171 Ga. 532 | Ga. | 1930
J. H. Downey, D. C. Kelley, and J. T. Johnston filed their equitable petition against Cora M. Byrd and her husband, Charles P. Byrd, in which they made these allegations: In December, 1926, the Byrd Publishing Company was chartered under the laws of the State of Delaware, with a minimum capital stock of 10 shares. Mark W. Cole, James H. Hughes, and James L. Walcott, citizens of Delaware, were the incorporators. The application for charter by these parties was made, and the issuance thereof to them was had, at the instance of the defendants. After the corporation had been chartered, the incorporators sold and transferred their shares to Cora M. Byrd. She caused one share of
Whatever action was taken by the officers and directors, who were elected by Mrs. Byrd, was done in carrying out the commands of the defendants, who continued to be the promoters of the proposed
The failure to capitalize said corporation at $500,000, and to perfect the organization of said corporation in accordance with the prospectus and the application to the Securities Commission, makes Mrs. Byrd and her husband, as promoters thereof, liable to these plaintiffs as subscribers for said capital stock for the entire amount of the stock purchased by them, with' interest at 7 per cent, per annum. In the organization of said corporation, and in the raising of its capital by the sale of its stock in accordance with the prospectus and plan thereof, these promoters stand in a fiduciary relation to plaintiffs and all others in a similar position, and are liable to account to them for the amount of money which they invested in the stock of said company. The subscribers to said stock are entitled to receive their moneys in full before the promoters are entitled to participate in the funds of said projected corporation. The Byrd Publishing Company is insolvent; and the money which petitioners paid for the shares of stock having been dissipated by said defendants by paying the same to creditors of the Byrd Printing Company, the defendants are liable to account to plaintiffs for their moneys. Defendants, as promoters of this corporation, are liable for whatever expenses have been incurred in the organization thereof. They are liable to plaintiffs on the ground of fraud perpetrated on them, as hereinbefore set out. They owe to Downey $5250, to Kelley $1500, aiid to Johnston $4250, paid by them respectively for stock in this company. Petitioners bring this petition jointly, to avoid a multiplicity of suits, and because it would be expensive to litigate separately, and because they have a common interest in having adjudicated the fraud perpetrated upon them by the defendant, and for the purpose of having the defendants adjudged promoters of the projected corporation. Plaintiffs pray that the organization of the Byrd Publishing Company be decreed to have aborted, that the defendants be decreed to be promoters thereof, and that plaintiffs have judgment against them for the moneys invested by plaintiffs in the stock subscribed and paid for by them. By an amendment plaintiffs
The defendants demurred to said petition, upon the grounds: (1) It fails to set forth any facts showing a cause of action against said defendants jointly or separately. (2) Misjoinder of parties plaintiff. (3) Plaintiffs seek to recover on two separate and distinct causes of action. (4) The petition shows that the plaintiffs dealt with the corporation as such' in the purchase of said stock, and not with the defendants as promoters, in that they subscribed for the same after the Byrd Publishing Company had been organized, and they bought the stock from the corporation or fits agents, and in dealing with the corporation as such upon the alleged representations made by the corporation or its agents; and if there was any fraud committed upon plaintiffs, it was done by the corporation. (5) It is apparent from the allegations of the petition that the organization plans of said company did not become aborted during the promotion period, blit on the contrary. There were various special grounds of demurrer. The judge sustained grounds 1, 2, 5, and 6 of the general demurrer and dismissed the petition, but did not pass upon the other grounds of the general demurrer and upon the special grounds. To this judgment the plaintiffs excepted.
The first ground upon which' the plaintiffs seek to make the defendants responsible is that they were promoters of the Byrd Publishing Company; and as such made fraudulent misrepresentations of material facts, which induced them to subscribe and pay for stock in said company, and .suppressed material facts which, if they had been communicated to them, would have saved them from subscribing and paying for worthless shares in that company. The defendants, on the contrary, contend that, at the time the plain- , tiffs subscribed and paid for their shares in this company, the company had been fully organized and was controlled by its board of directors and officers, and that they had ceased to occupy the position of promoters of the company. So the first question for decision is whether the defendants were promoters of this corporation at the time the plaintiffs were induced to subscribe and pay for stock therein, or whether this relation of the defendants to the
In this case Mrs. Byrd owned all the original capital stock of the corporation, and dominated it. She caused one share each to be placed in the names of her husband, Noel, and Mackie. She elected these persons directors of the company, and named her husband as president, Noel as vice-president, and Mackie as secretary. In these circumstances it can not be held that an independent board of directors was elected to manage the affairs of the company, and that the promoters ceased to control and dominate the company. Its officers and directors were the mere tools of Mrs. Byrd. Whatever they afterwards did in securing subscriptions to the capital stock of the company was in effect the act of Mrs. Byrd and her husband in promoting this corporation. If in so doing they issued a prospectus which' contained false and fraudulent misrepresentations, and concealed material facts which should have been made known to subscribers to its stock, and thus induced others to subscribe and pay for its stock, and they were injured by such fraud and deceit, then the promoters would be liable for the damage sustained by subscribers to its stock under these circumstances.
But if not liable as promoters, the defendants, under the allegations of the petition, are liable to complainants for damages sustained by the purchase of worthless stock in the Byrd Publishing Company, which they were induced to buy by reason of false and fraudulent representations contained in the prospectus of the company offering its stock to the public, or by concealment of facts which should have been communicated to prospective purchasers of its stock. “A director of a corporation who knowingly issues or sanctions the circulation of a prospectus containing false statements of material facts, the natural tendency of which is to deceive and to induce the public to purchase the corporate stock, is liable for the damages sustained by one who, relying upon and induced by the statements, makes such a purchase.” Morgan v. Skiddy, 62 N. Y. 319. “Promoters, officers, and directors, as well as the corporation, participating in preparing and circulating a false prospectus issued by the corporation, are liable for injurious consequences suffered by
It is further insisted by the defendants that the plaintiffs are estopped, for the reason that they dealt with the Byrd Publishing Company as a corporation. It is true that one who deals with a corporation as a corporation is estopped, in a suit growing out of the transaction so had, from denying the legal existence of the corporation. Orr v. McLeary, 6 Ga. App. 417; Planters Bank v. Padgett, 69 Ga. 159, 164; Ga. So. R. Co. v. Mercantile Trust &c. Co., 94 Ga. 306, 314 (21 S. E. 701, 32 L. R. A. 208, 47 Am. St. R. 153); Chappell v. Lowe, 145 Ga. 717 (89 S. E. 777). This principle is not applicable under the facts of this case. Plaintiffs are not seeking to recover the money they paid upon the stock on the ground that this company was not properly and legally organized.
It is further insisted by the defendants that no equitable relief is sought, and that the case should not be treated as an equitable proceeding. We have undertaken to show that promoters occupy a fiduciary relation towards the subscribers to the stock of a corporation which they are promoting; and when such promoters promote a bubble, an equitable action will lie against them for the injuries sustained by subscribers, on account of the fiduciary relation which they sustain towards the subscribers; but if we are wrong in this, the petition should not be dismissed for lack of equity, as it sets forth a good cause of action against the defendants for fraud and deceit. Under the uniform procedure act, a petition will not be dismissed upon demurrer because it fails to set forth an equitable cause of action, if it sets forth a cause of action good at law.
From the statement of facts hereinbefore set forth it seems to us clear that the petition set forth a cause of action against the defendants for fraud and deceit. It is unnecessary to repeat these facts. They speak for- themselves. The petition makes a case of which the English courts denominate a bubble, for which the defendants will be held liable to the plaintiffs for the money invested by them in the shares of this corporation.
We do not pass upon the grounds of special demurrer, for the reason that the court below did not pass thereon. Applying the principles above ruled, the court erred in sustaining the demurrer to the petition and in dismissing the same.
Judgment reversed.