Reid v. The Eatonton Mfg. Co.

• Citation: 40 Ga. 98
• Court: Supreme Court of Georgia
• Decision Date: 31 December 1869
• Parties: ALEXANDER REID et al, plaintiffs in error. v. the EATONTON MANUFACTURING COMPANY et al, defendants.

40 Ga. 98

ALEXANDER REID et al, plaintiffs in error. v. the EATONTON MANUFACTURING COMPANY et al, defendants.

Supreme Court of the State of Georgia

(Atlanta, December Term, 1869.)

Personal Liability of Stockholders, etc. Equity. Before Judge Robinson. Putnam Superior Court. September Term, 1869.

Alexander Reid et al, as creditors of the Eatonton Manufacturing Company, by their bill made this case: In 1835 the General Assembly of Georgia incorporated said company, *as a cotton and wool factory, with the usual powers of a corporation. Under this charter, the company began business, with a capital of $50,000 00. In June, 1849, having made say $40,000 00 in profits, the capital stock was increased to $75,000 00 and distributed among the original stockholders pro rata. The stockholders, and their respective shares, are stated, as also the changes caused by deaths and transfers. The company had nocapital except that invested in the factory and machinery, and depended upon borrowing money to do business. In order to gain credit, by certain stockholders, representing largely over half the stock, in June, 1849, it was resolved that loss or gain should be shared by the stockholders according to their stock and that the stock and private estate of each stockholder should be liable for the debts of the company, in proportion to the shares held by each. And after this resolution was passed, the stockholders held themselves out to the world as individually bound, as aforesaid. Upon this understanding it became habitual for the several members to stand the company\'s security; sometimes one and then another of them would do so. On such understanding, Adams, a stockholder, stood its security to Alexander Reid, and he and the company were sued and a judgment was had against them. Said Reid loaned the company money, sold them corn, provisions, cotton, etc., on credit, and in fact wholly sustained it. He would not have done so but for such personal liability, and of this he told them. The factory, etc, were destroyed by Sherman\'s army, in 1864. The company is dissolved and insolvent, owing say $60,000 00 and its corporate assets being worth not more than $10,00000. Reid\'s said judgment amounts to $20,000 00. The Stay law, an indisposition to sacrifice the property, etc, prevented Reid from selling the property under said judgment. A sale by this and other judgments will disclose the exact amount of remaining indebtedness for which the individual stockholders must respond, and the pro rata share due from each.

In 1861, when Reid ceased to credit the company and sued it, the company resolved to suspend operations and sell out *the corporate property, and did suspend till about the 30th of October, ——, when certain named stockholders formed a partnership for working the factory, under the name of the Putnam Manufacturing Company, and worked for one year. The rent of the corporate property, for that year, was worth $2,000 00, which the partnership never paid, though it made very large profits, say $1,000, 000 00. On the 11th of September, 1862, stockholders of the corporation, representing a majority of the stock, when the corporation was insolvent and Reid's demand was in judgment, as they well knew, resolved to resume operations, taking the chances of working upon credit and did so work the factory till its said destruction. They declared monthly dividends, from sixty to one hundred per cent. upon the stock, during the first year, and paid these dividends to the stockholders, in disregard of Reid's superior claim. For the year ending the 18th of December, 1863, the next dividends were $240,000 00 and the next year $250,000 00. How much of this each stockholder got is shown; said Adams got $4,00000. Since said suspension, the President of the corporation has been running a grist and saw mill belonging to the corporation.

Complainants claim said rent, said dividends, and the profits on the grist and saw mill are held by the stockholders in equity as a trust fund to pay the judgments. They prayed for a receiver to take charge of the property, for a discovery of said rents, dividends and profits, and that when the quantum in each stockholder\'s hands was discovered, he should be held personally liable for his share of their indebtedness, etc. This bill was demurred to for want of equity, or if it contained equity, because complainants\' remedy at law was complete, and because it was was multifarious in that it prayed for relief upon distinct grounds. The Chancellor sustained the demurrer and dismissed the bill. That is assigned as error.

Wingfield & Capers, for plaintiff in error.

Thomas G. Lawson, Nesbits & Jackson, for defendant.

*BROWN, C. J.

The charter of this company contains no individual liability clause, and no general statute of this State imposed any such liability, when the charter was granted. And we hold that it was not in the power of a majority of the stockholders, by any by-law which they might pass, to impose any such liability. This very question is decided by the Supreme Court of Massachusetts in the Trustees, etc, v. Flint. 13...