Gordon Frank Ward v. Pamela Ward

• Court: Court of Appeals of Georgia
• Decided: July 15, 2013
• Docket: A13A0088
• Status: Published

Opinion

SECOND DIVISION BARNES, P. J., MILLER and RAY, JJ.

NOTICE: Motions for reconsideration must be physically received in our clerk’s office within ten days of the date of decision to be deemed timely filed. http://www.gaappeals.us/rules/

July 15, 2013

In the Court of Appeals of Georgia A13A0088. WARD v. WARD et al.

RAY, Judge.

This case involves a dispute between shareholders regarding majority

ownership, management, and control over B & W Carry-Out, Inc. (“B & W”), a small,

family-owned corporation. Gordon Frank Ward, Jr. (the appellant) filed a complaint

against his sisters, Pamela Ward and Denise Eilers (the appellees), seeking a

declaratory judgment and asserting claims for injunctive relief, accounting, money

had and received, misappropriation and waste, and attorney fees. The appellees each

filed answers and counterclaims seeking a declaratory judgment and asserting claims

for accounting, conversion, tortious interference with contractual relations, tortious

interference with business relations, intentional infliction of emotional distress,

punitive damages, and attorney fees. The trial court entered a declaratory judgment, finding that the issuance of certain shares of stock did not comply with Georgia law

and, thus, that the appellant is not the majority shareholder of the corporation. The

trial court did not rule on the parties’ other claims, which remain pending below. The

appellant appeals the trial court’s order on declaratory judgment. For the following

reasons, we affirm.

1. We first address our jurisdiction. The appellees contend that the appellant’s

direct appeal from the order on declaratory judgment is not properly before this Court.

The appellees contend that the order is not a final judgment subject to direct appeal

because the parties’ other claims remain pending. However, we find that we have

jurisdiction. A declaratory judgment is directly appealable because it has the “force

and effect of a final judgment” and is reviewable as such. OCGA § 9-4-2 (a). This is

so even if other issues in the case remain pending before the trial court. Building

Block Enterprises, LLC v. State Bank and Trust Co., 314 Ga. App. 147, 150 (1) (723

SE2d 467) (2012).

2. In this case, all the parties sought a declaratory judgment as to who was the

majority shareholder in B & W. The resolution of this issue turns on whether certain

stock certificates issued to the appellant, which purportedly make him the majority

shareholder, were validly issued. After hearing oral argument and reviewing the

2 record, the trial court found that the transfer of the stock certificates at issue did not

comply with OCGA § 14-2-621 (b) because the transfer was not authorized by B &

W’s board of directors. In four enumerations of error, the appellant contends that the

trial court erred in finding that the transfer of the stock at issue was not valid. We

discern no error.

“A trial court’s findings of fact after a declaratory judgment hearing are

analogous to a jury verdict and will not be interfered with if there is any evidence to

support them. However, we review the trial court’s conclusions of law de novo.”

(Citation and punctuation omitted.) Bank of the Ozarks v. DKK Dev. Co., 315 Ga.

App. 539, 540 (726 SE2d 608) (2012).

The record shows that B & W was incorporated on October 4, 1960. According

to its bylaws, B & W transacted business and acted under the authority of a board of

directors. The president of the corporation has general and active management of the

corporation, and is required to ensure that all orders and resolutions of the board of

directors are carried into effect. The president is also required to perform other duties

as the board may direct. Among those duties, the president, along with the secretary

of the corporation, is required to sign all stock certificates.

3 From its inception until 2006, B & W issued forty-five stock certificates. Said

certificates were either expressly authorized by the board of directors prior to the

issuance of the stock or ratified by the board thereafter . B & W had a history of

receiving loans from its shareholders and then later converting this debt to equity in

B & W by issuing additional shares of stock in exchange for cancellation of the debt.

The record shows that such transactions required approval from the board of

directors,

The last meeting of the board of directors and shareholders was on February

3, 2005. The appellant contends that in 2006 that B & W’s board of directors

consisted of three members. Although the record is unclear, there is some evidence

to indicate that B & W had five members on its board of directors at that time:

Gordon Frank Ward, Sr., Martha Ward, appellees Pamela Ward and Denise (Ward)

Eilers, and the appellant. In addition to serving as board members, Gordon Frank

Ward, Sr. was B & W’s president and the appellant was its vice-president/secretary.

Prior to the transfer of the specific stock certificates at issue in this case, no

shareholder had majority ownership of stock in B & W.

4 Between 2006 and 2008, the president, along with the appellant, issued stock

certificates numbered 46, 48, 49, 50, and 511 (the “disputed stock certificates”) to the

appellant to compensate him for monies he personally paid on behalf of the

corporation for repairs to corporate property and for other matters. This was done

without a formal resolution or authorization by the board of directors. The issuance

of the disputed stock certificates significantly increased the appellant’s number of

shares and purportedly made him the majority shareholder in B & W.

On April 25, 2006, the president executed an affidavit to be used as a substitute

for the 2006 meetings of the stock holders and board of directors. The board of

directors also signed the document, acknowledging and approving the use of the

affidavit for this purpose. At the time the board of directors signed the document, the

affidavit did not mention the issuance of the disputed stock certificates to the

appellant. The record is undisputed that exhibits B through F to the affidavit, signed

only by the president and the appellant in their capacities as officers of the

corporation, were later attached to the affidavit as purported authorization for the

1 Stock certificate 47 was an apparent transfer of 4.75 shares to B & W based on the appellant’s surrender of those shares to satisfy a debt he owed to B & W.

5 issuance of the disputed stock certificates and that the exhibits were not approved by

other members of the board.

(a) The appellant contends that the trial court erred in finding that the disputed

stock certificates were not valid due to the lack of authorization by the board of

directors. The appellant argues that the issuance of the disputed stock certificates did

not require a formal resolution board, but that the issuance of the disputed stock

certificates was nevertheless approved by the board because the appellant and Gordon

Frank Ward, Sr., who had a power of attorney from board member Martha Ward,

constituted a majority of the board of directors and that they signed the stock

certificates in their respective capacities as officers of the corporation. We find that

this argument lacks merit.

OCGA § 14-2-621 (b) provides that “[t]he board of directors may authorize

shares to be issued for consideration consisting of any tangible or intangible property

or benefit to the corporation, including cash, promissory notes, services performed,

contracts for services to be performed, or other securities of the corporation.”

Furthermore, Article IV, Section 4 (a) of B & W’s bylaws provides that “[a] majority

of the members of the [b]oard of [d]irectors shall be necessary to constitute a quorum

for the transaction of [corporate] business, and all action by the [d]irectors shall

6 require a majority vote of said [d]irectors.” Article IV Section 3 also requires that

notice be given to each director prior to all meetings of the board of directors.

The evidence is undisputed that B & W’s board of directors did not hold a

meeting in 2006 or enter a formal resolution authorizing the disputed stock

certificates. Although the appellees approved of the use of the April 25, 2006,

affidavit in lieu of any 2006 meetings of the board of directors, the affidavit, when

signed, did not mention the issuance of stock. Also, the act of signing the stock

certificates as officers of the corporation does not substitute for the formal approval

of the board, and nothing on the certificates themselves even indicates as such.

Accordingly, we find that the issuance of the disputed stock certificates did not

comply with B & W’s bylaws.

Based of our above finding, we need not address the appellant’s argument that

the issuance of the disputed stock certificates was supported by adequate

consideration as contemplated by OCGA § 14-2-621 (c).

(b) The appellant contends that the trial court erred by failing to recognize B

& W’s settled course of business regarding the issuance of stock and the board of

directors’ acquiescence in the president’s authority to issue stock. This position is

without merit.

7 The appellant relies on Garmany v. Lawton, 124 Ga. 876 (53 SE 669) (1906).

In Garmany, our Supreme Court held that where all of the directors and shareholders

of a corporation, by their acquiescence, invested the executive officer of the company

with the powers and functions of the board of directors under a continuous and

permanent arrangement, and where the board of directors was entirely inactive, that

the actions by the executive officer on behalf of the corporation were valid as against

the corporation even though the officer’s actions were not formally authorized by the

board of directors or shareholders. Id at (1). Although the appellant contends that B

& W had a settled course of business of allowing the president and the secretary to

informally issue stock, there is evidence such stock issuances (other than the ones at

issue here) were either expressly authorized by the board of directors or ratified by

the board thereafter . Moreover, the evidence shows that all issuance of B & W stock

to shareholders in exchange for cancellation of corporate debt required authorization

from the board of directors.

Also, unlike in Garmany, the evidence in this case shows that the board of

directors were actively involved in the affairs of the corporation, regularly holding

meetings and approving the corporate minutes, from 1960 to 2006. Although the last

formal meeting occurred in 2005, the record in this case shows that the board of

8 directors remained active after its last formal meeting, as evidenced by the fact that

it approved the president’s April 25, 2006, affidavit shortly before the president

began issuing the disputed stock certificates. There is no evidence that the board of

directors delegated its authority or that the president was solely responsible for the

management of the corporation’s affairs on a continuous and permanent basis.

(c) In a related enumeration of error, the appellant contends that the trial court

erred in finding that the president lacked the authority to issue the disputed stock

certificates, arguing that the president had the implied authority to do so. For the

reasons stated in Division 2 (a) and (b), this argument lacks merit.

(d) Finally, the appellant contends that the trial court erred because the issuance

of the stock was ratified when the corporation received the benefit of the

consideration, i.e. - the cancellation of corporate debt owed to the appellant. We

disagree.

The appellant cites Jackson v. Southern Pan and Shoring Co., 258 Ga. 401

(369 SE2d 239) (1988), to support his argument. In that case, Jackson guaranteed a

loan for Southern Pan in exchange for receiving a stock warrant giving her the option

to purchase 80 percent of Southern Pan’s stock. When Jackson attempted to exercise

her stock warrant, the corporation initiated a declaratory judgment action arguing that

9 the stock warrant was void because it was issued prior to Southern Pan’s

incorporation. Id at 401. Our Supreme Court found that the stock warrant was

enforceable because the evidence was undisputed that the individuals who ultimately

served on Southern Pan’s board of directors expressly authorized the stock warrant

prior to Southern Pan’s incorporation, and they expressly ratified the warrant

immediately following its incorporation. The Court further found that Southern Pan

unquestionably received the benefits of the consideration for the stock warrant -

Jackson’s guaranty of the loan. Id at 401 (1).

The facts of the present case are inapposite. In Jackson, the members of the

board had knowledge and notice of both the stock warrant and the benefit received

by the corporation. Here, there is no evidence that the appellees had notice or

knowledge of the issuance of the disputed stock certificates or the benefit received

by the corporation. To prove ratification by a corporation, it must be proven that the

governing body of the corporation had full knowledge of all material facts in

connection with the transaction in question. Dragon Corp. v. Syphers, 85 Ga. App.

781,784 (70 SE2d 105) (1952). Furthermore, the corporation’s knowledge must be

more than just knowledge on the part of the agent(s) whose acts are the subject of the

purported ratification. Id. Although the record shows that B & W’s president and the

10 appellant had knowledge of the issuance of the disputed stock certificates in exchange

for cancellation of corporate debt, the record does not show that their knowledge was

notice to the full board of directors. Under these circumstances, we cannot say that

the issuance of the disputed stock certificates was ratified by the corporation.2

For the above reasons, we find that the trial court did not err in granting

declaratory judgment in favor of the appellees.

Judgment affirmed. Barnes, P. J., and Miller, J., concur.

2 In our ruling herein, we do not reach the issue as to whether the debt formerly owed by the corporation to the appellant springs back to life, given that the stock at issue has been declared null and void.