Graham v. Carr

• Decision Date: 06 May 1902
• Parties: GRAHAM v. CARR et al.
• Court: North Carolina Supreme Court

41 S.E. 379

130 N.C. 271

GRAHAM v. CARR et al.

Supreme Court of North Carolina

May 6, 1902

Appeal from superior court, Durham county; Shaw, Judge.

Action by Paul C. Graham, as receiver of the Golden Belt Hosiery Company, against J. S. Carr and another. From a judgment for plaintiff, defendants appeal. Reversed.

A complaint in an action by a receiver of an insolvent corporation against a director to recover corporate bonds and stocks sold to him, which prays for the return of the property, or, if that cannot be had, then for its value authorizes the court to enter a money judgment to an amount equal to the corporate debts which such director improperly paid from the proceeds of such sale.

This was a civil action to recover certain bonds and capital stock which defendant Carr had purchased, and the complaint prayed for a judgment against defendant Carr for the recovery of such bonds and stock, or, in the event that a return thereof could not be had, for their value.

Guthrie & Guthrie, H. A. Foushee, and Burwell, Walker & Cansler, for appellants.

W. P Bynum, Boone, Bryant & Biggs, and J. W. Graham, for appellee.

FURCHES C.J.

On the 13th day of December, 1895, a corporation was organized in the city of Durham, with J. W. Smith, J. S. Carr, T. M Gorman, and W. A. Guthrie as stockholders, Smith and Carr holding the greater part of the stock,--Smith holding $7,000 and Carr $6,000, Guthrie and Gorman holding $100 each. These stockholders were incorporated under the name of the "Golden Belt Hosiery Company," and elected J. W. Smith president and T. M. Gorman secretary and treasurer. Smith continued to be its president for a time, when he resigned, and Carr was elected. It was not a financial success under the administration of either Smith or Carr, and in February, 1898, it was admitted to be insolvent, and the mill shut down, and negotiations commenced to sell out to the Durham Hosiery Mills. At a meeting of the stockholders and directors of the Golden Belt Hosiery Company on the 17th of February, 1898, a sale was effected to the Durham Hosiery Mills, which company was to reorganize under the name of the "Durham Hosiery Company," and the Golden Belt Hosiery Company was to receive for its property, good will, etc., so sold, $20,000 of first mortgage bonds to be issued by the new company and $19,000 par value of stock in said new company. The Golden Belt Hosiery Company having no other means of paying its large outstanding indebtedness, which was ascertained to be over $50,000, J. S. Manning was appointed a trustee, and this $20,000 in bonds and $19,000 of stock in the new company were put in his hands, and he was authorized and empowered to sell the same, and apply the proceeds to the payment of the debts of the old company. Manning, acting under this authority given him at the meeting on the 17th of February, 1898, sold the defendant Carr $14,000 of these bonds in payment of a debt due the Bank of Durham to that amount. Carr and Smith were both liable as sureties for this debt. But the judge held this sale to have been properly made, and it is out of the case, as plaintiff did not appeal. But the question remains as to the validity of the sale of the other $6,000 bonds and the $19,000 par value of the stock of the new company. We have found that Manning, trustee, had the right to sell, and it is found as a fact that these sales to Carr were for a fair and full price; that the bonds were only worth par value at the time of the sale of them; and the stocks in the new company at the time they were sold were only worth 50 per cent. of their par value; that these sales were fair, open, and in good faith, and the money was paid and applied to the payment of the admitted indebtedness of the Golden Belt Hosiery Company. Why this was not a valid sale that carried the property in these bonds and stocks to Carr, we are unable to see. An insolvent party has a right to sell his property for a fair price, and he may sell to one creditor in preference to another, so it is done in good faith, and to pay an honest debt; or he may sell his property, and out of the proceeds pay one creditor in preference to another, if the debt he pays is an honest debt; and so may an insolvent corporation, and its creditors have no right to complain, as they have no lien on the property of the corporation for the payment of their debts; and the corporation in that respect stands on the same footing that an insolvent individual...