Court Opinion

ID: 6697367
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:57:11.076135+00
Date Added: 2024-06-11T16:01:17.681965
License: Public Domain

OlauKSON, J.
At the close of plaintiff’s evidence and at the close of all the evidence, the defendant in the court below made motions for judgment as in case of nonsuit. C. S., 567. The motions were overruled by the court below. We think the motions should have been allowed. It is conceded on the record that the assets of the corporation are insufficient and will pay the general creditors only about 20 cents on the dollar.
The Y. & B. Corporation was chartered in December, 1923, and operated until 31 October, 1927. The corporation during its existence issued approximately $400,000 of preferred stock and $200,000 common *22stock, par value of $10 per share, and when placed in the bands of the temporary and then permanent plaintiff-receiver, 1 December, 1927, the general indebtedness was $309,399.57.
Dividends of 8 per cent paid in 1926 quarterly by Y. & B. Corporation to the stockholders amounted to $50,310. J. A. Yarborough was president and treasurer of Y. & B. Corporation from its organization until the receivership. He was actively connected with its management. In reference to the controversy over the $625 sued for in this action, defendant J. C. Brown testified in part: “I sold it to J. A. Yarborough on 20 April, 1926. I delivered the certificates to J. A. Yarborough on that date. I took four notes for the stock, $625 each, three, six, nine and twelve months, that is the way the notes were given me. J. A. Yar-borough was the maker of these notes. These notes were paid. I can’t recollect when the first one was paid, but as I mind it was 19 or 20 July, 1926,' about the time it was due it was taken up; it was due three months from date. I don’t know how it was paid, but I put it in the Union National Bank; it was collected there. I never saw the check with which it was paid; the bank sent me a credit slip. I borrowed some money and put up my own note as collateral; when it came due they took out their note and sent me the balance. As to how the transaction was done, I can’t say. This is the note to which I refer that I put up at the bank and'used Yarborough’s note as collateral. I put the notes in the bank as they became due. The first one I put in when I borrowed some money, as collateral; the other two I put up for collection. I looked to Mr. Yarborough for payment of the notes given me in payment of stock. I made an investigation at that time as to Mr. Yar-borough’s ability to pay. I made investigation from Mr. Victor, at the Union National Bank. I think he is the president of the bank. At that time I had no intimation as to whether or not the corporation was in a failing condition. I believed it to be solvent. I sold on 20 April, 1926, and I really didn’t know, only what I heard here; it was October, 1927, it went in the hands of receiver. It was some eighteen months.”
J. A. Yarborough testified as to the purchase of the stock from Brown as follows: “On or about 20 April, 1926, I purchased certain shares of stock from defendant, J. O. Brown. The three certificates of stock shown me are the certificates I purchased from J. O. Brown. Common stock certificate No. 201, 20 shares; common stock certificate No. 414, 30 shares; common stock certificate No. 318, 80 shares. I do not know where preferred stock certificate No. 639 is. As to whether or not I purchased that certificate from Mr. Brown, I would rather refer to the books. Referring to the Y. & B. Corporation Journal, as appears on page 229, and the Stock Subscription Record, I purchased preferred certificate No. 629, 120 shares, from J. C. Brown. The certificates of *23stock I have identified as being purchased by me were delivered on 20 April, 1926. I gave Mr. Brown $2,500 for this stock. I paid for it in a year; gave him four 90-day notes, three months apart, $625 each. These were my personal notes.”
After a careful review of the record, we can find no competent evidence on the part of the plaintiff to show that this stock was purchased by the T. & B. Corporation. Brown’s stock was canceled and in lieu thereof the stock was issued to Yarborough. The auditor testified: “In making my audit I found that J. A. Yárborough had a personal account that ran along throughout the entire history of the corporation. J. A. Yarborough had a personal account with the corporation at the time this stock is alleged to have been sold, as well as I can remember. I think he had from that date up to the date of the receivership.”
There is no evidence that defendant knew, or in the exercise of due care could have known, that the corporation was insolvent during the period of the above transaction. It was paying an 8 per cent dividend. There is no evidence of bad faith, fraud or collusion on the part of the defendant, and there is no evidence that Yarborough misused any of the funds of the corporation in this transaction in the payment of said notes. There is evidence, so stated by the auditor, that he (Yarbor-ough) had a personal account with the corporation during the period of this transaction, but it does not appear that said .account was ever overdrawn.
The complaint and trial of this action was on the theory that the stock was sold by defendant Brown to the Y. & B. Corporation. ¥e can find no sufficient evidence on the record to- support this position of plaintiff. All the evidence is to the effect, record and otherwise, that it was purchased by J. A. Yarborough and he gave defendant four notes in payment. After these notes were given, they were paid by Yar-borough. As stated, when the sale of the stock was made, on 20 April, 1926, by defendant Brown to Yarborough, there was no evidence that defendant knew, or by due care could have known, that the Y. & B. Corporation was insolvent. In fact, the record discloses that during that year, 1926, it paid an 8 per cent dividend, 2 per cent quarterly, which amounted to $50,310. After the sale by Brown to Yarborough of the stock which he had a perfect right to do, and taking his notes, Brown was a stranger to the corporation and looked alone to Yarborough for payment of the notes. If any of these payments came out of the funds of the corporation, there is no evidence in this record that Yarborough, who the corporation trusted to properly check on it, that same did not belong to Yarborough for services or otherwise.
Plaintiff introduced no evidence that Yarborough, who was president and treasurer of the.corporation, was not authorized to pay these per*24sonal notes o£ Ms by giving a check on the corporation, and did not have funds due him which he had a right to use in payment to- Brown of the personal notes he gave him. If Yarborough had no right to use the money of the Y. & B. Corporation to pay Brown, then in that event the receiver would have the right to sue Yarborough. The record discloses that Brown sold the stock in good faith to Yarborough and took the four notes in payment. It further discloses, and is so stated by the auditor, that during the period in which these notes were paid, that Yarborough had a personal account with the Y. & B. Corporation. The Y. & B. Corporation elected Yarborough its president and treasurer and put it in his power to issue checks on the corporate funds. Brown, without collusion, but in good faith, as shown by the record, sold this stock to Yarborough. If Yarborough paid him with the funds of the corporation, under the facts and circumstances of this case, the principle of law applicable is fully set forth in Bank v. Liles, 197 N. C., 413, citing numerous authorities, and quoting from R. R. 4. Kitchin, 91 N. C., at p. 44: “Where one of two persons must suffer loss by fraud or misconduct of a third person, he who- first reposes the confidence or by his negligent conduct made it possible for the loss to occur, must bear the loss.” Lightner v. Knights of King Solomon, 199 N. C., 525.
The question arises, if one of two persons must suffer loss by the misconduct of Yarborough, Brown or the Y. & B. Corporation, on whom shall the loss fall? On Brown or on the Y. & B. Corporation represented by the receiver in this action? We think it should fall on the Y. & B. Corporation, as it was responsible in the selection of Yarborough as its president and treasurer, the first reposed the confidence.
It is the well settled law in this jurisdiction, as set forth in Pender v. Speight, 159 N. C., 612 : “An insolvent corporation cannot buy in its own stock, and if it becomes insolvent after such purchase the stockholder is held liable to the creditor for the purchase money received by him. Heggie v. Building & Loan Asso., 101 N. C., 581. It is generally held that a corporation cannot settle with its members by the application of assets to the retirement of their stock'until it has first discharged all of its liabilities, and any agreement looking to- such arrangement among its shareholders is void as to creditors.” Fuller v. Service Co., 190 N. C., at p. 658.
This principle is sound and salutary, but not applicable on this record. The evidence in the present action was to the effect that Yar-borough purchased the stock from Brown and not the Y. & B. Corporation. The entire evidence on the part of plaintiff was a type of hearsay evidence, the material part duly objected to by .defendant, such evidence should be admitted with caution. The auditor testified: “I found that the books and records of the corporation were in right much of a, jumble. *25. . . Yes, I find some explanation why this entry should have been made three months after the transfer of stock. When I conducted the examination I frequently ran into that condition where a transaction had happened, not only stock, but everything.”
In R. R. v. Hegwood, 198 N. C., at p. 315-16: “Dean Wigmore, in discussing exceptions to the hearsay rule — -regular entries — in Vol. 3, 2 ed., at p. 281-2, says: ‘The rulings upon the subject are not yet harmonious: (a) There are, first, a number of States accepting with practical completeness the conclusion above reached, i. e., in given cases admitting verified regular entries without requiring the salesman, timekeepers, or other original observers having personal knowledge, to be produced or accounted for. (b) There are rulings admitting verified regular entries after a showing that the original observer was deceased; possibly absence from the jurisdiction, insanity, or the like, would equally have sufficed.’ ” Supply Co. v. McCurry, 199 N. C., 799.
Some of the cases in reference to hearsay evidence are set forth in R. R. v. Hegwood, supra. For some other authorities, see Kello v. Maget, 18 N. C., 414; Sloan v. McDowell, 75 N. C., 29; Ball-Thrash Co. v. McCormick, 162 N. C., 471; Mercer v. Lumber Co., 173 N. C., 49; Lumber Co. v. Lumber Co., 176 N. C., 500; S. v. Hightower, 187 N. C., 300.
Defendant objected to the issue submitted and excepted, but did not tender other issues. He cannot now complain. Greene v. Bechtel, 193 N. C., 99-100. This is not material from the view we take of the case. Defendant’s further answers and defenses, set-off and counterclaim, are such that are equitable and appeal to a court of equity. The defendant Brown testified as to the fraud perpetrated on him in the sale of the stock by the Y. & B. Corporation, fully sustaining his allegations in his further answers and defenses and set-off and counterclaim against the plaintiff’s alleged claim. Taking the entire evidence, as appears on the record, we see no legal or equitable claim that plaintiff has against the defendant. The auditor was asked the following question by defendant: “Q. Have you any record of the amount paid to the stock salesmen of the corporation? (Objection by plaintiff; sustained.) The_ witness,-if permitted to answer would have said $152,928.18.” Mere scintilla of evidence, or evidence raising only suspicion, conjecture, guess, surmise or speculation, is insufficient to take a case to the jury. Denny v. Snow 199 N. C., 773. The judgment of the court below is
Reversed.