Merchants & Manufacturers' Bank v. Stone

• Decision Date: 05 June 1878
• Citation: Merchants & Manufacturers' Bank v. Stone, 38 Mich. 779 (Mich. 1878)
• Court: Michigan Supreme Court
• Parties: Merchants & Manufacturers' Bank v. Charles Stone, William Livingstone Jr. and Edward T. Hughes

38 Mich. 779

Merchants & Manufacturers' Bank v. Charles Stone, William Livingstone Jr. and Edward T. Hughes

Supreme Court of Michigan

June 5, 1878

Submitted February 1, 1878

Error to Superior Court of Detroit.

Assumpsit. Plaintiff brings error.

Judgment affirmed with costs.

Griffin & Dickinson and William Jennison for plaintiff in error. Where there has been no corporate act in good faith, the corporate character is not acquired either de jure or de facto, Unity Ins. Co. v. Cram, 43 N. H., 636; Harris v McGregor, 29 Cal. 124; DeWitt v. Hastings, 40 N.Y.S. Ct., 463; Abbott v. Omaha S. Co., 4 Neb. 416; Paterson v. Arnold, 45 Penn. St., 410: contra Cochran v. Arnold, 58 Penn. St., 399.

G. V N. Lothrop for Charles Stone, defendant in error. They who have dealt and contracted with a body as a corporation are estopped from denying its legal existence, Armstrong v. Harvey, 11 Ohio St., 527; it is only where there is no color of corporate organization that all the parties acting jointly can be considered as joint contractors or partners, Childs v. Smith, 55 Barb. 45; Fuller v. Rowe, 57 N. Y., 23; Nat. Bank v. Landon, 45 N. Y., 410; where there was a promise by a de facto corporation, the corporators could not be held as partners, Cent. City Savings Inst. v. Walker, 5 Hun 34: 66 N. Y., 424; Fay v. Noble, 7 Cush. 188.

Graves, J. Campbell, C. J., concurred. Cooley, J. concurred in the result. Marston, J. (dissenting).

OPINION

Graves, J.

During the period between the summer of 1871 and the fall of 1875, the bank transacted a large amount of business in the way of discounting paper and otherwise with a concern appearing to the bank and the public and purporting to be a corporation bearing the name of "The Charles Stone Timber Company," and all this business was undertaken and prosecuted by the bank upon the specific understanding that the concern was contracting as a corporation and not otherwise. Indeed the bank dealt with it throughout as a corporation in fact and without any qualification or reserve, recognized it as one.

In the course of this business and in the fall of 1875 there remained a note in the hands of the bank for $ 4000, which the company had made to it in renewal of one previously discounted. It was signed "The Chas. Stone Timber Co., W. Livingston, Jr., Treasurer," being the usual style. The company failing to pay, the bank sued the defendants upon the money counts alone, and set forth a copy of the note in the usual manner with notice that the original would be given in evidence against the defendants under said money counts. The defendants were only charged as individuals. They were not described in the declaration as members of a firm. Neither was there any averment that they were sued upon any special liability or undertaking, or any undertaking made by them in any peculiar character. Hughes was not served.

Livingston pleaded discharge in bankruptcy and Stone pleaded the general issue and made affidavit denying execution of the note. The bank contended that the company was not a corporation but was a private co-partnership composed of defendants and on that theory endeavored to recover upon the note against defendants in this form of proceeding.

Stone controverted the position so taken by the bank.

In view of the issue and state of facts it was incumbent upon the bank to establish that the company represented by the signature to the note, was a co-partnership; that the defendants were the partners, and that the note was made by the firm. The style of the company was of equivocal import. It might denote a corporation or it might denote a co-partnership. The mere name then was indeterminate in that regard. By itself it gave no clue to the nature of the company as being incorporated or unincorporated. The burden of proof was on the bank to show that it was a mere private firm composed of defendants. But it was unable to make any advance towards proof of the affirmative of that issue except by showing articles of association made and filed by defendants under the law of the State for forming corporations; that the company had not assumed to act as a co-partnership, but under the name of "The Charles Stone Timber Company," being the title adopted by the articles, had assumed in fact to proceed as a corporation and for a series of years had in such name and character carried on a business not only large in amount but extensive in view of the number and variety of the transactions, and moreover had expressly acted in such character in giving the note in question to the bank. The bank took the ground that the proceedings to incorporate were not valid; that the business carried on was not in just construction within the articles or the statute; that the company was not a corporation in point of fact, and that the defendants, who were the only members, were in consequence responsible in character of partners for the undertaking of the company. Now the proof that as matter of fact the company carried on business as a corporation in the name of "The Charles Stone Timber Company" when the bank dealt with it, established prima facie that it was a corporation pursuant to law (Act 109 of 1871, vol. 1, p. 176) and certainly the evidence the bank adduced in regard to the operations of the company, the attitude it maintained and the character in which the two concerns dealt together showed that the company was a corporation de facto, and so acknowledged by the bank. In short the company was prima facie a lawful corporation when the note was taken, and the bank admitted in the very transaction that it was one in fact, and that admission cannot be disputed in this collateral way in order that the bank may call in question the corporate existence of the company and charge against the individual members the precise obligation which was unequivocally accepted as a corporate one. Swartwout v. Michigan Air Line R. R. Co., 24 Mich. 389; Parker v. Northern Central Michigan R. R. Co., 33 Mich. 23; Casey v. Galli, 94 U.S. 673, 680; Dutchess Cotton Manufactory v. Davis, 14 Johns. 238; All Saints Church v. Lovett, 1 Hall 191 [2d ed., 213]; Leonardsville Bank v. Willard, 25 N.Y. 574; Eaton v. Aspinwall, 19 N.Y. 119; Methodist Episcopal Union Church v. Pickett, id., 482; Worcester Medical Institution v. Harding, 11 Cush. 285; Dooley v. Wolcott, 4 Allen 406; Steam Navigation Co. v. Weed, 17 Barb. 378; Palmer v. Lawrence, 3 Sandf. S. C., 161, 170; Congregational Society v. Perry, 6 N.H. 164; Newburg Petroleum Co. v. Weare, 27 Ohio St. 343; Smith v. Sheeley, 79 U.S. 358, 12 Wall. 358; Lessee of Frost v. Frostburg Coal Co., 65 U.S. 278, 24 HOW 278; Bank of Salem v. Almy, 117 Mass. 476; Fay v. Noble, 7 Cush. 188c; Trowbridge v. Scudder, 11 id. 83; Bennett v. Dean, 35 Mich. 306; Hawes v. Anglo-Saxon Petroleum Co., 101 Mass. 385.

Whether the defendants might or might not have been proceeded against in some other form, is a question I do not consider. According to the existing state of things, I am of opinion no case is made against them, and that the bank has no ground of complaint against the judge's direction to find for the defendants, and that the judgment ought to be affirmed with costs.

Campbell, C. J., concurred.

Cooley J. I concur in the result.

DISSENT BY: Marston

DISSENT

Marston, J. (dissenting). Plaintiff in error brought an action of assumpsit, seeking to charge the defendants upon a promissory note purporting to be signed by "The Chas. Stone Timber Co." by its treasurer. Defendant Stone pleaded the general issue with notice of set-off, and he filed with his plea an affidavit denying the execution of the note.

It appeared on the trial that on September 16th, 1871, a written contract was entered into between Charles Stone of the first part and Livingstone & Hughes of the second part, by which, in consideration of the sum of fifty thousand dollars, Stone agreed to sell second parties a certain tract of land, also his stock in the Au Sable Boom Company, and all his rafting chains and rafting tools. The parties of the second part had the privilege of entering upon the land and cutting the pine timber thereon and selling the same, and to aid them in this the first party agreed to make certain advances. The second parties were to proceed vigorously to cut the pine upon the land, run, raft and sell the same, and from the proceeds thereof, one half was to be paid the first party, and to be applied, first in refunding advances made and interest thereon; and second, in payment of the contract price of the lands. On the 20th day of September of the same year, some four days after the execution of this contract, these same parties had prepared and they had executed articles of association under the provisions of the act authorizing the formation of corporations for mining and manufacturing purposes.

The name of the corporation so formed was "The Charles Stone Timber Company;" its business, the cutting, rafting and manufacturing of timber; its capital stock $ 100,000, divided into 4000 shares of $ 25 each. The articles farther stated that the amount of capital actually paid in was $ 10,000; that Livingstone and Hughes each held 1800 shares and Stone 400 shares. The business was to be carried on in a number of counties in the northern part of the Lower Peninsula, the office to be in Detroit, its affairs managed by three directors, and to continue for thirty years. These articles were filed in the office of the Secretary of State and also in the office of the clerk of Wayne county.

A notice was published calling the first meeting of the stockholders. Livingstone and Hughes were present. They agreed they would call Mr. Stone president, Hughes vice-president and Livingstone secretary and treasurer. A rough...