North Carolina

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Johns-Manville Sales Corp. v. Townsend,
104 S.E.2d 826 (N.C. 09/17/1958)

SUPREME COURT OF NORTH CAROLINA

No. 595

1958.NC.40104; 248 N.C. 687; 104 S.E.2d 826

Filed: September 17, 1958.

JOHNS-MANVILLE SALES CORPORATION (AND ANY OTHER CREDITORS OF TOWNSEND BUILDERS SUPPLY, INC., JOINING HEREIN, OR ON BEHALF OF ALL CREDITORS OF TOWNSEND BUILDERS SUPPLY, INC., AS THE COURT MAY REQUIRE)

v.

P. C. TOWNSEND, P. T. NEWTON AND ESTELLE MCK. TOWNSEND, DEFENDANTS, AND W. ALLEN COBB, TRUSTEE, AS HE MAY ALIGN HIMSELF EITHER AS PARTY PLAINTIFF OR DEFENDANT

On writ of certiorari to review order of Hobgood, J., allowing motion to strike allegations of the complaint, entered at October Civil Term, 1957, of Columbus.

Powell & Powell for plaintiff, appellant.

J. K. Burns and Varser, McIntyre, Henry & Hedgepeth for defendants P. C. Townsend and P. T. Newton, appellees.

Proctor & Proctor for defendant Estelle McK. Townsend, appellee.

Johnson, J.

Johnson

[248 NC Page 689]

The action is brought under G.S. 55-56 as written prior to the effective date of Ch. 1371, Session Laws of 1955, known as the Business Corporation Act, which became operative 1 July, 1957, and is now codified as G.S. 55-1 through 55-175.

G.S. 55-56 of the old Corporation Code provided: "In case of fraud by the officers, directors, managers, or stockholders, in a corporation, the court shall adjudge personally liable to creditors and others injured thereby the officers, directors, managers, and stockholders who were concerned in the fraud."

[248 NC Page 690]

It may be conceded that the provisions of the foregoing statute provide a right of action against the defendants, officers, directors and shareholders of the corporation, for their alleged fraudulent acts and conduct.

However, before the instant case was instituted, the United States District Court in bankruptcy proceedings had acquired jurisdiction of the assets of the corporation. And an action like the instant one under G.S. 55-56 against the defendants for the frauds alleged is a valuable asset of the bankruptcy estate. In effect, it is an action to recover assets of the corporation for the benefit of all its creditors. Necessarily, then, we take cognizance of 11 U.S.C.A., Bankruptcy, Sec. 110, by the terms of which the Trustee in Bankruptcy has the superior right, and is the proper party, to sue on behalf of the creditors. See Dean v. Shingle, (Cal.) 246 P. 1049; Kahle v. Stephens, (Cal.) 4 P. 2d 145. In 8 C.J.S., Bankruptcy, Sec. 337, p. 1092, it is said: "The right suit for the liability of a breach of duty in the fiduciary relationship of the officers and directors of a corporation which inheres in the corporation, may be maintained by its trustee in bankruptcy, even though solely for the benefit of creditors; thus an action against the officers or directors for losses resulting from . . . fraud, or mismanagement must be brought by the trustee."

The failure or refusal of the trustee to bring suit does not, nothing else appearing, empower a creditor to do so. "The general rule is that the failure or refusal of the trustee to bring and prosecute an appropriate action to set aside a fraudulent transfer does not entitle a creditor to do so. Ample means are placed in the hands of creditors to enable them to inform the court of the necessity of any particular proceeding for the purpose of recovering property fraudulently transferred. A creditor is not without remedy where the trustee refuses to bring suit. He is entitled to petition the court of bankruptcy for an order compelling the trustee to bring suit. The trustee must then comply or suffer removal from office." 6 Am. Jur., Bankruptcy, Sec. 1169, p. 1253. See also Annotation, 158 A.L.R. 1274, 1276; Glenny v. Langdon, 98 U.S. 20, 25 L. ed. 43; Trimble v. Woodhead, 102 U.S. 647, 26 L. ed. 290.

It thus appears that the plaintiff's remedy after refusal of the Trustee to institute action was and is to petition the United States District Court for an order compelling the Trustee to bring suit. The plaintiff's failure to pursue its remedy in the District Court precludes maintenance of the instant action.

We intimate no opinion as to whether the plaintiff might re-institute and maintain an action if the bankruptcy court should refuse to require the Trustee to institute the suit. See, however, Annotation, 158 A.L.R. 1274, 1286, and 6 Am. Jur., Bankruptcy, Sec. 1169.

[248 NC Page 691]

The decisions of this Court cited and relied on by the plaintiff are factually distinguishable.

The judgment of the court below is

Affirmed.

Disposition

Affirmed.

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