Georgia Portland Cement & Slate Co. v. Jackson , 143 Ga. 84 ( 1915 )

Hill, J.

(After stating the foregoing facts.)

1. One of the grounds of demurrer is, that the plaintiffs were in laches in not bringing the suit earlier. To this we can not agree. The petition alleges that the plaintiffs brought suit within eighteen months after they discovered the falsity of the representations made to them at the time they paid for their stock in the corporation; that when they made this discovery they tendered their stock to the officers of the corporation and demanded a return of their money paid therefor; that at this time the officers assured the plaintiffs that, if they would not take action, they (the officers) would sell the property and refund to the plaintiffs the amount they paid for the stock; and that relying upon these assurances and similar assurances thereafter made, and hoping to be reimbursed without litigation, the plaintiffs omitted to take legal action until the bringing of this suit. Under these circumstances, we do not think it can be said that the plaintiffs were in such laches as to bar a recovery. This is a suit to recover from the defendants the amount of money the plaintiffs subscribed for stock and paid to the defendants, and which they allege was fraudulently obtained from them. In such a case the plaintiffs would not be barred a recovery. This being so, we can not hold that the plaintiffs are in laches when they bring their suit within eighteen months after the discovery of the alleged fraud.

2. Is'the. petition in this case subject to the demurrers filed against it, or does it set forth a good cause of action? We think it is only necessary to read the allegations as contained in the foregoing statement of facts to arrive at the conclusion that the petition is brimfull of equity. We will not repeat those allegations in detail, but it may be well to mention in a general way a few of the facts relied on by the plaintiffs as a basis for recovery. The individual defendants here are alleged to be .the agents and promoters of the corporation, the stock of which they sold to the plaintiffs. It is alleged that they represented to the plaintiffs that they had bought and paid for 270 acres of land, of an alleged valuation of $500,000, containing limerock, slate, shale, etc., from which, could be made as good cement as there is in the world; whereas the actual considerations paid for the land aggregated only $8,300, and in the deeds made to the corporation conveying the land false and fictitious considerations were named, aggregating $115,000. And it is alleged that the promoters — the individual defendants here — did not pay the $8,300 with their own money, but with the money of the plaintiffs derived from the. sale of stock to them; and that the defendants had never paid for any stock themselves. It was further alleged that the officers of the corporation represented to defendants that a right of way for a railroad leading to the propert}'' had been secured; that valuable machinery with which to manufacture the cement, estimated to be worth $300,000, had been bought and shipped and the defendants had the money in hand to pay for it; and that the agents purchasing the machinery had saved the corporation $200,000 in the transaction. These representations on the part of the defendants are alleged to be untrue, and, on demurrer filed by the defendants themselves, they must be treated to be as alleged. If the allegations are to be thus taken, then the plaintiffs have been induced to part with their money by reason of false and fraudulent representations; and they now ask the aid of the courts to trace those funds into the lands and to recover the money back. And in order that they may recover, they ask the aid of the court to prevent the alienation of the land until a judgment can be obtained against the defendants, and to have a decree fixing a special lien on the land to secure its payment, and, in case of sale, upon the proceeds. As already said, the allegations of the petition are to be taken as true; and if they are true, the plaintiffs are entitled to recover on the trial, if the facts alleged are proved according tó the rules of law applicable to such cases. Of course, if they are not true in fact, the plaintiffs can not prevail on the trial of the issues made by the pleadings. But the petition is not open to the objections urged against it by the plaintiffs in error. This is not a suit by stockholders against a legal corporation, but by subscribers to stock of a corporation alleged never to have been legally organized, who aver in effect that they have been inveigled by the agents and promoters of the corporation into subscribing for stock in a bogus concern by the fraudulent representations of the individual defendants named in the petition, and asking that the plaintiffs be allowed to trace the funds furnislied by them into certain lands, that they have a special lien decreed thereon, and for a judgment against the defendants named. We see no valid reason why this can not be done. The petitioners seem to have had the law applicable before their eyes when they drew their petition; for it is drawn in substantial conformity to the decision rendered in the ease of Stewart v. Rutherford, 74 Ga. 435, where it was held: “Where the complainant did not seek any redress in the character of a stockholder or president, but sought to sever Ms connection entirely with it and to recover what he had been induced to put into it by fraud, it was not necessary that he should ask relief of the stockholders who perpetrated the fraud, before applying to equity to annul the contract.” In the body of the opinion (on pp. 438-439) Chief Justice Jackson said: “The fraud is not a fraud of certain existing stockholders committed upon another, also already a member, nor is it a fraud by a corporation in existence upon one of its stockholders; but it antedates the existence of the corporation.' It attacks the very contract which made the corporation, put into operation, and furnished the means to buy the thing to be operated upon, and the tools by which that thing, the mineral lots of land, was to be worked by the corporation to be afterwards created. One man, or a set of several men, can no more swindle and cheat another out of his money, in order to make a corporation and set it to work, than he or they could cheat and swindle him into any other contract or about any other thing. There is no such sanctity about a corporation that a natural person should be induced fraudulently by certain other natural persons to apply for this artificial person with them to be created by the State, and yet have no relief against those who thus cheated him, because the result of the cheating was success in creating the entity called an artificial person or a corporation. Nor does it matter one iota that the fraud made him 'a stockholder therein, or even the president thereof, to sweeten the pill with ambition gratified by putting him at the head of the corporation to be made. That some of the facts showing fraud in the antecedent contract transpired after the contract bore the fruit which its procurers by fraud intended, to wit, ripened into a corporation, can make no difference. If they throw light on the contract, and the conduct of those making it, and the motives leading to that conduct, it pours light upon the original transaction just as full as if it were contemporaneoxxs or antecedent facts.” We think the petition sets forth a good canse of action.

3. As we have pointed out in the preceding division of the opinion, the plaintiffs’ allegations entitle them to relief. They also prayed relief by the appointment of a receiver; but when this case was before the court on a former occasion (Georgia Portland Cement & Slate Co. v. Jackson, 139 Ga. 668, 77 S. E. 1055), it was held that under the allegations of the petition the plaintiffs were not entitled to the appointment of a receiver. That decision, being in the same case, is controlling on that subject. The court, therefore, erred in overruling the special demurrer to that particular prayer for relief. In affirming the case, however, direction will be given that the judgment be so modified as to sustain the 6th ground of the demurrer.

The other grounds of the demurrer are without substantial merit.

Judgment affirmed, with direction.

All the Justices concur, except Fish, C. J., absent.