Felton v. Highlands Hotel Co.

ON MOTION ROE REHEARING.

Eussell, C. J.

A motion for rehearing has been filed, based upon five grounds:

Learned counsel insists, basing the contention upon the statement from the opinion that “it also appears that those who were taking subscriptions, not being in any way connected with the Highlands Hotel Company (which was not then in existence), . . were only dealers within the meaning of the Georgia securities law,” that “the court overlooked the provision in section 35 of the Georgia securities law (Acts 1920, p. 35), to the effect that the seller and his agents shall be liable to a subscriber where the securities law has not been complied with.” The court did not overlook that section, but had also in mind the ruling of this court in Smith v. State, 161 Ga. 103 (supra), in which it was held that the seller would not be criminally liable if he were also the issuer *618of the stock. The majority of the court also had in mind the definition of “dealers,” as it appears in the act of 1922 (Ga. L. 1922, p. .156) : “The term or word dealer’ shall be deemed to include any person . . selling or disposing of or offering to sell or dispose of any such securities through agents or otherwise, or . . [engage in] any stock promotion scheme whatever.” Giving this section its plain, ordinary signification, any person who does any of the things set forth' in section 5 is a dealer, and what is said in section 35 of the act, as construed in Smith v. State, supra, has reference merely to the fact that the issuer of the stock itself is excepted from the broad provision which renders “the seller and his agent^” liable to any subscriber where the securities law has not been complied with. A request is made in this case that the Smith case be reviewed and overruled, it being the contention of the attorney for the securities commission that this should be done to “sufficiently protect the people of this State from being defrauded. . . It is the intent of the -Georgia securities law to lock the stable-door before the horse is stolen. The decision in the case of Smith v. State knocked the hinges off the stable-cloor.” The court declines to overrule that decision, for the reason that “issuers” alone being held to be exempt from the operation of the law (and the exemption ceasing if the “issuers” become “dealers” as defined in section 5), we are of the opinion that a proper construction of section 5 will afford adequate protection. In the ease at bar, however, there is no difficulty, because it appears from the record that the defendant in error dealt in securities “indirectly or through agents or underwriters,” and paid the Ilockenbury System Inc., acting in one or the other of these capacities, nearly $30,000 without having made to the commission, in advance of selling any stock, the statement required by law that the company was to receive at least seventy-five per cent, of the money obtained from the sale of the stock and without any extra expenses such as luncheons, printing, etc., as appear in the present case.

The court did not think that the language quoted from the opinion in the first ground of the motion for a rehearing could be tortured into disconnecting any of the dealers in or salesmen of the stock of the proposed corporation (admitted to be disinterested promoters or agents of the proposed corporation as principal, which *619after its organization ratified the acts of these agents), so as to relieve the corporation from liability in this case. Nothing is better settled than that if a corporation adopts the acts of its promoters and ratifies them and receives therefrom benefits, whatever the liability that attached to the promoters may be, such liability is by ratification assumed by the corporation. The defendant can not ratify or adopt suc'h transactions in part and not in whole. If it takes the advantages, it takes subject to the infirmities. The transactions, being ratified and adopted by the corporation, are the same as if originally authorized or done by it. Civil Code (1910), §§ 3593, 3591, 3569. The Highlands Hotel Company can not claim the money agreed by the subscriber to be paid under the terms of the contract, unless it adopts the entire transaction in which the contract was entered into. If the transaction was illegal, as this appears upon its face to be,'the taint of the illegality affects and corrupts every portion of the instrument. What may be the liability of individuals who disposed of the stock which was later taken over by the Highlands Hotel Company is not before the court; but we do hold that it is well settled that in a case like this, where the corporation to be formed is the principal, it' is bound by the wrongs of its agents, and that in adopting and claiming the benefits of transactions of volunteer agents it must also adopt and ratify the wrongs committed, and accept the consequences imposed by law. 7 R. C. L. 81, § 60; Frankfort etc. Turnpike Co. v. Churchill, 6 T. B. Mon. 427 (17 Am. D. 159). “As a general rule, adoption or ratification results from the acceptance by the corporation, after its organization, of the benefits of the contract; having exercised rights and enjoyed benefits secured to it by the te-rms of a contract made by its promoters in its behalf, a corporation should be held estopped to deny its validity.” ■7 E. C. L. 82, § 61. A fortiori, having adopted a contract, if the contract is invalid the acceptance does not render it valid when, as in this case, the law expressly declares it to be void and unenforceable. It has frequently been held by this court that a corporation can not ratify an ultra vires act; much less then can it by ratification obtain benefits from an act forbidden by law and denounced as a crime so as to make the contract legal. According to the allegations of the petition in this case, section 13 (which was not altered or amended by the act of 1922, supra), which requires *620a preliminary statement, section 34, which forbids “any agent, broker, solicitor, officer, director, or other person to sell or offer for sale any securities in class i D ’ . . in any other manner or form than as specifically set forth in this act,” and makes such sale or offer to sell prima facie evidence that the securities were offered or sold “for the purpose of defrauding the purchaser,” section 35, which declares such sales void, as well as section 36, which makes the selling or offering for sale of any securities coming within class “D” without having first obtained a license guilty of a misdemeanor, were all violated.

The point ruled in Smith v. State, supra, does not affect the decision in this case. In that case it was held that so much of section 36 of the act as makes it a felony for an issuer to sell or ofEer to sell without a license is unconstitutional, because it is excluded by the title of the act. But it is expressly provided in section 38 of the act, that “should any court of this State declare any section or clause [italics ours] unconstitutional or invalid for any cause or reason, then such decision shall affect only that section or clause so declared to be unconstitutional or invalid, and shall not affect any other clause or section of this act.” As said by Judge Bell in Floding v. Gunter, 36 Ga. App. 450 (136 S. E. 798), even if the defendant corporation as the issuer was not itself required to obtain a permit from the securities commission for the sale of the stock before putting the same on the market, the plaintiff, before proceeding as an agent or solicitor to sell or offer for sale such stock, should have obtained a permit or license to do so in accordance with the securities act. (Ga. L. 1920, p. 270, sec. 36). And the Court of Appeals proceeded to say: “Without a compliance with this statute by him (assuming such compliance to be necessary), the courts would probably refuse to enforce against a purchaser a contract for the sale of such stock,” as we have, under the well-settled principle that the Highlands Hotel Company, when organized, could not adopt the benefits of the contract relieved from its burden. To place beyond peradventure our meaning in the excerpt from the opinion quoted in the motion for a rehearing, it is only necessary to insert, as we have in the original opinion, after the word “connected” the words “at that time,” and to insert in the parenthesis, after the words “which was not then in existence,” the words “but which upon its organization accepted the subscriptions.”

*621The second ground of the motion for rehearing is based upon the contention that the corporation has no assets except payments on subscriptions, and that, “because the securities law was not complied with, every subscriber can bring a suit to recover what he has paid in, and recover that and costs and attorney’s fees in addition, notwithstanding that the corporation has only what has been paid in. What is the corporation going to pay these additional amounts with? Can some subscribers get their payments and costs and attorney’s fees out of what the others have paid in, and let these others lose that and then whistle for their own costs and attorney’s fees? Who is going to say which subscribers shall be thus favored? What is going to be the criterion to determine who shall be the losers in this game of grab?” Counsel argues that the decision of the court “leads to impossible results which could not have been in the mind of the court when it was rendered.” This ground is apparently not in compliance with the rule which requires grounds of a motion for rehearing to call the court’s attention to some matter of law or of fact overlooked by the court. But, conceding 'for the nonce that the statement that the “results” could not have been in the mind of the court as a sufficient direction of the court’s attention to something overlooked, it suffices to say that courts are not concerned with results when they come to undertake to construe a statute of the State. It would be a poor reply to A, justly entitled to a judgment against B, to say that the judgment would be worthless on account of B’s insolvency, and therefore will be denied. Paramount over any consideration of “results” is the maxim, lex sic scripta est.

In the third ground is presented the argument that only applicants for licenses are required to file a “statement,” by reason of the fact that there is no reference to the statement in the title of either the act of 1920 or that of 1922, supra. It would seem that the title of the act is broad enough to include any requisite deemed necessary by the General Assembly to prevent the perpetration of frauds upon the public; but that point is not raised in such a way as that this court can deal with it, learned counsel for movant being well aware that reference must be made to the particular paragraph of the constitution alleged to have been infringed on account of the paucity of the title.

*622Without conceding that the case of Witt v. Trustees Loan & Savings Co., 33 Ga. App. 802 (supra), was not binding authority, or “incorrectly interpreted,” movant, by the use of the words quoted from the fourth ground of the motion for a rehearing, admits that the court has considered — and therefore that the court has not “overlooked” — the decision cited, as must be the case in order to aiford ground for a motion for rehearing. Rules of Supreme Court, 38, Civil Code (1910), § 6257.

In the fifth ground of the motion for rehearing it is said that the court overlooked the decision in the case of Branch v. Augusta Glass Works, 95 Ga. 573 (23 S. E. 128). The court did not overlook the principle there stated. It is fully recognized in this case. In the Branch case, to quote from the motion for rehearing, “it was held that a corporation could sue on a subscription for its stock made before it was created.” Likewise we hold that the Highlands Hotel Company could sue on subscriptions taken in its behalf before its organization, if these subscriptions had been taken in accordance with law instead of in violation of law. In the Branch case a number of authorities are cited from other jurisdictions to support the proposition, to which this court adheres, “that where persons are authorized by law to obtain a charter for a specified legal purpose, they represent in the initial steps the yet unborn corporation, and whatever they lawfully [italics ours] do in the premises operates to the benefit of the corporation when it attains to complete legal existence, and it may then enforce contracts made in its behalf by its promoters.” Since the passage of the Georgia securities law the foregoing ruling has not been altered; but as the statement “whatever they lawfully do” theretofore only impliedly excluded unlawful acts, the General Assembly by the passage of the securities law expressly outlawed unlawful acts by promoters, and provided that if the corporation chose to adopt these unlawful acts as its own, no benefit should accrue from such unlawful acts. In Smith v. State, supra, we held that under the language of the title Smith was an issuer, and it was said in the opinion that “issuer does not mean dealer.” In holding in the present case that the various persons who sold stock in the Highlands Hotel Company are dealers of the stock issued or to be issued by that corporation, we do not conflict with the statement quoted. The motion for a rehearing is denied.