Ellington v. Raleigh Building Supply Co.

ClabicsoN, J. The question involved: Has Mrs. M. M. Holding, who holds a certificate for seventy shares of stock in defendant company of the par value of $100 a share, fully paid, denominated preferred stock in the certificate, by reason of stipulations in defendants’ charter and referred to in the certificate a first lien on the real property of the defendant, superior to the general creditors of defendant company which is insolvent? We think not. The provision in the charter (a) : “It is further provided that the holders of said shares of the preferred stock shall have and to them is hereby conveyed in trust a first lien upon the real estate of the corporation purchased of Amzi Ellington, executor, being known as the Ellington Lumber Plant — but not the machinery or equipment therein — for the purpose of securing the payment to said holders of the face value of each of said shares and accumulated dividends thereon. The incor-porators of this company hereby declare themselves, their successors and assigns, trustees of the said real estate of this corporation, acquired for the purpose herein set out. And it is further provided that all common stock of this corporation, issued or to be issued, shall be issued subject to the said trust.” In the certificate of stock (b): “The holders of the Preferred Stock are entitled to a first lien upon such real estate assets of this company, as more fully appears in the charter of said company filed in the office of the Secretary of State, 24 February, 1920.” Part C. S., 1156, and amendments, is as follows: “Every corporation has power to create two or more kinds of stock of such classes, with *789 snob designations, preferences, and voting powers or restriction or qualifications thereof as are prescribed by those holding a minority (two-thirds in the case of banks and building and loan associations) of its outstanding capital stock; and the power to increase or decrease the stock as herein elsewhere provided applies to all or any of the classes of stock; and the preferred stock may, if desired, be made subject to redemption at not less than par, at a fixed time and prie§, to be expressed in the certificate thereof; and the holders thereof are entitled to receive, and the corporation is bound to pay thereon, a fixed yearly dividend, to be expressed in the certificate, payable quarterly, half-yearly, before any dividend is set apart or paid on the common stock, and such dividends may be made cumulative. In case of insolvency, its debts or other liabilities shall be paid in preference to- the preferred stock,”'etc. N. C. Code, 1927, sec. 1156. Corporations are artificial beings and are organized to do business in accordance with the statutory provisions of the law on the subject. The powers, rights, duties and liabilities are fixed by statute and they are creatures of the law. Every one dealing with a- corporation does so with the express or implied limitations imposed by statute. It has the power to issue preferred stock, but "In case of insolvency its debts, or other liabilities shall be paid in preference to preferred stock.” If it is admitted that the charter is in the nature of a mortgage, yet it was not duly probated and recorded in the office of the register of deeds, where the land was situate. C. S., 3311 is as follows: “No deed of trust or mortgage for real or personal estate shall be valid at law to pass any property as against creditors or purchasers for a valuable consideration from the donor, bargainor or mortgagor, but from the registration of such deed of trust or mortgage in the county where the land lies; or in ease of personal estate, where the donor, bargainor or mortgagor resides; or in case the donor, bargainor or mortgagor resides out of the State, then in the county where the said personal estate, or some part of the same, is situated; or in case of choses in action, where the donee, bargainee or mortgagee resides. For the purposes mentioned in this section the principal place of business of a domestic corporation is its residence.” In construing the registration laws of this State, this Court has consistently held that no notice, however full and formal, will supply the place of registration. Whitehurst v. Garrett, ante, 154; Mills v. Kemp, ante, 309; Salassa v. Mortgage Co., ante, 501; Weeks v. Adams, ante, 512. As between the parties, a mortgage is valid without registration, but not so as to creditors. Preferred stock has priority as between common and preferred, but not as to creditors. (See Redrying Co. v. Gurley, 197 N. C., 56.) It will be noted that the last part of section 5 of the charter *790 says: “And it is further provided that all common stock of this corporation issued or to be issued shall be issued subject to the said trust.” The chatter declares and fixes the trust concerning the land to be for the preferred stock and the common stock is subject to that trust, but the statute declares that in case of insolvency, debts of the corporation are given preference over the ‘preferred stock. A preferred stockholder, under the charter and statute provision, has certain preferences as against the common stock, but not as against creditors. In Power Co. v. Mill Co., 154 N. C., at p. 77, citing numerous authorities, it is said: “At one time it was a matter of discussion as to whether a preferred stockholder had any rights as a creditor of the corporation or could properly be classified as such. But the law is now clearly settled and beyond dispute that a preferred stockholder is not a creditor, and must be confined to his rights as a stockholder.” Cotton Mills v. Bank, 185 N. C., 7. "When a statute gives the preferred stock a prior lien as to creditors or makes a preferred stockholder a creditor, then other creditors are bound by the statute, but in this State there are no such statutes,, but the statute is to the contrary. The charter could not give this preference in the teeth of the clear language of the statute. The charter of incorporation is subject to the statute. So even if the charter was in the nature of a mortgage and duly probated and recorded, the status of the preferred stockholder was not that of a creditor and the preferred stockholder would not have preference under the statute as against a creditor. Because the charter is issued by the Secretary of State gives no special efficacy, but the provisions of the charter must be subject to the statute as written. Water cannot rise above its source. The preferred stockholder in this action, under its charter, had a special preference over the common stock (1) bear cumulative seven per cent dividends (3% semiannually), (2) "shall be callable for retirement and cancellation at the option of the corporation by its directors after five years at $115 per share, and any dividend cumulated and unpaid upon 30 days notice to holders of record at any dividend period.” How can it be contended that the holder of the preferred stock had the status of a creditor ? The whole transaction would be usurious under the usury laws of this State if this contention was correct. The usury statute and decisions answer this contention. Pratt v. Mortgage Co., ante, 294. The cases cited by appellant are bottomed ordinarily only on statutes and different from the statute in this State. For the reasons given, the judgment below is Affirmed.