Ellis v. Civic Improvement, Inc.

209 S.E.2d 873 (1974) 24 N.C. App. 42

William W. ELLIS
v.
CIVIC IMPROVEMENT, INC.

No. 7417SC764.

Court of Appeals of North Carolina.

November 25, 1974.

Clark M. Holt, Reidsville, for petitioner appellee.

Harrington, Stultz & Maddrey, by Joseph G. Maddrey, Eden, for respondent appellant.

MORRIS, Judge.

Although appellant states in its notice of appeal that it "excepts to each of the Findings of Fact and the signing of the Judgment", no exceptions appear anywhere in the record. No. (1) under "Exceptions and Assignments of Error" reads as follows:

"(1) For his first exception and assignment of error, the Defendant Appellant says His Honor erred in ruling that the findings of fact supported his conclusion of law that pursuant to NCGS 55-125(a)(1) the Board of Directors of the Defendant Corporation was deadlocked in the management of the corporate affairs. Furthermore Defendant Appellant contends the evidence does not support such a finding of fact."

Nos. (2) and (3) are similar. No. (2) refers to the court's conclusion that the shareholders were unable to break the deadlock and No. (3) to the conclusion that the business can no longer be conducted to the advantage of all the shareholders. Even though the question of whether there is competent evidence to support the findings of fact is not before us, our review of the evidence convinces us that the findings of fact are supported by competent evidence.

We turn then to the question of whether the findings are sufficient to support the court's conclusions. G.S. § 55-125(a)(1) provides:

"The superior court shall have the power to liquidate the assets and business of a corporation in an action by a shareholder when it is established that: The directors are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock, so that the business can no longer be conducted to the advantage of all the shareholders;. . ."

As a general rule, the court would have no power, absent statutory direction, to order the dissolution of a corporation simply on the grounds that there was a deadlock or dissension among the directors or stockholders. 19 Am.Jur.2d, Corporations, § 1610. Under the statutory authority upon which petitioner relies, irreconcilable deadlock of the directorate or shareholders, as here, is not sufficient basis for an order of liquidation without a supported finding or conclusion that the shareholders are so deadlocked that its business can no longer be conducted with advantage to all the shareholders. Robinson, North Carolina Corp. Law, 2d Ed., §§ 29.7-29.9 (1974); Re Lakeland Development Corp., 277 Minn. 432, 152 N.W.2d 758 (1967). See also 13 A.L.R.2d 1266 and cases there cited.

It seems obvious that if Dr. Clay continues to set his own rent for the entire building at the same amount he was paying in 1968 for two-thirds of the space, the corporation cannot be operated to the advantage of all the stockholders. Petitioner is unable to cause a change by reason of the fact that he has not participated in management since 1968, and the undisputed evidence is that a meeting of the Board of Directors would be merely an exercise in futility. Though the court did not so find, the undisputed evidence was that there were four directors—petitioner and his wife and Dr. Clay and his wife. Both petitioner and Dr. Clay testified that neither would vote for a fifth director unless that fifth director would vote with him on all questions. The election of a fifth director is, therefore, a virtual impossibility.

We note that the court could have made, from the evidence, other findings of fact which would have added support to his conclusions. Nevertheless, although the findings made are minimal, we are of the opinion that they are sufficient to support the court's conclusions.

It appears that the most practical solution to this dilemma is the appointment of a receiver to proceed with the liquidation of the corporation as the only possible equitable manner of operation to the advantage of all the stockholders.

Affirmed.

HEDRICK and BALEY, JJ., concur.