Holliday v. Persons

• Court: Georgia Court of Appeals
• Writing for the Court: STEPHENS, J. (after stating the facts as above).
• Citation: Holliday v. Persons, 116 S.E. 907, 29 Ga.App. 784 (Ga. App. 1923)
• Decision Date: 01 March 1923
• Docket Number: 13396.
• Parties: HOLLIDAY v. PERSONS ET AL.

116 S.E. 907

29 Ga.App. 784

HOLLIDAY v. PERSONS ET AL.

No. 13396.

Court of Appeals of Georgia, Second Division

March 1, 1923

Syllabus by the Court.

Where the subscription agreement to stock in a proposed corporation recites the amount of the capital stock to be subscribed, and designates the number of shares and the value thereof, the entire amount of the capital stock must be subscribed as a condition precedent to the liability of the subscribers signing the agreement. The subscriber's liability being dependent upon the terms of the contract, he may, in a suit against him by a creditor of the corporation after it has become insolvent, defend upon the ground that the minimum capital stock has not been subscribed, where it does not appear that he has committed any act that would estop him from setting up this defense against the creditor.

A part payment by a subscriber on his subscription to the capital stock before the corporation had organized and commenced doing business will not, without more, amount to a waiver of his right to rely upon the terms of the contract as a condition precedent to his liability.

Chappell v. Lowe, 145 Ga. 717, 89 S.E. 777; Lowe v. Byrd, 148 Ga. 388, 96 S.E. 1001, distinguished.

Additional Syllabus by Editorial Staff.

Allegation that incorporators organized corporation and began business is not a sufficient allegation that subscribers participated so as to be estopped to deny liability on subscription because entire capital stock was not subscribed, since the "incorporators" are the persons obtaining the charter (citing Words and Phrases, First Series Corporators).

Jenkins P.J., dissenting.

Error from Superior Court, Bibb County; Malcolm D. Jones, Judge.

Action by P. O. Holliday, trustee in bankruptcy of the Southern Druggists' Syndicate, against B. S. Persons and others. Judgment for defendants on demurrer, and plaintiff brings error. Affirmed.

Strozier Moore & Deaver, Harris, Harris & Witman, and Jones, Park & Johnston, all of Macon, for plaintiff in error.

Ryals & Anderson, of Macon, for defendants in error.

STEPHENS, J. (after stating the facts as above).

1. In a contract of subscription to stock in a proposed corporation, that all of the capital stock shall be subscribed is a condition precedent to the subscriber's liability for payment of the amount of his subscription. Particularly is this true where the total amount of the capital stock and the number of shares are stated in the subscription agreement, as in the case under consideration. 1 Cook on Corporations (7th Ed.) § 176; 1 Thompson on Corporations (2d Ed.) § 529; Memphis Branch R. Co. v. Sullivan, 57 Ga. 240 (1); Hendricks v. Academy of Music, 73 Ga. 437 (3). Therefore, in the absence of any estoppel against the defendants or any waiver by them of the nonperformance of this condition precedent to their liability, there is no liability against them for their unpaid subscriptions to the capital stock, where the total capital stock has not been fully subscribed. This is true even against creditors of a bankrupt corporation, who are a favored class, and against whom a stock subscriber is estopped from setting up certain defenses against the payment of his stock subscription, which he could set up against the corporation, unless it can be shown that the stock subscriber has by his conduct become estopped from setting up his right under the contract as against the creditor. The defendants are entitled, even as against creditors, to stand on the terms of their contract, and can avail themselves of the nonperformance of any condition precedent to their liability, unless by their acts and conduct towards the corporation or the creditors they have become estopped from relying upon the defense which the contract gives them. In a suit by the trustee in bankruptcy in behalf of the creditors, which discloses the contract providing a condition precedent to the defendants' liability, and fails to allege the performance of this condition, no cause of action is set out where the petition fails to disclose facts which would operate as an estoppel against the creditors. There being no such facts disclosed in the petition, no cause of action in the trustee is alleged. Stearns v. Sopris (1894) 4 Colo. App. 191, 35 P. 281; Hollander v. Heaslip (1915) 222 F. 808 (2), 137 C.C.A. 1; Exposition, etc., Co. v. Canal, etc., R. (1890) 42 La. Ann. 370, 7 So. 627; Birge v. Browning (1895) 11 Wash. 249, 39 P. 643; Heiskel v. Morris (1916) 135 Tenn. 238, 186 S.W. 99, Ann.Cas. 1918B, 1134; Converse v. Gardner, etc., Co. (1909) 174 F. 30, 98 C.C.A. 16.

The allegation in the petition that the "incorporators" held a meeting and accepted the defendants' subscriptions to the capital stock, organized the corporation, and began business, can avail the plaintiff nothing by way of an allegation that the defendants took any part in this meeting or in the organization of the corporation. The subscribers to the capital stock are not necessarily the incorporators. The incorporators are the persons obtaining the charter. See 2 Words and Phrases, First Series, 1623. Construing the petition most strongly against the pleader, as we must, it does not appear that the act of the incorporators in organizing the corporation was the act of the defendants, who, it appears, were only subscribers to the stock.

Whatever right, if any, the creditors may have had to presume that after the organization of the corporation the minimum capital stock had been subscribed and the liability of the subscribers had thereby become complete, this presumption cannot avail against a subscriber who relies upon the terms of his contract, and has not done anything that would estop him from setting up his legal defense thereunder. The creditors are protected under Civil Code 1910, § 2220, which provides as follows:

"Persons who organize a company and transact business in its name, before the minimum capital stock has been subscribed for, are liable to creditors to make good the minimum capital stock with interest."

2. It appears from the petition that two of the defendants, at some indefinite time, made partial payments to the corporation upon their stock subscriptions. This, it is contended by the plaintiff, amounted to a waiver by the defendants of any right to insist upon a subscription of the minimum capital stock as a condition precedent to their liability....