Council v. Brown

• Decision Date: 14 June 1921
• Docket Number: 2205.
• Citation: 107 S.E. 867,151 Ga. 564
• Parties: COUNCIL v. BROWN ET AL.
• Court: Georgia Supreme Court

107 S.E. 867

151 Ga. 564

COUNCIL v. BROWN ET AL.

No. 2205.

Supreme Court of Georgia

June 14, 1921

Syllabus by the Court.

In order for a receiver of a banking corporation to bring suit for the use and benefit of the depositors of the bank to recover damages from the directors of the corporation for alleged negligence in failing to exercise ordinary care and diligence in the discharge of their duties, it is necessary that he be specially authorized so to do by order of the court; and if he brings suit and fails to show such authority, he cannot recover.

Sections 18 and 19 of the Act of 1870 (Acts 1870, pp. 139 and 143) which sought to incorporate the Bank of Southwestern Georgia are repugnant to article 3, § 4, par. 5, of the Constitution of 1868 (Code of 1873, § 5056), which provided: "Nor shall law, or ordinance pass, which refers to more than one subject-matter, or contains matter different from what is expressed in the title thereof," for the reason that it is not competent for the Legislature to enact a law incorporating two distinct corporations as in the act of 1870 it sought to do. Even if the act of 1870 were valid as incorporating the Bank of Southwestern Georgia, by its terms the act was continued in force for the term of 30 years from and after the organization of the bank (which was in 1877) and no renewal of the charter of the bank having been had before the bringing of the present suit in 1920, such suit was without authority of law.

Even if the General Assembly had no authority in 1870 (Acts 1870, p. 139) to enact a law incorporating two separate and distinct corporations in one act, yet where such an association actually organized and existed under such colorable authority, and used the rights claimed to be conferred by such charter, and did business under it as a corporate body, the directors of such organization, who acted as such, will be estopped from denying the corporate existence of such organization as against the corporation itself, its receiver, and third persons who have dealt with it as a corporation.

In so far as the petition alleges a cause of action because of loans made by directors in violation of the law and the express terms of the charter, the date of the acts alleged as a basis of recovery was more than four years before the bringing of the suit, and is barred by the statute of limitations. In so far as the case rests upon a failure to collect the outstanding loans, no facts are alleged showing such negligence or omission of duty on the part of the directors as would render them liable. The general charge that they were negligent in this respect is a mere conclusion of the pleader, and is insufficient to show liability.

The allegation that in a certain year dividends had been paid in excess of the earnings for that year shows no liability, in the absence of allegations that dividends were improperly paid, or were not paid out of earnings of the bank made during prior years.

The petition did not set out a cause of action, and the court did not err in sustaining the demurrer and in dismissing the action.

Additional Syllabus by Editorial Staff.

A "de facto corporation" is an association which actually exists for all practical purposes as a corporate body, but which, because of failure to comply with some provision of law, has no legal right to corporate existence.

Error from Superior Court, Sumter County; Z. A. Littlejohn, Judge.

Action by L. G. Council, receiver, against W. E. Brown and others. The action was dismissed on demurrer, and plaintiff brings error. Affirmed.

C. R. McCrory, of Ellaville, and Maynard & Williams, of Americus, for plaintiff in error.

Shipp & Sheppard and Hixon & Pace, all of Americus, for defendants in error.

HILL J.

L. G. Council, as receiver of the Bank of Southwestern Georgia, brought suit against W. E. Brown et al., as directors of the bank, to recover damages against such directors for the use and benefit of the depositors of the bank, because of alleged negligence on the part of the directors in failing to exercise ordinary care and diligence in the discharge of their duties as directors. The defendants filed demurrers to the petition, both special and general, on numerous grounds, one of which was that it was not disclosed by what court, or when, Council was appointed a receiver, and that it was not shown that he was so appointed by a court having jurisdiction; and, further, that it is not shown that the court appointing him had authorized this suit by either a special or general order. The court sustained all of the demurrers, and dismissed the case. To this judgment the plaintiff excepted.

1. The court did not err in sustaining the demurrer on the ground that it did not appear that the plaintiff, as receiver, had authority from the court to bring the present suit. It was held in the case of Screven v. Clark, 48 Ga. 41, that--

"A receiver appointed by a chancellor to 'collect' the effects belonging to a corporation, a defendant in a suit pending in chancery, has no authority to bring a suit in order to get possession of the effects, unless he be specially authorized so to do by the order of the chancellor; and if he bring such suit and fail to show the order, he cannot recover."

And see, to the same effect, De Graffenried v. Brunswick & Albany R. Co., 57 Ga. 23; Vestel v. Tasker, 123 Ga. 213, 51 S.E. 300; 17 Enc. Pl. & Pr. 828; 34 Cyc. 377 (3). The case of Donehoo v. Rogers, 146 Ga. 75 (3), 90 S.E. 382, is not in conflict with the ruling in the above-cited cases. It was merely held in that case that--

"The granting of an injunction to restrain any unauthorized interference with property in the possession of a receiver is a necessary incident to the power of appointing receivers."

In the Vestel Case and the Donehoo Case, supra, the court assumed jurisdiction, but in the present case the court declined to assume jurisdiction, and dismissed the case.

2. The sixth ground of the demurrer to the petition was--

"because the Bank of Southwestern Georgia was incorporated by the act of the General Assembly of Georgia on October 24, 1870 (Acts 1870, p. 139), and the charter expired by operation of law at the end of 30 years from [that] date, and no acts of defendants or others as directors of the bank in 1912, 1913, and 1914 rendered them liable as directors of such bank."

The Legislature of this state in 1870 sought to incorporate the Bank of Southwestern Georgia at Americus, under the following caption:

"An act to incorporate the People's Bank of Macon--also the Bank of Southwestern Georgia, at Americus."

The act then proceeded to incorporate the People's Bank of Macon, in 17 sections. The eighteenth section provided that certain named persons and their associates and successors were--

"constituted and made a body corporate under the name and style of the Bank of Southwestern Georgia, to be located at the city of Americus, in Sumter county, with like powers, privileges and grants, and with the same liabilities and restrictions as are conferred by this act to incorporate the 'People's Bank of Macon.' "

The nineteenth section of the act provided that the capital stock of the Bank of Southwestern Georgia should be $100,000, with the privilege of increasing the capital stock to $300,000. The twentieth and last section of the act repeals conflicting laws. The portion of the Constitution of 1868, as contained in section 5056 of the Code of 1873, provides that--

"Every bill before it shall pass shall be read three times and on three separate days in each house, unless in cases of actual invasion or insurrection. Nor shall law or ordinance pass, which refers to more than one subject-matter, or contains matter different from what is expressed in the title thereof."

Both the caption and the body of the act of 1870, supra, clearly indicate that the act refers to more than one subject-matter, viz., the chartering of two banking corporations in the same act. In Ex parte Conner, 51 Ga. 571, it was held, in 1874, that--

"Under article 3, § 4, par. 5, of the Constitution of this state, which declares that 'no law shall be passed which refers to more than one subject-matter, or contains matter different from what is expressed in the title thereof,' it is not competent for the General Assembly to enact a law incorporating three separate and distinct corporations [three military organizations], or reviving by name three charters which had become obsolete."

And see, to the same effect, Christie v. Miller, 128 Ga. 412, 57 S.E. 697. We think that the present case falls within the ruling made in the Connor Case. The inhibition contained in article 3, § 7, par. 8, of the Constitution of 1877, is substantially the same as that contained in the Constitution of 1868 under review. It seems therefore that the act of 1870, chartering the Bank of Southwestern Georgia, was void because it offended the provisions of the Constitution of 1868 set out above.

Even if the act of 1870 was valid as incorporating the Bank of Southwestern Georgia, it expired by its terms in 30 years from the date of its organization (in 1877); and it does not appear that at the expiration of 30 years the charter was ever renewed; and, that being so, at the time the present suit was brought in 1917 there was no charter authority either originally or by amendment, to bring the present action. Nor, as stated in the first division of the opinion, was there any authority shown from the chancellor authorizing the bringing of the suit. The Civil Code (1910), § 2241, provides that a corporation is dissolved by the expiration of its charter. And see Logan v. Western & Atlantic R. Co., 87 Ga. 533, 13 S.E. 516; Venable v. Southern Granite Co., 135 Ga. 508, 69 S.E. 822, 32 L.R.A. (N. S.)...