Commercial Nat. Bank of Charlotte v. Charlotte Supply Co.
| Decision Date | 05 June 1946 |
| Docket Number | 526 |
| Citation | 38 S.E.2d 503,226 N.C. 416 |
| Parties | COMMERCIAL NAT. BANK OF CHARLOTTE v. CHARLOTTE SUPPLY CO. et al. |
| Court | North Carolina Supreme Court |
The corporate executor of the will of Albert B Clark brought this action to enforce a contract for the purchase of the stock of its testate in the defendant corporation, made by said corporation and individual stockholders. The Supply Company and the individual defendant stockholders claim that the contract has been abrogated by a subsequent contract dealing with the subject matter, and that they are under no obligation to comply with plaintiff's demands.
The two contracts in question are set out below, and each of them was made under the following circumstances and conditions as disclosed by admissions in the pleadings and the evidence taken upon the trial:
The stockholders of the defendant corporation had been few in number and the largest stockholders, other than plaintiff's testate, were family relatives. The practice had been adopted and followed to make nearly all of the stockholders, including Clark, who held a majority of the stock, directors and officers and to distribute the corporate profits by means of salaries to these stockholder-officers rather than by dividends on stock. This practice had obtained since the beginning of business, or certainly for sometime prior to 1928. There was no outside market for the stock, and only those whom the small number of stockholders desired to let in were permitted to buy. The number so admitted through holdings of stock are negligible. The stock at the time of making the first contract of 1928 was held as follows: A. B Clark, H. W. Eddy, E. B. Graham, P. G. Black and J. H. Denny. Present officers of the Company and their salaries are: E. B. Graham, President, $7,500 a year; Palmer G. Black, Vice President, $7,500 a year; E. B. Graham, Jr. Secretary-Treasurer, $7,500 a year; W. A. Graham, Assistant Treasurer, $3,000 a year. The same practice existed during the years 1936-1945, with salaries ranging from $2,700 to $8,000. At the hearing of the cause, it appeared that only one dividend--of 5%--had been made in ten years. The Company was referred to by the President in his testimony as 'our firm' and it was in evidence that its affairs were managed pretty much as a partnership.
For sometime prior to 1939, the defendant corporation had carried a substantial amount of insurance on the life of its President, Albert B. Clark, which, with other insurance, became in part the subject of the agreement set out below.
Under these circumstances the following contract was entered into between plaintiff's testate Clark on the one hand and the corporate defendant and other individual stockholders:
'North Carolina
'This Memorandum Of Contract entered into and made this 18th day of August, 1928, by and between The Charlotte Supply Company, a corporation duly created and organized under the laws of the State of North Carolina, with its principal office in the City of Charlotte in said State, and A. B. Clark, H. W. Eddy, E. B. Graham, P. G. Black and J. H. Denny, owners and holders of the entire capital stock of the said corporation, The Charlotte Supply Company:
'Witnesseth: That whereas the said Charlotte Supply Company has procured two policies of life insurance, one for $50,000 and the other for $35,000, aggregating the sum of $85,000 upon the life of the said A. B. Clark, who is president of the said Company, in the Lincoln National Life Insurance Company of Indiana, each of said policies being payable to The Charlotte Supply Company as the beneficiary thereof, the premiums upon the said policies to be paid by the said company:
'And Whereas it has been agreed between the said Company and the said A. B. Clark and the other individual parties above named that upon the death of the said A. B. Clark the proceeds of the said policies shall be collected and placed in the treasury of the company and shall be used for the uses and purposes hereinafter set forth:
'Now, Therefore, in the consideration of the premises and for the further consideration of the sum of one ($1.00) dollar to each of said parties paid by the other and of the mutual promises and agreements hereinafter set forth, the said corporation and individual parties hereto do hereby covenant and agree to and with each other as follows:
'1. That the said premiums upon the said life insurance policies shall be duly kept up and paid by The Charlotte Supply Company during the effective term of the said policies and each of them; that upon the death of the said A. B. Clark, The Charlotte Supply Company shall collect the proceeds of each of said policies and shall place the same in the treasury of the corporation.
'2. That the said A. B. Clark, being the owner of six hundred and forty-three (643) shares of the capital stock of The Charlotte Supply Company, covenants and agrees that upon his death the executor or administrator of his estate shall sell, assign and transfer to The Charlotte Supply Company the said six hundred and forty-three (643) shares of its capital stock at a price to be fixed by an appraisal thereof carried out and effectuated in accordance with the plan hereinafter set forth, it being understood that in the appraisal of the said stock the proceeds of the said life insurance policies shall be considered as a part of the assets of the said corporation.
'3. That the proceeds of the said life insurance policies shall by appropriate corporate action be paid over to the executor or administrator of the said A. B. Clark's estate in part payment of the purchase price of the said six hundred and forty-three (643) shares of the capital stock of the Charlotte Supply Company and that the balance of the purchase price of the said stock shall be paid by The Charlotte Supply Company out of its surplus, and The Charlotte Supply Company shall have the option of paying the said balance of the purchase price of the said stock in cash or in equal annual installments spread out over a period of ten (10) years or such less time as The Charlotte Supply Company may elect, all deferred payments to bear interest at the rate of six (6) per cent per annum and The Charlotte Supply Company shall have the right to anticipate the payment of any or all installments.
'4. The appraisal of the value of the said stock shall be made within the period of thirty (30) days after the death of the said A. B. Clark by a board consisting of three competent and disinterested appraisers, one of whom shall be selected by the executor or administrator of the said Clark's estate, and another of whom shall be selected by the Board of Directors of The Charlotte Supply Company and these two appraisers so selected shall appoint the third appraiser, and the appraisal or ward of the said three appraisers, or a majority of them, of the value of the said six hundred and forty-three (643) shares of the capital stock of the said company shall be construed as conclusively fixing the value thereof and shall be binding upon all of the parties hereto and the executor or administrator of the estate of the said Clark.
'5. It is the further purpose and plan of the parties hereto that $15,000 additional insurance shall be procured upon the life of the said A. B. Clark, making a total of $100,000 and it is understood and agreed that if and when the policy for the $15,000 additional insurance is procured, the premiums thereon shall be kept up and paid by The Charlotte Supply Company, and the said policy and the proceeds thereof shall be subject to the terms and provisions of this contract.
'In Witness Whereof, The Charlotte Supply Company has caused this instrument to be duly executed by its President and attested by its Secretary and its corporate seal to be hereto affixed, and the said individual parties herein named have hereunto set their hands and seal, the day and year first above written.
Attest:
The defendant corporation complied with this contract, paid premiums and kept up insurance on the life of Clark as agreed, with the exception of one policy of $35,000 which was allowed to lapse, and also took over under the same agreement $8,000 of insurance on Clark's life which he had theretofore carried and paid the premiums thereon. The Supply Co. collected the insurance upon the death of Clark and deposited it in the bank in a special fund, where it still remains. The total of insurance so collected is $73,171.34. Sometime in 1939 the corporation obtained a default judgment against Albert B. Clark in the amount of $12,734.45, and in a proceeding supplemental to execution caused the stock of the said Clark to be put into receivership. Clark had meantime purchased 71 additional shares of stock from Eddy, making his holdings 714 shares.
Several propositions were made to Clark for adjustment of his indebtedness. In order to prevent the stock from being sold under the receivership, and at the insistence of the individual stockholders named, Clark entered into the following contract:
'North Carolina
'This Instrument, executed this the 29th day of April, 1939, by and between The Charlotte Supply Company, a North Carolina corporation with its principal office and place of business in the City of Charlotte, Mecklenburg County, North Carolina, party of the first part, Albert B Clark, of Mecklenburg County, North Carolina, party of the second part, and Eugene B. Graham and Palmer G. Black, of Mecklenburg County, North Carolina, parties of the third part:
'Witnesseth That for and in...
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