Holliday v. Persons, (No. 13396.)

• Court: Georgia Court of Appeals
• Writing for the Court: STEPHENS
• Citation: Holliday v. Persons, 116 S.E. 907, 29 Ga.App. 784 (Ga. App. 1923)
• Decision Date: 01 March 1923
• Docket Number: (No. 13396.)
• Parties: HOLLIDAY . v. PERSONS et al.

29 Ga.App. 784

116 S.E. 907

HOLLIDAY .

v.PERSONS et al.

(No. 13396.)

Court of Appeals of Georgia. Division No. 2.

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. 3S8, 96 S. E. 1001, distinguished.

(Additional Syllabus by Editorial Staff.)

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.

P. O. Holliday, as trustee in bankruptcy of the Southern Druggists' Syndicate, instituted suit against Ben S. Persons, E. G. Jacobs, George D. Case, and J. A. Baugh, to recover certain amounts alleged to be due the corporation by the defendants on unpaid subscriptions to stock In the corporation: The allegations in the petition, so far as material to the matter under consideration, are that the entire assets of the corporation consisted of these alleged unpaid stock subscriptions and certain other unpaid stock subscriptions, all of which assets were insufficient to pay the Indebtedness due by the corporation to its creditors, represented by the trustee in bankruptcy having authority to collect the assets of the corporation and distribute them among its creditors: that the alleged indebtedness of the defendants was j evidenced toy a written subscription signed by them, which contained a recital that the amount of the capital stock was $100,000, divided into shares of $10 each, and indicated the number of shares subscribed for by each defendant, with the amount of the indebtedness therefor; that after a charter was granted to the corporation the incorporators held a meeting, and the subscriptions to the capital stock, as set out in the written subscription evidencing the defendants' subscriptions, were accepted, a board of directors and the usual corporate officers elected, and the corporation organized and began business: that while conducting said business it contracted debts, including those listed in the schedule filed in the bankruptcy proceedings against it, and continued to do business as a corporation until it became insolvent, and its creditors fired a petition in bankruptcy against it, and caused the corporation to be adjudged a bankrupt. Each defendant demurred to the petition upon the grounds that no cause of action was set out, and that it did not appear from the petition that the minimum capital stock had been subscribed, or that the corporation had been legally organized. The court sustained the general demurrers, and. without passing upon certain special demurrers which have not been referred to. dismissed the petition. To this order dismissing the petition the plaintiff excepts.

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] 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 wherethe 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 Pac. 281; Hollander v. Heaslip (1915) 222 Fed. 808 (2), 137 C. C. A. 1; Exposition, etc., Co. v. Canal, etc., R. (1890) 42 La. Ann. 370, 7 South. 627; Birge v. Browning (1895) 11 Wash. 249, 39 Pac. 643; Heiskel v. Morris (1916) 135 Tenn. 238, 186 S. W. 99, Ann. Cas. 1918B, 1134; Converse v. Gardner, etc., Co. (1909) 174 Fed. 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...