Rice v. Sanger Brothers

• Decision Date: 13 October 1924
• Docket Number: Civil 2137
• Citation: 27 Ariz. 15,229 P. 397
• Parties: BENJAMIN RICE and ROSE RICE, Copartners Doing Business Under the Firm Name and Style of THE FRENCH SHOP, INC., Appellants, v. SANGER BROTHERS, a Corporation, Appellee
• Court: Arizona Supreme Court

229 P. 397

27 Ariz. 15

BENJAMIN RICE and ROSE RICE, Copartners Doing Business Under the Firm Name and Style of THE FRENCH SHOP, INC., Appellants, v. SANGER BROTHERS, a Corporation, Appellee

Civil No. 2137

Supreme Court of Arizona

October 13, 1924

APPEAL from a judgment of the Superior Court of the County of Maricopa. Frank H. Lyman, Judge. Affirmed.

Messrs Jennings & Strouse and Mr. Joseph E. Morrison, for Appellants.

Miss Alice M. Birdsall and Mr. John L. Dyer, for Appellee.

OPINION

CHAMBERS, Superior Judge.

Appellee brought this action, upon an account for goods wares, and merchandise in the amount of $4,360.22, against the appellants, Benjamin Rice and Rose Rice, copartners doing business under the firm name and style of The French Shop, Inc. The answer of the appellants denies a partnership, and alleges that The French Shop, Inc., was a corporation; that the account sued upon was between the appellee and The French Shop, Inc., a corporation, and that the goods were sold and delivered to The French Shop, Inc., a corporation. The appellee, in a sworn reply to the answer of the appellants, denies that The French Shop, Inc., was a corporation but alleges that the purported attempted incorporation was part of a fraudulent scheme devised for the purpose of defrauding creditors, and that the alleged corporation was only a cloak or guise under which the appellants conducted a partnership business, in order to avoid personal liability. The cause was tried to the court without a jury.

The French Shop, Inc., was first a corporation organized under the laws of the state of Missouri, operating a store in the city of Phoenix, Arizona, during the year 1919. The sole stockholders of the Missouri corporation were the appellants, Benjamin and Rose Rice. During the fall of 1919 the appellants determined to dissolve this corporation and to organize a new corporation under the laws of the state of Arizona. In October, 1919, the Missouri corporation was dissolved and a firm of Phoenix lawyers was employed by the appellants to incorporate the Arizona corporation. The articles were prepared and filed with the Arizona Corporation Commission, and a certified copy thereof was recorded in the office of the county recorder of Maricopa county. Publication of the articles was duly made and an affidavit of publication filed with the Corporation Commission. The incorporation fee was not paid, and no certificate of incorporation was ever issued. No appointment of a statutory agent was ever filed, as required by law. After the appellants had filed the articles of incorporation in the office of the Arizona Corporation Commission and had the articles published and recorded in Maricopa county, they apparently took no further steps to perfect the record of the incorporation until April, 1921.

The appellants, after filing and publishing their articles, bought a seal and stock book and issued to themselves, 260 shares to Benjamin and 240 shares to Rose Rice, in stock of the purported corporation, capitalized at $50,000. These shares of stock were soon thereafter pledged to the National Bank of Arizona, in conjunction with Rice's life insurance and the long-time lease on the store where the business was being conducted, to secure a loan of $18,200. This loan was carried in the name of the French Shop, Inc. The lease stood in the name of Benjamin Rice. There is a dispute as to whether this lease was ever transferred to The French Shop, Inc., but, at any rate, in June, 1921, this lease, valued in the financial statement of the preceding January at $15,000, was sold to a brother of the appellant, Benjamin Rice, for $2,500, and the proceeds placed in The French Shop funds. There does not appear to have been any direct transfer of tangible assets from the alleged incorporators to the so-called corporation. The books of The French Shop, Inc., were the same books under which the business started in Phoenix as a Missouri corporation. No balance was struck, and there was nothing indicating a change of ownership from the Missouri corporation to the Rices, nor from the Rices to an Arizona corporation.

During the year 1920 The French Shop, Inc., branched out. It had one store on East Washington Street known as "The French Shop," a store on Central Avenue known as "The Vogue," and a store on Adams Street known as "The Parisienne." These stores had separate books and carried separate bank accounts, checked against by Rice and his wife. There does not appear to have been anything indicating to the public that these last-named stores were the property of The French Shop, Inc.

In April, 1921, by-laws were drawn up and adopted by Benjamin Rice and Rose Rice, acting as sole stockholders of The French Shop, Inc. The minutes of meetings alleged to have been held at various times since 1919, including an alleged organization meeting of October, 1919, were written up and adopted; a notation appearing in the minute-book to the effect that the minutes were now for the first time reduced to writing and the by-laws adopted. We think that the record is sufficient to support a finding that no organization meeting was ever held, no by-laws adopted, nor any minutes of meetings kept until some eighteen months after the alleged incorporation. It appears from the evidence that there was a lapse of from two weeks to thirty days from the time of the dissolution of the Missouri corporation until steps were taken toward the organization of an Arizona corporation.

During the course of the trial there was much testimony introduced on the subject of fraud. It is unnecessary to set forth the specific instances of fraud upon the part of the appellants during the year 1921. It is admitted that during the year 1921 gross frauds against the creditors of the alleged corporation were committed by the appellants. Their transactions during that year are honeycombed with fraud against the creditors of The French Shop.

Counsel for appellants seek to avoid liability upon the theory that the alleged corporation, notwithstanding...