Brinson v. Mill Supply Co.
| Decision Date | 07 May 1941 |
| Docket Number | 305. |
| Citation | 14 S.E.2d 505,219 N.C. 498 |
| Parties | BRINSON et al. v. MILL SUPPLY CO., Inc. |
| Court | North Carolina Supreme Court |
See also, 14 S.E. 509.
Civil action instituted by W. T. Brinson in behalf of himself and all the stockholders and creditors of The Mill Supply Company against The Mill Supply Company, alleging insolvency and seeking the appointment of a receiver and the liquidation of the corporation.
When the original action came on to be heard on the motion for the appointment of a receiver, E. F. Smallwood was appointed receiver and placed in charge of the assets of the defendant corporation to the end that the corporation might be liquidated and the assets applied to the payment of creditors.
The claimant, Laura H. Harvey, executrix of the last will and testament of Harriet L. Hyman, filed claim with the receiver in the amount of $2,318.97, representing the balance due on a note in the sum of $5,000, executed by Albert F. Patterson who was, at the time of the execution thereof, president of the defendant company. The facts in respect thereto are as follows:
On March 14, 1931, Albert F. Patterson borrowed from Harriet L Hyman the sum of $5,000, evidenced by his note which, under the terms thereof, was payable in stipulated monthly instalments. Fifty shares of the capital stock of The Mill Supply Company was deposited with the payee as collateral security and the note contained the stipulation "that upon payment of the sum $1,000 on the principal of this note that $1,000 of the par value of said stock shall be released to the maker of this note and upon payment of each subsequent $1,000 a like amount of collateral shall be released to the maker.
"The payment of this note is guaranteed by The Mill Supply Company in accordance with a separate contract of guaranty of even date herewith executed by The Mill Supply Company."
On April 2, 1931, A. F. Patterson, president, and the secretary of the defendant corporation, executed, in the name of the corporation, a contract of guaranty of said note, which contract of guaranty was executed pursuant to a resolution duly adopted by the executive committee, March 14, 1931. This contract contains a similar stipulation to the effect that upon the payment of $1,000 upon the principal of the note $1,000 par value of the stock deposited as collateral is to be released to A. F. Patterson, the maker.
The executive committee in adopting the resolution authorizing the execution of the contract of guaranty acted by virtue of a resolution of the board of directors vesting it, during the interim between meetings of the board, "with the same power and authority as is vested in the Board of Directors and by any act of said committee taken between the meetings of the Board of Directors shall be as equally binding on the company as though said action had been taken by the Board of Directors".
The receiver denied the claim and the claimant appealed to the Superior Court. Upon hearing in the Superior Court the judge found the facts and concluded that the contract of guaranty was ultra vires. It thereupon adjudged that the claimant recover nothing of the receiver. The claimant excepted and appealed.
R. A. Nunn, of New Bern, for appellant Laura H. Harvey.
R. E. Whitehurst, of New Bern, for appellee.
Was the act of the officers of the defendant corporation, in authorizing and executing the contract of guaranty, ultra vires as contended by the receiver? The court below so concluded. In this conclusion we concur.
For a contract executed by the officer of a corporation to be binding on the corporation it must appear that (1) it was incidental to the business of the corporation; or (2) it was expressly authorized; and (3) it was properly executed.
The charter of the defendant corporation vests it with general authority to acquire, own, mortgage, sell and otherwise deal in real estate, chattels and chattels real without limit as to amount; to deal in mortgages, notes, shares of capital stock and other securities; to acquire the good will, rights, property 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; to purchase or acquire its own capital stock from time to time to such an extent and in such manner and upon such terms as its board of directors shall determine; to borrow or raise money for any purpose of its incorporation, and to issue its bonds, notes or other obligations for money so borrowed, or in payment of or in exchange for, any real or personal property or rights of franchises acquired or other value received by the corporation and to secure such obligations by pledge or mortgage; and "to do all and everything necessary, suitable, convenient or proper for the accomplishment of any of the purposes, or the attainment of any one or more of the objects herein enumerated, or incident to the power herein named, or which shall at any time appear conducive or expedient for the protection or benefit of the corporation, either as holders of or interest in, any property, or otherwise; with all the powers now or hereafter conferred by the laws of North Carolina upon corporations." There are other powers granted which are in nowise pertinent to the question here presented.
The powers thus granted do not expressly authorize the corporation to issue accommodation paper or to guarantee the obligations of a third party.
It is true that in a letter addressed to the payee of the note the treasurer of the defendant corporation recited the conditions of the note, including the provision in respect to the surrender of the collateral, and says in the letter that such stock "shall be released and turned over to The Mill Supply Company, free and discharged of the lien of said note." But this letter was merely one of transmittal. It constitutes no part of the contract. The guaranty enclosed as well as the note, which together form the contract, provides that such stock, on compliance with the condition, is to be surrendered to the maker A. F. Patterson. Furthermore, evidence touching such complaints, the there is no evidence tending to show that any of the stock was ever delivered to the corporation. Hence, the contract was not a method adopted for the purchase by the defendant of its own stock as authorized by its charter. Claimant's...
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