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Lawskills.com Georgia Caselaw
EMHART CORPORATION v. MCLARTY et al.
25863.
Equitable petition. Richmond Superior Court. Before Judge Fleming.
NICHOLS, Justice.
1. In a case seeking the cancellation of a deed, all parties to the deed are necessary parties and the absence of such a material party is a fatal defect.
2. An action against a corporation officer and director for the wrongful conversion of the assets of an insolvent corporation does not accrue until judgment is obtained against the corporation and a nulla bona on the execution returned.
The plaintiff filed a complaint which, as amended, named Rufus McLarty and Port Development Corporation as defendants. The material allegations were that the defendant, Rufus McLarty, was the President and Director of Maryfield Plantation, Inc., that was heavily indebted to the plaintiff; that at said time the defendant's wife, Emmie B. McLarty, owned 90% of the capital stock of said corporation and was vice president and a director thereof; that Rufus McLarty dominated the Maryfield Plantation, Inc., and made all the decisions of said corporation; that on June 15, 1964, while Maryfield Plantation, Inc., was insolvent it was served with a suit by a creditor and in order to indemnify Mrs. Emmie B. McLarty for her investments in said corporation a deed to secure debt conveying practically all of the assets of said corporation to her was executed; that in October 1964 a warranty deed to all the property of said corporation was executed to said Emmie B. McLarty; that the effect of such conveyances was to give the defendant's wife an illegal preferential advantage over the creditors of said corporation; that until May 1965 the farm which was operated by said corporation was operated in the same manner as it was prior to October 1964; that in May 1965 the defendant's wife realized approximately $60,000 by the sale of the property previously conveyed to her and the creditors of said corporation were fraudulently deprived of these funds to satisfy their claims; that the aforesaid actions by said corporation were done with the knowledge and at the direction of the defendant McLarty; that said defendant has misused the separate corporate entity concept and other transactions to defraud creditors; that after almost three years of litigation the plaintiff recovered a judgment against said corporation in April 1968 in the amount of $18,079.21 plus interest and costs in a trial in which no one appeared on behalf of said corporation and no part of such judgment has been paid; that said Emmie B. McLarty was a party defendant in the litigation against said corporation and in order to keep the family residence located in Augusta, Georgia, out of the reach of this plaintiff the defendant, McLarty, had said residence conveyed to Portland Development Corporation, another corporation controlled and dominated by him. The demands made in such petition were for a money judgment equal to the judgment previously obtained against the Maryfield Plantation, Inc.; exemplary and punitive damages in the amount of $100,000; and that the title to the Augusta property be decreed to be in Emmie B. McLarty as it was prior to the aforesaid deed to Port Development Corporation.
1. In a case seeking the cancellation of a deed, all parties to such deed are necessary parties and the absence of such a material party is a fatal defect. See Sowell v. Sowell, 212 Ga. 351 (92 SE2d 524); Jackson v. Watts, 223 Ga. 70 (154 SE2d 195). Accordingly, since the Port Development Corporation, the grantee in the deed from Mrs. Emmie B. McLarty, was the only party to such deed named as a party in the present case, the trial court did not err in dismissing the petition as to Port Development Corporation.
2. Under decisions exemplified by Tatum v. Leigh, 136 Ga. 791 (72 SE 236, AC 1912D 216), an action will lie against the stockholders of a corporation where they have disposed of the corporate assets and appropriated the same to their individual use thus leaving no other assets from which to pay corporate debts. Under such decision a necessary prerequisite to an action against the stockholders is the obtaining of a judgment against the corporation and the return of nulla bona on the execution.
In Lamar v. Allison, 101 Ga. 270, 276 (25 SE 656), a similar case, it was held: "The corporation is the primary debtor; and when sued to judgment, if it should have no assets out of which the judgment at law could be satisfied, the superior court, in the exercise of its equity powers, has power to decree against the stockholders, who had appropriated to their own use the assets of the corporation, the payment of the debts thus recovered against it, to the extent of the value of the assets thus misappropriated." (Emphasis supplied.)
"In proceedings where equitable relief is sought, the time within which the right will be barred will often be determined by a method of double limitations. That is, the court will first ascertain whether the right has been barred by the lapse of statutory time prescribed for its enforcement. If so barred, there need, of course, be no further consideration of the case. However, if not so barred, a court of equity will further investigate the situation to see if the plaintiff has been guilty of laches. It will give no relief to one whose long delay renders the ascertainment of the truth difficult, though no legal limitation bars the right." Davis & Shulman, Georgia Practice and Procedure, (3d Ed.), p. 465. The plea of laches in the present case where equitable relief was sought includes therein a plea of the statute of limitation as to legal relief.
The statute of limitation for the conversion of personalty is four years. Code 3-1003. If the cause of action be deemed to have accrued in October 1964 when the corporation executed a warranty deed to Emmie B. McLarty or at the time the deed to secure debt was executed (obviously earlier) more than four years elapsed before the present action was filed on July 15, 1969.
However, since a prerequisite to an action against a stockholder and director for the wrongful appropriation of corporate assets to his own use is a judgment against the corporation and a return of nulla bona on the execution, it necessarily follows that an action against a corporation officer and director for the wrongful conversion of the assets of an insolvent corporation could not accrue until judgment is obtained against the corporation and a nulla bona on the execution returned. The present action filed approximately one year after the entry of judgment against the corporation was not barred by laches.
Since equity will not require a useless thing, the allegations of the petition as to the judgment being obtained against the corporation together with the allegations of the prior conveyance of all the corporate property is tantamount to an allegation of an entry of nulla bona on an execution. That part of the judgment of the trial court sustaining the motion to dismiss of Port Development Corporation is affirmed and that part of the said judgment dismissing the complaint as to Rufus McLarty on the ground of laches is reversed.
Judgment affirmed in part; reversed in part. All the Justices concur.
Isaac S. Jolles, for appellees.
Aynes, Feldman & Genins, R. John Genins, for appellant.
ARGUED JUNE 8, 1970 -- DECIDED JULY 9, 1970 -- REHEARING DENIED JULY 28, 1970.
Friday May 22 16:42 EDT


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