McEachin v. Kingman , 64 Ga. App. 104 ( 1940 )

The issue here presented, as agreed by both parties, is whether or not the defendant, as promoter of the corporation, is liable to the plaintiff under the pleaded facts. In some States the liability of a promoter in a case of this kind is regulated by statute, but not in this State. While in some jurisdictions the ruling is to the contrary, it is the general rule, as stated by 1 Fletcher Cyclopedia Corporations, 719, § 215, "The liability of promoters on a contract entered into by them will depend upon the terms of the contract and the intention of the parties. They are not personally liable if it is understood that the other party shall look to the corporation only, provided the contract is one adoptable by the corporation, but they are liable in the absence of such an understanding;" and in the same work, p. 724, § 216, it is stated: "Both the promoter and the corporation are liable for adopted services, unless it clearly appears that liability of the promoter was not intended, or the contract provides that adoption shall work a release, or unless there is a novation." To the same effect are 13 Am. Jur. 252, § 113; 18 C. J. S. 532, 533, § 132.

The general rule is followed in this State, the latest pronouncement being in Hagan v. Asa G. Candler Inc., 189 Ga. 250 (5 S.E.2d 739): "One who professes to contract as agent for another, when his purported principal is actually non-existent, may be held personally liable on the contract, unless the other contracting party agrees to look to some other person for performance." See also Wells v.Fay Egan Co., 143 Ga. 732 (85 S.E. 873); Meinhard v. Bedingfield,4 Ga. App. 176 (3), 179 (61 S.E. 34); McRee v. Quitman Oil Co.,16 Ga. App. 12 (84 S.E. 487); Powers v. Brunswick-Balke-Collender Co.,19 Ga. App. 706 (91 S.E. 1062). In the Hagan case (p. 258) it was said: "In every contract there is a legal presumption that the parties thereto intend that it shall be an enforceable obligation. This is true whether the principals actually enter into the contract by themselves or through the medium of agents. In cases where the contract is entered into by an agent in the name of an existing principal, there is an additional presumption that the agent intended to bind the principal. For this to be true, however, it must appear, not only that the contract is entered into in the name of a principal who is in existence, but also that there is nothing in the contract indicating an intention to bind the agent. Where such appears from the contract, the legal inference is that the principal and not the agent is to be bound. On the contrary, where the contract is entered into by an agent in the name of a non-existent principal, no such inference is possible; for it would be a legal absurdity to assume that an agent intended to bind a principal who was not in existence. Under such circumstances, the agent having entered into a contract which as a matter of legal presumption he intends can be enforced, and it being manifestly impossible to enforce the contract against a principal who has no existence, it is assumed that the agent intended that the contract should be enforced against him." In the Wells case it was said: "Persons acting in concert to bring about the formation of a corporation are responsible for their acts. Where they buy machinery, receive it into their possession, and authorize one of their number to give a note for the purchase-price, they can not escape liability on the theory that they contemplated the organization of a corporation for which they intended the machinery. If one contracts as agent, when in fact he has no principal, he will be personally liable. A promoter, though he may assume to act on behalf of the projected corporation and not for himself, can not be treated as an agent of the corporation, for it is not yet in existence; and he will be personally liable on his contract, unless the other party agreed to look to some other person or fund for payment." In the Powers case it was ruled: "A corporation can not exist before its charter has been granted. Until the breath of life has been breathed into it by the law it is nothing — not even a corpse; for a corpse is the remains of something that once lived, and an embryo corporation has never even lived. Such an embryo corporation can not be a principal in any transaction, and, of course, not being a principal, can not have agents." In the Meinhard case it was held: "The promoters of a corporation are each individually liable for debts created in behalf of a proposed corporation, unless these debts are paid by the corporation after its organization."

The allegations of the petition establish the following: The corporation organized by the defendant was not in existence at the time of the execution of the contract sued on. It failed, when organized, to pay the plaintiff the full amount he was entitled to by reason of his compliance with the contract. Under the authorities above cited the defendant must be regarded as entering into a contract which was enforceable. The corporation not being in existence, he could not be, and was not, at the time of the agreement, an agent of the corporation subsequently organized. Liability for services rendered by the plaintiff, therefore, developed upon the defendant, unless, as shown by the decisions quoted from, the contract was one which evidences expressly or by implication that it was intended that the plaintiff look solely to the corporation for his salary and bonus or unless it appears from the petition, as admittedly it does not appear, that the plaintiff has been fully paid by the corporation. These principles are expressly admitted by the defendant in error to govern the decision of the case, but it is contended by him, and equally asserted to the contrary by the plaintiff in error, that the agreement shows that the plaintiff was to look exclusively to the corporation for a discharge of the obligations assumed towards the plaintiff.

The contract shows that the defendant proposed to organize the corporation and to finance it in certain respects named, and that the defendant was employed to install and operate the plant for a certain period, for which services he was to receive named compensation, and the petition shows that the plaintiff entered upon his duties and fulfilled his obligations, but that he has not been paid a certain amount of bonus for bottled beer. While the contract states that the "said corporation does hereby employ you," etc., such declaration does not state a fact cognizable in law, the corporation not then being in existence, and the employment mentioned must, under the authorities cited, be taken as being the act of the defendant, fixing upon him a liability from which he could escape only in the event it could be said that elsewhere in the contract it is made clear that the plaintiff was to look solely to the corporation, when organized, for compensation, or unless he was released from liability by a proper construction of other provisions of the contract or unless the petition shows that he has been fully paid by the corporation. I do not think that the contract or the petition shows such exemption. It is contended by the defendant in error that liability could not reasonably be ascribed against the defendant, inasmuch as it appears that he has done all that he proposed to do. But this is not the test of his liability. He is liable to the full extent, if at all liable, that the corporation would be liable if existing at the time of the contract and if the defendant was acting as its accredited representative or agent, included in which liability is the obligation to pay the full amount of the compensation of the plaintiff.

Cases cited by counsel for the defendant in error as illustrating the soundness of its contention are distinguishable, in that under the agreements entered into the persons sought to be held liable were expressly exempted from responsibility beyond a stated amount or the contracts expressly provided that the parties were to look exclusively to the corporation to be formed by the promoters. Nor does the provision of the contract here involved, "In case there should be a shortage of ingredients, and the corporation found it impossible to obtain same, or to bottle and sell their products profitably, or if for any other now unforeseen reason, the operation of said plant should become unprofitable, then said corporation shall not be bound to pay you any unearned salary," show that the plaintiff was to look exclusively to the corporation to be formed. At most it goes only to a limitation of the contractual liability which, in the case of a non-existing corporation, is that of the promoter, and would afford him, where the subsequently organized corporation found itself faced with any of the distress mentioned, a protection against salary for the unexpired portion of the contract. Nothing being shown by the contract or allegations of the petition from which it could reasonably be said that the promoter in the present case was released from the liability under the contract, it follows that under the general rule obtaining in this State the petition set out a cause of action against the defendant for the unpaid bonus and interest sued for, and I think the trial court erred in sustaining the general demurrer of the defendant.