Snider's Sons Co. v. Troy

• Decision Date: 18 December 1890
• Citation: 8 So. 658,91 Ala. 224
• Court: Alabama Supreme Court
• Parties: SNIDER'S SONS CO. v. TROY.

8 So. 658

91 Ala. 224

SNIDER'S SONS CO. v. TROY.

Supreme Court of Alabama

December 18, 1890

Appeal from circuit court, Montgomery county; JOHN P. HUBBARD Judge.

This action was brought by the appellant, against appellee, and sought to recover for goods sold to the Dispatch Publishing Company. The facts are sufficiently set forth in the opinion. To the complaint the defendant interposed a special plea, the substance of which is shown by the opinion, and the plaintiff demurred to this plea. On the consideration of the demurrer the court overruled it, to which the plaintiff duly excepted and, the plaintiff refusing to plead further, judgment was entered for the defendant. The plaintiff now appeals, and assigns the ruling of the court on the demurrer and the judgment rendered as error.

E P. Morrisett, for appellant.

Tompkins & Troy, for appellee.

CLOPTON J.

A corporation de facto exists when, from irregularity or defect in the organization or constitution, or from some omission to comply with the conditions precedent, a corporation de jure is not created, but there has been a colorable compliance with the requirements of some law under which an association might be lawfully incorporated for the purposes and with the powers assumed, and a user of the rights claimed to be conferred by the law, when there is an organization with color of law, and the exercise of corporate franchises and functions. M. E. Church v. Pickett, 19 N.Y. 482; Stout v. Zulick, 48 N. J. Law, 599, 7 A. 362. The enabling law under which a corporation for the purposes and objects of the Dispatch Publishing Company, and with the powers assumed, might have been lawfully created at that time, is contained in sections 1803-1812 of the Code of 1876, and the amendatory acts, which authorize and provide for the incorporation of two or more persons desirous of forming a private corporation for the purpose of carrying on any industrial or other lawful business not otherwise specially provided for by law. Acts 1882-83, p.40. The plea avers that defendant and two other named persons filed, September 2, 1885, with the judge of probate of Montgomery county, a written declaration, signed by themselves, setting forth substantially the matters required by the statute, except the residences of the persons, that they organized by the election of three directors, and commenced and continued to do business in a corporate capacity, and were so doing business when the debt sued for was contracted. If the averments of the plea be true, the truth of which is admitted by the demurrer, the Dispatch Publishing Company was an association having capital stock divided into shares, organized by the election of officers, and transacting business, and exercising franchises, functions, and powers, after an attempted incorporation, as if it were a corporation de jure, a colorable compliance with the requirements of an existing and enabling law, and user of the rights claimed to be conferred thereby, the essential elements of a corporation de facto. Central, A. & M. Ass'n v. Alabama G. L. Ins. Co., 70 Ala. 120.

Appellant seeks by the action to hold defendant, who was a member, liable as a partner for paper and other supplies sold to the Dispatch Publishing Company. Whether the shareholders in a corporation de facto are individually liable for the corporate debts, in the absence of fraud or a statute, is a question as to which the authorities are in direct antagonism. In Cook, Stocks, § 233, the doctrine asserted is: "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." The leading cases supporting this doctrine are Bigelow v. Gregory, 73 Ill. 197; Abbott v. Smelting Co., 4 Neb. 416; Garnett v. Richardson, 35 Ark. 144; Ferris v. Thaw, 72 Mo. 446; Ridenour v. Mayo, 40 Ohio st. 9; Coleman v. Coleman, 78 Ind. 344. We have omitted reference to a few cases, sometimes cited, for the reason, that either the question of liability as partners was not before the court, as in Blanchrad v. Kaull, 44 Cal. 440; or the debt was contracted before any steps were taken, other than the mere filing of a certificate, towards organization, as in Bergen v. Fishing Co., (N. J.) 3 A. rep. 404; or it was contracted after the expiration of the charter by its own limitation without reorganization, as in Bank v. Landon, 45 N.Y. 410. In the case last cited, the shareholders entered into a special agreement, which by its terms created a partnership as to third persons. In 2 Mor. Priv. Corp. § 748, the doctrine is stated as follows: "If an association assumes to enter into a contract in a corporate capacity, and the party dealing with the association contracts with it as if it were a corporation, the individual members cannot be charged as parties to the contract, either severally or jointly or as partners." The following cases maintain the doctrine that the members of a corporation de facto cannot be held liable as partners for the corporate debts. Fay v. Noble, 7 Cush. 188; Bank v. Almy, 117 Mass. 476; Stout v. Zulick, 48 N. J. Law, 599, 7 A. 362; Bank v. Padgett, 69 Ga. 164; Bank v. Stone, 38 Mich. 779; Humphreys v. Mooney, 5 Colo. 282; Bank v. Walker, 66 N.Y. 424; Coal Co. v. Maxwell, 22 F. 197; Whitney v. Wyman, 101 U.S. 392.

The plea and demurrer do not raise the question of the liability of the supposed stockholders, as partners, where there has been no intention or attempt to incorporate, where they are acting as a body corporation without even color of legislative authority, by sheer usurpation. The plea avers that the debt sued for was contracted by the Dispatch Publishing Company, which is alleged to have been a de facto corporation, and that plaintiff sold the goods to and contracted with, the company as a corporation, knowing that it was doing business as such. The question before us, and the only question we propose to decide, is whether, there being no fraud alleged, nor statute making the stockholders individually liable, a creditor, who has dealt with a de facto corporation as a corporation, who has entered into contractual relations with it in its corporate name and capacity, can disregard the existence of the corporation, and, electing to treat it as a partnership, enforce the collection of his debt from the stockholders individually? The conflicting authorities afford aid in the solution of this question, only so far as their opinions may be in accord with settled principles and sustained by reason. Though it is an undecided question in this state, principles have been well settled which materially bear upon the inquiry, and mark the way to a correct conclusion. Corporations may exist either de jure or de facto. If of the latter class, they are under the protection of the same law, and governed by the same legal...