Chappell v. Lowe

• Court: Georgia Supreme Court
• Citation: Chappell v. Lowe, 145 Ga. 717, 89 S.E. 777 (Ga. 1916)
• Decision Date: 22 August 1916
• Docket Number: 625.
• Parties: CHAPPELL ET AL. v. LOWE ET AL.

89 S.E. 777

145 Ga. 717

CHAPPELL ET AL. v. LOWE ET AL.

No. 625.

Supreme Court of Georgia

August 22, 1916

Syllabus by the Court.

The incorporators organized under a charter granted by the superior court, before the minimum capital stock had been subscribed for, solicited subscriptions to the capital stock and began to transact business. Subscriptions for stock were accepted on applications addressed to the corporation. Credit was extended the corporation on the faith of the validity of the stock subscriptions. The company became insolvent and was adjudicated a bankrupt, and a trustee in bankruptcy was appointed, who brought suit for the unpaid stock subscriptions. Held to be no defense to the subscribers that the corporation was organized and transacted business before its minimum capital stock was subscribed for.

The cause of action was one against subscriber to stock for the unpaid subscriptions, and was not multifarious.

Unpaid stock subscriptions are corporate assets, and a trust fund for creditors. A trustee in bankruptcy of the insolvent corporation may maintain a joint equitable action against all the subscribers, though not all may reside in the same county, to recover so much of the unpaid stock subscriptions as may be necessary to pay the debts of the corporation.

The judgment of the district court of the United States adjudicating a corporation to be a bankrupt, cannot be collaterally attacked by showing that the corporation was defectively organized.

Error from Superior Court, Fulton County; Geo. L. Bell, Judge.

Action by W. W. Lowe, trustee in bankruptcy, and others, against Ira S. Chappell and others. There was a judgment for plaintiffs and defendants bring error. Affirmed.

Atkinson & Born, W. W. Visanska, and Owens Johnson, all of Atlanta for plaintiffs in error.

Dillon & Burress, Dorsey, Brewster, Howell & Heyman, Napier, Wright & Cox, King & Spalding, and Walter R. Brown, all of Atlanta, for defendants in error.

EVANS, P.J. (after stating the facts as above).

1. The applicants for the charter of the Primo Motor Company immediately on the grant of the charter, held a meeting, accepted the charter, and elected officers. At that meeting only $17,000 of stock was represented, and the minimum stock had not been subscribed for. The corporation was illegally organized; nevertheless they proceeded to do business, and to solicit subscriptions to stock. Among others who subscribed after organization was the demurrant. He signed an application addressed to the Primo Motor Company, subscribing for stock, and promising to pay for the same in installments represented by notes payable to the order of the Primo Motor Company. He dealt with the Primo Motor Company as a distinct entity. After his subscription was made, the Primo Motor Company continued to do business until its bankruptcy, a period of about 20 months, without dissent or objection from the subscribers to stock. The creditors of the Primo Motor Company dealt with it as a legally organized corporation, and upon the faith of the validity of the stock subscriptions. It is clear that the Primo Motor Company is estopped from denying its corporate existence as against creditors who dealt with it as such, and all of its corporate assets are liable to creditors. But the demurrant denies that his unpaid subscription is a corporate asset because the company was illegally organized, on account of the failure to procure subscriptions to the extent of its minimum capital stock. Creditors dealing with the corporation had a right to presume that the requisite amount of stock had been subscribed. The fact alone of the commencement of business created that presumption. Hill v. Silvey, 81 Ga. 500, 8 S.E. 808, 3 L.R.A. 150. If the subscriber had paid his stock subscription, he would not have been entitled to have it paid back, to the loss of creditors who dealt with the corporation on the faith that it was legally organized. There is no material difference between the actual payment of the stock subscription and the stockholder's liability therefor, relatively to creditors of the corporation. Creditors and subscribers to the stock dealt with the corporation as a legally organized entity, and the latter on the faith of the validity of the subscriber's obligation to pay for stock subscribed for; and after insolvency of the corporation, whether it was a de jure or de facto corporation (see Burns v. Beck, 83 Ga. 471,...