| Ga. | Aug 13, 1910
1. In England it is settled that, after the commencement of winding up proceedings against a corporation, an application to be relieved from liability as a shareholder, on the ground of fraud practiced upon him by agents of the company in procuring the subscription, comes too late. Oakes v. Turquand, L. R. 2 H. L. 325; Stone v. City & County Bank, 3 C. P. Div. 282. By the companies act of 1862 (Statutes at Large, 25 & 26 Vict. 434. secs. 23, 26, 37, 38) every company was required to keep a register of members or shareholders, showing the name and address of each, and the date of becoming a member and of ceasing to be a member; and a penalty was provided for a failure so to do. Once a year a list was required to be made up and forwarded to the’ public .registrar. The register of members was made prima facie evidence of what it was required to contain. On winding up, every present and past member who had not ceased to be a member for a year was liable to contribute to the pa.yment of debts. How far the English decisions may have been affected by the requirements qf that act need not be considered.
In this State there is no similar law. The courts must determine the question by applying general principles of equity. A . stockholder occupies a threefold relation : First, to the corporation itself; second, to other stockholders; and third, to creditors of the corporation. Fraud does not render a contract abs’olutely void, but voidable. It remains valid until repudiated, or avoided. As between a stockholder and the corporation, unless special circumstances alter the ease, the general rule that contracts obtained by fraud may be avoided by the party defrauded applies to a stock subscription induced by the fraud of the company through its authorized agents. So also where only the rights of other shareholders are affected, the company being solvent and “a going concern/’ These matters are of comparatively easy solution. But where the rights of creditors are involved, the question is one of greater diffi
Turning now to the decisions in this State, in Grangers’ Insurance Co. v. Turner, 61 Ga. 561, a subscriber proceeded by attachment to recover of the company the amount paid by him on his subscription before discovering the fraud. It was alleged that the stock was worthless. The defendant demurred to the declaration in attachment. The demurrer was overruled, and defendant excepted. It was held, that the action would lie; that if the fraud had been condoned by acquiescence or otherwise, or if such legal or equitable rights had attached in favor of creditors of the corporation as that the plaintiff could not, on that account, recede from his subscription, these matters could be shown; but that as they did not. appear on the f$ce of the declaration, it was not demurrable. In Turner v. Grangers’ etc. Ins. Co., 65 Ga. 649 (68 Am. R. 801), lit was held, that, though a subscription to stock may have been induced by fraud, the subscriber could not recover the amount paid i by him, if there were creditors to an equal or larger- amount on \debts contracted after his subscription. In that ease, it was alleged that the stock was worthless, and that the defendant, a foreign corporation, had made an assignment. In Hamilton v. Grangers’ etc. Ins. Co., 67 Ga. 145, the ruling was approved. In Stewart v. Rutherford, 74 Ga. 435, the plaintiff had been induced by fraudulent means to join in obtaining a charter, entering into a venture and putting in money. He filed an equitable petition against the other members (who were alleged to be conspirators) and the company. It was held that equity would grant him relief, whether the company was insolvent or not. It was said: “Of course if innocent parties have been affected by the corporation during its operation, the court will protect them.” In Beck v. Henderson, 76 Ga. 360, it was held, that, where a corporation had held itself out to the world and contracted debts on the faith of its organization, and a stockholder had stood-by and interposed no objection, he was bound, and in a suit by the receiver, on a promissory note given for the amount of his subscription to the capital stock, he could not successfully defend by showing fraud in procuring his subscription. In Howard v. Glenn, 85 Ga. 238 (11 S.E. 610" court="Ga." date_filed="1890-04-21" href="https://app.midpage.ai/document/howard-v-glenn-5563816?utm_source=webapp" opinion_id="5563816">11 S. E. 610, 21 Am. St. R. 156), it was held that if one became a stockholder in a corporation, though his subscription was obtained bv
When a person becomes a stockholder of a corporation, he becomes a part of it. Its agents are in a sense his agents. They go out | and deal with the public. If through their dealings debts are in- 1 .curred, assuming both the stockholder and the creditor to be in- j nocent and that one must suffer, the former, who put it in the ¡ power of the agents to do the wrong, should suffer rather than third ' parties who dealt with such agents. Civil Code, § 3940. As to J creditors whose claims arose after the stockholders became such, their rights are~s5piñoFTo "iny right of rescission^íhe status of y a stockholder relative to creditors who became such after he took the stock, is not in ail respects identical with that relative to antecedent creditors. As - to creditors whose debts were created before ho • took the stock, cpiestions of laches, acts inconsistent with rescission, estoppel, etc., might arise. The new stockholder may have permitted the increase of indebtedness and the lessening of the assets with which to pay. It does not affirmatively appear in this caseV whether debts were created after the intervenors became stockhold- ; r i ers, or their amount. There was originally an allegation in each in- I tervention, on information and belief, that all the creditors were \ the same as those existing before the new stock was issued; but this was stricken by amendment. We do. not think that it can be said j as matter of law that such laches or conduct on the part of the in- 1 , tervenors affirmatively appears on the' face of the respective interventions as to authorize us to declare that no rescission could be had, whatever may be developed by the evidence. It was error to sustain the general demurrers. If the interventions were not otherwise demurrable, they did not become so by reason of failing to. negative the existence of any debts incurred after they took their . stock. That was matter of defense to the intervention, under the facts alleged. Most of the special demurrers were not meritorious. These were not original suits, but interventions in the .main suit, where the assets, books, and memoranda were in the hands of the receivers. The special demurrers, if they were all sustained, would have required the attaching to each intervention of a large part of
In three of the interventions (those of Mrs. Rigby, Knox, and Hay) it was not alleged in terms when the intervenors discovered the fraud. But the special demurrers, though containing thirteen grounds each, and making a variety of points, do not distinctly raise any question upon that ground. Under the allegations in the interventions, and in view of the short time from the taking of the stock to the assignment — less than four months in one instance, and still less in others, we do not think that for this reason they were subject to general demurrer. Some of the grounds rested upon the idea, that, though it was alleged that the intervenors were induced, by false and fraudulent published statements of the bank and oral statements of its officers, (which were set out), to subscribe for the stock, and also that the intervenors fiad no other means of knowing the condition of the bank, the interventions were demurrable for not alleging that the intervenors demanded'an inspection of the books and papers of the bank before taking the stock, or immediately afterward. Such allegations were not necessary.
Two grounds of the special demurrers only do we think should have been sustained. It was alleged that the bank owed “one item of about twenty thousand dollars of accrued interest.” A ground of the demurrer made the point that it was not stated to whom this “item” was due. The point was well taken. It appeared to be a single item, and no reason is apparent why it should not have been described more definitely. But this should not have caused the sustaining of all the other grounds of demurrer general and special, and the dismissal of the interventions. Another ground of special
Judgment in each case reversed, with direction.