Hill v. Silvey

• Decision Date: 01 February 1889
• Citation: 8 S.E. 808,81 Ga. 500
• Parties: HILL et al. v. SILVEY et al.
• Court: Georgia Supreme Court

8 S.E. 808

81 Ga. 500

HILL et al. v. SILVEY et al.

Supreme Court of Georgia

February 1, 1889

Error from superior court, Fulton county; ADAMS, Judge.

Clifford Anderson, Atty. Gen., H. Jackson, and Candler & Thomson, for plaintiffs in error.

N. J Hammond, Hall & Hammond, Hillyer & Bro., and Julius L. Brown for defendants in error.

GUSTIN J. ^[1]

The facts necessary to the decision of the main question in this case are as follows: The Georgia Banking Company was incorporated by act of 15th of September, 1870, (Acts 1870 p. 109.) Its name was changed to the "Citizens' Bank of Georgia," and it was located at Atlanta, Ga., by act of 27th of August, 1872, (Acts 1872, p.95.) The first section of the first act authorized certain persons to "receive subscriptions to an amount not exceeding one million of dollars, in shares of one hundred dollars each, whereof ten percent. shall be paid to said commissioners at the time of subscription." It added that "all such subscriptions shall be binding upon the subscribers respectively, and their heirs and legal representatives, and be payable in such installments, and at such times, as the board of directors of said corporation shall prescribe." The second section made the subscribers a body corporate when $1,000,000 was subscribed, and 10 per cent. thereof paid to the said commissioners.

The third section provided that when $100,000 was so paid the commissioners should give notice to meet and organize. Section 13 declared "that the said company shall be responsible to its creditors to the extent of its property, and the stockholders shall be liable, to the extent of the full amount of their respective unpaid stock subscribed for by them, for the debts of the company, in proportion to the number of shares held by them." The amending act struck out "$1,000,000" in the second section, and inserted in lieu thereof "$200,000;" and struck out "$100,000" in the third section, and inserted in lieu thereof "$20,000."

There was a stock subscription list under the amended act amounting to $408,200; the form of the subscription being as follows: "We, the undersigned, subscribe the amounts and number of shares set opposite our names to the capital stock of the Citizens' Bank, and agree to pay the same as provided by the charter and board of directors after organization under the charter."

Part of the subscribers organized on the 9th of November, 1872, 2,400 shares of stock being represented in the organization, and the bank began business 2d January, 1873. In pursuance of regular calls, they paid 50 per cent. on their subscribed stock.

On June 30, 1873, a return was made to the governor under section 1467 of the Code, one of the items of which was: "Capital stock paid in, $140,340." This return contained no statement of the capital stock subscribed, not paid in.

No resolution or other action was had definitely fixing any amount as the capital stock until on the 13th of January, 1874, the following resolutions were passed by the stockholders: "It having been the original purpose of the stockholders of the Citizens' Bank of Georgia to pay in only fifty per cent. on the amount of capital stock subscribed by each, and to let the dividends as they accumulated pay the other fifty (50) per cent., and it having since been thought best to reduce the stock to full paid-up stock, and to declare and pay the dividends as they are made in cash; therefore resolved, that the original plan be abandoned, and, as no certificates of stock have been issued, that certificates of stock be issued to each stockholder on an amount of stock as large as the sum actually paid in by him or her in cash, and that the capital stock and subscriptions be reduced to the amounts actually paid in. Resolved, further, that the board of directors be, and they are hereby, instructed to open the books of the bank for additional subscriptions of full paid-up stock, said books to remain open till the whole capital stock subscribed reaches the sum of four hundred thousand dollars, the stock hereafter subscribed to receive its dividends as earned from the date the cash for the stock is paid in." No certificates of stock were issued until after this action.

Other returns were made to the governor from year to year, showing the amount of the capital stock as gradually increasing to $186,300 on November 15, 1876; then decreasing to $160,000 on December 31, 1880, when the last return was made. The bank did business until it became insolvent, and on the 13th of April, 1881, it made an assignment to L. J. Hill and W. S. Thompson "of all its property and effects, rights and credit, of every kind and character whatsoever, for the benefit of all the creditors of this bank pro rata." The assignee took possession of the assets to execute the trust. Afterwards, on the 16th of April, 1881, the state of Georgia, in behalf of itself and all other creditors of said bank who might join it, filed a bill in Fulton superior court against said bank et al., and on the 25th of April, 1881, said assignees were appointed receivers of said court to receive, take, and hold all the property and effects conveyed to them by said deed of assignment, "convert the same into cash, and hold it subject to the further order of the court."

In August, 1881, Hill & Thompson, suing as assignees and receivers, having obtained leave of the court, brought a bill against the stockholders to collect the remaining 50 per cent. on their subscription, setting out the resolutions of January 13, 1874, but alleging that they "were passed without any authority of law," and that they were "void, and of no force, validity, or effect," and afforded "no valid reason why said amounts should not be paid," and that such amounts were debts due by each of them to the Citizens' Bank of Georgia, and assets of the bank, and as such passed by the deed of assignment, and that they "were and ought to be a fund in equity, to be collected and applied to the payment of the debts of the bank." The creditors of the bank were also made parties defendant to this bill, for the purpose of enjoining them from proceeding by separate actions against the stockholders. It was averred in the bill that none of the debts due by the bank were in existence at the time of the adoption of the resolution of January 13, 1874, but that all had been created since.

All of the defendant stockholders relied upon the resolutions above referred to as a release from their liability beyond the 50 per cent. paid. Some of them also made special defenses, such as set-off, payment of debts of the bank, transfers of their stock, etc., not necessary to be considered in this connection. No answer was filed by any creditor setting out that his debt was due before that time, nor was any filed setting up any special claim or equity against the stockholders.

Omitting any further statement of the very voluminous pleadings in this case, we come to the consideration of the principal question which we are called upon to decide, whether under this state of facts, the subscribers and stockholders are liable at law or in equity to the assignee and receivers, and through them to the creditors of the bank; and this depends upon the validity of the resolutions of January 13, 1874, considered in connection with the subsequent dealings of this bank with the public and persons having business relations with it.

1. That these resolutions had the effect of releasing stockholders, all of them agreeing thereto or acquiescing therein, from further liability to the bank itself, and from obligations each to the other, cannot be seriously doubted. No good reason exists at law or in equity why this could not be done, and it is supported by high authorities. In Scovill v. Thayer, 105 U.S. 153, Justice WOODS, in considering an agreement among stockholders to issue certificates for fully paid stock upon which only 20 per cent. had been paid, says: "The stock held by the defendant was evidenced by certificates of full-paid shares. It is conceded to have been the contract between him and the company that he should never be called upon to pay any further assessments upon it. The same contract was made with all the other shareholders, and the fact was known to all. As between them and the company, this was a perfectly valid agreement. It was not forbidden by the charter or by any law of public policy, and, as between the company and the stockholders, was just as binding as if it had been expressly authorized by the charter. If the company, for the purpose of increasing its business, had called upon the stockholders to pay up that part of their stock which had been satisfied by 'discount' according to their contract, they could have successfully resisted such a demand. No suit could have been maintained by the company to collect the unpaid stock for such a purpose. The shares were issued as full paid, on a fair understanding, and that bound the company." See, also, 2 Mor. Priv. Corp. §§ 790, 800, 801, 813, 816, 817, 841; Steacy v. Railroad, 5 Dill. 348; Cooper v. Frederick, 9 Ala. 738; In re Insurance Co., 14 F. 28; Hepbun v. Commissioners, 4 La. Ann. 87; Palfrey v. Paulding, 7 La. Ann. 363.

2. It is contended, however, that whatever the effect of the resolutions might have been as between the stockholders and the bank, or among themselves, it could not operate to release the stockholders from liability to creditors. This is based upon the well-recognized principles that the capital stock of a corporation is in equity a trust fund for the payment of its creditors, and this whether it has been paid into the company, or exists in the form of unpaid installments; and that it cannot be reduced, either by declaring dividends which infringe upon the capital, by...