Wright v. Phillips Fertilizer Co.

• Decision Date: 02 March 1927
• Docket Number: 15.
• Citation: 136 S.E. 716,193 N.C. 305
• Parties: WRIGHT et ux. v. PHILLIPS FERTILIZER CO. et al.
• Court: North Carolina Supreme Court

136 S.E. 716

193 N.C. 305

WRIGHT et ux. v. PHILLIPS FERTILIZER CO. et al.

No. 15.

Supreme Court of North Carolina

March 2, 1927

Appeal from Superior Court, Beaufort County; Nunn, Judge.

Action by George W. Wright and wife against the Phillips Fertilizer Company and others. Judgment of nonsuit, and plaintiffs appeal. Affirmed.

The defendant Phillips Fertilizer Company was organized in 1915. At the time of the organization of the company the stockholders were George A. Phillips, Fenner T. Phillips, and Amy S. Wright. The plaintiff George W. Wright acted as proxy for his wife at all meetings of the directors and stockholders. The plaintiff George W. Wright was a nephew of the other stockholders, G. A. Phillips and Fenner T Phillips, and was employed by the company upon its incorporation. At the annual meeting of the directors of the company on January 2, 1917, the minutes show that on motion duly adopted, G. W. Wright was to be paid a salary of $1,500 for the year 1917. At a meeting, held on Tuesday, January 8 1918, the minutes show:

"On motion, duly seconded, it was ordered that G. W. Wright be paid a salary of $2,500 for the year 1918."

At the meeting of the directors on January 7, 1919, the minutes show that:

"It was ordered that George W. Wright be paid a salary of $5,000 for the year 1919."

At a stockholders' meeting held on January 6, 1920, there was an increase of the capital stock, and G. W. Wright subscribed for 40 shares thereof. The minutes of this meeting further disclosed that the plaintiff G. W. Wright was elected vice president of the company, and further that "on motion, duly seconded, it was ordered that G. W. Wright be paid a salary of $6,500 for the year 1920." The by-laws of the company provided that directors should be elected, and officers should be elected for the term of one year, and until their successors shall have been elected and qualified, and further that:

"All directors, officers, and employees, in accepting position or employment shall be understood to agree that they may be dismissed in this manner [that is, by a vote of two-thirds in number of all the directors]. When a director, officer, or employee shall be discharged in the manner prescribed herein, he shall have *** no claim for services after the date of his discharge."

The plaintiff was paid his salary upon a basis of $6,500 per year until on or about November 4, 1920. G. A. Phillips, who was the owner of about 200 shares of the capital stock, and who was the financial support of the company, became heavily involved as an indorser for the company. In the fall of 1920 he was bound upon approximately $135,000 of the company's liabilities. The cost of material had declined during the year 1920, and the company was facing a tremendous loss by reason of business depression. G. A. Phillips sold his interest in the corporation to the defendants Flynn, Leach, and Winslow. Phillips had advanced to the company from time to time about $69,000, and this was set up on the books of the company as a surplus, although the company owed this amount to Phillips for advances so made by him from time to time. In the sale of his stock to Winslow and others, Phillips also sold his interest in this so-called surplus account. Plaintiff contended that $5,000 of this surplus account was borrowed by Phillips from the Eureka Lumber Company and loaned to the defendant corporation, and that, when Flynn, Leach, and Winslow bought the stock of Phillips, they should have assumed payment of this $5,000 indebtedness; whereas, as a matter of fact, it was paid from the assets of the corporation, and the plaintiffs, therefore, contend that, as they were the owners of one-fifth of the stock, the payment of this $5,000 indebtedness to the Eureka Lumber Company constituted a diversion of the funds of the corporation, and that the plaintiff should be entitled to one-fifth of that amount, to wit, the sum of $1,000.

One of the creditors of the corporation, to wit, A. F. Pringle, Inc., brought a suit in the federal court in 1921 against Flynn, Leach, and Winslow, F. T. Phillips, plaintiff, G. W. Wright, and G. A. Phillips. In paragraph 14 of the complaint in said action it was alleged:

"That there is grave and serious dissension among the stockholders and directors of said corporation, seriously affecting the proper carrying on of the business of the corporation and the preservation of its assets. *** And these complainants further allege that, if the assets which properly belong to the said corporation, which the said Flynn, Leach, and Winslow have diverted and tortiously taken for their own use, and are attempting wrongfully to convert and take to their own use, are restored to the corporation, and the further diversion thereof prevented, that the said corporation would be solvent, *** but that, if the said Flynn, Leach, and Winslow are not restrained by this honorable court, and are permitted to sell said cotton and convert the other assets claimed by them as their individual property, *** though belonging to the said corporation, and are not compelled to restore the moneys and assets of the corporation which have already wrongfully been used, then the company will be insolvent."

In paragraph 15 of said petition or complaint it was alleged in substance that the defendants Flynn, Leach, and Winslow were taking the assets of the company, held by them as directors in trust for the benefit of creditors, and applying the same to the liquidation of their individual liability assumed by them at the time the said stock was taken over from G. A. Phillips.

The plaintiff, Wright, and F. T. Phillips, answering the petition, admitted the allegations contained in paragraph 14 of the petition, and further alleged:

"That there are grave, serious, and fundamental dissensions between the stockholders of the Phillips Fertilizer Company and the defendants G. W. Wright and F. T. Phillips and their associates."

After a hearing in Wilson before Hon. H. G. Connor, United States District Judge, the action brought by Pringle, Inc., was dismissed by a decree containing this declaration:

"And it further appearing to the court that all matters under controversy between and among the plaintiff and the defendants have been compromised and adjusted to the mutual satisfaction of all parties, it is ordered and decreed that this action be dismissed at plaintiff's cost."

Thereafter at a meeting of the stockholders of the company, it was ordered that settlement be made with Pringle, Inc., in accordance with the judgment of H. G. Connor, District Judge. At the same meeting it was ordered that $60,000 preferred stock be issued, of which amount $5,000 was to be issued to A. F. Pringle, Inc., and $55,000 to Flynn, Leach, and Winslow. The minutes of this...