A]l v. Kernursvills Mantjf'g Co

• Decision Date: 18 February 1892
• Citation: 110 N.C. 99,14 S.E. 501
• Court: North Carolina Supreme Court
• Parties: BlaLock et a]l. v. Kernursvills Mantjf'g Co. et al.

14 S.E. 501

110 N.C. 99

BlaLock et a]l.

v.Kernursvills Mantjf'g Co. et al.

Supreme Court of North Carolina.

Feb. 18, 1892.

corporations— rlght to purchase their ows Stock — Creditors — Seniority — Trust-Deed for Benefit of Creditors — Avoidance — Fraud.

1. Exceptions to the report of a referee that he failed to find certain facts are waived by failure to move for a recommitment of the report.

2. In the absence of statutory prohibition, a corporation may purchase shares of its own stock, but the stockholders are subject, in proper cases, to the rights of corporate creditors to resort to the capital stock as a trust fund for the payment of their debts.

3. A stockholder, to whom the corporation is indebted for stock, stands on the same footing with other creditors, unless liable to them as a stockholder.

4. Debts due from the corporation to stockholders for stock are not entitled to precedence over a debt due to the president for money paid by him as surety for the corporation.

5. Under Code, § 685, a conveyance of its property in trust by a corporation, if otherwise valid, cannot be avoided by existing creditors, unless they begin proceedings to enforce their claims against the corporation within 60 days after the registration of the trust deed.

6. The fact that a deed, executed by a corporation, conveying all its property in trust for the benefit of creditors, requires the trustee to apply the residue, after paying certain preferred creditors, to the other debts of the corporation, "under the direction of the president and a majority of the directors, " though evidence of fraud, does not render the deed fraudulent per se.

7. Neither does such fact raise a presumption of fraud, which, unless rebutted, renders the deed void.

Appeal from superior court, Forsyth county; John Gray Bynum, Judge.

Action by R. A. Blalock and another against the Kernersville Manufacturing Company, T. C. Starbuck, and others. Judgment for plaintiffs. Defendant Star-buck appeals. Modified.

The other facts fully appear in the following statement by Mkurimon, C. J.:

This is a creditors' action, brought against the defendant corporation, which was organized under and in pursuance of the statute. Code, § 677. This corporation is indebted to divers creditors for considerable sums of money, and is insolvent. While it was so indebted, on the 11th day of June, 1886, it executed a deed of trust to C. W. Hunt, which was duly registered, whereby it conveyed to him all its property, of every kind whatsoever, to secure a debt'due to the Wachovia National Bank of Winston, and also a debt due to its president, T. C. Starbuck. This deed contains the following provision, declaring its purpose: "To have and to hold unto him, the said C. W. Hunt, as trustee aforesaid, in trust, nevertheless, that he shall use all due diligence In collecting all the aforesaid debts due the aforesaid company, and with full authority vested in him to sell any and all of said property of the Kernersville To-bacco Manufacturing Company at such prices, at private sale, as may be approved of by the president of said company and a majority of the directors; and the money arising from such sales and collections aforesaid the said trustee shall apply, first, to the payment of a debt due to the Wachovia National Bank of Winston, and, after that is satisfied, then to the payment of said T. C. Starbuck for the amount of money paid by him as in-dorser aforesaid to baid bank, with all the interest due him thereon, and to said Starbuck such money as he may pay to relieve the property from any prior legal lien; and any balance of money remaining in his hands, after making said payments, the said trustee shall apply in the payment of other debts of said company, under the direction of the president and a majority of the directors, and such compensation to himself for his services as may be agreed on with said president and directors." It is alleged and insisted that this deed of trust is void "as to the creditors of said corporation existing prior to or at the time of the execution of said deed." It is also alleged that it is upon its face fraudulent and void, because "it In reality confers upon the directors of the company the right to force a compromise or to withhold a settlement." All the debts embraced by the action existed prior to the execution of this deed. It is also alleged that it was executed with intent to defraud the plaintiff, etc. In the course of the action, it appearing that the controversy involved the examination of complicated account, it was ordered, without objection, that a referee "hear evidence, and to report his findings upon both law and fact." The referee took evidence, found the facts and the law, took and stated an account, and made report thereof. The appellant filed exceptions upon the ground that the referee failed to find certain facts specified therein. He further filed the following exceptions: " (1) The defendants except to the conclusions of law of the referee that the deed in trust executed by the company to C. W. Hunt, trustee, is void and inoperative. (2) That the Kernersville Manufacturing Company and its stockholders are bound by the contract to purchase stock from shareholders. (3) That after payment of debts the said stockholders who sold their stock are to be paid the purchase price thereof out of the assets of the company. (4) That the referee held that the payment of the debt paid forthe company by T. C. Starbuck as surety, as evidenced by the company's noteand explained in the testimony, is postponed until all the stockholders who attempted to sell their stock and those who withdrew their money are paid in full, when he should have found that, upon the payment by Starbuck of the bank debt, he was subrogated to the rights of the bank, and should be paid in the same class with H. L. Shields and D. W. Harmon. (5) That the referee did not find as a conclusion of law that the mortgage or deed in trust executed by the company is a valid and subsisting lien upon the property and effects of the company for the payment of the T. C. Starbuck debt." The court overruled all the exceptions, confirmed the report, and gave judgment thereon, and T. C. Starbuck appealed to this court, assigning as error that the court refused to sustain his exceptions.

Jones & Kerner and Glenn & Munly, for plaintiff.

Watson & Buxton, for defendant.

Merrimon, C. J., (after stating the facts.) The exceptions, based upon the ground that the referee failed to find certain facts which the appellant deemed important, are untenable. The objection, if well founded, was ground for a motion to recommit the report, with appropriate instructions, to make inquiry and find that the facts did or did not exist. Williams v. Whiting, 92 N. C. 683; Scroggs v. Stevenson, 100 N. C. 354, 6 S. E. Rep 111.

The shares of the capital stock of the defendant corporation were the lawful subjects of purchase and sale, might be bought and sold in the market, and, in the absence of statutory...