Brinson v. Mill Supply Co.

• Decision Date: 07 May 1941
• Docket Number: 307.
• Citation: 14 S.E.2d 509,219 N.C. 505
• Parties: BRINSON v. MILL SUPPLY CO.
• Court: North Carolina Supreme Court

14 S.E.2d 509

219 N.C. 505

BRINSON v. MILL SUPPLY CO.

No. 307.

Supreme Court of North Carolina

May 7, 1941

Civil action instituted February 3, 1940, for the appointment of receiver on account of imminent danger of insolvency of defendant, The Mill Supply Company, a corporation.

The Court appointed Edward F. Smallwood as such receiver and he entered upon the duties of the position.

The estate of Mrs. Lida P. Duffy, who died January 8, 1938, filed claim with the receiver, predicated upon two notes, the first dated May 19, 1927, for $2,500, and the second April 1, 1929 for $1,000, each executed by A. F. Patterson, and each bearing on the back thereof this endorsement: "The Mill Supply Company, by A. F. Patterson, Secretary and Treasurer". The receiver disallowed the claim and reported such disallowance to the court. The executor of Mrs Lida P. Duffy, to wit, Rudolph Duffy, excepted and appealed to the Superior Court, and upon controversy thus arising the parties agreed upon and submitted to the judge holding the courts of the district a statement of facts and agreed that such judge should pass upon same and render judgment with like effect as though same had been found by a jury in term.

The agreed facts are substantially these: The Mill Supply Company was incorporated by charter filed December 10, 1923. Among the pertinent provisions contained in the charter, briefly stated, are these: (1) "*** To lend money on bonds secured by mortgages on real estate or other personal property ***"; (2) To "purchase *** bonds, *** shares of capital stock, and other securities, obligations and contracts and indebtedness of any private *** corporation; *** to receive *** and dispose of *** debentures, notes, shares of capital stock, securities obligations, contracts, evidence of indebtedness and other property held or owned by it, and to exercise in respect of all such *** any and all the rights, powers and privileges of individual owners thereof; to do any and all acts and things tending to increase the value of the property at any time held by the corporation ***"; but "nothing herein is to be construed as intended to form a banking company, a trust company, a savings bank or a corporation intended as a part of its business to derive profit from the loan and use of money"; (3) To "acquire the good will, rights profit and assets of all kinds and to undertake the whole or any part of the liabilities of any person, firm association or corporation, and to pay for the same in cash, stock, bonds, debentures, notes or other securities of this corporation or otherwise"; (4) To "use and apply its surplus earnings or accumulated profits authorized by law to be reserved, to the purchase or acquisition of property and to the purchase or acquisition of its own capital stock from time to time, to such extent and in such manner and upon such terms as its board of directors shall determine"; (5) "To borrow or raise moneys for any purpose of its incorporation, to issue its bonds, notes, or other obligations for moneys so borrowed, or in payment of or in exchange for, any real or personal property or rights *** acquired or other value received by the corporation and to secure such obligations by pledge or mortgage under a deed of trust or otherwise, of or upon the whole or any part of the property at any time held by the corporation, and to sell or pledge such bonds, or discount such notes or other obligations, for its proper corporate purposes".

The by-laws provide for a manager and treasurer, and prescribe their duties. It is provided, among other things not here pertinent, that the manager shall have general control of the operation and affairs of the company, subject to the control of the directors. It is further provided that the treasurer "shall perform all the duties usually performed by a treasurer, and as such, he shall collect, receive and hold the money of the company; endorse and collect all checks and negotiable instruments and keep full and accurate accounts of the receipts and disbursements of the company, rendering a full account to each regular stockholders' meeting".

According to the minutes of the first meeting of the stockholders and directors held on December 21, 1923, A. F. Patterson was elected to the position of secretary-treasurer and general manager and held these positions up to and including the meeting on -- February, 1933, at which time he was elected president and served in that capacity until receiver was appointed, in February, 1940.

At a stockholders meeting in 1925 the officers were empowered to issue stock up to $110,000, including the stock already issued, provided it were deemed necessary by them. From time to time theretofore and thereafter directors authorized loans to be obtained or money borrowed,--to wit: (a) On February 18, 1924, A. F. Patterson was authorized to procure a loan not to exceed $20,000 from the Murchison National Bank, of Wilmington, North Carolina, and to pledge the faith and credit of the company for same; (b) on August 10, 1926, the secretary was authorized to borrow $5,000 from the Seaboard National Bank of Norfolk, Virginia, and to open an account with it; (c) on January 11, 1927, the secretary was authorized to borrow $5,000 from the Murchison National Bank of Wilmington, North Carolina, and to arrange an extension on bonds held against the real estate of the company; (d) on December 19, 1927, the secretary was authorized to arrange for loan not over $15,000 for five years and to give a second mortgage on the real estate of the company to protect same; (e) on November 1, 1929, the executive committee authorized the general manager to borrow such additional funds as were found to be necessary to meet the current obligations of the company in addition to bonds maturing on or before January 1, 1930, and to hypothecate insurance policies on any and all employees of the company, and to use the equity accumulated against these policies, and such portion as has accumulated in the building and loan stock of the company for this purpose; and (f) on February 21, 1930, the secretary and treasurer was authorized to negotiate a loan with the South Carolina National Bank at Charleston not to exceed $10,000,--to be used for the specific purpose of retiring any loans of equal amount which the company may have with the Seaboard National Bank of Norfolk or the North Carolina Bank & Trust Company at Wilmington.

There were no other specific directions or authority expressed in the minutes to borrow money between the date of the organization of the corporation and the date of February 21, 1930.

Under date of May 19, 1927, A. F. Patterson executed and delivered his note for $2,500 to Mrs. Lida P. Duffy, payable on demand at the office of the Mill Supply Company, and entered on back of said note this endorsement "The Mill Supply Company, A. F. Patterson, Secretary", and secured the same by deposit with her of certificate No. 50 for 35 shares of capital stock of the Mill Supply Company issued to A. F. Patterson. He informed her that the purpose of borrowing said money was to enable him to pay a note given by him to the Mill Supply Company for said stock. She requested that the company endorse the note and Patterson, "believing that he had the authority and privilege entered the endorsement recited above", and thereupon delivered the note as so endorsed by him to Mrs. Duffy, and received the payments hereinafter recited. Patterson had previously agreed with Mrs. Duffy that since the stock paid ten per cent dividend, she would receive ten per cent on the money so loaned.

The general ledger of the company, under heading of "Notes Receivable," contains entries of credits by checks--two as "(A. F. Patterson) L.D." and one "(A. F Patterson) on note for L. D."--aggregating $2,500, indicating and meaning that Mrs. Lida Duffy's checks were credited on the note of A. F. Patterson given to and held by Mill Supply...