Planters and Miners Bank vs. Padgett et al.

Supreme Court of Georgia1882-12-30

69 Ga. 159

Summary · law.co

Holding. The judgment is affirmed. A party that contracts with an entity in its corporate capacity and receives corporate obligations cannot subsequently seek recovery against the individual members as partners, even if the incorporation was technically void, when both parties intended the contract to bind only the corporate entity.

The Planters' and Miners' Bank sued Padgett and others, who operated under the name The Cartersville Car Factory and Building Association, on three promissory notes. The defendants claimed they had been incorporated as a company by the superior court of Bartow County before the notes were issued, and that the bank had dealt with them as a corporation, not as partners. The jury found in favor of the defendants, and the bank appealed.

The central issue was whether the bank could recover against the individuals as partners when it had contracted with them in their corporate capacity. Although the court acknowledged that the incorporation judgment was void because the superior court lacked authority to grant it, the court held that the bank was estopped from denying the corporation's existence. The bank had executed the contract with the corporation through its officers, received notes signed by corporate officials, obtained a judgment against the corporation, and even foreclosed on a mortgage securing the debt. By conducting the entire transaction with the entity as a corporation, the bank could not later treat the defendants as individual partners to pursue recovery.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether a creditor can be estopped from denying a corporation's existence after dealing with it as a corporate entity
Whether individual members can be held liable as partners on a contract made in corporate capacity
Effect of void incorporation on creditor's right to pursue corporate members individually

Procedural posture

The bank brought suit on promissory notes against the defendants as partners; the trial court charged the jury that if the bank dealt with defendants as a corporation and received notes as a corporate obligation, recovery against them as partners was barred; the jury found for defendants; the trial court denied the bank's motion for a new trial; and the bank appealed.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Jackson, Chief Justice.

This was a suit on three promissory notes brought by the Planters’ and Miners’ bank against Padgett, Howard and others as partners, using the firm name and style of The Cartersville Car Factory and Building Association.

To this the defendants pleaded they had formed no such partnership, but had been, before the notes were given, incorporated as a company by the superior court of Bar-tow county; that the plaintiffs dealt with the.corporation as such, and loaned the money to the corporation, and received the notes as a corporate obligation, and not. as a partnership contract.

The jury, under the charge of the court, found for the defendants; a motion for a new trial was made and refused ; and on its refusal on all the grounds contained therein, error is assigned here.

In the view we take of the law, it is unnecessary to consider any but the vital points which control the case. The judgment incorporating this manufacturing company was void, the superior court having no such power. 55 Ga., 639.

The court charged that if the plaintiff dealt with the defendants as a corporation, and received the notes from the corporation for the consideration thereof, the money loaned, then there could be no recovery against the defendants as partners, notwithstanding the illegality of the •creation of the corporation. The facts are undisputed .that they did so deal; that the contract was made with the corporation as such, the notes received from it as such ; and the controlling legal question is, can.there be a recovery upon these facts against these defendants as partners.

If the bank so dealt with the corporation, its corporáte existence cannot be denied by it after the execution of the contract. Morawetz on Private Cor. par. 142 ; 11 Cushing, 285; 27 Ohio St., 343, and other cases there cited. In this case, not only were the promissory notes signed by the president and treasurer of the company, but a mortgage was executed to secure them; judgment was had on the notes against the corporation, and the mortgaged property was sold and bought by the plaintiff for ten dollars under the incumbrance of the mortgage it owned. So that it dealt with the company and recognized it as a de facto corporation in many phases of the transaction, and it cannot now deny its existence as a legal entity. . ,

Having contracted with the company as a corporation, through. its officer or agent, both parties believing the corporation to exist de jure as well as de facto, and with no intention at the time of giving credit to or binding the members individually or as partners, an action cannot be maintained against-them as partners on that contract. It would be to make a new contract for the parties, never contemplated when the real contract which they made themselves was executed. The members never agreed to enter into the contract, either severally or jointly, and it is difficult to see how they can be bound by it. They never agreed to be bound as partners, nor did they hold themselves out to the world as such. “The contract was intended to bind the association in a corporate capacity only.” Morawetz on Priv. Corp., 141; 7 Cushing, 188; 11 ib., 83; 117 Mass., 476, and many other cases cited. See also 43 Ga., 187.

In the case in the 43 Ga., it was held’that a corporation and partners were distinct, “not the same person,” and though the corporation was of the same name with the partnership, and did business by the same agent, before the date of the charter, it was not liable for a debt due by the partnership. There must be another contract to bind it. So here there should be, on the other hand, another contract to bind the partnership. The case is .not precisely in point, but recognizes the two as distinct persons, and in that view bears upon the point. .

In 52 Ga., 351, some intimations are the other .way; and it is said that a recovery might be had against the corporators as partners, but the expression is coupled with the words, “ if for a compensation, such as the waiver of a mechanic’s lien, they had promised jointly to pay the debt” — a new promise.

The authorities cited from Morawetz, however, are right on the point, and must conclude the question.

We conclude, therefore, that under the pleadings, law and facts of the case disclosed in the record, the verdict and judgment could not have been, otherwise; and the judgment is affirmed.