Childs v. Philpot

Decision Date11 December 1972
Docket NumberNo. 5--6093,5--6093
Citation487 S.W.2d 637,253 Ark. 589
PartiesBob CHILDS, d/b/a Bob Childs Realty Co., Appellant, v. Wesley PHILPOT et ux., Appellees.
CourtArkansas Supreme Court

Hartje & Hartje, Conway, for appellant.

Clark, Clark & Clark, Conway, for appellees.

FOGLEMAN, Justice.

This case originated as a suit by Bob Childs Realty Company, Inc., against Wesley Philpot and his wife for a real estate commission. The plaintiff alleged that defendants (appellees) engaged the services of Bob Childs Realty Company, Inc., to sell a tract of real estate and that, after the expiration of the 90-day exclusive listing of the property with plaintiff, appellees sold the property to purchasers under such circumstances that plaintiff was entitled to recover the commission specified in the listing contract. It was alleged that the sale of the property by appellees resulted from, or was based upon, information given by, or obtained through, the agent, with notice to the owner, during the term of the contract. Appellees answered denying that allegation. They also alleged that the plaintiff was not entitled to recover any commission because it was not a licensed real estate broker. By an amendment to the answer, appellees alleged that the plaintiff was non-existent. The plaintiff later admitted that 'Bob Childs Realty Company, Inc.' had never been licensed as a real estate broker or salesman in Arkansas. Thereafter, a pleading denominated 'Amended Complaint and Response' was filed by 'Bob Childs d/b/a Bob Childs Realty Company, Inc.,' admitting that the real estate business conducted by Childs had never been incorporated, and alleging that his doing business in the corporate name was without intent to defraud or mislead anyone, and did not result in any loss to appellees or constitute fraud or misrepresentation. In the same pleading Childs alleged that he was a licensed real estate dealer in Arkansas under the name of 'Bob Childs Realty Company' and that appellees were estopped to deny the corporate existence of the plaintiff originally named in the complaint. Appellees moved to strike this pleading asserting that no procedure existed by which Bob Childs, an individual, could be substituted as plaintiff, and that Childs could not recover from appellees in his individual capacity without instituting a new action by filing a new complaint and causing a summons to be issued. The chancellor denied this motion and treated the case as if Bob Childs individually, Bob Childs Realty Company, Inc., and Bob Childs, d/b/a Bob Childs Realty Company were the plaintiffs.

The chancery court, after hearing the evidence, decreed that the complaint be dismissed 'because of plaintiff's failure to comply with § 71--1301 et seq., Ark.Stat.Ann. ((Repl.1957)).' The chancellor made specific findings that the sale resulted from information obtained through 'the plaintiff, as a real estate agent, for the sale of said lands,' that Childs at all material times operated as a corporation, although all steps necessary to incorporate had not been completed, and that appellees were not estopped from pleading the lack of a real estate license as a defense.

For reversal, appellant argues that the trial court erred in finding that he operated as a corporation and consequently was to be treated as such and in failing to find that appellees were estopped to deny the corporate existence of appellant. We find that the court erred in holding that Childs was barred from recovery because the nonexistent corporation had no real estate license. Appellant could not benefit, however, if we held that appellees were estopped from denying the corporate existence of Bob Childs Realty Company, Inc., because appellant does not even assert that the real estate license had been issued to such a corporation, either de jure or de facto. Childs, in his amended complaint, plainly alleges that the license was issued to him, an individual doing business as Bob Childs Realty Company, and we find nothing contradictory in the record.

In reaching his conclusion, the chancellor based his holding upon the fact that Childs operated as a corporation in the transaction. The evidence shows only that Childs contemplated incorporating his real estate agency and made some effort to start the proceedings but did not follow through with the idea. The contract used on was drawn by an employee of Childs. It designated the agency by the corporation name, and a sign identifying Childs' office also used that name. No evidence of any other acts on the part of Childs to incorporate the business appears in the abstracts of the evidence. Consequently, there was neither a corporation de jure nor a corporation de facto. The necessary requisite to the existence of a corporation de facto lacking here is an actual attempt to organize a corporation. Watts v. Commercial Printing Company, 177 Ark. 525, 7 S.W.2d 24. There must be at least a colorable compliance with statutory requirements by taking some of the statutory steps. Doyle-Kidd Dry Goods Company v. A. W. Kennedy & Company, 154 Ark. 573, 243 S.W. 66. Even the signing of articles of incorporation, a step apparently never reached here, is not a sufficient step in the act of incorporation to meet the requirements for declaring a corporation de facto. Harris v. Ashdown Potato Curing Ass'n, 171 Ark. 399, 284 S.W. 755.

Therefore, in order to bar Childs from recovery of the real estate commission to which he was otherwise entitled, the circumstances must have been such as to bring into being a 'corporation by estoppel.' A 'corporation by estoppel' has no real existence but is a fiction for the purpose of a particular case and can arise only from actions and conduct of parties which place them in such a position that they will not be permitted to deny the existence of the corporation. 8 Fletcher, Cyclopedia Corporations 191, §§ 3889--3891; 18 Am.Jur.2d 615, §§ 74, 75; 18 C.J.S. 503, 509, §§ 108, 110. This doctrine has been severely criticized. 8 Fletcher, Cyclopedia Corporations 191, § 3889. It rests wholly upon equitable principles and operates only to protect those who would otherwise suffer loss or incur liability because of their reliance in good faith upon the representation of corporate existence. Doyle v. Mizner, 42 Mich. 332, 3 N.W. 968 (1879); 8 Fletcher, Cyclopedia Corporations, Cum.Supp.1971, 10, § 3938; 18 C.J.S. Corporations § 111d, p. 515. The doctrine should be applied only where there are equitable grounds for doing so, but never where it would be inequitable. It should not be applied unless it would be inequitable not to do so. 8 Fletcher, Cyclopedia Corporations 194, § 3897; 18 C.J.S. Corporations § 111d, p. 515. See Montoya v. Hubbell, 28 N.M. 250, 210 P. 227 (1922).

Before an equitable estoppel may be applied, the party asserting estoppel must have relied to his detriment or prejudice upon the representations, acts or conduct of the one against whom estoppel is invoked. Bowlin v. Keifer, 246 Ark. 693, 440 S.W.2d 232. In other words, the courts of Arkansas generally will not apply an equitable estoppel unless the actions or conduct relied upon caused the innocent party to assume a different position than he would otherwise have or it would be otherwise inequitable to permit the person estopped to change his position. Schlumpf v. Shofner, 210 Ark. 452, 196 S.W.2d 747; Exchange Bank & Trust Co. v. Gibbons, 228 Ark. 454, 307 S.W.2d 877. There is no evidence to show that appellees suffered any detriment, prejudice or change of position in reliance upon the apparent corporate status of the real estate agency with whom they contracted. In a closely parallel case, the United States Circuit Court of Appeals for the Ninth Circuit, where Nevada law was applicable, held that an individual plaintiff in an action upon a contract which was entered into in the name of a nonexistent corporation rather than his own name was not estopped to sue because there was no proof that the defendant was injured or misled as a result of such misrepresentation. El Ranco, Inc. v. First National Bank of Nevada, 406 F.2d 1205 (9th Cir. 1968). We think the logic and reason dictate the application to the case at hand of the equitable principles above stated and applied in the case just cited. Consequently, we find that Childs was not, under the circumstances, estopped to sue on the contract.

We consider Benton-Bauxite Housing Coop., Inc. v. Benton Plumbing, Inc., 228 Ark. 798, 310 S.W.2d 483, relied upon by appellees, to be readily distinguishable. In that case the prospective incorporators of a proposed corporation were seeking to avoid liability for a debt for plumbing and gas piping installed in houses being constructed on land owned by the incorporators under a contract with the nonexistent corporation. The landowners had received full benefit of the contract. The court found that there was a preponderance of the evidence showing that the proposed corporation was a subterfuge through which the landowners sought to defraud the plaintiff and defeat its lien on the property. There was clearly a detrimental reliance there, and equitable principles demanded the application of estoppel under those circumstances.

Appellees urge an affirmance here upon the ground that the trial court correctly dismissed the complaint because Childs, individually, should not be permitted to recover upon the amendment to the complaint filed by him, after the lack of a corporate charter had been disclosed. A portion of appellees' argument is inconsistent in that in one breath they rely upon the want of corporate existence and in the next they assert that Childs and Bob Childs Realty Co., Inc., are two entirely separate and distinct entities. Perhaps there would be merit in appellees' contention, if there were any indication that they were prejudiced in any way by the procedure. Such a situation might arise if there were any question about the propriety of venue, the application of ...

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    • United States
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    • 30 Agosto 1994
    ..."wholly upon equitable principles ... and should be applied only where there are equitable grounds for doing so." Childs v. Philpot, 253 Ark. 589, 487 S.W.2d 637, 641 (1972). Finally, Florida has adopted the position that the doctrine of corporation by estoppel cannot be invoked where the i......
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    ...fairness of estopping a defendant ... from denying the corporate existence [of the plaintiff] ... is apparent"); Childs v. Philpot, 253 Ark. 589, 487 S.W.2d 637, 641 (1972); Namerdy v. Generalcar Corp., 217 A.2d 109, 112 (D.C.App.1966). The rationale underlying this approach in this factual......
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    ...existence."). The doctrine rests upon equitable principles, and should only be applied when equity requires it. Childs v. Philpot (1972), 253 Ark. 589, 487 S.W.2d 637, 641. ¶ 27 Although courts sometimes confuse the doctrine of corporation by estoppel with the related de facto corporation d......
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