130 Ga. 515 | Ga. | 1908
(After stating the foregoing facts.)
The plaintiff’s suit was based on two grounds: (1) that the 'defendant had subscribed for stock amounting to $1,000, had only paid $.100, and "was still due $900; (2) that the company bought from certain stockholders their shares of stock, and the remaining
The case was tried before, and the same verdict was directed. The judgment was reversed. 126 Ga. 763 (55 S. E. 499). Two points then decided are material to be mentioned here: first, that “in a suit by a corporation against a stockholder for an unpaid subscription to stock, proof of the subscription and of a call duly made makes a prima facie case for the recovery of the amount embraced in the call;” and second, that “a corporation purchasing its own shares which are not fully paid can not charge the shareholders with individual liability for the unpaid portion of the subscriptions, unless they, upon a sufficient consideration, expressly or impliedly promise to pay the same.” In the opinion Mr. Justice Atkinson expressed the view that the evidence then before the court, including some which was excluded by the trial judge-, did not show affirmatively that the defendant had become bound on the subscription for the shares purchased by the company. On the second trial the'evidence produced on the first trial was intro-' duced, and also additional evidence for the plaintiff. The defendant introduced no evidence.
As to the original subscriptions of the stockholders and the calls made in regard to them, there was no conflict; and the defendant was clearly liable for what had not been paid in by him, unless this debt had been discharged by reason of certain declarations of dividends which had been credited to him by the company. The legality of such declarations of dividends was denied by the plaintiff, who therefore contended that they did not operate as a discharge of the liability. On the subject of the stock alleged to have been bought by the company and taken over by the other stockholders, including the defendant, there was evidence of a bylaw which provided that transfers of capital stock could be made only to the company, at a price not exceeding the amount which had'actually been paid in by the stockholders, and that all stock purchased by the company should be divided proportionately among the remaining stockholders. An amendment was made to this by-law as it originally' stood, at a meeting of the stockholders,
The general rule is that dividends can only be declared and paid out of net profits. In 1 Morawetz on Private Corporations (2d ed.), §438, the rule is thus stated: “The right to declare a dividend depends upon the state of the company’s finances at the time when the dividend is declared. The question usually is, whether or not there would remain a net increase upon the original investment, after deducting from the assets of the company all present debts and making provision for future or contingent claims.” In section 439 it is said: “Future contingent claims against a corporation must be reduced to their present value, in order to determine the net gain upon the capital invested. Hence, it is the duty of the directors of an insurance company to reserve at all times a sufficient fund, in addition to the capital stock, to meet probable losses on risks assumed by the company.” See also 2 Thompson on Corporations, §2152; 2 Morawetz on Private Corp.
In this State there is a prohibition against declaring any dividend or distributing any money among the members of a corporation as profits, when such dividend, or money, is not declared or distributed from the net earnings of its investments, and in any manner increases its debts. Penal Code, §Q81; Acts 1902, p. 58.
It is contended by the defendant that there was no evidence of insolvency on the part of the company, when the dividends were declared. Its business was to issue and sell certificates or debentures. Those first issued were known as belonging to class “A.” Each declared that, “In consideration of the application for this debenture, and the advance payment of two dollars, and the pajrment of a monthly instalment of one dollar, to be made between the first and the tenth day of each calendar month after date until sixty consecutive payments shall.have been made,” the company guaranteed to pay to the holder $100, upon the surrender and delivery of the debenture, subject to the terms and conditions of
A consideration of the form of debenture described above will ¡show the improbability, if not impossibility, of paying all deben"tures thus issued. It appears that the first payment of $2 went do the agent. The holder then agreed to pay $1 per month for ¡sixty months, at the end of which time he was to receive $100. From each $1 thus received by the company monthly, 60 per cent, ■or three fifths was placed in the redemption fund and used to re•deem certificates. Of the remaining 40 per cent.. one half was •carried to the reserve fund, and one half to the expense fund. If .all of the 20 per cent, carried to the expense fund were found necessary to be used for that purpose, there would only remain 20 per cent, of the instalments, or $12 in the aggregate (aside from possible lapses), for the purpose of earning and paying the $100 promised if the certificate holder carried his contract until maturity. It is not necessary to discuss the modifications made in regard to amounts, etc. From the books of the company it appeared that those whose certificates were redeemed received more than the amount of their instalments paid in. The business which ¡appears from the evidence to have been conducted by this company was to sell its own debentures. A debenture is a writing acknowledging a debt. So that the fundamental principle of this company — the sine qua non of its conducting business at all — was to go in ctebt by sales of its own debentures or promises to pay. Its creditors, called purchasers, paid in money to it in monthly instalments, and it agreed to repay in large sums, with certain terms and conditions in the contract, including one for lapses. To increase its business it was necessary to enlarge its indebtedness by selling more certificates. The evidence does not disclose that the company had any considerable property except what it thus collected. ' There were only twenty subscribers to stock originally, who paid in ten per -cent, of their subscription (though there is some intimation in the evidence that even the first payment was
The provision in the certificate, in the words “the remaining 20-per cent, of each monthly instalment to be used by the company to> defray expenses of management,” together with the application, gave the company the right to use that amount for expenses of management which might be incurred; but if the amount thus allowed was not so used, the balance remained as a part of the assets of the company, and did not ipso facto become profits for distribution among the stockholders. Such balance could be considered, with the other funds of the company, in determining whether there was a legitimate profit for distribution, but it did not constitute profits merely because not used in paying expenses.
There were also indications that certain other receipts from, lapses, interest, and transfer fees were added to the 20 per .cent, known as the expense fund, in arriving at what was distributed as profits.
We do not decide the issues of fact; but we have felt it necessary to show that there was ample evidence to have submitted the case to the jury, and that the presiding judge erred in directing a verdict for' the amount conceded to be due by the defendant.
It was suggested, in the brief, that the suit was for an unpaid stock subscription and an amount due on account of stock transferred,- and that the evidence ’ tended to establish a case for the recovery from a stockholder of dividends alleged to have been illegally declared and paid. The plaintiff showed a subscription and a call. As to another part of the stock, he sought to show by the books the liability of the defendant. Perhaps he might have stopped when he made a prima facie case, put the defendant on proof of payment, and, if it was sought to show such payment by resolutions declaring dividends, he could then have responded by attacking the legality of such declarations. The entries by which.
Judgment reversed.