Hyatt v. Riper
| Decision Date | 15 February 1904 |
| Citation | 78 S.W. 1043,105 Mo.App. 664 |
| Parties | JOHN HYATT, Respondent, v. J. C. VAN RIPER et al., Appellants |
| Court | Kansas Court of Appeals |
Appeal from Pettis Circuit Court.--Hon. George F. Longan, Judge.
Judgment affirmed.
Sangree & Lamm and Montgomery & Montgomery for appellant.
(1) The court below held the defendants liable as partners explicitly stating so in its findings and instructions. The only allegation in the petition upon which this finding can be based, is the charge that they filed articles of association, stating that the capital stock was full paid when in fact it was not full paid and the articles of incorporation were procured by false and fraudulent representations. So the court found that the mere failure to pay the capital stock in full, when it is so certified in the articles of association thereby creates a partnership between the original subscribers to the articles. (2) This is not one of that class of abortive corporations, where the incorporators attempting to incorporate never complied with the statute and did not secure the proper certificate, as in Hurt v. Salisbury, 55 Mo. 310, as afterwards modified by Furniture and Carpet Co. v. Crawford, 127 Mo. 367. Nor yet is it within the unique act of the legislature (Laws 1903, page 122), pertaining to foreign corporations doing business in this State and following the language and ruling of this court in Cleaton v Emory, 49 Mo.App. 345, and Davidson v. Hobson, 59 Mo.App. 130. (3) The plaintiff can not in this action assert that the corporation was not legally formed. R. S 1899, sec. 1314. If the record is false, the State may question it, but until the franchise claimed is directly adjudged not to exist, it is a corporation de facto at least, and its existence can not be inquired into collaterally. Kayser v. Bremen, 16 Mo. 90; St. Louis v. Shields, 62 Mo. 251; State ex rel. v. Fleming, 147 Mo. 10; Belt v. Hamilton, 130 Mo. 300; Casey v. Galli, 94 U.S. 679; 1 Morawetz on Cor., sec. 69; Cochran v. Arnold, 58 Pa. St. 406. (4) To hold that fraud annuls the grant of incorporation and the charter, subjecting it at any time and place to collateral attack, is not only against authority but such a doctrine would produce most disastrous and mischievous results. Haskell v. Worthington, 94 Mo. 568. (5) But it is urged by respondent that the court found that the capital stock was not full paid as the defendants had certified it was, and that this was a fraud, rendering the defendants jointly and severally liable to plaintiff. The petition does not contain the essential allegations to charge defendants under the old and familiar action of fraud and deceit. There is no averment that the defendants knew the alleged representations were not true or any averment taking its place. This is fatally defective. Walsh v. Morse, 80 Mo. 572; Austre v. Ober, 26 Mo.App. 669; Paretti v. Rebenack, 81 Mo.App. 498; Green v. Worman, 85 Mo.App. 574; Edwards v. Noel, 88 Mo.App. 439; Brockett v. Griswold, 112 N.Y. 469; Carp v. Chipley, 73 Mo.App. 33; Utley v. Hill, 155 Mo. 259.
Cashman & Bohling for respondents.
(1) A charter of a corporation procured by fraud has no legal existence, and the promoters and members thereof assuming to carry on its business under its corporate name are no more than partners in the enterprise. Davidson v. Hobson, 59 Mo.App. 130. (2) The books quite uniformly agree, that a corporate creditor seeking to enforce the payment of his debt may ignore the existence of the corporation, and may proceed against the supposed stockholders as partners by proving that the prescribed method of becoming incorporated was not complied with by the company in question. Cook on Stock and Stockholders, 233, and cases cited; Beach on Corporations, sec. 162 and authorities, supra; Cleaton v. Emery, 49 Mo.App. 356. (3) The petition in the case at bar is based upon the ground that none of the capital stock purported to have been subscribed and paid up as stated in the articles of association, it was in fact paid up. Therefore under the above authority cited, the incorporators become liable to the plaintiff as partners independent of a statute, and plaintiff has a right to sue them jointly or severally upon the contract, that he was induced to enter into believing that it was a valid corporation. Loverin v. McLaughlin, 161 Ill. 417; McClure v. Iron Co., 90 Mo.App. 584; Shields v. Hobart, 172 Mo. 510; Kersey v. O'Day, 173 Mo. 560. (4) It is not necessary to enforce a stockholder's liability to either allege or prove fraud. Shields v. Hobart, 172 Mo. 510; National Tube Works v. Gilfillan, 124 N.Y. 302; Cleaton v. Emery, 49 Mo.App. 356; Davidson v. Hobson, 59 Mo.App. 134; Glenn v. Bergmann, 20 Mo.App. 346; Steam Cutter Co. v. Scott, 157 Mo. 525. (5) The liability of Van Riper is fixed from any point of view taken of this case, as there was behind him no responsible principal, nothing but a shadow cast upon the transaction by his adroit maneuvers. Riffe v. Proctor, 74 S.W. 410; Ins. Co. v. Burkett, 72 Mo.App. 3; Potter v. Bassett, 35 Mo.App. 425; Zeigler v. Fallon, 28 Mo.App. 298; Glenn v. Bergman, 20 Mo.App. 346; Furniture Co. v. Crawford, 127 Mo. 367; Heath v. Gosling, 80 Mo. 316; Farris v. Thaw, 72 Mo. 446; Berkley v. Benacke, 59 Mo. 195; Tapsley v. McKinstry, 38 Mo. 245; McClellan v. Parker, 27 Mo. 162.
The allegations of plaintiff's petition are substantially as follows:
That defendants on the ninth day of June, 1899, filed certain articles of association of what was known as the Sedalia Electric and Heating Company, showing a capital stock of $ 100,000 divided into 1,000 shares of $ 100 each, purporting to be all subscribed for by defendants, and that the full amount of such capital stock had been paid, whereas no part thereof had then or has since, been paid; that afterwards on the eighteenth day of July, 1899, the defendants falsely and fraudulently represented to plaintiff that the entire capital stock was paid up and that the corporation was duly organized, solvent and ready to meet any and all liabilities; that plaintiff believing such representations and relying upon them, and relying upon the articles of association and the statements therein, was induced to enter into a certain contract with said company, with which he has fully complied; and that under said contract said company became indebted to him in the sum of $ 4,103.18, of which $ 628.18 is still due and owing to him. The petition further avers that the said company never had any legal existence and no authority to enter into said contract for the reason that the said articles of incorporation were procured by false and fraudulent representations made by defendants; and that said company had no assets to pay plaintiff's claim.
The court upon request of the parties made a finding of facts, which is as follows: "That the 996 shares of stock subscribed by Stewart and the one subscribed by Zimmerman were not paid into the treasury of the corporation; that there were no false representations made by Mr. Van Riper to Mr. Hyatt as to the capital being fully paid up which were relied upon by Mr. Hyatt as an inducement to enter into the contract."
The evidence showed that the payment credited upon plaintiff's claim did not come out of the company's treasury but was realized upon a sale of its property on a judgment in favor of a company supplying materials for the erection of the plant. The defendant Van Riper testified that what money he used in the company's business was furnished by Stewart who lived in the State of New York and who was reputed to be wealthy. The defendants were all stockholders and directors of the company. The so-called directors never met after the incorporation.
The court found for the plaintiff on the theory that defendants were liable as partners. Having already found that the contract was not entered into by plaintiff by reason of any representations of defendants as to the solvency of the company, there was nothing else upon which to base its finding. If, as contended by plaintiff, the said company had no legal existence, there can be no question of the correctness of the court's finding and judgment.
In Loverin v. McLaughlin, 161 Ill. 417, 44 N.E. 99, it was held: ...
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