Cantey v. Edward L. Summersett & Co., Inc.

• Decision Date: 14 February 1929
• Docket Number: 12593.
• Parties: CANTEY v. EDWARD L. SUMMERSETT & CO., Inc., et al.
• Court: South Carolina Supreme Court

147 S.E. 635

149 S.C. 513

CANTEY v. EDWARD L. SUMMERSETT & CO., Inc., et al.

No. 12593.

Supreme Court of South Carolina

February 14, 1929

Appeal from Common Pleas Circuit Court of Richland County; W. H Townsend, Judge.

Action by J. M. Cantey, receiver, against Edward L. Summersett & Co., Inc., and others. Judgment for plaintiff, and defendants appeal. Reversed.

Following is the decree of Circuit Judge Townsend:

"This is an action to subject certain property standing in the name of Edward L. Summersett & Co., Inc., to the payment of judgments against E. T. Summersett, on the ground that the corporation was organized, and has been used, as a scheme on the part of E. T. Summersett and other defendants to hinder, delay, and defraud then existing creditors of E. T Summersett in the collection of the debts due them, and that E. T. Summersett is, in good conscience and equity as to such creditors, the owner of all the property standing in the name of said corporation.

"The case was heard before me on the pleadings, testimony, and evidence taken in proceedings supplementary to execution in the case of Frank Smathers et al. v. E. T. Summersett et al., along with other testimony taken before me, and documentary evidence introduced in connection therewith.

"The answer of Edward L. Summersett & Co., Inc., verified by E. T. Summersett, to the complaint, which is full of charges of acts constituting fraud, alleged to have been perpetrated by said E. T. Summersett, contains no direct denial thereof. As to all of these material allegations, this answer sets up that the corporation 'has no knowledge or information sufficient to form a belief with respect to the allegations contained in the complaint in this action, that it, therefore, denies the same.' Certainly in a case where the corporation is charged with being a fraud and the part of a fraudulent purpose, and it is charged that such use is being made of it by E. T. Summersett, it would seem to the court that the answer made by and in behalf of this corporation and verified by the very party charged with the fraud and the fraudulent scheme, could not deny knowledge or information sufficient to form a belief as to the truth thereof.

"It seems to us to fall within the principle in regard to denial of knowledge or information sufficient to form a belief as to written instruments, like notes, etc., executed by a party. Our court, speaking through Mr. Juscite McIver, in Hall v. Woodward, 30 S.C. 564, 576, 9 S.E. 684, 685, says: 'For the Code, proceeding upon the theory that mere formal proof should be dispensed with, and the parties brought to the real issues involved, does not permit a denial of knowledge or information sufficient to form a belief as to the existence of a fact, the truth of which can be readily ascertained.'

"And in Guaranty Trust Co. v. Kibler, 105 S.C. 513, 519, 90 S.E. 159, 160, the court, speaking through Mr. Justice Gage says: 'A denial is predicated on knowledge; a lack of belief is predicated on ignorance. The defendant did not deny; she did allege lack of knowledge and, therefore, denied. That is not a sufficient denial. Pomeroy's Rem., sec. 640. The defendant will not be heard to say that she has no knowledge about an act laid at her own door; she may deny, if she will, as Peter did, but she may not palter. The complaint charged her with an act; it alleged that she indorsed and delivered before maturity a particularly described note to the plaintiff for value. That was the vital allegation which charged her with liability. She was bound to know the fact, whether she did or did not indorse and deliver before maturity; she cannot say, unless she be frivolous, that she has no knowledge of it. Pomeroy's Rem. 641.'

"See, also, Bank of Johnston v. Fripp, 101 S.C. 188, 85 S.E. 1070; Union Guano Co. v. Garrison, 130 S.C. 407, 126 S.E. 133.

"It is true no motion to strike out this pleading has been made in this case, but this character of pleadings upon the issue involved herein may be considered in passing upon the facts along with all the evidence, so far as that defendant is concerned, is determining whether or not the charge of fraud has been proven against any and all defendants.

"From all the evidence, it appears that in the spring of 1919, Edward T. Summersett and his wife Cora Lee Summersett, found themselves insolvent, as a result of speculation in Columbia real estate. He was then working as a dispatcher in the employ of the Southern Railway Company, and, becoming dissatisfied with the wages, in April, 1919, he consulted the defendant J. T. Reese as to what he should do, and explained his situation and plans to him. Reese asked him: 'Why don't you go back to building houses?' Summersett replied: 'Jess, I haven't got money enough hardly to buy a keg of nails.' Reese replied: 'Why don't you get some one to finance you?' Summersett replied: 'You know the condition I am in, nobody will do that.' Reese replied: 'How about forming a corporation and go into partnership with somebody?' Summersett said: 'No, I will tell you what I will do; if you will finance me in the building of houses, I will give you a mortgage on all the property and all I have; and every house that I make a $1,000.00 on I will give you $200.00; and if I lose $1,000.00. I will give you $200.00. You are not to say anything about my ideas; I will let you look at anything I am doing, but I am to use my own method in working.' And they agreed to do that. I find that as a consequence, and in order to carry out these plans, the corporation of Edw. L. Summersett & Co., Inc., was formed, and the defendant Reese undertook to finance it.

"The defendant Reese testified before me that he went into his dealings with Edw. L. Summersett & Co., Inc., on the basis of sharing in the profits, at first, which he tells us was in the early part of probably April, 1920; but, finding this unsatisfactory, he proceeded to protect himself by taking a mortgage from that corporation for the amount then due him and to cover future advances, and from time to time thereafter took new mortgages embracing the previous indebtedness and securing any future debts or advances. He states that, in all his dealings with the alleged corporation, 'I recognized nobody else to have authority to deal with Edward L. Summersett & Co., Inc., to deal with but E. T. Summersett.' And again: 'I recognized him as the official representative of Edward L. Summersett & Co.' He also states that he did not know who organized the company, or either directly or indirectly who were the owners of the stock.

"The first mortgage that was given to Mr. Reese was in April, 1920. In connection with this mortgage, as well as with each subsequent mortgage to him, there appears a set of resolutions purporting to be minutes of the corporation, authorizing each of these mortgages.

"In the resolution accompanying the mortgage given in 1920, and another in the early part of 1921, to Mr. Reese, it is stated that Edward L. Summersett and E. T. Summersett were the only stockholders, and also the directors and officers.

"Beginning in the latter part of 1921, the defendant, Reese, took at least three mortgages from or in the name of Edward L. Summersett & Co.; one in the latter part of 1921, one in 1923, and one in 1925, and perhaps one in 1924. Accompanying each of these mortgages were resolutions stating that E. T. Summersett and M. A. Park were all of the stockholders, as well as the officers and directors of the corporation.

"Likewise quite a number of mortgages were given in the name of Edward L. Summersett & Co. to other persons or corporations from the latter part of 1921 to 1925, inclusive. In each instance there were resolutions accompanying these mortgages, stating that M. A. Park and E. T. Summersett were the only stockholders, and were the officers and directors, and the corporation tax returns were similar. None of these resolutions were entered on the minute book, and there was no record of the same anywhere, except in the files of the mortgages, the same not being recorded with the mortgage.

"Mr. Park was, and had been for years prior to 1921, bookkeeper for Mr. Reese. Mr. Park, Mr. Reese, and Mr. Summersett testified that he was made secretary for the convenience of the parties, and at the request of Mr. Summersett.

"Mr. Park said he thought he owned a share of the stock, but he learned, when litigation arose, that he did not own any.

"Mr. Park continued to keep the books generally for Mr. Reese, and also to keep the accounts of Mr. Reese with Edward L. Summersett & Co., Inc. This latter he had been doing prior to the time he had been elected secretary.

"In the examination in supplemental proceedings, Mr. Park says: 'Q. Now the books that you kept or keep are kept for the purpose of saving credit and protecting Mr. Reese in his advances? A. Largely. Q. And you are secretary largely for that purpose? A. Yes.'

"And Mr. Reese says: 'Q. When Mr. Park was made secretary, was it not brought about by an agreement between you and Mr. E. T. Summersett, representing Edward L. Summersett & Co.? A. Yes, sir; I consented to it for the reason that I thought it was or would benefit me to have Mr. Park secretary of the company and probably be convenient to both, as we were advancing considerable sums for their financial aid.'

"And again: 'Q. You wanted Mr. Park in there because he was a good bookkeeper and your employer (employee), and you wanted him to be secretary of the company to safeguard your party (part)? A. Yes.'

"The indebtedness between Mr. Summersett and Mr. Reese was a constantly changing one. An account was kept in several different names, but the principal one under the head of 'Building Fund.' Sums were drawn from Mr....