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CASES ARGUED AND DETERMINED
Supreme Court of South Carolina.
Justices of the Supreme Court During the Period Comprised in
Hon. EUGENE B. GARY, CHIEF JUSTICE.
HERNDON v. WARDLAW, RECEIVER.
IN RE STEVENS v. YORK COTTON MILLS.
(84 S. E. 112.)
CONTRACTS. EVIDENCE. CORPORATIONS. AUTHORITY OF AGENTS. ESTOPPEL.
1. EVIDENCE-PAROL EVIDENCE-WRITTEN CONTRACT—CONSTRUCTION.
Where the president of a corporation signed a memorandum addressed to claimant, agreeing to take $6,000 from claimant and to issue to him preferred stock bearing interest at 7 per cent., it being understood that after one year, if so desired by claimant, and
the intention of the parties and was not within the parol evidence
rule. 2. CONTRACTS CONTEMPORANEOUS CONSTRUCTION. Where a written
contract is ambiguous, the practical construction which the parties themselves have given to it, as indicated by their acts, may be shown
as reflecting their intention. 3. CORPORATIONS-Creditors.—Where the authority of the officer of a
corporation to borrow money and bind the corporation for its payment is unquestioned, the authority of such officer to pledge the stock of the corporation or make a contract for its redemption need not be considered in determining whether or not one to whom certificates of stock were issued, on which money was obtained from
him for the use of the corporation was a creditor thereof 4. CORPORATIONS-CONTRACTS-SALE OF STOCK-LOAN.- A memorandum,
signed by the president of a corporation and addressed to claimant, recited that the corporation would take $6,000 from claimant and issue preferred stock therefor at 7 per cent., payable semiannually, it being understood that after one year, if claimant desired, and after due notice, the corporation would reimburse him for the amount or continue the transaction on the same terms, to wit, paying claimant in additional 1 per cent. per annum on the amount from the issuance of the stock. At the expiration of the year claimant gave notice of his election to terminate the contract and require payment of the amount on surrender of the certificates, but time therefor was extended, and at the expiration of another year the corporation's president wrote claimant that the money would be paid in installments of $2,000 each at specified dates. Held, that such facts created
claimant a creditor of the corporation and not a stockholder. 5. CORPORATIONS STOCKHOLDERS — "INTEREST." The word "interest,"
where used in a contract to pay money to a corporation, the payer receiving preferred stock, is not equivalent to the word “dividends," and sustains the view that the parties intended a loan and not a sale of stock.
6. CORPORATIONS- MEMBERSHIP— Parol EVIDENCE - NATURE OF Cox
TRACT.- - A contract which on its face may evidence a sale of corporate stock may be shown by parol to have been merely for a loan
of money. 7. CORPORATIONS- COXTRACTS— EXECUTION- SIGNATURE OFFICER.Where a written contract showed on its face that it was made for
and that W its president had outhority to t for
and it appears from evidence, aliunde, that the officer making it had authority to act for the corporation, that he did so act, and that the corporation received the benefits of the contract, the corporation is estopped to deny its obligation under the contract on the ground that the contract is executed in the individual name of such officer.
Before DEVORE, J., Yorkville, February, 1914. firmed.
Claim by R. J. Herndon, as a creditor to share in the distribution of the assets of the York Cotton Mills, an insolvent corporation. From an order allowing such claim, the receiver of the insolvent corporation appeals, and assigns the following errors:
I. Error on part of the trial Judge in failing to exclude from the evidence:
(a) A letter of April 4, 1910, Exhibit “A.”
(b) The oral testimony of Herndon and Wardlaw as to transactions leading up to the execution of the contract, Exhibit "B."
(c) The testimony of Herndon and Wardlaw as to what they considered the contract evidenced by Exhibit "B."
Exceptions 1, 4, 5, 6 and 7.
(a) Contract, Exhibit "B," was contract of York Cotton Mills.
Error in not holding :
(a) That contract was personal contract between Herrdon and Wardlaw.
(b) That it was beyond the scope of Wardlaw's authority to bind the mill hy such contract
Exceptions 2, 3 and 8. · III. Error in not holding :
(a) That the contract as evidenced by Exhibit “B” was a contract to retire the stock held by Herndon.
(b) That even if the parties thereto attempted to make a contract between Herndon on the one hand and York Cotton Mills on the other, said contract was of no force and effect as against York Cotton Mills, in that
(1) It was contrary to the express provisions of the statute law of South Carolina.
(2) It was contrary to the provisions and resolutions under which the stock was issued.
(3) It was so known to Herndon before and at time contract was made.
That even if the contract in question is enforcible against York Cotton Mills, Herndon could not be paid under it until the creditors of the mill are paid in full.
Exceptions 10 and 12.
(a) That the contract in controversy was a loan to York Cotton Mills.
(b) That the consideration therefor was the surrender to the mills of $6,000 of mortgage bonds of the mill.
Mr. Il'. W. Lewis, for appellant, submits: Parol evidence incompetent: 90 S. C. 454. Construction placed on contract of partice:89 SC 79 Form of contract:52S 0 152
Mo. App. 338; 3 Barb. Ch. 207. Secret agreements to retire stock enforcible: 10 Cyc. 545, 3 (a), (b), (c). Plea of ultra vires: 87 S. C. 448; 10 Cyc. 1162 (c). Creditors to be paid before holder of preferred stock: 10 A. & E. Ann. Cas. 143. Repurchase of stock not allowed to prejudice of creditors: 33 Am. St. Rep. 338; 85 Am. St. Rep. 67; 52 Am. St. Rep. 560; 80 I11. 446; 59 Am. St. Rep. 751. Acceptance of stock estops holder from claiming to be creditor: 48 S. C. 278. Stockholder's liabilities went with stock: Ann. Cas. 1913c, 415; 10 A. & E. Ann. Cas. 143, 144. Fraud on creditors: 10 Cyc. 440; 103 S. W. 975; 22 Am. Rep. 199. Contracts to repurchase stock illegal: 103 S. W. 975.
Mr. J. S. Brice, for respondent, submits : Exhibits A, B and C are only evidences of debt: 18 S. C. 484; 19 S. C. 257; 42 S. C. 170; 54 S. C. 598; 57 S. C. 60. Exhibit B equivocal: 21 A. & E. Enc. 1108, 1109, 1111, 1112. Estoppel to plead ultra vires: 10 Cyc. 1158 and 1159; 60 Am. St. Rep. 172; 54 S. C. 595.
Mr. C. E. Spencer, also for respondent, cites: Testimony to show transaction a loan competent: 3 Pom. Eq. Juris., secs. 1193-1196; 1 Jones Mtges. 263-265, 273. Cook on Corporations, sec. 465; 9 Rich. Eq. 339; 1 Strob. Eq. 325; 41 S. C. 153; 31 S. C. 281. Testimony competent to clear up ambiguity in contract: 89 S. C. 81. Receiver may not plead ultra vires: 89 S. C. 445; 52 S. C. 152. Power to borrow money and pledge assets: 10 Cyc. 1101. Solvent corporation may purchase its own stock: 33 Am. St. Rep. 338. 90 11 446. Cook Corporations