Johnson v. Baldwin

• Citation: 221 S.C. 141,69 S.E.2d 585
• Decision Date: 08 February 1952
• Docket Number: No. 16590,16590
• Parties: JOHNSON v. BALDWIN et al.
• Court: South Carolina Supreme Court

Page 585

69 S.E.2d 585

221 S.C. 141

JOHNSON v. BALDWIN et al.

No. 16590.

Supreme Court of South Carolina.

Feb. 8, 1952.

Young, Bell & Callison, Greenwood, Kerr & Evins, Harvey W. Johnson, Spartanburg, for appellant.

Stephen Nettles, Haynsworth & Haynswroth, Greenville, Grier, McDonald, Todd & Burns, Greenwood, for respondents.

OXNER, Justice.

This is a derivative action brought by a stockholder of the Brandon Corporation to recover damages for alleged mismanagement on the part of the directors. Certain injunctive relief is also sought. It was commenced in January, 1946, by he service of a summons dated July 14, 1945. The case is here on appeal from an order dated March 31, 1951, dismissing the complaint upon the ground that the plaintiff had ceased to be a stockholder and, therefore, no longer had the capacity to prosecute the action.

It was alleged in the complaint that the plaintiff, appellant here, owned 56 shares of 'Class A' stock and 56 shares of 'Class B' stock in the Brandon Corporation, and that the directors were guilty of mismanagement and waste. More specifically, it was alleged (1) that the directors had improperly and unlawfully authorized the payment of large sums to certain officers and directors in the form of bonuses or gifts; and (2) that two of the directors of the Brandon Corporation were partners in the firm of Woodward, Baldwin & Co., the exclusive selling agent for the Brandon Corporation, and that the directors had improperly authorized the payment of unnecessary and excessive commissions to said firm. The prayer is for judgment against the directors in the sum of $1,000,000 and that pending final determination of the action, the corporation be restrained from paying any further commissions to Woodward, Baldwin & Co.

An effort to acquire jurisdiction of the non-resident defendants was unsuccessful. Johnson v. Baldwin, 214 S.C. 545, 53 S.E.2d 785. An answer was duly filed on July 30, 1946, by the corporation and certain of the resident directors who had been served with process. After denying the charges of mismanagement, the defendants alleged (1) that all salaries and bonuses paid by the corporation to its officers were moderate and proper; (2) that the commissions paid to the selling agent were necessary and reasonable; (3) that a derivative action similar to that now before us was brought by a stockholder in 1944, wherein substantially the same charges of mismanagement were made, and that said action resulted in a decree of the court, consented to by all parties, adjudicating all matters involved in the instant action and approving the contract under which the corporation was doing business with Woodward, Baldwin & Co.; (4) and that the complaint now made by the plaintiff had never been brought to the attention of the directors or officers of the corporation and no redress had ever been sought within the corporation.

Within due time the plaintiff filed a reply denying that the issues now raised were adjudicated in the stockholders' action brought in 1944.

On February 24, 1947, the defendants who had been served with process gave notice of a motion for an order of reference but the case has never been brought up for hearing.

In November, 1949, under the statute authorizing and providing for the merger or consolidation of corporations, Sections 7757 to 7763, inclusive, of the 1942 Code, the Brandon Corporation, Belton Mills and the Abney Mills, all South Carolina textile corporations, pursuant to appropriate action by the board of directors and stockholders of each of the three corporations, were merged into one corporation known as the Abney Mills. (The record does not disclose whether the resultant corporation was one of the consolidated corporations or a new corporation.) The plaintiff voted against the merger and thereafter within due time demanded the payment of the value of her stock in the Brandon Corporation. On January 7, 1950, she gave notice to the Abney Mills that she would move before the Resident Judge of the Eighth Circuit on January 11, 1950, for the appointment of appraisers under Section 7759. To this notice was attached a petition for the appointment of appraisers. There having been no hearing on this petition, the Abney Mills, on March 1, 1950, gave notice of a motion before Judge Martin, then presiding in the Eighth Circuit, on March 8, 1950, for a hearing and disposition of the plaintiff's petition. Counsel for the plaintiff and the abney Mills duly appeared before Judge Martin pursuant to such notice. This hearing resulted in an order by Judge Martin dated March 8, 1950, in which, after reciting that the plaintiff on December 12, 1949, had demanded in writing the payment of the value of her stock, that by petition on January 7, 1950, she had asked for the appointment of appraisers to ascertain the value of said stock, and that the attorneys for the plaintiff had that day requested that the petition for the appointment of appraisers be dismissed, it was ordered that the petition for the appointment of appraisers be dismissed, 'with prejudice to this proceeding, but without prejudice to the rights of any party in any other suit or proceeding.'

Notice of the filing of the above order was duly served on March 8, 1950. Immediately thereafter there was tendered in cash to plaintiff's attorneys an amount claimed by the defendants to represent the value of her stock, this being the same amount which the Abney Mills had previously offered to pay to the plaintiff when she demanded the value of her stock. The tender was refused.

On March 13, 1950, after the adjournment of the Court of Common Pleas at Greenwood, the attorneys for the plaintiff served notice upon the attorneys for the Abney Mills that they would move before Judge Martin, at Greenville, on March 17, 1950, to vacate the order signed by him at Greenwood on March 8th on the ground that it did not conform to the agreement under which the plaintiff had consented to same, in that it was the understanding of plaintiff's attorneys that all proceedings instituted by her under Section 7759 of the Code were to be ordered abandoned, including the notice by her demanding the payment of the value of her stock in the Brandon Corporation. The notice further stated that upon said order being vacated, plaintiff's attorneys would move to be allowed to abandon and withdraw all proceedings instituted by plaintiff under Section 7759 of the Code, including the notice of demand for the payment of the value of her stock. The above notice by plaintiff to vacate the order of March 8th was not brought up for hearing before Judge Martin, nor marked 'heard' by him while presiding in the Eighth Circuit, nor did counsel agree that it be heard thereafter.

Meanwhile, on March 6, 1950, the defendants in the instant action gave notice that they would move before Judge Martin on March 11, 1950, for an order dismissing the complaint and terminating the action upon the ground that plaintiff had ceased to be a stockholder in the Brandon Corporation and was no longer entitled to prosecute the action. Attached to said notice was an affidavit by one of defendants' counsel setting out the merger proceedings heretofore mentioned and stating that upon making demand for the value of her stock, plaintiff ceased to be a stockholder in the Brandon Corporation. At the hearing of this motion before Judge Martin, his attention was called by plaintiff's attorneys to their motion to vacate the order signed by him at Greenwood on March 8, 1950. The Court then stated in substance that this order was not material on the question of whether the action should be dismissed and that the crucial point was the effect of the demand which the plaintiff had made for the value of her stock. The motion was taken under advisement and thereafter on March 31, 1951, an order was filed granting the motion and dismissing the action. This appeal followed.

The contentions of the plaintiff may be briefly summarized as follows: (1) That the motion to dismiss the action should not have been entertained while there was pending a motion by plaintiff to vacate the order of March 8th and a motion by her to be allowed to withdraw the demand for the cash value of her stock, it being claimed that if these motions were granted, plaintiff 'would again become a shareholder.' (2) That a demand by a stockholder under Section 7759 for the value of his stock is revocable and may be withdrawn, at least where such withdrawal would not result in prejudice to the corporation involved. (3) That the action brought by plaintiff is a derivative one for the benefit of the corporation which would not be abated even if plaintiff ceased to be a stockholder, and that such a cause of action is among those preserved under the terms of Sections 7760 and 7761 of the 1942 Code. (4) That the rights of the plaintiff cannot be adequately protected under Section 7759 providing for the appraisal and payment of the value of the stock of a dissenting stockholder, it being argued that the value of the plaintiff's stock cannot be properly determined until the result of the instant case is known.

Defendants take the preliminary position that questions 2 and 3 above mentioned were not raised in the Court below and, therefore, are not properly before this Court. On the merits they contend, and the Court below so held: (1) That the motion by plaintiff to vacate the order of March 8th was abandoned by her and, if not abandoned, its determination could have no bearing on the motion to dismiss, it being asserted that it was the demand in writing by the plaintiff for the payment of the cash value of her stock which terminated her status as a stockholder and that the withdrawal of her petition for the appointment of appraisers would not restore such status. (2) That under the merger statute, a dissenting stockholder may elect either to accept the terms of the merger agreement or demand the cash value of...