Nebel v. Nebel

• Decision Date: 02 March 1955
• Docket Number: No. 522,522
• Citation: 85 S.E.2d 876,241 N.C. 491
• Court: North Carolina Supreme Court
• Parties: Arthur NEBEL and wife, Marie Nebel, v. William NEBEL, Marion Nebel, J. A. Baker and William H. Abernathy, Directors of Nebel Knitting Company, and Nebel Knitting Company, a Corporation.

Page 876

85 S.E.2d 876

241 N.C. 491

Arthur NEBEL and wife, Marie Nebel, v. William NEBEL, Marion Nebel, J. A. Baker and William H Abernathy, Directors of Nebel Knitting Company and Nebel Knitting Company, a Corporation.

No. 522

Supreme Court of North Carolina.

March 2, 1955

Bell, Bradley, Gebhardt & DeLaney, Charlotte, for plaintiffs.

Pierce & Blakeney, Charlotte, for defendants.

DENNY, Justice.

The plaintiffs bottom their right to a writ of mandamus to compel the directors of the defendant corporation to declare immediately a dividend of the whole of the accumulated profits of the corporation, up to and including 31st December, 1952, on the ground that these accumulated profits have not been set aside and reserved as working capital in the manner prescribed by G.S. § 55-115. Therefore, there is no allegation in the complaint which raises the question of bad faith or arbitrariness with respect to setting aside such accumulated profits for working capital. The gravamen of the complaint is to the effect that the defendants William Nebel and Marion Nebel have at all times since the incorporation of the corporate defendant under the laws of North Carolina, controlled and directed the policy of the corporation with respect to the payment of dividends and have pursued a policy of paying inadequate dividends in order to minimize the Federal income taxes upon their own personal incomes, and that such policy has resulted in depressing the market value of the plaintiffs' stock so that it cannot be sold in the open market at any figure approaching its true value.

On the other hand, the defendants, after denying the withholding of the payment of dividends for the reasons alleged in the complaint, aver in their further answer and defense that except for the amounts which the defendant corporation has paid out in dividends, the bulk of the corporation's yearly profits has been used in 'expanding and modernizing its plant, machinery, equipment and business,' etc., and that the 'plaintiffs have been fully aware and continuously informed as to such use and have acquiesced therein and are now estopped to contend that such profits should have been instead paid out in dividends.' They also allege that for all practical purposes the stockholders and directors have complied with the provisions of G.S. § 55-115 in that all the profits, not paid out as dividends, have been from time to time set aside as 'capital or working capital' for the purposes enumerated above.

The plaintiffs filed no reply to the defendants' further answer and defense. But, since the allegations therein do not amount to a counterclaim, they are deemed denied. G.S. § 1-159; Wells v. Clayton, 236 N.C. 102, 72 S.E.2d 16.

Conceding that the allegations in the further answer and defense of the defendants raise an issue as to whether or not the stockholders and directors substantially complied with the provisions of G.S. § 55-115 in setting aside the bulk of the profits for the purposes alleged, it likewise raises the question as to whether or not these plaintiffs are estopped by reason of their approval of and acquiescence in the action taken from time to time by the stockholders and directors with respect to the enlargement of the plant of the corporate defendant, the purchase of additional machinery needed to carry out the program of expansion, as well as the purchase of new and modern machinery to replace outmoded or obsolete equipment, from asserting any right to have the funds so expended now declared as dividends. 18 C.J.S., Corporations, § 524, p. 1208 et seq.; Fletcher Cyc., Corporations, Per.Ed., Vol. 13, Chapter 58, section 5862, page 209, and cited cases, including Dimpfel v. Ohio & M. Ry. Co., 110 U.S. 209, 3 S.Ct. 573, 574, 28 L.Ed. 121, where it is said: 'Objections now come with bad grace from parties who knew at the time all that was being done by the company, and gave no sign of dissatisfaction.'

In light of the issues of fact raised by the pleadings in this action, it is proper to consider the function and purpose of a mandamus. It is a writ issuing from a court of competent jurisdiction, commanding an inferior tribunal, board, corporation, or person to perform a purely ministerial duty imposed by law. The party seeking such writ must have a clear legal right to demand it, and the tribunal, board, corporation, or person must be under a present clear legal duty to perform the act sought to be enforced. St. George v. hanson, 239 N.C. 259, 78 S.E.2d 885; Board of Managers of James Walker Memorial Hospital v. Wilmington, 235 N.C. 597, 70 S.E.2d 833; Hamlet Hospital & Training School v. Joint Committee, 234 N.C. 673, 68 S.E.2d 862; Steele v. Cotton Mills, 231 N.C. 636, 58 S.E.2d 620; Poole v. Board of Examiners, 221 N.C. 199, 19 S.E.2d 635; Harris v. Board of Education, 216 N.C. 147, 4 S.E.2d 328; 55 C.J.S., Mandamus, § 125, p. 213.

When minority stockholders seek to obtain a writ of mandamus to compel the directors of the corporation to pay dividends out of the accumulated profits of the corporation and the pleadings raise issues of facts, such minority stockholders are not entitled to such writ until the issues raised by the pleadings have been finally adjudicated on their merits. Hospital v. Wilmington, supra.

The plaintiffs state in their brief that the trial judge announced in the course of the trial that he would direct a verdict on the first issue because in his opinion the resolution passed by the stockholders on 13th March, 1953, was proper as to form and would therefore effectively bar the plaintiffs' right to recover if such action was taken in good faith. That the trial court in taking this position relied upon the opinion of this Court in Amick v. Coble, 222 N.C. 484, 23 S.E.2d 854.

In Amick v. Coble, supra, the plaintiff in his complaint sought to have all the accumulated surplus prior to the year 1940 declared as a stock dividend and to have the profits for the years 1940 and 1941 paid out in cash dividends. When the case was called for trial, a jury trial was waived and it was agreed that the court might hear the evidence, find the facts, draw its conclusions of law and enter judgment accordingly. No working capital had ever been formally set aside by the stockholders of the corporation as contemplated by G.S. § 55-115. It is disclosed by the record in the case that in the course of the hearing the court suggested it might be well for the stockholders to have a meeting and consider seeting aside working capital pursuant to the provisions of the statute. A special meeting was held and the majority stockholders, over the protest of the plaintiff, purported to set aside all the accumulated profits as working capital. The court then permitted the defendants to amend their answer by alleging that the stockholders had set aside all the accumulated profits as working capital, and by alleging that it had been the policy of the stockholders and directors of the corporation, since its organization, to consider the profits of the company as working capital except the actual amount voted each year to be paid out as a dividend; and further to plead such policy as an estoppel against the plaintiff from claiming such funds were available for the payment of dividends. The plaintiff filed a reply and admitted that from the organization of the company until he was voted out of office as secretarytreasurer and general manager in early 1940, it was by mutual consent the practice to keep all the profits for the purpose of expanding the business, except those amounts actually authorized to be paid out in dividends. The plaintiff, however, alleged in his reply that the action of the stockholders in attempting to set aside all the profits for the years 1940 and 1941 as working capital, was done arbitrarily and in bad faith for the purpose of doing directly what they had already done indirectly, that is, to destroy the value of his stock, or to force him to sell it to the defendants at a greatly depressed figure.

The trial court, among other things, found as a fact that prior to the year 1940 the stockholders and directors, by mutual consent, each year turned all net earnings of the corporation, as the same were earned, except the amount declared as a dividend, back into the business of the corporation. The court also found in effect that the action of the defendants as majority stockholders, in setting aside all the earnings for the years 1940 and 1941 as working capital, was not done in good faith, and rendered judgment directing the payment of dividends to the extent of the profits for the years 1940 and 1941, less certain deductions. This Court directed that all the profits for those years be declared as dividends without any deductions. Winborne, J., in speaking for the Court, said [222 N.C. 484, 23 S.E.2d 858]: 'That this may be done without impairing the capital structure of the corporation is, on this record, patent.'

In the instant case, the pleadings raise no issue with respect to setting aside working capital except in the manner alleged in the further answer and defense. Neither do the pleadings raise any issue as to bad faith in connection with the setting aside of working capital, but, on the contrary, as we have heretofore pointed out, the plaintiffs are asking for mandamus on the ground that no working capital has ever been set aside by the stockholders and directors out of the accumulated profits of the corporation.

The appellees urgently contend that the defendants insisted upon a jury trial and that it was upon their theory of the case that the issues under consideration were framed and submitted to the jury. Even so, issues arise upon the pleadings only, and not upon evidential facts. Miller v. Miller, 89 N.C. 209; Fortesque v. Crawford, 105 N.C. 29, 10 S.E. 910; Howard v. Early, 126 N.C. 170, 35 S.E. 258; Wells v. Clayton, supra.

In Miller v. Miller, supra, the Court said: 'Parties cannot agree upon improper...