Cooke & Co. v. Pearce , 1885 S.C. LEXIS 99 ( 1885 )

The opinion of the court was delivered by

Mr. Chibe Justice Simpson.

In January, 1882,.the defendants, appellants, with others, obtained a charter from the clerk of the court for Richland County, acting under an act to provide for granting charters, approved 1874, for the incorporation of the “South Carolina Cotton Gin Improvement Company.” Of this company the defendants, with one J. N. Huffman, since deceased, were elected directors in January, 1882. On the thirteenth of April thereafter the company made its promissory note for $750, payable to the order of J. H. Sypher, president of the “American Cotton Gin Saw Cleaning Company,” on the first of November, 1882. This note was afterwards endorsed before due to the plaintiffs, who, in July, 1883, recovered judgment thereon against said “South Carolina Cotton Gin Improvement Company” for the sum of $878.77, which judgment, and the execution thei’eon, remain unsatisfied. In the latter part of February, 1883, the defendants resigned their office as directors aforesaid.

The action below was brought, alleging liability on the part of the defendants on the following grounds: 1st. That before the maturity of the note, and during the administration of the defendants as directors, the debt of the company exceeded the amount of the capital stock paid in by an amount greater than the amount of its indebtedness to the plaintiffs. 2d. That a portion of the capital stock of the company greater in amount than its indebtedness to the plaintiffs, was withdrawn and divided among the stockholders of the company, with the consent of the defendants. 3d. That the defendants, as directors, failed to make to the stockholders of said company the annual statement, setting forth the amount of capital stock paid in, and the general assets of said company, or to publish the same in the newspapers, as required by law.

The defendants relied on three defences : - 1st. A denial that this company was a manufacturing company. 2d. A general denial of allegation contained in the grounds above, 1 and 2. They admit, however, that they did not submit the statement or publish the same referred to in ground 3, but allege that before the expiration of the year after organization they resigned their office and severed their official connection with said company. 3d. They allege a total failure of consideration in the note.

At the trial, his honor, Judge Fraser, presiding, refused a motion for non-suit, and during the progress of the trial ruled that testimony as to failure of consideration was incompetent, and he excluded certain witnesses offered to that end. He also excluded testimony offered as to the inability of the defendant directors to obtain a stockholders’ meeting for the purpose of making a statement of the financial condition of the company, and also parol testimony offered to show the nature of the business of the company, whether manufacturing or not, and he refused to allow the defendants to amend their answer, as requested, which refusals were excepted to, and have been made grounds of appeal. In addition, the judge charged that the consideration of the note could not be inquired into; that the directors could not, by resigning, relieve themselves of the necessity of making the annual statement referred to; that they could have no excuse for said failure; and, further, that whether the said company was a manufacturing company, was a question of law dependent on the construction of the charter — to all of which the appellants have assigned error in the appeal. The jury found verdict for the plaintiffs, but under the charge of the judge, they found for the amount of the note, and interest thereon, instead of the amount of the judgment against the company. From this portion of the charge the plaintiffs have appealed, and also from the refusal of the judge to charge that the defendants were bound to publish, as well as make, the annual statement mentioned above.

It will be seen from the foregoing statement that the appeal involves the following questions for our consideration: 1. Should a non-suit have been granted? 2. If not, was the consideration of the note subject to inquiry on the trial? 3. Could the failure of the directors to get a meeting of the stockholders be a legal excuse for not making the annual statement required? 4. Was it error on the part of the judge to exclude testimony going to show the character of the company, to wit, whether a manufacturing company, the judge holding that that was matter of law depending upon the charter? 5. Was it error in the judge to confine the jury to the note and interest, instead of allowing the amount of the judgment obtained thereon against the company? 6. Did the judge err in withdrawing from the jury the fact of publishing the annual statement, and restricting their investigation to the fact of making, simply, said statement to the stockholders ?

1. Should the non-suit have been granted? The rule upon that subject, as established in many cases, is that where there is a total failure of evidence as to the plaintiff’s cause of action, or to any material portion thereof as alleged in the complaint, the defendant has the legal right to arrest further proceedings by a non-suit. Carrier & Harris v. Dorrance, 19 S. C., 32. Was there such total failure here? The motion for non-suit was based upon two grounds: 1. That there is nothing in the act of the general assembly under which the company was incorporated, to wit, act of February 20, 1874 (15 Stat., 557), which would make the officers of the corporation responsible for the matters alleged in the complaint; nor is there any other act applicable to said company under which they could be so held responsible — -in other words, that plaintiffs had no cause of action. This objection is more in the nature of a demurrer for the want of a cause of action in the facts alleged, than a motion of non-suit for a failure of evidence, and in strict practice it should have been presented in this form. We will, however, consider it as it arises.

“The South Carolina Cotton Gin. Improvement Company,” of which the defendants were directors, was chartered under the act of 1874 (15 Stat., 557), which is an act entitled “an act to provide for the granting of certain charters,” the authority to grant such charters being therein given to the clerk of the court of the county wherein they reside, or propose to carry on business, or hold property. It is admitted that there is no express provision in this act which makes the officers of the corporation organized under charters granted by the clerk responsible, as claimed herein.

At the time, however, that this act was passed, there were two chapters in the General Statutes of 1872, then of force, on the subject of corporations, to wit, chapter LXIIL, p. 337, and chapter LXIV., p. 338. The first chapter is headed, “Of corporations organized under charters;” the second, “Of corporations organized under general statutes.” These two chapters, up to the passage of the act of 1874, supra, embraced all the statute law of the State on the subject of corporations, all other acts on that subject having been repealed by the General Statutes of 1872, in which, as we have said, these two chapters were found.

. After the adoption of the General Statutes of 1872, corporations could be created in one of two ways: 1. By a direct act of the general assembly granting a charter; or, 2, by the provisions of chapter LXIV., above, of said General Statutes, 1872. In other words, first, by charter moulded, shaped, and granted by special act creating the corporation; or, second, by organization without charter under chapter LXIV. The distinction is seen in the heading or title of the two chapters referred to, the first being “Of corporations organized under charters,” and the second, “Of corporations organized under general statutes.” In support of this, it will be observed that under chapter LXIV. there is no provision for the granting of charters by any official or other party. The act provides only for articles of agreement entered into between the parties desiring to unite together.

Now, in chapter LXIIL are found the matters upon which the plaintiffs have based their cause of action. Does that chapter apply to this company ? In section 3, we find the following: “That all manufacturing companies which shall be incorporated in this State shall have all the powers and privileges, and be subject to all-the duties, liabilities, and other provisions contained in sections 4 to 19, inclusive, of this chapter.” Among these sections is the section upon which plaintiffs’ claim is founded. It is claimed by defendants, appellants, that these sections have no application to the “Cotton Gin Improving Company,” and as no such grounds of responsibility on the directors appear in chapter LXIV., nor in the act of 1874, under which said company was incorporated, the plaintiffs have no cause of action thereon, the appellants contending that these sections had application only to the companies chartered by express act of the general assembly, this position being founded on the fact that said sections appear in the chapter which is headed, “Of corporations organized under charters,” and the further fact that they do not appear in the chapter headed, “Of corporations organized under general statutes.”

It should be remembered that the general statutes are mostly but the consolidation of previous acts, those touching upon cognate subjects being incorporated in separate chapters, divided into sections, each act thus incorporated still retaining, however, its original force and effect unless otherwise provided. Now, the sections referred to above, incorporated in chapter LXIII., were sections of the act of 1847 (11 Stat., 459), entitled “an act to define the terms upon which manufacturing companies shall hereafter be incorporated.” This was a general act, and it applied in express terms “to all manufacturing companies thereafter to be incorporated in this State.” If this act, as it originally stood in the statutes, was still a separate act, could it be doubted that it would apply here ? Certainly not, if this is a manufacturing company, because then it applied to all such companies. Why should its application be limited now to only such companies as are incorporated by special act of the legislature ? Can the fact that the original act in its separate form has been repealed and its sections incorporated into the general statutes have the effect of thus curtailing it? We think not.

But even if we give full effect to the exact heading of chapter LXIII., and confine its application to “corporations organized under charters,” still it could not be claimed that this company would be free from its operation. Because this company is organized under a charter granted by virtue of the act of 1874, and therefore, by the express terms of the heading of chapter LXIII., comes within its provisions. And here we might say, in reference to the first ground of the plaintiffs’ appeal, that it being required by one of the sections above that the directors of said « company should not only make an annual statement to the stockholders, but should also publish the same, we think the Circuit Judge was in error in striking that ground from the case. True, this requirement is not found in the General Statutes of 18.82, but it was the law v/hen the debt here was contracted, and it thereby was a part of the contract. Now, was there a total failure of evidence as to the fact whether or not a statement had been made to the stockholders, which, under the charge, becomes the main ground of fact in the case? We think there was sufficient evidence on the question to carry the case to the jury. The non-suit, therefore, was properly refused.

Was the consideration of the note a legitimate subject of inquiry ? Our judgment upon this question will determine the correctness both of the rulings of the Circuit Judge during the progress of the trial as to the testimony offered by the defendants on that subject and also his charge to the jury on said subject. The note given by the company was a promissory note dated April 13, 1882, and payable at a future date. It was transferred to the plaintiffs before due. It is not necessary to cite authorities for the position that, if this action was directly upon the note by the plaintiffs and against the company, failure of consideration could not be interposed.as a defence. This is familiar law. The act provides that the directors of the company, in certain contingencies (one of which is the failure to make to the stockholders an annual statement), shall be personally liable, jointly and separately, for all debts of the company then existing, &c. This act was intended to protect the creditors of the company, and wherever a creditor holds a debt against said company the act applies.

Did the plaintiffs here hold a debt against the company ? They held a note which is not disputed, except these defendants allege that it was without consideration. But be that fact as it may, the company could not interpose such a defence. The note in the hands of the plaintiffs stands against the company as if founded upon the most perfect and valuable consideration. This the court is bound by law to assume and take for granted. It is certainly then a debt of the company, and being such a debt, it is also, under the act, a debt of the directors. Not by virtue of their individual contract in making the debt, when in such case the consideration might be inquired into, but because under the act they have in substance contracted to pay the debt of the company upon the happening of a certain contingency, which contingency, it is alleged, has happened in this case. We see no error in the judge’s rulings or charge upon this subject.

We think the directors were bound to make the annual statement to the stockholders required by the act, whether there was an actual convention of said stockholders or not, and also that the statement should have been published as required in General Statutes of 1872, which was of force when this company was chartered.

We concur with the Circuit Judge, too, that the character of the company depended upon its charter, and was not, therefore, the subject of oral testimony.

And we think the Circuit Judge was right in restricting the verdict to the note and interest. That was the primary evidence of the debt, and, although it has been reduced to judgment against the company, yet the defendants were not parties to that proceeding, and were not bound thereby.

It is the judgment of this court that the judgment of the Circuit Court be affirmed.