Estridge v. Denson, 40--359

• Decision Date: 20 June 1967
• Docket Number: No. 40--386,No. 40--359,No. 283,No. 40--360,40--359,40--360,40--386,283
• Citation: 270 N.C. 556,155 S.E.2d 190
• Parties: Harry L. ESTRIDGE v. Fred DENSON and wife, S.D.CAROLINA PAVING CO., Inc., v. Fred DENSON and wife, S.D.Lula WILSON, Executrix of the Estate of Damus Wilson v. Fred DENSON, S.D.
• Court: North Carolina Supreme Court

Page 190

155 S.E.2d 190

270 N.C. 556

Harry L. ESTRIDGE v. Fred DENSON and wife, S.D. No. 40--359.

CAROLINA PAVING CO., Inc., v. Fred DENSON and wife, S.D. No. 40--360.

Lula WILSON, Executrix of the Estate of Damus Wilson v. Fred DENSON, S.D. No. 40--386.

No. 283.

Supreme Court of North Carolina.

June 20, 1967.

John G. Newitt, Charlotte, for plaintiff appellant Wilson.

W. A. Dennis, Charlotte, for plaintiff appellants Estridge and Carolina Paving Co., Inc.

J. Donnell Lassiter and Kennedy, Covington, Lobdell & Hickman, Charlotte, for R. S. Pate, intervenor.

W. Faison Barnes and Carl W. Howard, Charlotte, for intervenor Crab Orchard Development Co., Inc.

LAKE, Justice.

Each of the plaintiffs sued Denson (or Denson and wife) and recovered judgment against him (or them), the validity of which judgment is not in question. Each plaintiff caused to be issued on such judgment an execution which was duly returned unsatisfied. Each plaintiff thereupon instituted supplemental proceedings, asserting by verified petition that the judgment debtor (or debtors) had funds on deposit with First Federal Savings and Loan Association of Charlotte (hereinafter called First Federal), which deposit was pledged to secure an indebtedness to First Federal, but in which the judgment debtor (or debtors) had an equity which should be applied to the payment of the judgment. Each such petition asserted that Denson (or Denson and wife) had formed Crab Orchard Development Company, Inc. (hereinafter called Crab Orchard) and had transferred assets to it. Each petition prayed that First Federal be restrained from dealing with the deposit without prior order of the court, that a lien in favor of the plaintiff be impressed upon the deposit and that the judgment debtor (or debtors) be restrained from transferring assets and be directed to appear and show, among other things, what interest he (or they) has (or have) in Crab Orchard.

In each case, Judge Campbell entered an order directing the Densons, First Federal, Crab Orchard and Fred Denson, Inc., to appear and be examined relative to any assets of Denson (or Denson and wife) which should be applied to the payment of the judgment, and restrained the transfer of such assets subject to further orders of the court.

The three matters were consolidated for such hearing. The record before us does not disclose what evidence was offered at the hearing before Judge Campbell. Crab Orchard appeared but was not then made a party to any of the proceedings. It does not appear to what extent it participated in that hearing.

Judge Campbell entered an order reciting that it appeared to the court that the Densons are the owners of the certificates of deposit and that First Federal had a first lien thereon. He ordered that any payment by First Federal on account of such certificates be made to the clerk, to be held by him pending the further order of the court. This order made no reference to any right or claim of Crab Orchard.

Pursuant to the order of Judge Campbell, funds were paid over by First Federal to the clerk. Each plaintiff then filed a motion that the clerk apply such funds to the payment of the judgments. Crab Orchard then filed in each case a petition that it be made a party thereto and be permitted to assert its right to the funds, alleging that on 28 October 1960, a year before the entry of any of the judgments and some months before the filing of any of these suits, Denson and wife assigned to Crab Orchard the certificates of deposit so issued by First Federal, subject to its lien. Judge Hasty entered an order in each case making Crab Orchard a party and permitting it to file a petition setting forth its claim to the funds, which it did. Thereafter, R. S. Pate filed a petition that he be made a party, asserting a partial assignment by Crab Orchard to him. This was ordered by Judge Hasty. Pate's right, if any, is derived through the alleged assignment to Crab Orchard by the Densons. Allen Griffin also sought and obtained permission to intervene but thereafter assigned his rights to Crab Orchard, the basis of his alleged right not being stated in the present record.

In its several petitions asserting its claim to the funds, Crab Orchard alleges:

'Although this Intervenor was originally organized by Fred Denson and certain of its shares of capital stock were issued to Fred Denson in exchange for the assignment of said certificates of deposit, said exchange was for the sole and express purpose of reassigning said shares of capital stock to the creditors of Fred Denson and wife, Letha B. Denson. Said stock certificates were in fact assigned to creditors of Fred Denson and wife, Letha B. Denson in satisfaction of their respective claims and Such creditors now constitute the sole owners of all validly outstanding shares of this intervenor.'

Crab Orchard alleges in its petition in the suits by plaintiffs Estridge and Carolina Paving Company that these plaintiffs, together with other creditors of the Densons, were offered shares of Crab Orchard in satisfaction of their claims against the Densons, but rejected the offer, electing instead to bring these suits against the Densons. These two plaintiffs admit this in their answers to the petitions, thus establishing that prior to the institution of these actions they knew of the proposal to organize Crab Orchard and that they were offered shares in Crab Orchard in satisfaction of their claims against the Densons and rejected the offer. Crab Orchard does not allege that a similar proposal was made to the plaintiff Wilson, whose claim against Denson was apparently overlooked.

Each plaintiff, answering the petitions of Crab Orchard and Pate, allege the assignment from the Densons to Crab Orchard was fraudulent as to such plaintiff and that at the time of the partial reassignment by Crab Orchard to Pate he knew that the assignment from Denson to Crab Orchard was a preferential transfer forbidden by G.S. § 23--1.

The matter then came on for hearing before Judge Jackson to determine the rights of the parties in the funds so held by the clerk under the order of Judge Campbell. Crab Orchard offered evidence which included testimony by Leon Olive, who had been the attorney for Denson and had performed the legal services in connection with the organization and incorporation of Crab Orchard, Lewis R. Frost, President of Crab Orchard, and W. A. Dennis, attorney for the plaintiffs Estridge and Carolina Paving Company, he being called as an adverse witness.

Mr. Dennis testified that in 1960, or early 1961, this being prior to the bringing of the present suits, he, representing the plaintiffs Estridge and Carolina Paving Company, attended a conference of Denson creditors in the office of Mr. Olive at which a proposal to issue stock in Crab Orchard was discussed, but he does not recall any mention of an assignment of the certificates of deposit.

Mr. Olive testified that Crab Orchard was organized 'for benefit of Mr. Denson and his creditors.' Mr. Frost 'put $3,000 of his own money in the company and received stock for that.' Mr. Olive communicated with creditors of Denson, including the plaintiffs Estridge and Carolina Paving Company, through their attorney Mr. Dennis, telling them of his plan for getting the Densons' creditors 'off their backs,' which plan he testified was this:

'The mechanics of the issuance was that we would issue the stock directly to Mr. and Mrs. Denson who would in turn endorse it back over to the creditor, and then we would issue the new certificates of stock directly to the creditors. We offered to do exactly this on the indebtedness on the Carolina Paving and to Mr. Estridge, with their full knowledge, as to what we are doing. At first, Mr. Dennis told me that they would go along. We actually issued the stock certificates to Carolina Paving and then Mr. Estridge, and then Mr. Dennis came back and said 'No' that his clients would not go along on this and therefore we voided those stock certificates and they are now in the stock book showing their issuance to Mr. and Mrs. Denson and the endorsement over, and then their reissuance to Mr. and Mrs. Estridge and Carolina Paving and they are marked 'voided' when they were not accepted in payment of our debt, which was not a judgment at that time. At that time there was no judgment whatsoever on the record that had been obtained by either Carolina Paving or Mr. Estridge. I might add that at that time I was not aware of any claim that had been made or any indebtedness to Mr. Wilson. I don't remember talking to Mr. Newitt (Attorney for Wilson) at all. I may have but I don't remember that.

'As a consideration passing to Crab Orchard Development Company in exchange for the issuance of stock to Mr. and Mrs. Denson, Mr. and Mrs. Denson assigned directly by written consignment (sic) all of his rights, title and interest to the stock certificates, or certificates of deposit, at First Federal Savings & Loan Association, in the sum at that time I believe of $70,500. * * *

'The stock certificates issued to Mr. and Mrs. Denson were subsequently reassigned by them to their creditors. * * *

'As to the purpose of the incorporation, in the very beginning, there was some talk by the directors, at the very first meeting that we might do some building. That was one of the purposes putting in the money by Mr. Frost, to give the corporation some cash, that we might involve in building. About, oh, within another one month or six weeks or that area there was another meeting of the directors, at which time we determined that we would not get involved in any kind of business venture with anyone and that we would remain a corporation solely for the purpose of holding the certificates of deposit and then, of course, to pay the stockholders whatever equity that we ever got from First Federal from the certificates of deposit. * * *

'I told Mr. Dennis about the original assignment. He saw them. He was aware of...