#### Slocum, Appellant, vs. Head and others, Respondents.

*December 20, 1899*

February *2, 1900*

*Corporations: Incorporation: Failure to comply with statutory requirements: Partnership: Inability of organizers: Estoppel:- Evidence.*

1. Under sec. 4, ch. 113, Laws of 1874 (providing that articles of incorporation shall be signed by the'persons forming the-corporation, and “a copy thereof, verified under oath ” by two or more of the persons signing the same as being a true copy of the original articles of corporation, shall be recorded in the office of the register of deeds), the recording of the original articles of incorporation, in-lieu of such verified copy, is not such a compliance with the statute as will enable the incorporators to avoid liability to creditors of the corporation as copartners, unless such creditors dealt with them, as a corporation, in which case they would be estopped to claim against them as copartners.

2. In the absence of bad faith, when signers of'articles of organization organize, hold meetings, elect officers, etc., as a corporation, and the-corporate existence is not challenged by the state, the steps taken-are sufficient to create them a *de facto*corporation, and give them rights as such as to all persons with whom their dealing was mutually understood to be in that, capacity.

3. Where organizers of an alleged corporation have failed to comply with one of the express conditions of incorporation, evidence of representations by the person in charge, who conducted the business with plaintiff, that the dealing was not with a corporation, but with a copartnership, is admissible.

Appeal from a judgment of the- circuit, court for Keno-sha county: R. Gr. Siebeokee, Judge.

*Reversed.*

The plaintiff, having had on deposit with the banking-house of Dan Head & Co. at Kenosha, a sum of money, sues the defendants, alleging them to be copartners comprising-the firm of Dan Head & Co. The- defendants contend that-Dan Head *&*Co. was a corporation, in which they were stockholders simply. About August 12, 1874, eight persons, including some of the defendants, executed articles of incorporation, under ch. 113, Laws of 1874, to have the name of Dan Head *&*Co. with place of business at Kenosha,. *432for the purpose of loaning money upon securities or other-Avise, discounting of commercial paper, receiving deposits, dealing in exchange, and transacting a general banking business, with usual provisions for the management of a corporation. Those articles were signed, but not acknowledged, and the original filed for record in the office of the register of deeds August 12, 1815. On September 5, 1816, that original paper was acknowledged by all of the signers, and the certificate of acknowledgment before a notary public Avas filed therewith for record on September 6, 1876. It appeared by the testimony of one of the defendants that the business of Dan Head *&*Co., bankers, had been carried on by that corporation ever since; that it had held its annual meetings, elected its officers, and otherwise acted as a corporation; and that the interest of the various parties therein was represented by stock which had been sold and transferred in accordance with the articles and by-laAvs of the corporation. It was testified that at a time when plaintiff loaned the money to Dan Plead *&*Co. the cashier, Lewis, Avho transacted the business, informed her that all the stockholders were partners, and all responsible for the money. The court rejected offers to prove a declaration of partnership by the Arice president, not a defendant; also, testimony of plaintiff that she understood Dan Head & Co. were a .partnership, and that she was dealing with them as such; and also periodical affidavits of the cashier, filed with the secretary of state, declaring Dan Head *&*Co. to be a copart-nership,— all of which rulings were excepted to. The court directed a verdict for defendants, upon which, after motion to set the same aside and grant a new trial, judgment was entered, from which the plaintiff appeals.

Eor the appellant there was a brief signed by *Ingalls <&*Ingalls, and oral argument by *Wallace Ingalls.*

Eor the respondents there was a brief by Quarles, *Spence .(&*Quarles, and oral argument by *George Lines.*

*433Dodge, J.

Two questions are presented by tbis appeal: First. Have the individuals who were doing business under the name of Dan Head & Co. taken steps necessary to constitute themselves a corporation *de jure?*Secondly. If not, had they taken such steps towards incorporation in good faith as constituted them a corporation *de*facto, and was the dealing between them and the plaintiff upon the understanding that they were incorporated ?

1. The statute under which it was attempted to organize was ch. 113, Laws of 18Y4, which authorized five or more persons to incorporate, and required (sec. 4): *“*The articles shall be signed by the persons forming such corporation and a copy thereof, verified under oath by two of the persons signing the same as being a true copy of the original articles of corporation, shall be recorded in the office of the register of deeds,” etc. The organizers of Dan Head & Co. adopted and signed articles, all in perfect compliance with this statute, but, instead of a verified copy, they recorded the original articles. Two years later they all acknowledged the execution, and the notary’s certificate was at once recorded.

The general rule governing the organization of corporations is that the procedure prescribed by statute must be substantially and strictly complied with. The rights of exemption from personal liability thereby resulting are entirely statutory, and can be acquired only upon the terms specified by the statute. *Bergeron v.*Hobbs, 96 Wis. 641. The parties before us failed to comply with the requirement that they should record a copy of their articles, verified by two of the signers as being a true copy. Instead they recorded the- original. Whether the record of the original might have accomplished the same purposes of publicity as would such verified copy is á question upon which opinions may differ. It may well be thought that the record of a paper bearing no evidence of authentication by any official *434lacks elements of ostensible authenticity which were deemed by the legislature necessary, and which would be supplied by the presence of an affidavit, verified before a competent officer, that the paper so recorded was a copy of an existing original, impliedly thereby authenticating, by oath, the existence of such original. If two opinions may be held as to the superior advantage of one method over another, the question was one for resolution by the legislature and not by the courts. They having prescribed the copy, with the incidental authentication resulting from the affidavit thereto, it is not for the courts to declare something else sufficient, although it may seem to them equally efficient. The statute was plain, and the defendants, to secure its benefits, should have complied exactly with this requirement. We are persuaded that their failure so to do prevented them from becoming a corporation, and left them, so far as they did any business in association-, copartners, and liable as such, subject to the exception to be hereafter discussed. *Bergeron v. Hobbs, supra.*

2. Inasmuch as no imputation is thrown upon the good faith of the signers of the above-mentioned articles of association, and inasmuch as they organized, held meetings, elected officers, etc., as a corporation, we have little doubt that the steps taken were sufficient to create them a *defacto*corporation, and to give them the rights of a corporation as to all persons with whom their dealing was mutually understood to be in that capacity. *Spahr v. Farmers' Bank,*94 Pa. St. 429; *Planters’ & M. Bank v. Padgett,*69 Ga. 159; *Gartside C. Co. v. Maxwell,*22 Fed. Rep. 197. It is not necessary in this case to go further into the principles which govern, or the acts which may constitute, corporations *de facto.*The subject has recently been discussed, and the-authorities fully collated, in *Gilkey v. How, ante,*p. 41.

An examination of all the authorities, however, limits the immunity which may be claimed by those who have in good *435faith, attempted to organize and do business as corporations to transactions in such capacity. The reasons of the principle are well stated by Judge Brewer in *Gartside C. Co. v. Maxwell, supra,*substantially as follows: “ If the corporation had been challenged by the state, its exercise of corporate powers would have been enjoined; hut where persons act in good faith, and suppose they are members of a valid corporation, and transact business as such, and the corporate existence is not challenged by the state, they cannot be held liable as individuals. If one deals with a supposed corporation, with what all persons suppose is a corporation, he cannot afterwards turn around and say, ‘Well, I dealt with this supposed corporation, I thought it was a corporation, I trusted it as a corporation, but, by reason of failure to legally incorporate, there is no legal corporation, and therefore I will hold the stockholders personally liable.’ ” Their immunity is founded upon good faith, and upon the estoppel of those who deal on the basis of one situation to assert another for the purpose of enforcing demands to which they did not believe themselves entitled-. This limitation has been maintained by those courts which recognize and enforce to its fullest extent the corporate privileges of *defacto*corporations.,-

In *Guckert v. Hacke,*159 Pa. St. 303, plaintiffs performed building work under a contract for the “ Hughes & Gaw-' throp Co.” The individuals composing that alleged company had made a certificate of incorporation, presented it to the governor, and obtained a charter or patent, but had neglected to record the certificate in a specified public office. The court, after holding this omitted step essential to their existence as a corporation *de jure,*said: “Failure to record was failure to comply with one of the express conditions of incorporation, and consequently of exemption from liability. It may be conceded that, had plaintiff dealt with defendants as a corporation, he would have been estopped from *436claiming against them in any other capacity, even, though they failed, to record their charter. But it is not pretended that he had any knowledge of the existence of the charter, and there was certainly nothing, either in the name under which they did business or in their conduct, which should have put him upon inquiry. In these circumstances, he was amply justified in dealing with them as partners. It was. through their default, not his, that they were so treated, and it would be manifest injustice that he should lose his admittedly honest claim.” This doctrine was reaffirmed in *New York Nat. E. Bank v. Crowell,*177 Pa. St. 313, 320.

In the case before us, the plaintiff offered to prove that the man who was in charge of the business of this concern (conducted, by the way, under a name which indicated a partnership rather than a corporation), and through whose hands the treasury of the corporation had received her money, represented that the dealing was not as a corporation, but as a partnership. She also offered to prove that she had. no knowledge of any incorporation, and dealt with Dan Head *&*Co. as a copartnership. These offers were rejected. We are persuaded that the rule indicated by the authorities above cited is the true one,— that, in order that immunity shall result from ostensible incorporation, that fact must have been apparent to the parties in the individual dealing. The principle that parties who associate themselves together in business for mutual profit are copartners, unless they comply with the statutory requirements to make them a corporation, still exists, subject only to the limitation above specified. *Bergeron v. Hobbs,*96 Wis. 643. The question of whether or not the dealing by which the plaintiff’s money passed to Dan Head & Co., if it did so pass, was upon the mutual understanding that that concern was a corporation, should have .been submitted to the jury; and her testimony, offéred and. rejected, upon that subject, should have been admitted, as also the verified declarations through *437several years of tbe men in charge of the business, under their election as president and cashier. The direction of a verdict for the defendants, as also the rejection of plaintiff’s evidence and of the affidavits filed with the secretary of state, was error, for which the judgment must be reversed.

*By the*Oourt.— Judgment reversed, and cause remanded for a new trial.