Burns v. Beck & Gregg Hardware Co.

Bleckley, Chief Justice. 1. There was no error in overruling the demurrer to the bill as amended. Burns and Parkins, both being officers of the corporation and the only stockholders therein, held out the corporation to the world as duly organized; whereas, according to the allegations of the bill, all the stock had not been subscribed for, nor had ten per cent, thereof been paid in. The corporation, therefore, was one defacto only, and had no legal right to transact business or to obtain credit. It did obtain credit, however, and this it did by reason of the wrongful acts of Burns and Parkins in setting it on foot pre [493] maturely and holding it out as duly organized. This “was a legal fraud committed by them, and rendered them liable to respond to the corporation creditors, to the extent at least of the capital stock that should have been subscribed and paid in, in the event the corporation assets proved insufficient to discharge its liabilities. Moreover, they acted with and for it in devising, promoting and executing the alleged fraudulent assignment of the corporate property. Taking the allegations of the bill, therefore, as true, they were connected with the corporation through fraud at both ends of its career, and throughout the whole intervening space. They were the real active agents, both in its misbeing and misdoing. Indeed, it was but a formal machine which they manipulated for their own benefit as officers and stockholders. We think there was no multifariousness—no misjoinder of parties defendant or of causes of action. Schley v. Dixon, 24 Ga. 273. The bill having for one of its objects the attack of an assignment as fraudulent, the complainants could proceed without first reducing their claims to judgment. Acts 1884-5, p. 100. 2. It was not incumbent on the court, as matter of unconditional legal duty, to refer the case to a master in chancery; but the expediency of so doing was discretionary with the presiding judge. .The court may refer any part of the facts to a master, but is not bound to do so. Code, §§3097, 4202. Martin v. Foley, 82 Ga. 552. Considering that there was a schedule of the corporation liabilities annexed to the deed of assignment, which showed what was due to each creditor, there was no occasion to refer that part of the case to an auditor, under section 3137 of the code ; besides, the application to the court was for reference to a master in chancery, not to an auditor. And beyond ascertaining the corporate liabilities, the case was not one in [494] volving account in a strict sense. The corporate assets could, be collected in from time to time, even after final decree, and without their amount being ascertained beforehand. The bill was for an accounting by the corporation, its officers and stockholders, with the creditors of the corporation, not for an- accounting between the corporation and its debtors. 3. The bill was a creditor’s bill, filed in behalf of all the creditors of the corporation who might choose to come in and be made parties. Some of them delayed coming in as complainants until after the trial was in progress; but all these were acknowledged creditors, their names and the amounts due them being shown by the schedule annexed to the assignment. There can be no doubt of their right to be made parties ; and no cause for continuing or delaying the case on account of their late appearance was suggested, save that the defendants, or some of them, had a right to another term as to these new parties. We think, under the peculiar circumstances, there was no such right. 4. The charge of the court to the effect that the assignment was void because the schedules were not verified each by a separate affidavit, was correct, according to the ruling of this court in Fort v. Martin Tobacco Co., 77 Ga. 111. 5. Whilst there may have been considerable conflict in the evidence, the various findings of the jury as to matters of fact were all warranted by the testimony, in so far at least as to make it improper for this court to interfere, the trial judge being satisfied. The mistake in finding, in answer to the 20th question, that the liability was to the corporation instead of to the creditors, is of no practical consequence; nor is it material whether the amounts retained for salary be counted as corporate assets or not. The recovery should be and is by the creditors, and payment to them will be a discharge. [495] No decree has been or should be rendered in favor of the corporation. 6. The controlling question of law is as to whether Burns and Parkins (assuming these various findings of fact to be true) are liable for the debts of the company to the extent of the minimum capital stock named in the charter. We can discover no reason in law or in morals why they are not so liable, for it is evident that the corporation was a mere shadow without substance. It was a thing of form—and to that extent a thing of fact,—but financially it was utterly empty, and was so from the time of its bii’th. As it was used by its progenitors, these two stockholders and officers, to obtain credit, not only up to the amount of its nominal capital stock but for much more, it seems to us both just and legal to hold them responsible to creditors for these debts up to the measure of the amount which they should have had subscribed and paid in ultimately had they violated no law in setting the corporation on foot and using it as a business instrument. And we think it mild, instead of rigorous, to make each of them respond for half of the capital they should have had subscribed before commencing business, together with interest upon the same. Their liability being grounded upon legal fraud, interest upon the principal is a reasonable consequence of their fraud, in holding them to measures of redress. As the credit which they obtained for this penniless illegal corporation extended far beyond the whole measure of redress which is being exacted for the fraud, the capital stock, or rather the substitute for it which these persons are required to furnish, ought to be the equivalent of cash capital paid in full when the corporation was organized; and to arrive at this equivalence it is necessary that they should be charged with interest from that time. It seems from the record that they have been charged with interest on [496] most of their liability from the commencement of this suit only, which is more favorable to them than would he the more strict and correct rule of computation. 7. As to the right of these persons to retain the $750 drawn by each of them as salary for their services rendered the corporation, we should have no doubt of it provided the corporation had made .profits out of which to pay the same. But inasmuch as it does not appear that any stage of its existence the corporation had assets in excess of its liabilities, the appropriation of its assets to pay its officers was simply the withdrawal of so much of the corporate effects from application to its debts. To uphold this would he simply to make the creditors discharge the salaries of the officers of the corporation to which they had extended credit. It Avoüld seem almost ludicrous to hold that a man might have himself incorporated, contract debts in his corporate capacity without investing a dollar of his own capital, transact business, and out of the proceeds pay himself a salary, instead of first paying the debts which in his corporate character he had contracted. It seems to us that no man can expect his creditors to run him as a corporation any more than as an individual. 8. We have gone over the numerous other points in the motion for a new trial, and find in them no reversible error. Indeed, so far as we can determine Avithout indefinite study, they are free from error of any kind: The judgment in the main case being affirmed, the cross-bill of exceptions is dismissed. Judgment affirmed.