Whitlock v. Alexander
| Decision Date | 04 December 1912 |
| Citation | 76 S.E. 538,160 N.C. 465 |
| Parties | WHITLOCK et al. v. ALEXANDER. |
| Court | North Carolina Supreme Court |
Appeal from Superior Court, Mecklenburg County; Daniels, Judge.
Action by P. C. Whitlock and others, receivers, against C. L Alexander. Judgment for plaintiffs, and defendant appeals. Reversed, and new trial ordered.
Where no minute is made of actions of the board of directors of a private corporation, parol evidence thereof is receivable such being the best evidence available.
The action was brought by the receivers of the Carolina Ice Company, insolvent, to recover of defendant, as holder and owner of 62 1/2 shares of stock, $100 each, in said corporation, 31 1/4 shares being on original subscription issued July, 1908, and 31 1/4 by reason of a stock dividend issued February 11, 1909, the claim being that nothing of value had been paid on either issue. The defendant having denied liability, issues were submitted and responded to by jury as follows:
At close of testimony, the court charged the jury that, if they believed the evidence, they would answer the issues for plaintiff. Verdict was rendered as stated. There was judgment on verdict, and defendant excepted and appealed, assigning for error certain rulings of the court on questions of evidence, the charge of the court as given, and the judgment rendered.
F. I. Osborne, Pharr & Bell, and Maxwell & Keerans, all of Charlotte, for appellant.
Burwell & Cansler and Tillett & Guthrie, all of Charlotte, for appellees.
HOKE, J. (after stating the facts as above).
The decisions of this state are to the effect, and the position is in accord with doctrine prevailing in other jurisdictions, that the capital stock of a corporation, including unpaid indebtedness for stock issued and held by the stockholders, shall, if required, be considered a trust fund for the creditors; that, under ordinary conditions, persons having business dealings with the companies have a right to suppose that this capital stock has been paid in, in money or in money's worth, and, in case of insolvency, any unpaid balance may by proper proceedings be made available to the extent required for the settlement of outstanding claims. Pender v. Speight, 159 N.C. --, 75 S.E. 851; McIver v. Young Hardware Co., 144 N.C. 478, 57 S.E. 169, 119 Am. St. Rep. 970; Hobgood v. Ehlen, 141 N.C. 344, 53 S.E. 857; Bank v. Cotton Mills, 115 N.C. 507, 20 S.E. 765; Hill v. Lumber Co., 113 N.C. 174, 18 S.E. 107, 21 L. R. A. 560, 37 Am. St. Rep. 621; Clayton v. Ore Knob Co., 109 N.C. 385, 14 S.E. 36; Foundry Co. v. Killian, 99 N.C. 501, 6 S.E. 680, 6 Am. St. Rep. 539; Fogg v. Blair, 139 U.S. 118, 11 S.Ct. 476, 35 L.Ed. 104; Handley v. Stutz, 139 U.S. 417, 11 S.Ct. 530, 35 L.Ed. 227; Sawyer v. Hoag, 84 U.S. (17 Wall.) 610, 21 L.Ed. 731. In applying the doctrine, where payment in property is permissible and has been attempted, the question frequently occurs as to the principle upon which the liability of the stockholder may be made to rest. Some of the courts administer what is not inaptly termed the "true value" doctrine, and hold the stockholder to the difference between the par value of the stock and the true value of the property in money, and this regardless of the question of fraud (10 Cyc. p. 473), while others have maintained the "good faith doctrine," referring the question primarily and very largely to the decision of the corporate authorities having charge of the matter when they have exercised their honest judgment in making the valuation. Whatever may have been the leanings of our former decisions, this view must now prevail with us; our statute making provision on the subject as follows (Revisal 1905, § 1160): "Nothing but money shall be considered as payment of any part of the capital stock of any corporation organized under this chapter, except as herein provided in case of the purchase of property or labor performed, and no loan of money shall be made to a stockholder or officer thereof; and if any such loan be made, the officers who make it, or assent thereto, shall be jointly and severally liable, to the extent of such loan and interest, for all the debts of the corporation until the repayment of the sum so loaned." Revisal 1905, § 1161. "Any corporation formed under this chapter may purchase mines, manufactories or other property necessary for its business, and issue stock to the amount of the value thereof in payment therefor, and the stock so issued shall be full-paid stock, and not liable to any further call, neither shall the holder thereof be liable for any further payment under any of the provisions of this chapter; and in the absence of actual fraud the judgment of the directors as to the value of the property shall be conclusive; and in all statements and reports of the corporation to be published or filed, this stock shall not be stated or reported as being issued for cash paid to the corporation, but shall be reported in this respect according to the facts."
While some of the courts, sustaining the position that actual fraud is required to charge a stockholder who has paid for his stock in property, have held that a "gross and obvious overvaluation of property" is strong evidence of fraud ( Coit v. Amalgamating Co., 119 U.S. 343, 7 S.Ct. 231 30 L.Ed. 420), and our own court, going further, has held that a valuation grossly excessive and knowingly made may be conclusive on this subject (Hobgood v. Ehlen, supra, a decision made since the enactment of the statute and well supported by authority; 2 Clark and Marshall on Corporations, p. 1215; Coleman v. Howe, 154 Ill. 458, 39 N.E. 725, 45 Am. St. Rep. 133; Elyton Land Co. v. Birmingham & Co., 92 Ala. 407, 9 So. 129, 12 L. R. A. 307, 25 Am. St. Rep. 65), we think that the principles embodied in the statute, by correct interpretation, are against the rulings of the lower court as presented in the record. On the hearing it was made to appear that Casper W. Miles was the patentee and owner of two letters patent for improvements in "compressors for ice machines," and that on or about June 30, 1908, the Carolina Ice Machine Company was formed by defendant, C. L. Alexander, J. Reed Curry, and S. S. Miles, brother of the patentee, for the purpose of manufacturing and selling ice and refrigerating machines, with a capital stock of $25,000, $12,500 of which was preferred and $12,500 of which was common stock at par value of $100 per share; that 62 1/2 shares of common stock was issued to S. S. Miles, 31 1/4 to J. Reed Curry and 31 1/4 to defendant, C. L. Alexander; that shortly thereafter S. S. Miles, acting under a power of attorney from Casper W. Miles, assigned said patents to the corporation and the manufacturing and sale of the machines in the states of North and South Carolina were entered upon and conducted until September 28, 1910, when, on proceedings instituted, the corporation was placed in the hands of receivers, the plaintiffs in the present suit; that on or about February 11, 1909, pursuant to a resolution of the company reciting adequate profits, a stock...
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