Peeples v. Hornik

• Decision Date: 05 December 1929
• Docket Number: 12773.
• Parties: PEEPLES v. HORNIK.
• Court: South Carolina Supreme Court

150 S.E. 802

153 S.C. 321

PEEPLES v. HORNIK.

No. 12773.

Supreme Court of South Carolina

December 5, 1929

Appeal from Common Pleas Circuit Court of Charleston County; Wm. H Grimball, Judge.

Action by L. C. Peeples, as liquidating trustee in the dissolution of Hornik-Peeples Company, a corporation, against M. Hornik. From an order for a compulsory reference to a master to hear and determine oral issues of law and fact, the plaintiff appeals. Reversed and remanded.

See also, 149 S.C. 40, 146 S.E. 680.

Hyde Mann & Figg, Thos. P. Stoney, and A. R. McGowan, all of Charleston, for appellant.

H. L Erckmann, of Charleston, and E. J. Blank, of Cincinnati, Ohio, for respondent.

COTHRAN J.

This is an appeal from an order of his honor, Judge Grimball, ordering a compulsory reference to the master to hear and determine all issues of law and fact. The plaintiff entered objection to the motion of the defendant for such reference and now appeals from the order granting the same.

Prior to the passage of Act Feb. 7, 1928, 35 St. at Large, p. 1149, it had been consistently held by this court that under section 593 of Code Civ. Proc. 1922: " A compulsory order of reference to try the issues of both law and fact may be made only in cases within the equitable cognizance of the Court, and then only under the circumstances detailed in section 593 of the Code, "where the trial of an issue of fact shall require the examination of a long account." D'

By that act the Code section was amended by providing, in part:

"Where the parties do not consent, the Court may, upon application of either, or its own motion, direct a reference in the following cases:

"1. In all equitable actions and of equitable issues in actions at law. The order may be general of all issues of both law and fact, or may be so limited as the Court may direct: Provided, That this Section shall not be construed so as to deprive any party of a trial by jury of any case or issue upon which he is entitled to a trial by jury as a matter of right under the present practice."

The effect of the amendment is to confer the power of compulsory reference in all equitable actions, regardless of whether an issue of fact therein may require the examination of a long account or not, and of equitable issues in actions at law.

In his order, his honor, Judge Grimball, declares: "There is no doubt in my mind that the trial of this cause involves a very long, tedious and difficult accounting. The plaintiff, however, insists that even if this be so, it gives the Court no right to refer the cause over his objection. This appears to me to be a position sustained by our decisions, and before this Court has the right to refer the cause it must be satisfied that the cause is either equitable or (is an action at law which, I interpolate,) involves an equitable issue." Without declaring which situation is presented, he declares, "*** I am satisfied that the cause is one coming within the provisions of section 593 of the Code above quoted," after the amendment of 1928, I add.

The action is so plainly an action at law, as will be further on developed, that the order can be sustained only upon the hypothesis that it is such an action, but with an equitable issue involved, and I must think that that is what his honor intended to hold.

That it is an action at law appears by the most casual inspection of the complaint; it is an action sounding in tort; it charges that the defendant is president and treasurer, assumed the full conduct, handling, and control of the business and affairs of the corporation; that he negligently and willfully mismanaged its affairs, and employed inexperienced, incompetent, negligent, and unfit credit men and salesmen; that he allowed assets of the corporation to be delivered to another corporation without a record of the same and without payment; that he employed the corporation's credit for the benefit of other companies, damaging and impairing its credit, and causing it to lose its high credit standing and rating, and the confidence of its creditors and of those through whom it financed its affairs; that he fraudulently concealed from the corporation the true state of its affairs, and his acts as president; that he abstracted and converted property and assets of the corporation to his own use, and for his other companies; that he conducted the affairs of the corporation in disregard of its rights and his duties as officer, in using its paid employees for other companies, in allowing other companies access to its property, books, affairs, and stationery, and in permitting them to take its merchandise without payment or record; that he failed to employ competent credit men and salesmen; that he failed to keep full and correct records of the affairs of the company, and made false and inadequate records and reports of the same; and, generally, that he managed and operated the corporation in willful, wanton, negligent, wrongful, and fraudulent violation of his duties to it; and by all of these torts caused damage to the corporation of not less than $800,000, so that it become worthless, or nearly so.

It is inconceivable that these allegations fail to state a cause of action at law against the defendant, and it seems clear that, if they are proved, they warrant the submission of the case to the jury to find and determine the unliquidated damage, shown by the testimony to have been sustained by the corporation in consequence thereof.

It is persuasive, though perhaps not conclusive, that in the demurrer filed by the defendant and disposed of in the former appeal, the defendant so characterized the action: "That it appears on the face of the complaint that this is an action for damages due to the corporation known as Hornik-Peeples Company and the suit should have been brought in the name of" that corporation.

It was so treated in the order of his Honor, Judge Grimball, which was made the judgment of this court.

I think that it is too late now for the defendant to shift his ground, and insist as he does in the first ground of his motion for a reference: "That the nature of the suit is equitable. ***"

If then it is not an equitable action, the inquiry must be whether in it, as an action at law, there is involved an equitable issue.

I think that the learned circuit judge was in error in holding that the trial of this cause involves a very long, tedious, and difficult accounting, because there is no basis in the pleadings for holding that an accounting will enter into the case. The action is not on an account, nor is it for an accounting. No account is mentioned or sued on in the complaint, and no accounting is prayed. The action is only for the damage sustained by the corporation as a direct consequence of the willfulness, negligence, wantonness, and fraud of the defendant, in the discharge of his "duty to exercise ordinary care in the management" of the corporation's affairs. It is clear, therefore, that the complaint does not sustain the finding that an accounting of any kind is involved in the cause.

The answer of the defendant says that a full accounting of the books and papers of the corporation is necessary, and that he can take the books of the corporation and by a proper accounting show that he has faithfully handled the affairs of the company in accordance with the instructions of the board of directors, including the plaintiff individually. It seems clear that this is nothing more or less than an allegation that he has not done what is charged against him in the complaint, and can meet the allegations of the complaint by using the books and papers of the corporation and his alleged instructions from the board of directors and show that he is not liable in the particulars alleged in the complaint. This is merely a denial of the allegations of the complaint, and an allegation of the kind of evidence which he intends to use to refute them. It is in no sense an equitable plea of an accounting in bar of the plaintiff's suit, and as he does not ask any affirmative relief against the corporation, he would not be entitled to maintain an action for an accounting against it.

The complaint alleges, as an element and evidence of the damage sustained by the mismanagement of the defendant, that in December, 1921, the corporation owned assets in excess of its liabilities of $800,000; that the business was good and its credit the best; that within six years, instead of being worth $800,000, it had lost more than that; and that the stock was worthless. The defendant alleges that this is not true and that the value of the assets can only be ascertained by a proper investigation and accounting of the books of the corporation. How this suggests an accounting between the defendant and the corporation I do not apprehend.

It may as well be said that when the plaintiff brings an action for the recovery of real estate, and upon the trial the defendant puts in a deed to the land and the plaintiff attacks that deed for fraud, because fraud is a branch of equitable jurisdiction the judge would have the right to stop the case, refer all issues to a master, and deprive the plaintiff of his constitutional right to have a jury pass upon his claim. If that be the meaning of the amendment of 1928, it cannot stand for a moment.

The plaintiff, as liquidating trustee, is vested with title to the property, and also of the choses in action, of the corporation, including the causes of action of the corporation against the defendant for his delicts. Civ. Code 1922, § § 4282, 4283; Wilson v. Shuler, 146 S.C. 309, 144 S.E. 57; Browne v. Hammett, 133 S.C. 446, 131 S.E. 612.

And the plaintiff, as liquidating trustee, may maintain this action on the cause of action of the...