Humphreys v. Mooney

• Decision Date: 01 December 1880
• Citation: 5 Colo. 282
• Parties: HUMPHREYS, Impl. etc. v. MOONEY.
• Court: Colorado Supreme Court

5 Colo. 282

HUMPHREYS, Impl. etc. v. MOONEY.

Supreme Court of Colorado

December, 1880

Appeal from District Court of Arapahoe County.

THE facts are sufficiently stated in the opinion. The plaintiff below had judgment.

Messrs ROCKWELL & BISSELL and J. E. ROCKWELL, for appellant.

Messrs WELLS, SMITH & MACON, for appellee.

STONE J.

The first question presented in this case, is whether the appellee, the plaintiff in the court below, could question the validity of the corporation, in a suit upon a contract he had made with it.

A few cases may be found in which, under the given facts, the legal existence of a corporation has been allowed to be questioned in a collateral proceeding; but as a general rule it seems quite well settled that the validity of the existence of a corporation cannot be questioned collaterally.

Several distinctions, however, have been made in the cases covered by both the general rule and the exceptions, dependent upon the conditions of the charter, the terms of a general incorporation statute, whether the suit is between the corporation and one of its members, or a stranger, what the particular object of the suit may be, and whether the de jure existence of the corporation is sought to be questioned, or whether it be the regularity of the organization of a de facto corporation that is attacked.

Without going into an examination of the cases to illustrate all these distinctive phases of the subject, it is sufficient to notice only the most important distinctions bearing upon the case in hand-the difference between the illegal existence of a corporation ab initio on the one hand, and on the other hand an assumed corporation based upon a charter a statute lawfully authorizing it, but irregularly or defectively organized.

In the former case it has been held that one dealing with a corporation is not estopped to deny its legal existence on the ground that there was no valid law or authority for the organization, or that the assumed organization was in the face of a prohibition by statute nisi, in that there was a failure to comply with an express condition precedent requiring certain acts to be performed before the corporation can be considered in esse, or its transactions possess validity. Mokelumne H. M. Co. v. Woodbury, 14 Cal 427; Lessee of Frost et al. v. Frosburg Coal Co. 24 How. 283; Heaston v. Cincinnati, etc. R. R. Co. 16 Ind. 279; Abbott v. Omaha Smelting Co. 4 Neb. 423; Hildreth v. McIntire, 19 Am. Deci's and notes, 67; Stowe v. Flagg, 72 Ill. 401.

In Heaston v. Cincinnati R. R. Co. supra, it is said that the issue of nul tiel corporation is upon the existence of a de facto corporation where it is de jure authorized, and that upon this fact rests the doctrine of estoppel to deny the existence of the corporation in certain cases, the estoppel goes to the mere de facto organization, not to the question of legal authority to organize.

While some diversity of opinion is found in the courts of different States as to when the existence of a corporation may be questioned, if at all, in a collateral proceeding, the authorities are almost unanimous in holding that such collateral inquiry cannot be made touching the corporate existence of a de facto corporation where there was lawful authority for its creation. Cochran v. Arnold, 58 Pa. St. 405; Rondell v. Fay, 32 Cal. 351; Baker et al. v. Adm'r of Backus, 32 Ill. 110; Tarbell v. Page et al. 24 Ill. 46; Jones v. Cin. Type Foundery, 14 Ind. 89; Hubbard v. Chappel, Ibid. 601; Heaston v. Cin. etc. R. R. Co. 16 Ind. 279; Mokelumne H. M. Co. v. Woodbury, supra; Washington College v. Duke, 14 Iowa, 17; Slocum v. Providence, etc. Co. 10 R. I. 114; 1 Redfield Law of Railways (5 Ed.), 73; Ang. & Am. Corp. (10 Ed.) Sec. 635.

In the case before us, the appellee, Mooney, brought an action against Humphrey, together with other persons, members of an assumed corporation, to recover a sum of money due upon an obligation given therefor by said company, through its agent, and it is sought to hold the defendant, Humphrey, individually liable as a partner, the defendants being declared against as partners. Defendant's answer denies the alleged partnership, and sets up the corporation, organized under the general incorporation law of Colorado as the Trenton Dressing and Smelting Company. Plaintiff replies, averring the non-existence of the corporation. The evidence in support of this averment rests upon certain omissions in the articles of incorporation, all alleged irregularities in the organization of the company as a corporation.

In the case of Baker et al. v. The Adm'r of Backus, supra, where a bill was filed against certain defendants, who purported to form a corporation, but who, as alleged, had not complied with the statutes, and the prayer of the bill was that the company be decreed to be a general co-partnership; or if it should be declared a corporation, then to be dissolved by order of court, the opinion gives, besides the general rule that a direct proceeding on behalf of the State is necessary in such case, the additional reason that the corporation should be made a party defendant to the action. 'All bodies should be allowed the privilege of being present at their own dissolution,' is the rather striking and forcible language used by Mr. Justice Breese upon this point.

The principal point relied upon as ground for alleged noncompliance with the statute and consequent illegality of the corporation, is based on the latter clause of Sec. 93 of the corporation law of Colorado relating to mining companies, and which reads as follows:

'The certificate of incorporation of any such company, in addition to the other matters required in this act to be stated therein, shall contain a statement that the stock of such company is either assessable or non-assessable, and each certificate of stock issued by any such company shall have plainly printed on the face thereof the word 'assessable' or 'non-assessable,' as the case may be.'

This statement was omitted in the articles of incorporation of the Trenton Dressing and Smelting Company, and this is urged as fatal to the legal existence of the company as a corporation.

By reference to the 2nd and 3rd sections of the Corporation Act, it will be seen that after enumerating the specifications which the articles of association shall contain, it is provided that a copy shall be filed with the Secretary of State, and a copy with the recorder of each of the counties where the principal business is to be carried on, and that when so filed the Secretary of State shall record and preserve the same in his office, and that a certified copy thereof under the seal of the State shall be evidence of the existence of the company.

It will be observed that none of the statements which the certificate of incorporation is directed to contain, are required to be made as condition precedent to the commencement or continuance of business by the corporation.

In the case of Abbott v. The Omaha Smelting Company, supra, cited by the appellee as an authority against the validity of the corporation, the decision turned upon the particular language of the statute of Nebraska, which required that the corporation 'previous to the commencement of any business except its own organization' * * * must adopt articles of incorporation and have them recorded in the office of the clerk of the county, etc., and it was held that the company was not in existence for the purpose of transacting business as a corporation until such record had been made, and the court point out the distinction between that case and the California case of the Mokelumne Co. v. Woodbury, supra, wherein it is laid down that 'there is a broad and obvious distinction between such acts as are declared to be necessary steps in the process of incorporation, and such as are required of the individuals seeking to become incorporated, but which are not made prerequisite to the assumption of corporate powers. In respect to the former, any material omission will be fatal to the existence of the corporation, and may be taken advantage of collaterally in any form in which the fact of incorporation can be called in question. In respect to the latter, the incorporation is responsible only to the government in a direct proceeding to forfeit the charter. The right * * * to be considered a corporation and the exercise of corporate powers depends upon the fact of the performance of the particular acts named in the statute as essential to its corporate existence.'

The case before us certainly falls within this latter class. The specification respecting the assessability of the stock cannot, in the absence of fraudulent intent, be regarded as essential to the corporate existence in this case. What the relative importance may be in the several statements directed to be set forth in the articles or certificate of incorporation, or whether the omission of any one or more of them might be considered fatal to the existence of an assumed corporation, or its right to the exercise of corporate powers when inquired into by a direct proceeding for that purpose, we need not now determine.

The evidence in the case embracing a certified copy of the duly recorded certificate of incorporation, containing all the statements enumerated in the statute, except the one in controversy, together with acts of user, at the place where the works of the company were located, was sufficient to establish the conclusion that the company was, at the date of the transaction with Mooney, a corporation de facto, vested with the power and right to the exercise of all the acts contemplated under its franchise, so far as regards the relation between it and the plaintiff, whose contract with it as such, estops...