Opinion
(February Term, 1895).
Certiorari — Practice — Premature Appeal — Examination of Adverse Party before Trial — Corporation — Right of Stockholder to Inspect Books of Corporation.
1. In an action by a stock holder of a Corporation to set aside as fraudulent an assignment of a contract by the corporation, the directors may, under sect. 580 et seq. of The Code be compelled to disclose information to enable plaintiff to frame his complaint even though their evidence may result in pecuniary injury.
2. In an action by a stock holder of a corporation to set aside as fraudulent an assignment by the corporation of a contract, the plaintiff is entitled under sec. 580 et seq. of The Code to inspect the books of the corporation in order to obtain information upon which to frame his complaint.
3. An appeal does not lie (being premature) from an order directing the examination of directors of a corporation under the provisions of 580 et seq. of The Code, in an action by a stock holder against the corporation, or from a refusal to discharge such order.
PETITION of the defendant for a writ of Certiorari, an appeal having been refused.
Fuller, Winston Fuller for plaintiff.
Dillard King, L. M. Scott and Shepherd Busbee (487) for defendant.
This is an application for a writ of certiorari as a substitute for an appeal, alleged to have been denied to the defendant by the Judge below. The record presents a most unusual condition of affairs. Five members constitute the board of directors of the defendant company, of which number the defendant Cone, his brother and his brother-in-law constitute a majority. The plaintiff, one of the largest stockholders in the company, is denied the right to inspect the books of the company, and that too after he has made known to the directors his belief that the books contain evidence of matters deeply prejudicial to his interests, both as a stockholder and as an individual, and which a majority of the directors have corruptly and secretly entered therein. Very cogent reasons must be shown this Court before it will conclude that such a right does not belong to the plaintiff. The plaintiff has commenced a civil action in the Superior Court of Alamance against the defendant for the purpose of setting aside an alleged pretended transfer by the defendant corporation to Moses H. Cone of a cause in action, arising out of an alleged contract, and also an alleged contract executed 9 September, 1892, by the plaintiff with the defendant company, for the reasons set out in the affidavit of the plaintiff of 13 April, 1895, as appears in the statement of facts in the case. To enable him to draw his complaint with greater certainty, the plaintiff desires to examine Neil Ellington, E. T. Garsed and J. W. Lindau, stockholders and (488) directors of the company, under Sections 580 and 581 of The Code. He has as much right to examine Ellington and Garsed and Lindau before the trial as at the trial, and they are subject to the same rules of examination as prevail in the examination of witnesses on the trial of actions before the Courts and they are compelled to answer all pertinent and material questions put to them, except such as the Constitution and Laws relieve them from answering. We know of no such exemption except a man may not be compelled to give evidence against himself, which is found in Article I, Section II, of the constitution, which section, by judicial construction, has been extended to witnesses in civil actions. Fertilizer Co. v. Taylor, 112 N.C. 141. It makes no difference whether the answer will result in pecuniary injury to the witness or not, they must answer the questions as they would be required to do before the Courts.
In the case before us, the matters about which the plaintiff wishes to examine the defendants appear to be most material to the plaintiff and are in no sense inquisitorial. The plaintiff appears deeply interested as a stockholder in the business of the company, and he alleges that he is being injured by the acts of the company, because he is not allowed to inspect the books; and he wishes to examine the defendants, who, he declares under oath, can furnish him with evidence necessary and material.
It seems idle under the facts of the case, as brought out by the plaintiff's affidavit, to talk about inquisitorial powers being given to the commissioner by the Judge who made the order of examination. The affidavits of the defendants offered on the hearing before Judge Green to vacate his order allowing an examination of the defendants, furnish nothing which goes to show any reason why they should be excused from being examined. They simply deny the plaintiff's right to have the examination without furnishing any legal excuse for such a denial. The papers filed in the matter bring up, and there was argued (489) before us by counsel on both sides, a certain order made in a proceeding concerning this matter by Judge Green, at Durham, on 1 April, 1895, which is as follows: "This matter coming on to be heard and being heard in chambers, in Durham, on 1 April, 1895, the plaintiff and defendant being represented by counsel, the defendant Cone not being represented, upon reading and considering the affidavit of the plaintiff and the answer of defendant company, made through its president, Neil Ellington, and duly verified, and the affidavits of E. T. Garsed and J. W. Lindau, and a part of what purports to be a copy of an affidavit made by Moses H. Cone in an action pending in the State of New York between this plaintiff and said Cone, which was offered by plaintiff as well as his own affidavit in reply, the court adjudges and declares that under section 578 of The Code, the granting or refusal of plaintiff's motion is a matter purely within the discretion of the court; and that it is unnecessary that the court should find any facts; and in the exercise of this discretion, the court adjudges that the defendant company permit the plaintiff, L. S. Holt, to inspect the books in its possession, or under its control, which contain entries of the acts and doings of the directors and stockholders of the defendant company at the annual meeting, or an adjourned meeting of said directors and stockholders in January, 1895, and that plaintiff may inspect and copy such entries above described in such books as he deems material, or containing evidence relative to the merits of the action, at any time, during business hours within the next ten days, and said inspection and copy may be made by the plaintiff in person, or by his attorneys, Fuller, Winston Fuller, or any one of them. Let the clerk issue a copy of this order to be served on the defendant company." (490)
The defendant treated this order and the application upon which it was made a bill of discovery in Equity. They deny-on affidavits, that the books sought to be inspected by the plaintiff contained any entry about the matters, of which the plaintiff wished to have knowledge. There was no other reason given why the inspection should not be had. Sections 580 and 581 of The Code are a substitute for the old bill of discovery, and only a substitute. In fact section 579 of The Code declares that "No action to obtain discovery under oath, in aid of the prosecution or defence of another action shall be allowed, nor shall any examination of a party be had on behalf of the adverse party, except in the manner prescribed by this chapter."
Upon the whole matters brought before us and argued on the motion for the writ of certiorari we are of the opinion that the appeal from the order of his Honor Judge Green, made 1 April, 1895, was premature and ought not to have been allowed, as was also the appeal from his other order of 24 April, 1895; and that his Honor committed no error in making either one of said orders, and they are affirmed. Helms v. Green, 105 N.C. 251; Vann v. Lawrence, 111 N.C. 32; Fertilizer Co. v. Taylor, supra. The defendants will pay the costs of this proceeding.
Affirmed.
Cited: Pender v. Mallett, 122 N.C. 164; S. c., 123 N.C. 60; Ward v. Martin, 175 N.C. 289; Smith v. Wooding, 177 N.C. 549; Jones v. Guano Co., 180 N.C. 320.
(491)