In Re the Hotel Raleigh, Inc. , 207 N.C. 521 ( 1935 )

OonNor, J.

The jurisdiction of a judge of the Superior Court of this State of matters involved in the election of directors by stockholders of a corporation organized under the laws of this State is statutory. The statutes applicable to such elections are as follows:

“C. S., 1176. Failure to hold election. If tbe election for directors of a corporation is not held on the day designated by the charter or bylaws, the directors shall cause the election to be held as soon thereafter as is convenient. No failure to elect directors at the designated time shall work any forfeiture or dissolution of the corporation; and if the directors fail or refuse for thirty days after receiving a written request for such election from those owning one-tenth of the outstanding stock to call a meeting for the election, the judge of the district, or the judge presiding in the courts of the district in which the principal office of the corporation is located, may, upon the application of any stockholder, and on notice to the directors, order an election or make such other order as justice requires. The proceedings governing the issuance and hearing of injunctions shall, as far as applicable, govern such hearing.”

“C. S., 1177. Jurisdiction of Superior Court over elections. The Superior Court judge, upon application of any person who may complain of any election, or any proceeding, act, or matter pertaining to the same, ten days notice having been given to the adverse party, or to those who are to be affected thereby, of such intended application, shall proceed forthwith, at chambers, in any county in the district in which the principal office of the corporation is situated, to hear the affidavits, proofs, and allegations of the parties, or otherwise inquire into the matter or causes of complaint, and thereupon establish the election complained of, or order a new election, or make any order and give any relief in the premises as right and justice requires. The proceedings shall, as far as applicable, be the same as in injunctions.”

This proceeding was instituted under C. S., 1177. The notice signed by the complainant and served by the sheriff of "Wake County on the adverse parties, ten days before the date designated for the hearing of the complaint, was sufficient to confer jurisdiction on the judge of the Superior Court, of the parties and of the subject-matter of the proceeding. The conditions precedent to the institution of a proceeding under C. S., 1176, are not applicable to this proceeding. It is true that it appears from the complaint that the stockholders of the corporation had failed to elect directors, but it also appears that a meeting of the stockholders had been duly held for that purpose, on the day fixed in the by-laws of the corporation. The complaint is that no directors had been elected by the stockholders for the ensuing year, and that for the reasons assigned such election had been postponed, with the result that the directors heretofore elected continue in office.

The assignment of error on the appeal to this Court based on respondents’ exception to the denial of their motion that the proceeding be dismissed is not sustained.

The proceeding under C. S., 1177, is summary, and is properly begun by a notice in writing signed by the complainant and served on the re spondent. No conditions precedent to the commencement of the proceeding are required by the statute as in the case of a proceeding under C. S., 1176.

The question presented by respondents’ second assignment of error on their appeal to this Court is whether the judge of the Superior Court, in a proceeding instituted under C. S., 1177, on his finding that the stockholders of a corporation organized and doing business under the laws of this State, at an annual meeting duly held in accordance with the by-laws of the corporation, have failed to elect directors for the ensuing year, because of their inability, due to dissensions among them, to agree on such directors, has the power to appoint a receiver of the corporation, and to authorize and direct such receiver to take into his possession all the property of the corporation, and to conduct its business under the orders of the court, thereby depriving the corporation of the possession of its property and its board of directors of the right to conduct its business, as authorized by the laws of this State.

This question is answered in the negative. The statute, which is general in its terms and which should be liberally construed, does not confer such power on the judge, expressly or by implication. If' it did purport to confer such power, grave questions as to its validity would be presented. The corporation itself is neither a necessary nor a proper party to the proceeding, and for that reason its rights are not involved therein, and cannot be affected by any order or orders made in the proceeding.

In the instant case the judge has found that the corporation is in imminent danger of insolvency because of the failure of the stockholders to elect directors at their annual meeting in January, 1934. We find no evidence in the record to support this finding. On the contrary, all the evidence shows that under the management of the directors who now hold office under a valid election, the business of the corporation has prospered.

The only controversy which has arisen among the stockholders of the Hotel Raleigh, Inc., is as to who shall be chosen as officers of the corporation, and receive salaries for their services to be paid by the corporation. The statutes in this State provide a solution for this controversy. The officers can be chosen only by the directors, to whom the management of the business of the corporation is entrusted. Until their successors shall be elected by the stockholders, the present directors, now holding their offices under a valid election, will continue as directors, and as such will be liable to the stockholders and creditors for the faithful performance of their duties.

We do not hold that in a proper case the Superior Court of this State, in the exercise of its equitable jurisdiction, is without power' to appoint a receiver of a corporation, whose business has been improperly conducted, with resulting loss to its creditors or stockholders, because of irreconcilable dissensions among its stockholders or directors. That question is not presented on this appeal. ¥e hold only that in the summary proceeding provided by C. S., 1117, the judge of the Superior Court is without such power. In accordance with this holding, the order of Judge Harris is

Eeversed.