Court Opinion

ID: 3673316
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:20:58.981217+00
Date Added: 2024-06-11T14:08:56.802558
License: Public Domain

The first and second exceptions of defendant are to findings of fact. This was a consent reference. This Court will not review such findings except upon the ground, taken in apt time, that there is no testimony to support them. Battle v. Mayo, 102 N.C. 413. We have examined the testimony sent up, and are of the opinion that there is some evidence to support the findings.
The third, fourth, fifth, sixth and seventh exceptions relate to the validity of the deed of trust and to estoppels arising from the conduct of the attorney of The Wilson Cotton Mills in connection therewith. Notwithstanding the very able argument of defendant's counsel, to the effect that the making of an assignment for the benefit of all its creditors by an insolvent corporation does not fall within the spirit and meaning of section 685 of The Code, we are impelled to hold that by the plain terms of the act it is in the power of a creditor to defeat the operation of "any conveyance of its property, whether absolutely or upon condition, in trust or by way of mortgage executed by any corporation," by the commencement of proceedings to enforce his claim *Page 331 
within sixty days after the registration of said deed. This section must be interpreted in connection with all of chapter 16, of which it is a part. And section 668 of the same chapter provides means by which any creditor of an insolvent corporation may have the effects of said corporation put in the hands of a receiver and settled under the direction of the court. There might be reasons why some creditor (486) should prefer that the court should, by its officers, take charge of the settlement of the affairs of the corporation, with the security of bonds and under its own supervision, rather than that they should be administered by trustees selected by the corporation. As to the contention that The Wilson Cotton Mills, plaintiff, is estopped from taking this step by the act of its attorney, we think the evidence is convincing that the attorney was sent with specific instructions, and that no authority was given him to agree to the assignment on the part of his client.
We come now to the very interesting question raised by the eighth exception of defendant, whether the taking of judgments upon the account due by defendant company to the plaintiff cotton mills, especially those judgments covering the sum of $2,992.82, for which said defendant had given its acceptance, and the splitting up of the account in order to bring it within the jurisdiction of a justice, was a fraud upon the said jurisdiction; and whether such judgments may be attacked in this proceeding and set aside to prevent the taking by said plaintiff of an unconscientious advantage over the other creditors. In 1890 defendant company was indebted in a large sum to plaintiff cotton mills, and on 14 November accepted the draft of the plaintiff, at thirty days, for $2,992.82 in part payment of said account. Many of the aggregated items of said account exceeded the sum of $200 for a particular day. Said plaintiff, through its attorney, after the execution of the deed of assignment, obtained judgments for all of the open accounts, including that part of it for which the acceptance had been given, by splitting it up so as to bring the amounts claimed within the jurisdiction of a justice, and so has obtained a preference, or priority, over the other creditors. That the sum of $2,992.82 included in the draft was merged into it, and while said draft was in existence and not delivered up to theacceptor, the said draft amounted to a payment and satisfaction, if it was so intended, of so much of the open account, is well   (487) established. Mauney v. Coit, 86 N.C. 463; Spear v. Atkinson,23 N.C. 262; Wilson v. Jennings, 15 N.C. 90. It is equally clear that an account may not thus be split in order to get the same under the jurisdiction of a justice, except as to all items constituting one transaction. Caldwell v. Beatty, 69 N.C. 365, the leading case. It is also well settled that such objection must be made before the justice; otherwise *Page 332 
it cannot be made in the Superior Court on appeal. Blackwell v. Dibbrell,103 N.C. 270. But can these judgments be attacked in this proceeding upon the ground that under the circumstances it is unconscientious and inequitable on the part of the plaintiff in this action to assert such rights?
This is a creditor's bill, brought under the statutes, sections 668 and 685 of The Code. Its object is to set aside an assignment attempted to be made by an insolvent corporation, and to bring about the settlement of the affairs of the corporation under the direction of the court by its receiver, and for the benefit of all the creditors, and upon the doctrine that the corporate assets are a trust fund for the benefit of all the creditors. But the great principle of this jurisdiction is that when the court takes hold of the property it will make an equitable distribution thereof in the interest of all the creditors respecting priorities theretofore acquired. The other controlling principle is that he who seeks equity must do equity.
Although there is no jurisdiction to vacate the judgment unless it be a direct proceeding to set it aside for fraud, yet when the plaintiff comes into the court seeking its equitable jurisdiction and joining all other creditors who may make themselves parties and contribute to the expenses of the suit, they may be heard to assert the want of equity on the part of the plaintiff and the injustice of securing to it the payment of its judgments in full, because those judgments were obtained by deceit and to their detriment.
It was held in Grantham v. Kennedy, 91 N.C. 148, that while (488) courts of equity refuse aid in cases where their action would be tantamount to the exercise of appellate jurisdiction, or simply for error in law, they will protect a party against an unconscientious advantage secured by fraud, surprise, accident or mistake, when it clearly appears that it would be iniquitous and against conscience to enforce a judgment so as to give priority over other creditors.
This is the first opportunity given the other defendants besides the defendant corporation to be heard in opposition to the enforcement of this preference, and they have quickly taken advantage of it.
We are bound by the findings of fact. The findings of fact of the referee will show that the plaintiff's attorney, who at that time was a trustee in the deed of assignment, had access to the books of defendant corporation to compare the accounts of his clients, The Wilson Cotton Mills, with the account stated in defendant's books; that he split up said account against defendant, a large part of which had been settled by acceptance; that he represented that by so doing and reducing the same to judgment, he only desired to reduce The Wilson Cotton Mills claims to judgment in order to put them on an equal footing with the indebtedness *Page 333 
due banks, and to prevent their running out of date. It is found in sections 24 and 25 that while the representations made to Sharpe were not made with the intent that they should be communicated to defendant's president, they were so communicated, and no defense was made to the actions before the justice. While the law of North Carolina does not hinder preferences being made by insolvent corporations before the proceedings for the appointment of receivers have been begun under the statute, and while it permits the vigilant to reap the fruits of their watchfulness — Bank v. Cotton Mills, post, 507 — the courts in administering their equity jurisdiction will distribute equity in its true spirit, and while not setting aside judgments which might have been reversed for error in law, will not permit them to have a preference   (489) in their payment over other creditors in the bill when it appears that unconscientious advantage was taken in the obtaining of said judgments.
It follows that the judgment of the court below should be so modified as to require that the fund shall be distributed ratably among the creditors without preference to the plaintiff, The Wilson Cotton Mills, by reason of its judgments.
Error. Modified.
Cited: S. v. Harris, 120 N.C. 578; Cromer v. Marsha, 122 N.C. 565;Dunavant v. R. R., ib., 1001; Belvin v. Paper Co., 123 N.C. 151; Bank v.Bank, 127 N.C. 434; Smathers v. Bank, 135 N.C. 414; Smith v. LumberCo., 140 N.C. 378; Benson v. Jones, 147 N.C. 424; Williamson v.Bitting, 159 N.C. 325; Robinson v. Johnson, 174 N.C. 234.