Victor v. Louise Cotton Mills
| Decision Date | 29 May 1908 |
| Citation | 61 S.E. 648,148 N.C. 107 |
| Parties | VICTOR v. LOUISE COTTON MILLS et al. |
| Court | North Carolina Supreme Court |
Appeal from Superior Court, Mecklenburg County; Moore, Judge.
Action by H. M. Victor against the Louise Cotton Mills and others. Judgment for defendants on demurrer to answer, and plaintiff appeals. Reversed.
The corporate charter is the only source to which a court can look to ascertain what power is conferred on the corporation and, where the charter is not before the court, it will not be presumed that unusual and extraordinary powers are conferred.
The plaintiff, a stockholder in the Louise Cotton Mills, a corporation chartered, organized, and operating pursuant to the laws of North Carolina, seeks in this action to enjoin the board of directors and managing officers of said corporation from paying to the defendant insurance company the amount of premiums on certain insurance policies. The complaint sets out the facts relied upon for the relief demanded. The several answers of the defendants admit the material allegations, and set up certain facts relevant to the controversy. Plaintiff demurs to the answer. The case was decided by his honor upon the questions of the law thus presented by the pleadings. He overruled the demurrer, giving plaintiff time to reply. From this judgment, plaintiff appealed.
F. M Redd and F. M. Simmons, for appellant.
Winston & Bryant and Tillett & Guthrie, for appellees.
Eliminating all formal and irrelevant matter, we extract from the pleadings the following facts: The defendant cotton mills is and was prior to June 1, 1905, chartered and organized in the city of Charlotte with a capital stock of $300,000 two-thirds of which is common, and one-third preferred, stock. Plaintiff is the owner of 10 shares of common stock in said corporation. On and before said date the said corporation was, in accordance with its charter, operating a mill and machinery for the purpose of manufacturing cotton goods. On June 30, 1905 the defendant Wilson was, and had for several years prior thereto been, the president of said corporation, and continued so to be until he resigned on October 2, 1906, since which time he has had no connection with said mills. Said Wilson was at the time of his connection with said mills "a manufacturer and financier of great capacity, skill, and ability." The services which said Wilson performed for defendant mills during the whole time he occupied the position of its president were of great and peculiar value, and such services as could be performed by the said Wilson only. That said services were of great benefit and advantage to the defendant and its stockholders, including the plaintiff. On the 30th day of June, 1905, the said J. P. Wilson, at the instance and request of the Louise Mills, made application for an insurance upon his life in the said Travelers' Insurance Company for the sum of $100,000, for the benefit of the Louise Mills, under a plan of insurance known as "20 payment life," and that two policies, No. 157589 and No. 157590, were issued in accordance with said application for $50,000 each, and were made payable to the executors or administrators or assigns of J.P. Wilson, and the same was immediately after its delivery assigned by him to the Louise Mills, and said Louise Mills paid the first and all subsequent premiums thereon, and that the said policies are now in force, if the same is or ever was a valid insurance contract, and the next premium for the current year will be due thereon on the 7th day of July, 1908. The said Louise Mills has already paid upon said policies the sum of $13,926, consisting of the premiums due for the years 1905, 1906, and 1907, which were $2,321 a year on each policy. The plaintiff has made demand upon the said Louise Mills, its officers and directors, that it and they cease and desist from any further payment of the fund of the corporation on account of said premiums. The defendants, on the contrary, insist that the corporation had an insurable interest in the life of Mr. Wilson when the policy was paid; that being at that time and under the existing conditions a valid contract of insurance, it remains so notwithstanding his resignation as president of the corporation. The defendant mills denied that the payment of the premiums from the funds of the corporation is an unwarranted diversion of such funds. The plaintiff's contention and application for injunctive relief are based upon two propositions: (1) That the amounts paid for premiums is an unauthorized and improper application or diversion of the funds of the corporation. (2) That the corporation has no insurable interest in the life of the defendant Wilson; that the policy is, for that reason, a gambling contract, and therefore invalid; that upon the death of said Wilson its payments cannot be enforced in the courts of the state.
It is alleged and admitted that it is customary for corporations to insure the lives of their officers whose services are of peculiar value, and whose death would impair the value of their stock. The extent of this custom is not alleged. In the view which we take of the question involved it is not material. If the question of the personal liability of directors in which the bona fides of their conduct was material, the general custom known to and acquiesced in by the stockholders would probably be material. We notice that the pleadings refer to the insurance and payments of premiums on the policy as the action of the corporation, and not of the board of directors. The complaint sets out the transaction as the act of the corporation, and the answer so admits it. The demurrer must be construed as admitting the allegation to be construed most favorably to the defendants. We are therefore to deal with the question presented as calling into question the corporate act, and not involving any suggestion of an excess or abuse of power by the directors. There are, of course, many acts done by the board of directors which can be called into question only by the corporation in its capacity as a legal entity, or by a stockholder conforming to the rule laid down in Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827, and Merrimon v. Paving Co., 142 N.C. 539, 55 S.E. 366, 8 L. R. A. (N. S.) 574. If the act of the corporation be ultra vires, any one or more stockholders may, by some appropriate method, call it in question, and unless, by having consented to or acquiescing in it, he is barred, have relief. 2 Purdy's Beach on Corp. § 904. "And he may enjoin and set aside any acts which do not conform to these limits." 2 Cook on Stockholders, § 681; Pickering v. Stephenson, 14 L. R. (1870) 340; Wiswall v. Plank Road Co., 56 N.C. 183; Womack Pr. Corp. 147. Purdy's Beach, § 905. In Central R. R. v. Collins, 40 Ga. 582, it is said: Byrne v. Elec. Mfg. Co., 65 Conn. 336, 31 A. 833, 28 L. R. A. 304, a very able opinion by Andrews, C.J., reviewing the authorities. It is true, as held by numerous courts, including our own, that the doctrine of ultra vires has been very much modified in recent years, and many contracts made in the course of business, especially when executed and benefits are received or liabilities are incurred, will be upheld and enforced which were formerly declared absolutely void. Hutchins v. Bank, 128 N.C. 72, 38 S.E. 252; Womack Pr. Corp. 142. This modification of the doctrine does not involve the right of a dissenting stockholder, or, in an appropriate case, the state, to enjoin a threatened ultra vires act.
The plaintiff does not call into question the bona fides or the good judgment of the other stockholders. His principal apprehension appears to be that the corporation has no insurable interest in the life of Mr. Wilson, and that the assignment will be held void, or the policy itself so held. We are of the opinion...
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