes a 1% discount from Gulf for payment within ten days, but does not offer a like discount to the Corporation. The Oil Company receives from Gulf from time to time certain “temporary competitive allowances,” but like allowances are not made to the Corporation. The 1% discount would be available to consumers buying at transport prices.

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The Corporation uses 170,000 gallons of gas a year and would qualify for the transport price. The cost of installing a 10,000-gallon tank underground, with all necessary fittings and pump, is from $2,-000.00 to $2,500.00. The normal life of a tank is 20 years.

Consumers who buy gasoline and diesel fuel in transport quantities usually have someone stationed at the tank to make sure that the fuel is dispensed properly and not stolen. The pumps and equipment must be maintained. There is some loss from evaporation.

There is no contract between the Oil Company and the Corporation regarding the purchases made by the latter, and the directors have apparently never considered any such contract, nor have they considered the purchasing from one of the major oil companies at transport prices. The subject of the price paid has never come up at any meeting of the directors of the Corporation.

W. E., Jr. knew that the Corporation was buying its fuel requirements from the Oil Company. He didn’t know how much profit the Oil Company was making on the sales to the Corporation, but expressed satisfaction with the arrangement.

Mrs. Maxwell also knew of the sales to the Corporation, but was without knowledge as to the prices charged by the Oil Company. She never made any kind of an investigation as to such.

Mrs. Davis likewise knew that the Oil Company was selling to the Corporation. She knew nothing about the arrangement between the Oil Company and the Corporation, and nothing as to the prices charged. She never registered a complaint regarding the matter. Her husband Fred was also acquainted with the fact that the Corporation was purchasing its fuel needs and related supplies from the Oil Company.

Turner Rice, vice-president and trust officer of cross-claimant Trustee in charge of administering the A. R. Belch-er trust, had been told that gasoline and oil purchases of the Corporation were funnelled through the Oil Company. He stated that he had known these facts from the inception of the trust, but stated that he had been told by someone that the prices were the same at which any other competitor would sell to the Corporation. Cross-claimant Trustee also had available to it Dun & Bradstreet reports. The one from its files of March 16, 1951, reported that the Belcher Motor Company made a small portion of its sales to the W. E. Belcher Lumber Company, Inc. on regular terms and at regular prices less 5%, and that intercompany relations of the Centreville Oil Company with the Lumber Company were reported to be the same as those reported for the Belcher Motor Company.

The Centreville Oil Company’s fiscal year ends April 30. One of the compila-. tions which the Court finds to be reasonably accurate reflects sales of gas and diesel fuel by the Oil Company to the Corporation and the Oil Company’s gross margin thereon and sales of other products as follows:

Dollar sales of gas and diesel fuel Gross margin thereon Other products Total sales

1957 81,856.28 12,859.91 35,713.13 117,569.41

1958 86,050.42 12,244.50 35,990.53 122,040.95

1959 86,241.11 13,256.52 37,407.60 123,648.71

1960 90,540.16 13,783.09 43.755.40 134,295.56

1961 70,823.27 10,388.87 35,450.49 106,273.76

1962 64,666.13 9,273.56 35,540.07 100,206.20

1963 57,211.08 7,728.48 40,307.17 97,518.25

1964 58,644.50 7,957.69 39.241.40 97,885.90

1965 64,378.38 9,711.25 40,663.70 105,042.08

$97,203.87

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Total sales of gasoline at both Centreville and Plantersville for the years indicated consisted of 1,132,466 gallons of regular gas and 957,323 gallons of premium gas. At Centreville there were 956.-273 gallons of premium gas and 561,074 gallons of regular gas purchased by the Corporation. The ratio of premium to regular at Centreville ran from a high of 3.06 for the year 1962 to a low of .99 for 1965, with an average of about 1.75 per year for the 9 years. As noted the Oil Company’s profit was greater on premium than on regular.

Total sales of Centreville Oil Company for the years involved and the percentages of the sales to the Corporation to the whole are:

1957 $545,639.43 21.3 %

1958 532,711.90 22.46

1959 549.098.92 21.68

1960 560,972.02 23.5

1961 543,233.18 19.79

1962 547,472.81 18.2

1963 574,797.20 16.74

1964 552.114.92 17.12

1965 535,739.25 19.34

The taxable income of the Oil Company as shown by its federal returns for the years shown below and the tax thereon was as follows:

Year ending April 30th Taxable income Tax

1957 $17,903.88 $ 5,371.16

1958 14,257.01 4.277.10

1959 15,142.24 4,542.67

1960 20,880.31 6.264.10

1961 2,651.48 795.44

1962 20,468.49 6,140.55

1963 11,620.16 3,486.05

1964 21,227.72 6,101.88

As already noted Brady has been since the organization of the Corporation a stockholder, its president and a director, and at the same time a stockholder, vice-president and a director of the Oil Company.

The rule governing dealings between corporations having a common director or directors is succinctly stated in the much cited ease of Geddes v. Anaconda Copper Mining Company, 254 U.S. 590 , 41 S.Ct. 209 , 65 L.Ed. 425 , in the following language:

“The relation of directors to corporations is of such a fiduciary nature that transactions between boards having common members are regarded as jealously by the law as are personal dealings between a director and his corporation; and where the fairness of such transactions is challenged, the burden is upon those who would maintain them to show their entire fairness ; and where a sale is involved, the full adequacy of the consideration. Especially is this true where a common director is dominating in influence or in character. This court has been consistently emphatic in the application of this rule, which, it has declared, is founded in soundest morality, and we now add, in the soundest business policy.”

And as respecting sales by an officer to a corporation the rule was stated by the Court of Appeals for the Fifth Circuit in an appeal from this district in the case of Drennen v. Southern States Fire Ins. Co., 252 F. 776, 790 (1918), as follows:

“The burden is upon the officer to show that no advantage was taken of his position, and that the transaction was in good faith. It may easily occur that such an officer may sell property to the corporation at a price in excess of its value; but it is essential to the validity of the sale that he, and those representing the corporation, thought it within the value, or thought that some benefit would accrue to the corporation by the purchase. The good faith in the transaction will preserve it. But there must be good faith; there must be no imposition upon the corporation; there must be no taking advantage of the position; there must be no exercise of an improper influence upon the persons charged with the management of the affairs of the corporation.”

Alabama follows this rule as to the burden of proof. Western Grain Company Cases, 264 Ala. 145 , 85 So.2d 395 .

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Where such an arrangement as here exists is challenged, the Court will scrutinize the transaction closely and set it aside unless it clearly appears to be fair or just in every respect. Caldwell v. Dean, 5 Cir., 10 F.2d 299 .

Alabama also follows the rule that where the interests of officers of a corporation are antagonistic and adverse to the corporation the question of actual injury or detriment to the corporation is immaterial. Holcomb v. Forsyth, 216 Ala. 486 , 113 So. 516 . Subject to these rules, and as stated in The Western Grain Company Cases,

supra,:

“The general rule that a director occupies a fiduciary relation is not to be taken as prohibiting him from having any personal dealings with the corporation and the other directors and stockholders. The duty imposed on the director in such dealings is necessarily defined by, and dependent upon, the particular facts and circumstances involved. Each case must be considered separately on the basis of its own facts.”

The chief complaint is that management has not taken adequate steps to see to it that the Corporation bought gasoline and diesel fuel from a major oil company at transport prices. All of the stockholders, directors and officers have long known of the dealings herein discussed. As a matter of fact these dealings antedate the incorporation of both the Corporation and the Oil Company and appear to have existed for more than thirty years. It is true that the stockholders did not know the exact profit being made by the Oil Company on sales to the Corporation, but this information could have been ascertained by them years ago. They could scarcely assume that the Oil Company was handling at a loss or without profit to itself. The operation required a continuous outlay of capital and involved expenses and the rendition of services, and they could assume that a reasonable profit would result to the Oil Company. The Corporation obtained its requirements at wholesale and was treated no differently from others buying at wholesale. There is at least a serious question whether entry into the transport-price arrangement, considering all the factors involved, would have been, or would be, to the advantage of the Corporation cost-wise or otherwise. It is not to be overlooked that we are here dealing with a matter of business judgment, the decision as to which must rest in the first instance with the Corporation.

In view of the fact that the transactions between the Oil Company and the Corporation are, at most, voidable and not void, the stockholders and the other directors without an independent and substantive act of ratification could ratify such transactions from long acquiescence with knowledge, thereby waiving the right to avoid the transactions and their consequences. 19 C.J.S. Corporations § 783; and Griffin v. Smith, 7 Cir., 101 F.2d 348 . From all the facts the Court finds that a ratification and waiver has resulted, and that cross-claimants are not entitled to relief on the claims made with respect to the transactions between the Oil Company and the Corporation. However, this holding is not to be construed as freezing the status quo or precluding the Corporation from surveying the existing situation in the light of sound business judgment from the viewpoint of the Corporation.

MRS. ELLA BELCHER — SALARY

Mrs. Ella Belcher, the widow of W. E. Belcher, Sr., is the mother of Brady, W. E., Jr., Mrs. Maxwell and Mrs. Davis. She is the grandmother of the plaintiff, Charles Donald Belcher, the only child of her deceased son A. Roland Belcher. She was elected Chairman of the Board of the Corporation by the stockholders at their 1944 annual meeting and was authorized at that meeting to receive a salary of $100.00 per month. In 1948 or 1949, and prior to the creation of the Roland Belcher Trust B, Mrs. Belcher disposed of all her stock and under the

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by-laws of the Corporation then became ineligible to occupy a directorship. The minutes of the Corporation do not disclose any action to rescind the salary payment to Mrs. Belcher. Thereafter Brady authorized the “Company” to make salary payments to his mother. She has had no duties to perform for the Corporation and has performed no duties whatever for it. W. E., Jr. doesn’t know when he first learned that his mother was drawing a salary from the Corporation. She was already on a salary when he first knew about it. He then consented to it and never took any steps to inform the Trustee. Salary payments have been made to her as follows:

1951 $ 1,218.25

1952 1,158.06

1953 916.19

1954 918.25

1955 1,223.75

1956 1.232.00

1957 1.200.00

1958 1,200.00

1959 1,200.00

1960 1,200.00

1961 1,200.00

1962 1,200.00

1963 1,200.00

1964 1,200.00

$16,266.50

She continues to draw the sum of $100.00 per month. Mrs. Maxwell understood that her mother was receiving a salary from the Corporation. Mrs. Davis knew that her mother was drawing money but did not know that it was a salary.

In the Corporation’s financial statement for the year ending October 31, 1954, under “accounts receivable” there was listed: “Mrs. W. E. Belcher — Salary account $4.80.” There was a corresponding entry for the year ending October 31, 1955: “Mrs. Ella Belcher — Salary account $6.18.” These statements were furnished to the Trustee. There were check marks opposite these entries. Mr. Rice testified that check marks opposite an entry in any financial statement indicated that he had made inquiry concerning that item.

Standing alone the above notations are more misleading than informative. There is nothing on the books otherwise to indicate that Mrs. Belcher was receiving $100.00 a month as “salary.”

The Court finds that the Trustee did not have knowledge that a salary was being paid to Mrs. Belcher.

The Corporation had no pension or retirement plan that would cover the “salary” payments to Mrs. Belcher.

The Trustee contends that' the payments to Mrs. Belcher as “salary” constitute a waste or diversion of the corporate assets.

This claim appears to fall squarely within the holding of Adams v. Smith, 275 Ala. 142 , 153 So.2d 221 , decided by the Supreme Court of Alabama in 1963. There the directors adopted a resolution to pay certain sums to the widows of the deceased president and comptroller. A minority stockholder challenged this action and sought a recovery of the directors and the widows for the sums paid, and for injunctive relief against further payments. After quoting from Smith v. Dunlap, 269 Ala. 97 , 111 So.2d 1 , to the effect that a corporation could not give its property away over the protest of a minority stockholder, the court said:

“ . . . [P]ayment was made by the directors who were agents or trustees of the corporation. The rule applicable here, it seems to us, is as follows :

‘So, if a trustee misapply trust funds, and pay them out for a purpose not authorized by the trust, and the person to whom he pays them has knowledge that they are trust funds, this is a breach of trust in each, and the person receiving the fund under these circumstances, becomes a trustee, liable for the performance of all the trust duties which rested on the lawful trustee. Perry on Trusts, §§ 810, 814, 835, 836, 840, 841. . . . ’ Preston & Stetson v. McMillan, 58 Ala. 84, 89 .

“ . . . [T]he widows, in the case at bar, had notice that the money paid to them was the money of the

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Corporation, and the widows have not parted with value.

“We hold that the principle of voluntary payments under mistake of law does not apply to the payments to the widows. Recovery against the widow was allowed in Moore v. Keystone, etc., supra [ 370 Pa. 172 , 87 A.2d 295 ]. See also: Bronaugh v. Evans, 204 Ala. 153 , 85 So. 556 ; Wood v. Hendon, 16 Ala. App. 327 , 77 So. 921 .”

Love and affection of a son for his mother are laudable qualities but in this instance they do not comport with the legal obligations imposed upon him as president, director and stockholder with respect to the handling and preservation of the Corporation’s funds, noi do they lessen the legal duty of the Bank, as Trustee, with respect to the enforcement and discharge of its trust obligations as a stockholder.

The six year statute of limitations, Title 7, § 21, Alabama Code 1940, is applicable to Mrs. Belcher for money had and received by her. Consequently, payments made to her prior to August 6, 1958, are barred. No fiduciary relationship existed between her and the Corporation, as existed between Brady and the Corporation. In Spann v. First Nat. Bank of Montgomery, 240 Ala. 539 , 200 So. 554 , the court said:

“[T]he principle is established in this jurisdiction that as between the trustee and a stranger the statute of limitations runs as in other cases, and if the trustee is barred the cestui que trust is also barred.”

Brady standing in a fiduciary relationship to the Corporation and the other stockholders was under an affirmative duty to disclose the fact that he had authorized the payments to his mother. Hudson v. Moore, 239 Ala. 130 , 194 So. 147 . The Court does not find such corporate approval or acquiescence as to enable him to shield himself behind the defenses of laches or limitations against this wrongful disbursement of the Corporation’s funds. Jacksonville Public Service Corporation v. Profile Cotton Mills, 236 Ala. 4 , 180 So. 583 .

The Trustee, on behalf of the Corporation, is entitled to a judgment against Mrs. Belcher for sums received by her as “salary” since August 6, 1958, with interest thereon at the legal rate, and to a judgment against Brady for a misapplication of corporate assets, back to and including payments authorized by him and made to her for the years 1951 and subsequent thereto, together with interest thereon.

There was no resolution for redress offered by the Trustee to the directors with regard to the matter of sums paid to Mrs. Belcher as salary. However, a resolution was offered by. the Trustee with respect to small loan interest income received by Mrs. Belcher. Such resolution died for want of a second. All other requests for action by the Trustee at said meeting were voted down. From all the evidence of hostility to the Trustee by Brady and those aligned with him, and for reasons heretofore noted, demand for action against Mrs. Belcher and Brady would have been entirely futile.

MRS. ELLA BELCHER — SMALL LOAN INTEREST INCOME

Prior to 1944 the Corporation was making loans to its employees. During that year there was a Wage and Hour examination at which time this activity was disapproved. The procedure was then changed and the interest on the loans was no longer retained by the Corporation but was thereafter credited and paid over to Mrs. Ella Belcher.

If an employee wants money he goes to the Corporation’s payroll clerk, who determines how much unpaid time the employee has and the amount that he can borrow. If he has time due him, she adds 10% to the amount loaned, takes back a “cash slip” for the amount plus 10%, and deducts the amount of the cash slip from his next pay check. The clerk then turns the interest income over to the cashier of the Corporation who receipts for it as “mise, revenue”

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and deposits the amount of the charge to the employee to the credit of Mrs. Belch-er. The interest income so derived since the date of the Trust in 1951 has through 1964 been as follows:

1951 $ 7,255.52

1952 13,717.34

1953 • 14,105.51

1954 14,035.78

1955 14,306.57

1956 16,409.33

1957 18,700.27

1958 17,083.33

1959 17,399.94

1960 15,740.23

1961 14,665.94

1962 16,625.20

1963 19,189.90

1964 18,886.34

$218,121.20

Mrs. Belcher reported this interest income on her federal income tax returns and paid the tax thereon. Since Mrs. Belcher has been receiving the income the Corporation has not reported the same on its returns.

Following Mr. W. E. Belcher, Sr.’s death in 1945, Mrs. Belcher collected the proceeds of certain insurance on his life and loaned the Corporation the sum of $58,500.00, evidenced by two promissory notes. The Corporation has through the intervening years paid her interest of $2,400.00 per annum on this outstanding loan.

The defendants assert that all of the stockholders of the Corporation agreed to this payment of interest income to Mrs. Belcher. However, the evidence does not sustain this claim.

Mr. H. H. Maxwell, a stockholder and director, may have heard that some money was loaned to the employees, but he did not know what was done with the interest income. He did not remember anyone talking to him about it.

Mrs. Maxwell had no recollection of having known anything about the interest income before the lawsuit. Prior to this litigation she had not given her consent to any such agreement.

Mrs. Davis did not know about the interest income and was unaware that it was deposited to the account of her mother until advised by one of the counsel for the Trustee after this litigation ensued.

Turner Rice of the Trustee Bank had no knowledge of the loans to “Company” employees. The financial statements furnished him made no disclosure of interest income on loans to employees. Brady did not recall ever mentioning the matter to Mrs. Davis, Mrs. or Mr. Maxwell.

Brady directed the Corporation’s employees to make the loans and to deposit the interest income in Mrs. Belcher’s account. W. E., Jr. knew about the interest income being collected and paid to Mrs. Belcher and consented thereto.

Defendants further assert that the proceeds of the loan by Mrs. Belcher to the Corporation were used as a revolving fund from which to make the loans to employees. Again, the evidence does not bear out the claim, and it is refuted by the fact that the Corporation paid Mrs. Belcher interest in the amount of $2,-400.00 per year on the $58,500.00 loan, and deducted the same as an expense on its tax returns. Why the Corporation should pay her interest on funds being employed for her use is unexplained. The money borrowed from Mrs. Belcher is in the general account of the Corporation. There has been no segregation of said funds into a special account or otherwise. Only corporate funds from the Corporation’s general account were used to lend to the employees. When money is loaned to employees no entries are made on the corporate books as far as Mrs. Belcher’s account is concerned. The Corporation’s account with Mrs. Belcher did not fluctuate with loans to and collections from its employees.

The Corporation provided all the clerical assistance required for the conduct of the small loan business. There is evidence that an average of about $10,-000.00 was regularly employed in this small loan operation. The Corporation has not received interest on the funds so employed.

The Corporation has never been licensed to conduct a small loan business.

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The maximum allowed to be charged under the small loan laws of Alabama is 3% a month. A party who participates in the violation of the law, Acts 1959, p. 968, § 3, is subject to criminal penalties of a fine or imprisonment or both. The amount charged the employees far exceeds 3% per month.

Based upon the findings and conclusions herein made and stated, the Trustee is entitled to relief on behalf of the Corporation against Mrs. Ella Belcher, Brady and W. E., Jr. as herein directed.

There is, however, presented a serious question whether the Trustee can on behalf of the Corporation recover the interest income collected from the employees of the Corporation, and paid to Mrs. Belcher, which income was collected in violation of the law of Alabama, or whether its recovery will be limited to the legal interest on the funds used by the Corporation for Mrs. Belcher’s account together with clerical costs incurred in her behalf.

In National Trust & Credit Co. v. F. H. Orcutt & Son Co., 7 Cir., 259 F. 830 , a corporation organized for the purpose,

inter alia,

of purchasing accounts receivable made a written contract with a wholesale merchandising company. The court held the contract to be a loaning agreement and void as being beyond the corporate powers of the corporation. Creditors of the company were awarded an accounting of usurious interest collected by the corporation. The court in reversing, as far as closed transactions were concerned, said:

“Holding, as we do, that the real transaction between these parties was intended to be, and was in fact, for loans of money and not sales of accounts, and that appellant had not the legal capacity to enter into such transactions, the contract had no validity whatever, and neither party could enforce it, nor predicate' upon it any right of recovery.”

See also Central Transportation Co. v. Pullman’s Palace Car Co., 139 U.S. 24 , 11 S.Ct. 478 , 35 L.Ed. 55 .

The illegal interest collected in this instance was not an exaction from the Corporation but from its employees, and to permit the Corporation to recover this illegal exaction on an accounting would constitute an unjust enrichment and would insofar as the fruits of the transactions are concerned in effect put the Corporation in the small loan business retroactively, and amount to a court ratification of transactions which were and are contrary to public policy and in violation of a criminal statute.

Although a borrower of money may have the usurious sums paid deducted from the principal when he is sued, Title 9, § 65, Alabama Code 1940, but prior to January 5, 1960, and in the absence of fraud or mistake of fact, he could not recover back usurious interest voluntarily paid. Bell v. Barnes, 238 Ala. 248 , 190 So. 273 . By virtue of Section 290 (8) of Title 5, Alabama Code 1940, a borrower can now recover usurious interest paid by him, but another is not authorized to effect a recovery in his behalf.

These observations do not lead to the conclusion that officers of a corporation acting without authority of the corporation can deal with impunity with its funds under the facts here shown and thereby incapacitate those proceeding in its behalf from recovering from those responsible legal interest on its funds used by them, and expenses and costs incurred by the corporation at their instance. Although the transactions as to the loans be void, the Corporation may nevertheless recover the outlays which it had made and the losses to which it has been subjected.

National Trust & Credit Co.

and

Central Transportation Co., supra.

Where a party though not in privity participates in a wrongful appropriation of funds, such party may be required to respond on an accounting. 1 C.J.S. Accounting § 31, at 662; Harris v. Harris, 160 Or. 276 , 84 P.2d 500 .

Mrs. Belcher had the use of the Corporation’s funds and services over a long period of time, and whether the Trus

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tee’s claim is one strictly for an equitable accounting or for the use of its funds and services, the law will not leave it remedyless in view of its prayer for general relief.

Interest is compensation for the use of money and will be allowed on funds wrongfully used where, as here, the conduct of the parties merits its allowance. 47 C.J.S. Interest § 13, at 23; Perfect Photo, Inc. v. Grabb, (E.D.Pa.) 205 F.Supp. 569 . Substantial costs were incurred by the Corporation in servicing the loan business for Mrs. Belcher. As to the application of the statute of limitations the outlays of funds though in the form of salaries to employees would appear to be no different from the direct use of the funds in making loans to the employees.

Under Section 21, Subd. 5, Title 7, Code of Alabama 1940, the statute of limitations for the recovery of money upon a loan is six years. The use of funds for the payment of salaries to the employees and the interest on the loans to employees would, in the Court’s opinion, fall within the bar of the six-year limitation as to Mrs. Belcher. As to Brady and W. E., Jr., who stood in a fiduciary relationship to the Corporation and the other stockholders, the principles as to limitations referred to in this opinion in regard to salaries paid to Mrs. Ella Belcher are equally applicable here.

The evidence establishes and the Court so finds that there was a wrongful and unauthorized use of the funds and of the personnel of the Corporation. An accounting is directed to determine the average amount of funds of the Corporation annually employed in the small loan operation, the amount of interest thereon at the legal rate, the expenses incurred by the Corporation in conducting such operation, and the interest thereon at the legal rate, following which a judgment will be entered against Brady, W. E., Jr. and Mrs. Ella Belcher.

1b

The accounting as to Brady and W. E., Jr. will extend to the date of the establishment of the Trust, and as to Mrs. Belch-er to August 6, 1958.

SILAS LUMBER COMPANY

The issue presented by this claim is that of the alleged underpayment of commissions by the Silas Lumber Company to the Sales Company from July 23, 1951, to the spring of 1956.

Brady Belcher Interests, Inc. is a corporation with 100 authorized, issued, and outstanding shares of stock. Brady Belcher owns 98 shares, his wife one share and George Phillips White one share. Silas Lumber Company is the trade name used by Brady Belcher Interests, Inc. in a sawmill operation located at Silas, Alabama, some 140 to 150 miles from Centreville, Alabama.

During the period involved and up to 1958, Brady received from Silas a total of $8,800.00 in salary, and Mrs. Belcher received $2,200.00. They also received $17,428.08 and $4,095.00, respectively, in interest income from Brady Belcher Interests, Inc.

Silas manufactured airdried yellow pine and hardwood lumber. The records of the Sales Company reflect that the Sales Company purchased the lumber from Silas and then resold that lumber for its own account at a price of 2% above the purchase price. Cross-claimants assert that as a fact the transaction between the two represented a sale of Silas lumber products by the Sales Company on a commission of 2%.

The Sales Company was paid average commissions of 7.2% for sales made by it for outside lumber mills during the period of 1950 through 1953. Under the output agreement, hereinafter separately considered, the Sales Company was paid a 9.84% commission on sales for the Corporation.

From July 13, 1951, to January 31, 1964, the Sales Company made a profit of $6,784.66 on purchases totaling $343,-218.00 from Brady Belcher Interests, out

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of which it bore the cost of overhead and loss from bad debts. Of this total Silas was paid $331,295.84. On the basis of 7.2% commission to the Sales Company, the profit would have amounted to $33,772.65 for the period mentioned.

During the years 1952 through 1957 Silas earned more on products sold through the Sales Company than on those sold elsewhere. The average price per thousand board feet on sales through others was $67.725, and through the Sales Company $74.297, or a difference of $6,572. There was an extra profit on footage sold through the Sales Company of $31,175.52. During more than half of the time involved the Sales Company paid Brady Belcher Interests for Silas products before they were delivered.

There is evidence tending to establish that Silas competed with the Corporation. There is countervailing evidence that the two were not competitors in that Silas produced airdried, high grade boards, while the Corporation kiln-dried its lumber of the same class. The evidence establishes that the Corporation air dries some of all grades of its lumber. The Court finds that the weight of the evidence is with the defendants on the issue of competition.

The Corporation also was placed at a disadvantage by the 2% profit or commission paid by Silas in that the Internal Revenue Service has found that a part of the 9.84% commission expense allowed the Sales Company was not allowable as a corporation expense. The Corporation was required to accept a formula whereby the commission was dete

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