Besselietj v. Brown

• Citation: 97 S.E. 743
• Decision Date: 03 January 1919
• Docket Number: (No. 286.)
• Court: United States State Supreme Court of North Carolina
• Parties: BESSELIETJ et al. v. BROWN et al.

97 S.E. 743

BESSELIETJ et al.

v.BROWN et al.

(No. 286.)

Supreme Court of North Carolina.

Jan. 3, 1919.

Appeal from Superior Court, New Hanover County, Lyon, Judge.

Action by E. C. Besselieu and J. W. Yates, receivers of the Southern Mutual Home & Real Estate Company, against C. C. Brown and others, directors and managing officers of said company, for loss of company's assets. From a judgment overruling a demurrer to the complaint, defendants appeal. Affirmed.

E. K. Bryan and Robt. Ruark, both of Wilmington, for appellants.

A. G. Ricaud and E. T. Burton, both of Wilmington, for appellees.

HOKE, J. The complaint alleges that in 1904 the company in question was duly in corporated and organized, pursuant to the laws of the state, and engaged in the transaction of business as contemplated by the charter, etc.; that in 1916, on petition filed and approved by two-thirds of the stockholders, the company was declared insolvent, and plaintiffs appointed receivers, and authorized and directed to collect and take charge of company's assets, etc., the order appointing said receiver containing, among other things, a judgment against the company in favor of A. C. Dawson for $848.70, which is annexed and made part of the complaint as Exhibit A, and on leave duly granted, the present suit was instituted against defendants, the directors, some of whom were also members of the executive committee and managing officers of the company. It was further alleged, in effect, that the defendants who had long been directors of the company, and some of whom, as stated, were its managing officers and members of the executive committee, had utterly failed to attend to the business of the company or to perform the duties incumbent upon them and incident to their respective positions, but had turned over the entire management of the company and its business and the custody and care of its assets to one M. C. Hammond, the secretary, and without any supervision or control on their own part; that they did not attend the directors' meetings, as required; they took no bond from said Hammond, did not have his accounts audited, nor even require any reports from him, with the result that he made away with the company's assets, to the amount of $12,636.19, causing its insolvency, and in July, 1915, had written a letter to one of defendants, C. C. Brown, confessing his default, which is also made a part of the complaint. It is further alleged that the directors took a mortgage from the sister of said Hammond to secure $6,000 of the sum embezzled by him, and thereafter the directors wrongfully accepted $3,000 in adjustment of the company's claim against Hammond. Having set forth these matters with great fullness of detail, averment is further made, in section 26 of the complaint:

"That said defendants were further guilty of reckless negligence in failing to discharge their duties as trustees, by reason of being directors of said company, in that they failed and neglected to hold and attend meetings as directors, as required by law and the by-laws of the company, in order to look after, scrutinize, and protect the business of the corporation and the interests of the stockholders and creditors of same. That during the year 1914 there was only one directors' meeting for the entire year, which was held on the 22d day of January, 1914, and there was no other meeting of the board of directors until January 21, 1915, and that there was no other meeting until after the defalcation of Hammond was acknowledged by him, in August, 1915, and during this period of time, from January, 1914, until August, 1915, the business of the corporation was left almost entirely, if not wholly, to the management, control, supervision, and destruction of a self-confessed embezzler, without any restraint, control, or direction whatever from any other source."

Judgment is then asked for the amount of the loss, due to the inattention and neglect of the defendants, etc.

[1j It is fully established, in this jurisdiction and elsewhere, that the directors and managing officers of a corporation are to be properly considered and dealt with as trustees or quasi trustees in respect to their corporate management, and may, in proper instances, be held liable for loss or depletion of the company's assets, due to their willful or negligent failure to perform their official duties. They are not, as a rule, responsible for mere errors of judgment (Fisher v. Fisher, 170 N. C. 37S, 87 S. E. 113, and authorities cited), nor for slight omissions, from which the loss complained of could not have reasonably been expected; but, where they accept these positions of trust, they are expected and required to give them the care and attention that a prudent man should exercise in like circumstances and charged with a like duty, usually the care that he shows in the conduct of his own affairs of a similar kind; and if there is a breach of legal duty in this respect, causing a loss of the company's assets, the corporation may sue, and, in case of insolvency, the action can be maintained by the receiver. Steele v. Hardware Co., 175 N. C. 450, 95 S. E. 896; Whit-lock v. Alexander, 160 N. C. 465, 76 S. E. 538; Pender v. Speight, 159 N. C. 612, 75 S. E. 851; McIver v. Hardware Co., 144 N. C. 478, 57 S. E. 169, 119 Am. St. Rep. 970; Houston v. Thornton, 122 N. C. 365, 29 S. E. 827, 65 Am. St. Rep. 699; Solomon v. Bates, 118 N. C. 311, 24 S. E. 478, 54 Am. St. Rep. 725; Townsend v. Williams, 117 N. C. 330, 23 S. E. 461; Hill v. Lumber Co., 113 N. C. 173, 18 S. E. 107, 21 L. R. A. 560, 37 Am. St. Rep. 621; Briggs v. Spalding, 141 U. S. 132, 11 Sup. Ct. 924, 35 L. Ed. 662; Fisher v. Parr et al., 92 Md. 245, 48 Atl. 621; Olney v. Connecticut Land Co., 16 R. I. 597, 18 Atl. 181, 5 L. R. A. 361, 27 Am. St. Rep. 767; Hodges v. New Eng. Screw Co., 1 R. I. 312, 53 Am. Dec. 624; Williams v. McKay, 40 N. J. Eq. 189, 53 Am. Rep. 775; Boswortb, Receiver, v. Allen et al., 168 N. Y. 157, 61 N. E. 163, 55 L. R. A. 751, 85 Am. St. Rep. 667; Cook on Corporations, §§ 701-703, 869; 2 Thompson on Corporations, § 1410; 3 Pomeroy's Eq. Jur. § 1090 et seq.; Clark on Corporations, p. 515.

In Briggs v. Spalding, the controlling principle is stated as follows:

"Directors of a national bank must exercise ordinary care and prudence in the administration of the affairs of a bank, and this includes something more than officiating as figureheads. They are entitled...