Case ID: ny-st-rep_53/html/0214-01.html
Source: Caselaw Access Project
Author: {"author": "Bookstaver, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Bradley Fertilizer Company, Resp’t, v. The South Publishing Company, App’lt.
    
    
      (New York Common Pleas, General Term,
    
    
      Filed June 5, 1893.)
    
    1. Corporations—De facto.
    In cases of defacto corporations there must have been at least an attempt made to organize Under some law; if no such attempt has been made, and vet the parties assume to act as if there had, the concern is not a de facto corporation, but a sham and a fraud, and the parties connected with it will he held liable as co-partners, and not as members of a corporation.
    2. Same.
    While the word “company” is frequently used to denote an incorporated association, it does not necessarily involve that idea either in speech or at law.
    3. Same.
    The fact that the owner of a business dealing under the name of. “ South Publishing Co.,” styled himself president and manager, and that an employe was the former publisher of the paper, published by the South Publishing Co., and another employe editor, amounts to nothing as proof of an incorporation.
    4. Same.
    Nor is it of the least consequence, as affecting the question of a de facto corporation, that such employes were afterwards, through the owner, made stockholders of the “South Publishing Co.,” when incorporated.
    5. Same—Seal.
    The fact of a seal being used by a business concern is no proof of its incorporation.
    Appeal from a judgment of the general term of the city court, affirming a judgment of the trial term in favor of plaintiff, entered upon the verdict of a jury.
    
      Herbert H. Gibbs, for app’lt; George Walton Green, for resp’t.
    
      
       Reversing 49 St. Rep., 924.
    
   Bookstaver, J.

The action was brought to recover a balance of $309.60 alleged to be due for goods sold and delivered to defendant between February, 1885, and May, 1887. There have been two trials of the issues; the first resulted in a judgment by direction of the court in favor of the plaintiff, but upon an appeal to this court the judgment was reversed and a new trial ordered. At the second trial, the jury found a verdict for the plaintiff, and the general term of that court affirmed the judgment thereon, and hence this appeal.

After the coming in of the verdict, the defendant moved for a new trial on the usual grounds, and the motion was denied. No order on this motion was entered, and the appeal is from the judgment only. Therefore, nothing can be reviewed upon this appeal but the defendant’s exceptions. Boos v. Ins. Co., 64 N. Y., 242; Del Genovese v. Mayor, 14 St. Rep., 197; Zoller v. Grant, 19 id., 311; Third Ave. R. R. Co. v. Ebling, 100 N. Y., 98; Jones v. Sparks, 1 St. Rep., 476; Dixon v. Dixon, 12 id., 505.

At the close of plaintiff’s case, counsel for defendant moved to dismiss the complaint on the grounds, among others, (1) That the plaintiff had wholly failed to prove that defendant was a corporation in fact or in law at the time mentioned in the complaint; (2) that the plaintiff had failed to prove legal incorporation at the timé mentioned in the complaint; (3) that there was no proof that the defendant received any of the goods or merchandize mentioned in. the complaint or in the exhibits put in evidence ; and (4) that there was no allegation that the defendant assumed or promised to pay the alleged indebtedness by whomsoever incurred, and at the close of the whole case renewed the motion on these grounds, and on the further grounds, among others, that it had been clearly proved that the defendant was incorporated under the laws of the state of Florida in January, 1888, and did not exist in law prior to that time; also, that the defendant could be held liable only for its own acts done after it had a legal existence, and that the defendant never received any of the merchandize in question or any profit or advantage therefrom, and that it never assumed the payment of the debt in question. These motions were denied on each of the grounds, and defendant duly excepted thereto. It also, by its counsel, excepted to the submission of the question of whether or not it- was a cle facto corporation at the time the debt was incurred to the jury. These exceptions raise the questions to be considered upon this appeal, and the one principally contested is whether or not the plaintiff had on the last trial offered any evidence from which a jury could infer the existence of a de facto corporation at the time the indebtedness was incurred.

When this case was before us upon the former appeal, 44 St. Rep., 119, the learned judge delivering the opinion of the court-said: “A de facto corporation is constituted by a user of corporate franchises, and by acts in the nature of corporate proceedings under color of organization, Childs v. Smith, 55 Barb., 56; or where proceedings have been taken in professed compliance with some law authorizing the formation of a corporation, and there are acts of subsequent user, M.E.U. Church v. Pickett, 19 N. Y., 482; or where there is a user of corporate franchises under color of an act authorizing the incorporation. Bank of Toledo v. International Bank, 21 N. Y., 542.”

The power of creating corporations is one appertaining to sovereignty, and is exercised by that branch of the government in which it is constitutionally invested. Formerly the right to corporate existence was always by a special charter or act of incorporation ; but the power of special legislation of this kind is now restricted or abolished in nearly all of the states, and corporations are usually formed by persons complying with the general laws of the state on this subject. A corporation must have a full and complete organization and existence as an entity, and in accordance with the law to which it owes its origin, before it can assume its franchises, or enter into any kind of contract or transact any business. 4 Am. & Eng. Enc., 197, and authorities there cited. When it has fully complied with the law under which it is organized, it is a corporation de jure; but where the persons desiring to form such a corporation have made the attempt to comply with the law, and have failed in some essential matter, and afterwards have done business under such defective organization, then it is known as a corporation de facto. But it will be observed in cases of defacto corporations there must have been at least an attempt made to organize under some law. If no such attempt has been made, and yet parties assume to act as if there had, the concern is not even a de facto corporation, but a sham and a fraud, and all the parties connected with it will be held liable as copartners, and not as members of a corporation.

Thus it will be seen that two things are necessary to be shown in order to establish the existence of a corporation de facto ; first, existence of a charter or some law under which a corporation with the powers assumed might lawfully be created; second, a user by the party to the action of the lights claimed to be conferred by such charter or law. Authorities above cited, and Remington Paper Co. v. O' Dougherty, 65 N. Y., 571; De Witt v. Hastings, 69 id., 518 ; Finnegan v. Knights, etc., 53 N W. Rep., 1150; Demarest v. Flack, 16 Daly, 337; 32 St. Rep., 675. In the case under consideration there is not a scintilla of evidence that there was any attempt at organization under the laws of any state until the certificate of incorporation was filed on January 6,1888, long after all the transactions for which a recovery is sought in this action had taken place. Nor was there any attempt made to show any preliminary agreement to form such a corporation before the 6th of January, 1888. On the other hand, the evidence is clear and uncontradicted that prior to 1872-8 one Price and another owned and published a paper known as “ The South,” under the name of “ The South Publishing Company.”

About the year last mentioned Mr. Clough purchased “The South” and the name “The South Publishing Company” of Price, _ who had previously purchased his partner’s interest. From that time to the time of the incorporation of the company Mr. Clough owned and managed the business individually, and as-the sole owner thereof, and all persons in any way connected with the business were employed and paid by him, and no one else had any voice in the management of the affairs of the concern. He continued the use of the name which he had purchased with the good will, etc., but made no representations as to any incorporation of the company as far as we have been able to see from the evidence. The contract for advertising out of which this action arises, was made by him individually in December, 1884, under the style of the South Publishing Company. No one else at that time had any interest in the business. Plaintiff does not claim that at that time it made any inquiry as to who composed the South Publishing Company, or that in making the contract it relied upon the incorporation of the company, or that any representations were made as to its incorporation. The plaintiff did not even show that Mr. Clough or anyone else held the concern out to the public or to the plaintiff as a corporation, although its counsel so argued on this appeal.

The fundamental error into which he seems to have fallen is in confounding the words “ company ” and “ corporation he frequently used them as synonymous; but while the word company is frequently used to denote an incorporated association, it does not necessarily involve that idea either in common speech or at law. The Imp. Diet., sub. “ company,” says : “ The word is applicable to private partnerships or to incorporated bodies; but when there are only a few individuals associated, the concern is generally called a copartnery, the term company being usually reserved for large associations.” While it defines a corporation as “a body politic or corporate, formed and authorized by law” to act as a single person, Bouvier’s Law Diet, defines “ company ” as “an association of a number of individuals for the purpose of carrying on a legitimate business,” and then proceeds, “ this term is not synonymous with partnership, though every such unincorporated company is a partnership. * * * When these companies are authorized by the government, they are known by the name of corporations.” We all know how frequently, especially in late years, the word company has been used by private enterprises which are no more than copartnerships; so the use of the style “The South Publishing Co.” did not hold out the concern as a corporation, nor as far as the evidence shows was any one led to deal with it as such.

Nor do we think that the testimony of Mr. Crosby, a former employe of the concern, warrants respondent’s counsel in claiming, as he does, that there were any acts in the nature of corporate proceedings under color of organization by the “South Publishing Co.” prior to January, 1888. In the first place there was no attempt at an incorporation under any law shown, and Mr. Crosby’s testimony is far from showing any facts which would warrant such an inference, nor does his testimony show that there was any connected action of any kind under color of organization or otherwise whereby Mr. Clough was appointed president or general manager of the concern. That he was manager and gave himself out as such is true enough, but that was because he was owner of the business, and not because he was elected or appointed thereto by any one other than himself. Besides Mr. Crosby in his deposition is extremely careful not at any time to swear that Mr. Clough was president of any corporation ; he always couples the word president with or manager.

The fact that another employe was the publisher of the paper amounts to nothing as proof of an incorporation, nor does the other fact testified to by Crosby, that another employe was editor, aid the contention ; such offices are not necessary or common offices in corporations. Nor in our judgment is it of the least consequence, as affecting the question of a de facto corporation, tha" these employes were afterwards, through Mr. Clough, made stockholders of the corporation when formed; nothing is more natural than to do this with tried and trusted employes when a private business is to be converted into a private corporation. ■

The only other ground on which respondent claims that the defendant was a corporation de facto prior to January, 1888, is that in the conduct of the business a seal was used, and that Mr. Clough assumed to act as the general manager and president, and sent out letters in the corporate name, and that goods were purchased in the name of the “ South Publishing Co.” But here again, it is met by the fact that there is not the shadow of proof of any attempt at actual incorporation. The fact of a seal being used in the business is no proof of this; seals are often used by private enterprises not incorporated, even by individuals, to authenticate the articles made by them or for mere convenience. As before shown, the contention that Mr. Clough acted as president at any time is not sustained by the evidence; that he acted as manager, we have before commented on. All of the foregoing facts taken together and most strongly against the defendant amount only to mere representations that there was an existing corporation when none existed in fact or law. This might bind the parties making the representation as copartners and make them liable for the debt, but could not bind the present corporation, which was not formed until long afterwards. Thus the case discloses that there was no attempt at organization, no use of corporate franchises and nothing in the nature of corporate proceedings prior to the actual incorporation in 1888; and ■ these facts taken in connection with the incorporation in 1888, for which there is no conceivable motive except the honest desire to form an incorporated company out of a private concern, leave no possible ground for the contention that there was a de facto corporation before that time.

Nor can this be inferred simply because the defendant refused to produce its books from which the plaintiff proposed to show a record of corporate proceedings during the time prior to its actual incorporation. It was not shown that any such books were in the possession of defendant, nor was any attempt made to show that there was a record of such proceedings prior to 1888. On the ■other hand, we think it clear that there were no such proceedings. Under such circumstances general repute cannot make a ■corporation de facto of what was clearly no corporation.

The cases cited by respondent in support of his contention are not applicable to a case like the present, where it affirmatively appears not only that the company was incorporated long after the ■cause of action arose, and that before it was conducted as a private enterprise although the word “ company ” was used.

. There are many cases which hold that where a company has a ■de facto existence it will be estopped from denying its existence as between itself and those with whom it has had dealings. But none of them are applicable to this case. There is an entire failure of proof that there were any dealings with the incorporated defendant or that the goods in question, or any part of the proceeds thereof, ever came into the possession of the defendant, or that it received any benefit therefrom, or that it at any time or in any manner undertook to pay this obligation. On the other hand, the testimony is un contradicted that the arrangement was made with Mr. Clough, and that these goods came into his possession, and that the proceeds went into his bank account and were used exclusively by him, and that none of it ever went to the defendant.

The sending by the plaintiff to the defendant of the bill of October 12, 1889, was not an account stated between the parties, and the trial court erred in allowing the amendment in respect thereto. The question of an account stated was before us on the former appeal, and the evidence is hot in any way varied upon this, and what was then said we regard as a complete answer to that -contention.

We, therefore, think that the court erred in refusing to dismiss the complaint, and that as this case has been tried twice, and twice appealed to this court, and there was an utter failure of proof to support plaintiff’s contention, the judgments of the general and trial terms of the city court should be reversed and the complaint dismissed under Fuller v. Kemp, announced in the Law Journal May 3, 1893; 51 St. Rep., 935, with costs in the court below and on the appeals to this court to the appellant

Bischoff and Pryor, JJ., concur.