Jones v. Dodge

• Decision Date: 09 January 1911
• Citation: 133 S.W. 828,97 Ark. 248
• Parties: JONES v. DODGE
• Court: Arkansas Supreme Court

133 S.W. 828

97 Ark. 248

JONES v. DODGE

Supreme Court of Arkansas

January 9, 1911

Appeal from Pulaski Chancery Court; John. E. Martineau, chancellor affirmed.

Judgment affirmed.

June P Wooten, for appellants.

Robert Martin, for appellee.

OPINION

FRAUENTHAL, J.

This is an appeal from judgments that were recovered by the receiver of an insolvent corporation against the defendants below upon subscriptions made by them for shares of the stock of said corporation. The suits were instituted against the defendants severally upon notes executed by them to the corporation for the par value of the stock for which they had subscribed. On March 2, 1905, all the subscribers to the capital stock of the People's Fire Insurance Company met for the purpose of organizing said corporation in pursuance of the laws of Arkansas in that behalf provided for the "incorporation for manufacturing and other lawful business." On that day the articles of agreement for the incorporation of said company were duly signed and executed by all the subscribers. All of the capital stock was subscribed, and the number of shares of stock subscribed for by each corporator was set out in said articles of association. The defendants duly signed and executed said articles after all other corporators had signed same and therein subscribed for forty shares each of said capital stock. The amount of the capital stock of said corporation was stated to be $ 100,000 in said articles which also contained a provision stating that "fifty thousand dollars of said capital stock have been actually paid in by the subscribers hereto." The general nature of the business proposed to be transacted by said corporation was a "general insurance against loss by fire, wind storms, tornadoes and cyclones," to buy, sell and deal in real estate, and to contract and rent buildings, "and to do everything necessary to its interest as an insurance company." Upon the same day the corporators held the first meeting for organization and elected directors of the corporation, who elected the officers thereof; and the articles of association were then on the same day filed in the office of the Secretary of State and county clerk in manner provided by law. Eight of the corporators of the insurance company subscribed for a large number of the shares of the capital stock, and executed to the corporation their note in the sum of $ 50,000 therefor. Thereupon application was made to the Auditor of State under section 4345 of Kirby's Digest for the issuance of a certificate entitling the insurance company to do business in the State of Arkansas. The statement made to the Auditor showed that the subscribed capital of the corporation amounted to $ 100,000, and that $ 50,000 thereof had been paid up by notes executed to the corporation. The Auditor declined to issue the certificate or license entitling the company to do business in the State for the reason that the company should have had $ 50,000 in cash, instead of notes representing its assets. Thereupon the insurance company, by discounting the notes which it held and owned, obtained from a banking institution the sum of $ 50,000; and on March 8, 1905, presented to the Auditor the certificate of deposit or deposit slip of said bank therefor, and the Auditor thereupon issued to the People's Fire Insurance Company a certificate or license entitling it to do business in the State. The insurance company then began business, and continued to transact business from that date until January 19, 1907, when it failed, and a receiver was appointed to take charge of its affairs. During its existence the insurance company did quite an extensive business, and at the date of its failure it was indebted to creditors in a large amount. The defendants executed their several notes herein sued on to the corporation for the shares of stock subscribed for by them on March 15, 1905, about the time the company actively began its business, and the notes were made payable one year after date.

In their answers the defendants pleaded that the notes were executed for their subscriptions to the capital stock of the corporation which was intended to be organized under the laws of the State for the purpose of doing a general fire insurance business, and that the subscriptions were "made upon the expectation and condition that such laws would be fully complied with, so that the company would have a legal and effectual organization for the purpose of engaging in said business. That section 4335 of Kirby's Digest was never complied with, in that $ 50,000 of the capital stock was never at any time paid up, and that the company at no time had a legal right to do the business contemplated. at the time of its organization;" and on this account they claimed and now urge that they are not liable upon said notes.

The defense that is thus made against a recovery upon these notes and the subscriptions which they represent is that the corporation had not complied with the laws of the State in its organization, and therefore had no right to exist as a body corporate. The rightfulness of the existence of a body claiming to act, and acting, as a corporation cannot be questioned in actions between private individuals and such corporation; the question as to whether or not the assumed corporation has a rightful existence can be raised only by the State, the sovereign by whom it is created. Such question cannot be litigated in a collateral proceeding, such as a suit instituted by the corporation, or its legal representative, against its alleged debtor. This principle is almost universally recognized, and has had uniformly the sanction of this court. In the case of Brown v Wyandotte & Southeastern Ry. Co., 68...