Allen v. Grant

• Decision Date: 27 March 1905
• Citation: 122 Ga. 552,50 S.E. 494
• Parties: ALLEN et al. v. GRANT et al.
• Court: Georgia Supreme Court

122 Ga. 552

50 S.E. 494

ALLEN et al.

v.GRANT et al.

Supreme Court of Georgia.

March 27, 1905.

BANKRUPTCY—ACTION BY TRUSTEE—INSOLVENT CORPORATION—UNPAID SUBSCRIPTIONS —LIABILITY OF STOCKHOLDERS.

1. The trustee in bankruptcy of an insolvent corporation may sue for the recovery of unpaid subscription, not only where the subscription was payable in cash, but also where it was expressly made payable in specifics fraudulently overvalued.

2. A subscription to stock, made payable in specifics worth not more than 10 per cent, of the face of the shares, is a legal fraud upon subsequent creditors of the corporation, who have the right to look co the authorized capital stock as a trust fund for the payment of their debts.

3. A transferee who takes such shares with knowledge that they have been improperly issued as fully paid-up becomes liable for the unpaid subscription.

4. The order of the bankrupt court directing the trustee to bring suit for the recovery of the unpaid subscriptions was sufficiently in the nature of a call or assessment to perfect the cause of action, and to authorize the maintenance of the suit against the stockholders as for unpaid subscription.

5. The demurrer to the petition was properly overruled.

(Syllabus by the Court.)

Error from Superior Court, Fulton County; J. H. Lumpkin, Judge.

Action by P. G. Grant, trustee, and others, against Bona Allen and others. Judgment for plaintiffs, and defendants bring error. Affirmed.

On June 26, 1903, Peter G. Grant was appointed trustee in bankruptcy for the Allen-Miles Company. On February 13, 1904, he was granted permission to institute suit to enforce stockholders' liability, and thereupon filed an equitable petition against E. O. Miles and C. L. Allen, residents of Fulton county, Bona Allen, Bona Allen, Jr., and John Q. Allen, residents of Gwinnett county. The charter is not attached as an exhibit, but from the petition it appears that the defendants were the incorporators of the Allen-Miles Company, which was chartered by the superior court of Fulton county on October 16, 1902; that on October 28, 1902, they met, accepted the charter, and opened books, and the following subscriptions were made: Bona Allen, $60,000; Bona Allen, Jr.. $35,-000; John Q. Allen, $30,000; E. O. Miles, $109,900; C. L. Allen, $164,900. It is alleged that the subscriptions by Bona Allen, Bona Allen, Jr., and J. Q. Allen were in the ordinary form; that nothing was paid thereon by either of the subscribers; that, while the trustee found that certain notes had been given by them, the defendants claimed that they did not represent any liability for the stock subscribed, but they had been left with the company as accommodation paper. By the contract of subscription it is alleged Miles agreed to take and pay for 1, 099 shares, "and in payment of said stock he agreed to transfer the property of Edward O. Miles & Co., subject to certain debts of said company." It is alleged that this property was not worth $109,900, but, on the contrary, that the same was not worth exceeding 10 per cent, of said sum, and that the transfer of said property in payment of $109,900 of its capital stock was a fraud on the Allen-Miles Company and its creditors; that each of the defendants knew the property taken in payment of the subscription was not worth more than 10 per cent, of the face of the stock; and that the property, being grossly overvalued, was not a payment of the subscription, and Miles became liable to pay the balance thereof tothe creditors in the event of the company's insolvency. Similar allegations were made in reference to the subscription by C. L. Allen for 1, 649 shares of stock, in payment of which he was to transfer the assets of C. L. Allen & Co. These assets were alleged not to have been worth more than 10 per cent, of the face of the stock subscribed, and this was so known by the other defendants, and by reason of the overvaluation C. L. Allen became liable to pay the full amount of his subscription in the event of insolvency. The petition then alleges that after these subscriptions C. L. Allen was elected president with a salary of $10,000, E. O. Miles was elected secretary at a salary of $7,500, and they were also elected directors, and put in complete charge of the business; that by reason of the representation that the company had a capital stock of $100,000 fully paid in it acquired large credit, borrowed large sums of money, and bought large quantities of supplies on credit from various persons; that on June 6, 1903, Bona Allen agreed with E. O. Miles and C. L. Allen to take charge of the corporation and pay its debts and continue it as a going concern, if E. O. Miles and C. L. Allen would transfer to him certain shares or the stock standing in their names on the books, which had been subscribed for by them as aforesaid; that accordingly E. O. Miles transferred to Bona Allen, Sr., 999 shares, and C. L. Allen transferred 1, 648 shares, and certificates for $264,700 were thereupon issued to Bona Allen, Sr., who knew at the time that not more than 10 per cent, of the value of the certificates had been paid in by those making the original' subscription, and by reason thereof said Bona Allen, Sr., became bound to pay the unpaid balance due on the stock so transferred to him by E. O. Miles and C. L. Allen, amounting to $238,230; that on demand therefor Bona Allen has refused to pay anything thereon, and denies all liability; that Bona Allen, after the transfer, assumed control of the stock, and on the 20th of June, 1903, the company was adjudicated a bankrupt; that at the time of the adjudication the debts of the company amounted to more than $380,000, and, exclusive of the unpaid subscriptions, its total assets amounted to less than one-half of that sum, practically all of the assets having been paid In by the company's creditors, who, in addition, had, In effect paid the salaries of E. O. Miles and C. L. Allen; that at the time of filing the present suit the claimants filed with the referee debts due by the corporation amounting to $257,-400; that some of the defendants are solvent and others are insolvent; that the property transferred by E. O. Miles and C. L. Allen In payment of their original subscriptions is all that has been paid in by any of the subscribers; that the others have paid nothing whatever; that at the time of the filing of the suit C. L. Allen held 1 share of stock, W. O. Miles held 101 shares, Bona Allen, Jr 300 shares, J. Q. Allen, 240 shares, and Bona Allen, Sr., —— shares; that owing to the inequality of the payments made, and the fact that some of the defendants are solvent and others insolvent, and in order to ascertain the percentage necessary to be paid in by each stockholder, and to avoid a multiplicity of suits, and to save the bankrupt estate the expense incident thereto, it is necessary that the controversy should be determined in one suit, and in a court of equity. The petition therefore prays for an accounting to determine the indebtedness of tbe corporation and the amount necessary to be paid by each of the defendants in order to discharge the debts of the corporation; for a judgment against Bona Allen, Sr., Bona Allen, Jr., and John Q. Allen on their original subscriptions; for a judgment against E. O. Miles and C. L. Allen for the stock remaining on the books in their name, less the 10 per cent, credit thereon because of the transfer of the property referred to in the petition; and that judgment be rendered against Bona Allen, Sr., for $264,700 on account of the stock transferred to him by E. O. Miles and C. L. Allen, less the 10 per cent, paid thereon by the transfer of the property to the corporation when the subscription was made by Miles and Allen. Not waiving the plea to the jurisdiction, Bona Allen, Sr., Bona Allen, Jr., and John Q. Allen demurred on the grounds that the petition set out no cause of action against them, that there was a misjoinder of parties and a misjoinder of actions, and that the petition was multifarious. Bona Allen, Sr., specially demurred to so much of the petition as seeks to recover anything of him on account of the stock transferred by E. O. Miles and C. L. Allen, which it is alleged were paid for by property which had been overvalued, for that said allegations set out no cause of action against said Bona Allen, Sr., on account of the alleged ownership of said shares. The court overruled the demurrer, and the three named defendants excepted.

Cited for plaintiff in error: The trustee in bankruptcy cannot maintain the suit: Cook on Corp. 18, 19, 21, 38, 46, 208; 16 Am. & Eng. Enc. L. 740, 721; 5 Cyc. 341, 342; 2 Thomp. Corp. §§ 1676, 2091, 2935, 2933, 2953, and cit; Scovill v. Thayer, 105 U. S. 143, 153, 23 L. Ed. 968; Ft Madison Bank v. Alden, 129 U. S. 372, 9 Sup. Ct. 332, 32 L. Ed. 725; Colt v. Gold Amalgamating Co., 119 U. S. 343, 7 Sup. Ct. 231, 30 L. Ed. 420; Lloyd v. Preston, 146 TJ. S. 630, 13 Sup. Ct. 131, 36 L. Ed. 1111; Hutchinson & Southern R. Co. v. Fox (Kan.) 28 Pac. 1078, 15 L. R. A. 407, 30 Am. St. Rep. 273; Northwestern Mut Life Ins. Co. v. Cotton Ex. Real Estate Co. (C. C.) 70 Fed. 158; Smith v. Prior, 58 Minn. 247, 59 N. W. 1016; State ex rel. Mount v. Bourn, 75 Mo. 474; 10 Cyc. 656, 728. 732; Lane v. Morris, 8 Ga. 468; Branch v. Baker, 53 Ga. 502; Broston & Co. v. Down-ing, 95 Ga. 505, 22 S. E. 277; Commercial Bank v. Warthen, 119 Ga. 994, 47 S. E. 536; 3 De G. J. & S. 367; Coffin v. Ransdell, 110 Ind. 417, 11 N. E. 20; Kennebec & P. R. Co. v. Portland & K. R. Co., 59 Me. 1; Bickley v. Scblag, 46 N. J. Eq. 533, 20 Atl. 250.

Cited for defendant in error: Trustee can bring the suit: Webster v. Upton, 91 U. S. 65, 23 L. Ed. 384; Sanger v. Upton, 91 U. S. 56, 23 L. Ed. 220; Upton v. Tribilcock, 91 U. S. 45, 23 L. Ed. 203; Carver v. Upton, 91 U. S. 64, 23 L. Ed. 224; Chubb v. Upton, 95 U. S. 665, 24 L. Ed. 523; Jones v. United States, 96 U. S. 28, 24 L. Ed. 644; Hawley v. Upton, 102 U. S. 314, 26 L....