Evans v. Dennis

1. Where the judgment rendered, permitting the opening of a default, is based on conflicting evidence, the discretion vested in the trial court will not be controlled unless manifestly abused.

2. A bylaw of a corporation requiring a stockholder, before selling his stock, to afford other stockholders an opportunity to purchase such stock at a stipulated price, is not void per se as being against public policy. A petition charging several defendants with a conspiracy to violate such an agreement sets forth a cause of action.

3. A petition charging a named defendant with acts of willful misfeasance, and resulting injury to the petitioner, alleges a cause of action.

No. 16037. JANUARY 9, 1948. Randall Evans Jr. filed an equitation petition against Belmont Dennis, C. W. Stephens Sr., C. W. Stephens Jr., J. Barton Stephens, J. Fred Eden, and McDuffie Progress Publishing Company, a corporation. The petitioner alleged: He is the owner of 20 percent of the stock of McDuffie Progress Publishing Company. From January 1, 1946, to the date of the filing of the action, Dennis was the owner of the remaining 80 percent of the stock. At all times mentioned in the petition, the corporation had a bylaw prohibiting the sale of stock by any stockholder unless it is first offered to other stockholders at par value plus 10 percent. During October, 1946, Dennis, in violation of this bylaw, conspired with C. W. Stephens Sr., C. W. Stephens Jr., and J. Barton Stephens, and attempted to sell his stock to them, without first offering to sell such stock to the petitioner. The petitioner made a tender pursuant to the terms and conditions of the bylaws of the corporation, and he is ready and willing to purchase the stock under such terms. The Stephens have conspired with Dennis in the purchase of the stock and in stated wrongful and fraudulent acts while operating the affairs of the corporation. Two of the defendants have paid to themselves extravagant salaries to the detriment of the petitioner, a minority stockholder. The Stephenses, while purporting to operate the affairs of the corporation, have failed to collect certain advertising debts of Dennis to the corporation, and have sought to charge the obligations of Dennis for advertising off of the books of the business. The petition alleged many acts of mismanagement and misconduct by the Stephenses in the operation and management of the affairs of the corporation. In paragraph 13 of the petition it is charged: J. Fred Eden was in charge of the corporation and operated its office and affairs from January through October, 1946; he inserted political advertisements in the newspaper published by the corporation in the interest of Dennis in a campaign for Lieutenant Governor; no charge was made on the books for such advertisement; Eden collected accounts and forwarded such collections directly to Dennis after the purported sale had taken place; and committed other wrongful acts with full knowledge that he was acting against the interest of the petitioner and the corporation.

The petitioner prayed for an accounting of the affairs of the corporation from January 1, 1946, and for an adjustment of certain amounts alleged to be illegally expended by the defendants in charge of the affairs of the corporation, for the appointment of a receiver, and for a rescission of the attempted sale of stock by Dennis to the Stephenses. General and special equitable and legal relief was prayed against the Stephenses. Special relief was prayed against Eden.

The record shows that Dennis failed to file any defensive pleadings within the time provided by law (Ga. L. 1946, p. 777, § 18). After the expiration of the period for filing defensive pleadings as a matter of right, Dennis presented a motion to open the default judgment. All parties were notified and given and opportunity to present evidence. The trial judge entered an order permitting Dennis to file defensive pleadings, and to pay the accrued costs. This order was later revoked and a new order entered permitting court costs to be paid as of a later date and permitting opening of default at the later date. Dennis immediately filed a demurrer to the petition, which was later amended. The demurrer of Dennis was sustained and the petition dismissed as to him.

The demurrer of J. Fred Eden was sustained and the petition dismissed as to him. The exceptions here are to the order opening the default as to Dennis and to the judgments sustaining the demurrers of Dennis and Eden. 1. The first question for determination here is whether or not the trial court erred in permitting the default to be opened and defensive pleadings to be filed by the defendant, Belmont Dennis. Section 21 of the Rules of Procedure Act (Ga. L. 1946, p. 778) provides in part: "At any time before final judgment, the judge, in his discretion, upon payment of costs, may allow the default to be opened for providential cause preventing the filing of a plea, or for excusable neglect, or where the judge, from all the facts, shall determine that a proper case has been made for the default to be opened, on terms to be fixed by the court." This rule follows the former law, except that the discretion of the trial judge may be exercised "at any time before final judgment," whereas under the former law his authority was limited to "the trial term."

The evidence offered by the plaintiff in error would have authorized a finding that Dennis could have filed defensive pleadings within the period prescribed by law. There was evidence offered by the defendant Dennis in support of his contention that, due to a severe illness, he was unable to devote the time and attention necessarily required in the preparation of his pleadings and defenses.

Where the judgment rendered, permitting the opening of a default, is based on conflicting evidence, the discretion vested in the trial court will not be controlled unless manifestly abused. Here there was sufficient evidence to show that Dennis's delay was "excusable neglect," since his physician testified that during the months of May, June, and July of 1947 he was not able to transact any business such as properly assisting in preparing and filing defensive pleadings. It was during these months that the defendant could have filed defensive pleadings as a matter of right, had he been able to do so. Under all of the evidence, it was not error for the trial court to open the default and permit Dennis to file his pleadings.

2. The next question for determination is whether or not the petition states a cause of action against the defendant Dennis. The petition charges Dennis and named defendants with a conspiracy to buy and sell the stock of the corporation in violation of an alleged bylaw prohibiting the sale of stock to an outsider until after such stock has been offered to the other stockholders at par value plus 10 percent. The defendant contends that such a bylaw, if in existence during the time of the acts complained of, is invalid, being against public policy and in restraint of trade.

The Code (Ann. Supp.), § 22-1827 (f), provides: "Every corporation, by virtue of its existence as such, shall have power: . . (f) To make bylaws not inconsistent with the Constitution or laws of the United States or of this State or of its charter for the exercise of its corporate powers, the management, regulation and government of its affairs and property, the transfer of its stock, and the calling and holding of meetings of its stock-holders and directors."

From the allegations of the petition in this case, it does not appear that the bylaw in question is against public policy. A bylaw of a corporation, requiring a stockholder to offer his stock to other stockholders at a stipulated consideration before selling such stock to third persons, is not any more against public policy than a contract of like character between individuals. In Cothran v. Witham, 123 Ga. 190 (51 S.E. 285), this court sustained an agreement by Cothran not to sell certain stock until after it had been offered to Witham in writing at the book value of the stock. In the opinion in theCothran case, this court held in part as follows: "Counsel for the plaintiff in error also argued that the contract was against the policy of the law, in that it placed an indefinite restriction upon the alienation of the stock, and violated `the rule against perpetuities.' We cannot concede the soundness of this argument, as we think it clear that the right of Cothran to sell the stock at any time he might see fit was not restricted, save that before selling it to one other than Witham he was bound to offer it to the latter, in writing, at its book value; and that in any event the contract would have terminated upon the death of Witham." (Compare Rhodes v. Lane, 202 Ga. 608,44 S.E.2d 114.)

The rule laid down in the Cothran case is in accord with the general rule that a bylaw of a corporation such as is alleged in the present case is valid and binding. In 13 Am. Jur. p. 413, § 338, the rule is stated as follows: "Whether a bylaw requiring a stockholder before selling his stock to afford the corporation or other stockholders an opportunity to purchase the same is valid, is the subject of conflicting decisions. According to the weight of authority, such a bylaw is valid and binding upon thestockholder, either as a regulation within the powers of thecorporation or as a contract obligation voluntarily undertaken bythe stockholder. [Italics ours.] The contrary view has, however, also been taken."

The petition in this case states a cause of action which entitles the petitioner to the opportunity of providing his allegations, and the court erred in sustaining the general demurrer filed by the defendant Dennis.

3. "An agent is personally liable to those injured by his misfeasance or act of negligence, but ordinarily he is not liable for mere nonfeasance." Kimbrough v. Boswell, 119 Ga. 201 (45 S.E. 977). "An agent is . . liable to third persons for misfeasance. . . Misfeasance means the improper doing of an act which the agent might lawfully do." Owens v. Nichols,139 Ga. 477 (77 S.E. 635).

Paragraph 13 of the petition charges the defendant, J. Fred Eden, with certain acts of misfeasance. The allegations of the petition set out a cause of action against this defendant, and the court erred in sustaining his general demurrer and in dismissing the case as to him.

Judgment affirmed in part, and reversed in part. All theJustices concur, except Duckworth, P. J., absent on account ofillness, and Wyatt, J., who took no part in the consideration ordecision of this case.