Mitchell v. Aulander Realty Co

• Citation: 169 N.C. 516,86 S.E. 358
• Decision Date: 29 September 1915
• Docket Number: (No. 107.)
• Court: North Carolina Supreme Court
• Parties: MITCHELL et al. v. AULANDER REALTY CO. et al.

86 S.E. 358

169 N.C. 516

MITCHELL et al.

v.AULANDER REALTY CO. et al.

(No. 107.)

Supreme Court of North Carolina.

Sept. 29, 1915.

Appeal from Superior Court, Bertie County; Ferguson, Judge.

Action by W. H. Mitchell and others against the Aulander Realty Company and another. Plaintiffs moved for the appointment of a receiver, which was ordered, and defendants appeal. Affirmed.

Smith & Banks, of Gatesville, Winston & Matthews, of Windsor, and R. C. Bridger, of Winton, for appellants.

Pruden & Pruden, of Edenton, Winborne & Winborne, of Murfreesboro, Gilliam & Davenport and J. B. Martin, all of Windsor, S. Brown Shepherd, of Raleigh, and Alexander Lassiter, of Aulander, for appellees.

BROWN, J. This action is brought by the plaintiffs as stockholders in the defendant corporation for the purpose of dissolving it and having its assets distributed according to law, and to that end they ask that a receiver be appointed. The defendants offer four objections to the relief sought by the plaintiffs, to wit:

(1) For the reason that the plaintiffs were never stockholders in the defendants' corporation, according to its by-laws, and that none of the stock of the said corporation was in the possession of the plaintiffs, or appeared in their names on the books of the corporation, but was held as a collateralfor a debt due by plaintiffs to a disinterested party at the beginning of the action.

(2) For the reason that plaintiffs have forfeited all of the rights they had under the will by bringing this action, and that whatever estate was devised to them under the will was a conditional estate—condition subsequent—which defeated the estate when this action was brought.

(3) For the reason that plaintiffs did not first seek redress for their alleged grievances within the corporation before the board of directors and stockholders before bringing this action.

(4) For the reason that there is no insolvency in the management of this corporation.

We will consider them in the order named.

First It is found as a fact that the stock claimed by the plaintiffs was the property of A. J. Dunning, deceased, and that in order to pay debts the stock was sold at public auction, and was purchased by the plaintiffs, and the certificates delivered to them. They deposited the certificates with one Mitchell as collateral security for plaintiffs' notes. The stock has never been transferred to the plaintiffs upon the stock ledger of the defendant corporation. It is therefore contended that the plaintiffs have no title to the stock sufficient to maintain this action. There is no merit in this contention. The plaintiffs are the equitable owners of the stock, and it could be subjected to the payment of their debts, although not transferred upon the books of the corporation. The bylaws of the corporation requiring such transfers, it is generally understood, are made for the purpose of protecting the corporation, and have no effect upon the legal transfer of the ownership of the stock.

Millions of shares of stock in corporations are annually deposited with brokers as collateral security by the simple indorsement of the name of the owner upon the certificate, without any transfer upon the books of the company, and no one gainsays the fact that the broker acquires good title to the stock as security for his loan, and that the real owner may not only vote it at stockholders meetings, but sue on it, if necessary, to protect his interests. The exact point has been decided in the case of Reinhardt v. Telephone Company, 71 N. J. Eq. 70, 63 Atl. 1097, in which it is held that:

"Where complainant in fact owned stock in defendant corporation, he could sue for the appointment of a receiver for the corporation in insolvency proceedings, though the stock stood in the name of the broker by whom it was purchased for complainant."

In the opinion of Chancellor Pitney many authorities are cited in its support.

Second. The terms of the will of A. J. Dunning, devising this stock to the plaintiffs, have no effect whatever upon their title, and therefore the question as to whether the plaintiffs took a conditional estate, and that the subsequent condition defeated their estate when this action was brought, is of no value. It is admitted that the stock was sold by the executors to pay the debts of their testator, and the purchasers at the sale acquired a title independent of the will.

Third. It is a general rule, applicable to all corporations of this character, that individual stockholders in their own name are not the proper parties to assert the rights of the corporation. The action should generally be brought by and for the corporation itself. If its officers or other stockholders fail to do their duty in that respect, the remedy is, as a general rule, to be sought within the corporate organization. Moore v....