Natalbany Lumber Co. v. Countiss

• Decision Date: 03 March 1924
• Docket Number: 23893
• Court: Mississippi Supreme Court
• Parties: NATALBANY LUMBER CO. v. COUNTISS et al

99 So. 262

134 Miss. 511

NATALBANY LUMBER CO. v. COUNTISS et al

No. 23893

Supreme Court of Mississippi

March 3, 1924

Division A

APPEAL from circuit court of Tallahatchie county, HON. J. M KUYKENDALL, Special Judge.

Suit by the Natalbany Lumber Company against G. B. Countiss and others. Judgment for defendants, and plaintiff appeals. Affirmed.

Judgment affirmed.

Featherstone & Breland, for appellant.

It is the contention of the appellants that all of the defendants in the court below are to be deemed and held as partners in this suit, as provided by section 930 of the Code of 1906 and section 4104 of Hemingway's Code.

The statute requiring the incorporators of a corporation to file the report of their organization of the corporation as provided, is mandatory, and, if the statute is not complied with, not only are the incorporators of such corporation to be deemed and held as partners, but all other persons doing business thereunder shall likewise be deemed and held to be partners in business. Ragland et al. v. Doolittle, 100 Miss. 498, 56 So. 445; Hessig-Ellis Drug Company v. Wilkinson et al., 76 So. 570.

It is therefore the contention of appellant that under the express language of the statute, and in the light of the two cases above cited, the failure of the incorporators of the Webb Lumber Company to report their organization to the secretary of state, as required by section 930 of the Code of 1906, makes them, together with the other appellees herein, unquestionably liable to the appellant for the amount sued for.

The contention of the appellees, however, is that, since the Webb Lumber Company filed a voluntary petition in bankruptcy, and the Webb Lumber Company was, by the bankrupt court adjudicated a bankrupt, the stockholders, the appellees herein, are discharged from the debts of the Webb Lumber Company, and are therefore not liable to the appellant in this suit.

We contend, however, that, since the Webb Lumber Company failed to make a report of its organization to the secretary of state, as required by law, it was not a corporation, or was rather a void corporation, and therefore could not be adjudicated a bankrupt, and thereby discharge from liability its stockholders from debts due and owing by the Webb Lumber Company; that by the plain language of the statute, if the incorporators fail to make a report of its organization as required by statute, the stockholders and those doing business under the corporation shall be deemed and held liable as partners for its debts. Therefore the Webb Lumber Company was not a corporation, but a partnership.

The Webb Lumber Company was not adjudicated a bankrupt as a corporation, but must have been adjudicated a bankrupt as a partnership. Under the Bankrupt Act as amended by the Acts of Congress of 1910, a partnership may be adjudicated a bankrupt without adjudicating the individual members composing the partnership bankrupt. This led to the doctrine that a partnership is, in bankruptcy, a legal entity, being a joint relation where identity of the members has been lost, and that therefore the individuals and the partnership are entities, separate and distinct from each other. See 1 Collier on Bankruptcy (12 Ed.) page 168, section 1-C. Also citing: In re Myers (C. C. A. 2nd Cir.), 3 Am. B. R. 559, 98 F. 976; In re Stein, 127 F. 547; In re McLaurin (D. C. N. Y.), 11 Am. B. R. 141, 125 F. 835; In re Perley (D. C. Mo.), 15 Am. B. R. 54, 138 F. 927; In re Sanderlin (D. C., N. Car.), 6 Am. B. R. 384, 109 F. 857; In re McMurtrey (D. C. Tex.), 15 Am. B. R. 427, 142 F. 853.

However, the recognition and application of this doctrine does not modify, in any way, the established rule fixing the substantive rights of creditors, irrespective of the partnership and its individual members. See Matter of Union Bank (C. C. A. 6 Cir.), 25 Am. B. R. 148, 148 F. 224.

The rule, therefore, seems to be firmly established that the partnership, as a distinct entity, may be adjudicated a bankrupt without a proceeding being prosecuted against the individual members of the partnership, and vice versa. See American Steel & Wire Company v. Coover (Okla. Sup. Ct.), 25 Am. B. R. 58. Also Francis v. McNeal (C. C. A. 3 Cir.), 26 Am. B. R. 555, 168 F. 481; Mills v. Fisher & Company (C. C. A. 6 Cir.) 23 Am. B. 237, and 159 F. 897.

It therefore seems to be a general rule of law that a partnership, as an individual entity, may be adjudged a bankrupt without adjudicating the individual partners bankrupt. So in the case of the Webb Lumber Company, it was adjudicated a bankrupt as a partnership, and not as a corporation, because, under the laws of Mississippi, it never had any corporate existence. 7 R. C. L. "Corporations," section 7.

The defendants in the suit below were liable as partners, and it was the duty of the lower court to give judgment for the appellant here, for the full amount sued for, less the credit.

Hays, Stingily & Whitten, for appellees.

Appellant contends that, since as a matter of fact the company, so far as can now be shown, did not report its organization as required by statute, the charter issued was void, and each stockholder is liable as a partner. But, we submit, appellant lives in the past. His statement of law cannot be questioned, and certainly, if it had been pleaded in the bankruptcy court, would have prevailed. It, however, was not pleaded there, and, by reason of plaintiff's election to file its claim against the debtor as a bankrupt corporation, rather than to prosecute its claim against the debtor as a partnership, the debtor was adjudicated a corporation. That court would have promptly dismissed the petition, and the creditors could have pursued the partnership debtor in that court, or the state court, as the facts warranted.

The only question is whether the adjudication of the Webb Lumber Company as a bankrupt corporation by the bankruptcy court is a final adjudication which bars plaintiff's subsequent action in the circuit court. The parties were the same, the subject-matter the same, and, in addition to the same debt issue, the same accounts against the debtor, the issue there, as here, was whether the Webb Lumber Company is a corporation. There was, if not, no adjudication on its petition here, if so, no judgment on the declaration.

"Such a decree, adjudicating a corporation a bankrupt, is in the nature of a decree in rem as respects the status of the corporation, and, if the court rendering the judgment had jurisdiction, the judgment cannot be collaterally attacked." New Lamp Chimney Co. v. Ansonia Brass, etc., Co., 91 U.S. 656, 23 L.Ed. 336; Hanover National Bank v. Mayes, 186 U.S. 181; 46 L.Ed. 192; Chapman v. Brewer, 114 U.S. 158, 20 L.Ed. 83; Manson v. Williams, 213 U.S. 453, 52 L.Ed. 869.

"Decrees in bankruptcy are entitled to the same verity, and are no more liable to be impeached collaterally than any other judgments or decrees rendered by courts possessing general jurisdiction." Michaels v. Post, 22 U.S. (L. E.), 520.

If the adjudication finally adjudicates the fact that the Webb Lumber Company was a corporation, whatever might have been the result if the facts had been pleaded at the right time, on sufficient evidence, then, as between these parties, the question is settled; and, since it was a corporation, there can be no liability of the stockholders as partners.

This suit is settled under another principle, the doctrine of the election of remedies. The appellant, at the time it was called on to, did in fact undertake to prosecute its claim against the debtor in the bankruptcy court, and did elect whether it would follow up the remedy afforded there, or contest the proceedings and sue on the company's liability under section 4081, Hemingway's Code. It, on the same claim, against the same debtor, elected to pursue the remedy afforded in the former court. Surely it is estopped now to say there was no corporation, when, by its own action it has caused another court of competent jurisdiction to say there was a corporation, and acquiescing in the proceedings, participated in the fruits thereof. A party cannot "approbate and reprobate." The plaintiff received dividends in the bankruptcy proceedings, even after the filing of this suit, and, as already set out, participated therein at its every stage. Surely the doctrine of estoppel operates.

OPINION

HOLDEN, J.

The Natalbany Lumber Company of Hammond, La., sued G. B. Countiss, T. B. Abbey, W. M. Simpson, E. V. Catoe, B. L. Neal, H. E. Wherry, M. T. Bynum, F. T. Gerard, Mrs. F. T. Gerard, S. J. Simmons, and J. C. Wilson, as copartners, in the circuit court of Tallahatchie county, Miss., upon three certain promissory notes, each in the sum of six hundred ten dollars and seventy-nine cents executed at "Webb, Miss., August 1, 1921, and due the plaintiff October 15, November 15, and December 15, 1921, by the Webb Lumber Company, by E. L. Quinn." Interest and attorney's fees were also claimed; and credit was given for certain payments upon the notes.

The defendants pleaded to the effect that a charter of incorporation had been duly issued to them; that the Webb Lumber Company was a corporation, and not a copartnership and that, long before the suit was filed against them, the lumber company was duly adjudged a corporation and a bankrupt as such in the United States district court; and, because of such adjudication, acquittance and release of the indebtedness claimed was consequently had. Further plea was made that the plaintiff filed its claim in the bankruptcy court, against the Webb Lumbar Company, participated in the distribution of the proceeds of the sale of the assets by said court, and otherwise and generally entered its appearance in said bankruptcy cause; and that the judgment...