Case ID: ny-st-rep_32/html/0675-02.html
Source: Caselaw Access Project
Author: {"author": "Larremore, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Frances E. Demarest, an Infant, Pl’ff, v. James A. Flack et al., comprising the “America’s Winter Carnival Company,” Def’ts.
    
      (New York Common Pleas, General Term
    
    
      Filed June 26, 1890.)
    
    1. Partnership — Proof of.
    Proof that one defendant hired grounds for a company’s use; that another paid bills as treasurer of the company; and that two of them inspected toboggans and other goods and directed them sent to such grounds is insufficient to authorize a finding of liability as partners for debts contracted or damages sustained upon said premises.
    2. Corporations — Irregularities subsequent to organization no defense TO ACTION AGAINST.
    Where a corporation has once come into actual existence through the due observation of the original formalities required for that' purpose, subsequent omissions or irregularities in the completion of its organization or prosecution of its business are not available as a defense to the corporation or its directors or stockholders.
    3. Negligence — Parties.
    This action was brought against five persons, alleged to constitute a joint stock association, to recover for personal injuries sustained at a toboggan slide conducted by the association. No proof of the existence of such association was given, but it appeared that a company of that name was'incorporated under the laws of West Virginia, which was managing said slide. Held, that the action was improperly brought against the defendants and that it should have been brought against the company.
    
      Motion by plaintiff for a new trial on exceptions after judgment dismissing the complaint.
    
      Seaman Miller, for pl’fí; W. Bourhe Cochran, for def’ts.
   Larremore, Ch. J.

This is an action for damages for personal injuries sustained by the plaintiff upon á toboggan slide on January 20,1888. The premises upon which said slide toas situated were owned by the New York Driving Club. The complaint alleges that the defendants “were a joint stock company, doing business in the city of New York under the name and style of ‘America’s Winter Carnival Company,’ and that said defendants were and still are the owners thereof.” No proof, however, was offered to show that the defendants had organized or constituted a “ joint stock company,” as that term is understood under the statutes and adjudications of the state of New York. Even if such proof had been made, as the number of persons composing the alleged “joint stock company ” would have been less than seven, such allegation would have had little legal significance, because plaintiff would have been obliged, as she has done, to sue the members thereof as partners, and not to sue the alleged company in the name of its president Code of Civ. Pro., § 1919. In any view of the matter, therefore, it was incumbent upon the plaintiff, in order to maintain this action, to show that the defendants were jointly interested in operating the toboggan slide upon which the accident happened. Even making all possible allowance for the difficulty under which the plaintiff labored, in being compelled to call hostile witnesses for proof on this point, we cannot hold that aprima facie case was made put. The witness Jones testifies that, if he remembered rightly, these grounds were let by the New York Driving Club for the purpose of putting up these toboggan slides to the present defendants. On cross-examination, however, he says that the only one of them who personally agreed with him as secretary of the New York Driving Club, or with the executive committee thereof, to take the place, was the defendant Case. He further avers that “ the America’s Winter Carnival Company was the tenant which had possession of those grounds on which ran this toboggan slide; ” that he regarded himself as an employee of that company; and that he was paid for his services as manager thereof by the check of Mr. de Cordova, as treasurer of the Winter •Carnival Company.

The testimony of the witness Grant is to the effect that the America’s Winter Carnival Company constructed toboggan slides in Fleetwood Park; and that he was a stockholder in such corporation. The fact that the defendants Case and Grant inspected toboggans and other goods, and ordered the same to be sent to Fleetwood, is not sufficient to charge them with liability, either individually or as partners with their co-defendants. Such acts on their part might have been performed as agents for and in the interest of America’s Winter Carnival Company. It appears that for the services of the witness Cook as civil engineer in drawing the plans and specifications for the slides, he also was paid by a check signed by Mr. de Cordova as treasurer. Even if no eviden.ce of incorporation had heen introduced, we should have heen obliged to hold that the record discloses no facts from which a jury would have been authorized to find a liability as partners for any debts contracted, or damages sustained in the operation of said slides.

But it does appear that a certificate of incorporation was filed under the Laws of the state of West Virginia on or about the 12th day of December, 1887, and that these defendants became stockholders in the company so formed. The Code of West Virginia is in evidence, and in § 10 of chapter 54 thereof, provides that “ When a certificate of incorporation shall be issued by the secretary of state, pursuant to this chapter, the corporators named in the agreement recited therein, and who have signed the same, and their successors and assigns, shall, from the date of the said certificate until the time designated in the said agreement for the expiration thereof, unless sooner dissolved according to the law, be a corporation by the name and for the purposes and business therein specified.” It also appears that the secretary of state of West Virginia issued under the great seal of said state the certificate provided for by § 9 of chapter 54 of said Code, which officially declared the America’s Winter Carnival Company to be from said 12th day of December, 1887, a corporation, to be known by said name, and to exist for the purposes set forth in the said certificate or agreement.

In Methodist Episcopul Union Church v. Pickett, 19 N. Y., 485, it was held that “two things are necessary to be shown in order to establish the existence of a corporation de facto, to wit: 1, the existence of a charter or some law under which a corporation with the powers assumed might lawfully be created; and 2, a user by the party to the suit of the rights claimed to be conferred by such charter or law.” We think the defendants have established both the presumptive legislative organization and the user prescribed by the case cited. B is argued that the America’s Winter Carnival Company is not a legally existing corporation, of which the courts of this state can take cognizance, because of alleged irregularities of action and failure to comply with statutory requirements on the part of the corporation and its directors and officers. The point is especially insisted on that, as the Code of West Virginia prescribes that every director must be a resident of that state, unless it is otherwise provided by a by-law, and as all the directors of said company are residents, not of West Virginia, but of Hew York, and no by-law authorizing this innovation is shown, the attempted organization is nugatory, and the would-be stockholders must be treated merely as partners. But, outside of the language of § 10, of chap. 54, above quoted, which expressly provides that from the date of the certificate the signers thereof, and their successors, shall be a corporation, we are of opinion that well-settled rules of law in this as well as other states of the Union would defeat plaintiff’s contention. In the early and well-known case of The People v. The Manhattan Co., 9 Wend., 851, it was held that, although incorporation had been granted upon condition that the company should within ten years furnish a supply of pure water to such persons as chose to avail, themselves of the same, and the time so provided had expired,-the proviso was not a condition precedent, but a defeasance; that the corporation had come into being and still existed, and that, therefore, it was not compelled to set forth the condition and allege performance thereof even to show a present right, as in judgment of law a corporation once shown to exist is presumed to continue until the contrary is shown.

In Eaton v. Aspinwall, 19 N. Y., 119, it was held that a defect in the proceedings to organize a corporation is no defense tó a stockholder in a suit to enforce his individual liability, he having participated in its acts of user as a corporation de facto. Here it appeared that a certificate of incorporation had been filed under the laws of Hew York, but that the ten per cent, of the capital required by the general act to be paid in had not been so covered into the treasury; “yet the company elected its officers, hired an office in the city of Hew York, and went into actual operation there as a corporation.” In the opinion it was said that “when its corporate existence has been thus established the plaintiffs would not have been permitted to prove, as a defence for them, the facts relied upon by the defendants; for the familiar reason that the right of a corporation to sue cannot be inquired into collaterally. Thus, it will be seen that this corporation, though not a valid corporation in point of law, may carry on its enterprises, have its day in court, and divide its revenue among the holders of the shares of its capital, until the state shall interpose and ask that it be dissolved; and that the only real necessity of complying with the statute in relation to the payment of the ten per cent, was to prevent proceedings in behalf of the people to put an end to its corporate functions.”

This case has been largely cited in our own courts, and often quoted and followed in the tribunals of sister states. In Palmer v. Lawrence, 3 Sandf., 161, it was held that a certificate, made and filed for the purpose of organizing a banking association, if in conformity with the terms of the act, is evidence that the provisions of the statute have been complied with, and that the company was duly organized, and, further, that a defendant who has contracted with a corporation de facto will not be permitted to allege any defects in its organization as affecting its capacity to contract or sue, all such objections being available only to the sovereign power of the state.

In Swartwout v. Michigan Air Line R. R. Co., 24 Mich., 389, the rule was stated by Cooley, J., as follows: “ It is obvious that all questions of regularity in the proceedings on the part of the associates in taking upon themselves corporate functions, purporting to emanate from its sovereignty, are questions which concern the state rather than individuals, and should only be raised in a proceeding to which the state has seen fit to make itself a party."

In a later case in the state of Michigan, Merchants & Manufacturers' Bank v. Stone and others, 38 Mich., 779, it was held that where a body professing to be a corporation had been dealt with expressly as such, those who have so dealt with it cannot question its corporate existence for the purpose of charging its members individually as partners. Stout v. Zulick and others, 48 N. J. Law, 599; First National Bank of Salem v. Almy, 117 Mass., 476; Congregational Soc'y v. Perry, 6 N.H., 164; Newburg Petroleum Co. v. Weare, 27 Ohio St., 343; Casey v. Galli, 94 U. S., 673; Leonardsville Bank v. Willard, 25 N. Y., 575; McFarlan v. The Triton Ins. Co., 4 Denio, 392.

In Spring Valley Water Works v. San Francisco, 22 Cal., 434, it was expressly held that omissions or irregular performances relating to the organization of a corporation can only be investigated in a direct proceeding instituted by the state for that purpose, and not in a collateral action. Especially was this thought to be the rule with regard to acts which are not made pre-requisite to the exercise of corporate powers, but which operate as a forfeiture. On this latter point see also Mokelumne Hill Mineral Co. v. Woodbury, 14 Cal., 424.

There is an overwhelming current of authority throughout the United States on the point, that where a corporation has once come into actual existence through the due observance of the original formalities required for that purpose, subsequent omissions or irregularities in the completion of its organization or the prosecution of its business shall not be available as a defense in matters of contract either to the corporation itself, or its directors or stockholders, and cannot be taken advantage of by outsiders who have had business dealings with it. We have not been able to discover any reported case in which it was attempted to raise this point in an action on tort; but we cannot see why the same principles should not apply. Here it is shown that the certificate of incorporation was regularly executed and filed, and the secretary of state of West Virginia duly certifies to such facts. User on the part of the company is shown by the testimony of all the witnesses as to the usual method of conducting business. Within the reasoning of the authorities above cited, America’s Wiuter Carnival Company, as far as the outside world was concerned, was a de facto corporation, able to contract debts, and liable for the payment thereof, as well as for all damages sustained by its customers through the negligence of its employees.

In First National Bank v. Almy, 117 Mass., 476, which follows the general current of authority upon the point in question, it was held that when a certificate of organization had been issued by the secretary of the commonwealth to members of a proposed corporation in accordance with the statute, said corporators were not liable as partners by reason of having transacted business before the whole of the capital stock had been paid in, although this was in direct violation of the statute on the subject. In that case it was said by Gray, C. J., that this defect would not have prevented a suit against the corporation itself, and that, therefore, the stockholders should not be held personally liable. In the case at bar the non-compliance with the subsequent statutory formalities would not have been a bar to a suit against the America’s Winter Carnival Company, and the reason for exempting the stockholders from individual liability, because the remedy exists against the company itself, applies with equal force. A further consideration advanced by Chief Justice Guay was that the case of stockholders in a corporation which may have been imperfectly organized is not analogous to the case of a limited partnership, for the reason that in the latter instance the intention is to form a partnership of some kind, and the statute expressly provides that if the technical formalities are not observed, the partnership shall be an ordinary one, and its members liable in solido. Iy that case, as in the case at bar, there was no intention to form any partnership at all, and we approve of the suggestion of the learned chief justice of Massachusetts that, under such circumstances, there is no statutory authority, and there would be no just ground for saddling certain stockholders with liability, the nature of which they had never contemplated.

The exceptions should be overruled and judgment ordered for the defendants, with costs.

Bookstaver, J., concurs.