Case Name: David Welch, Resp't, v. The Old Dominion Mining & Railway Co., App'lt
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1890-05-16
Citations: 31 N.Y. St. Rep. 916
Docket Number: 
Parties: David Welch, Resp’t, v. The Old Dominion Mining & Railway Co., App’lt.
Judges: 
Reporter: New York State Reporter
Volume: 31
Pages: 916–919

Head Matter:
David Welch, Resp’t, v. The Old Dominion Mining & Railway Co., App’lt.
(Supreme Court, General Term, First Department,
Filed May 16, 1890.)
Corporation—Cannot be created by user abone.
User alone will not suffice to establish a corporation. There must, at least, be an organization under some existing charter or law, and the organization must be in good faith. Parties cannot take a charter with which they have no concern, and which belongs to others, and effect a corporation defacto by a pretence of user thereunder.
Appeal by the defendants from a judgment rendered in the plaintiff’s favor, after a trial at circuit; also from an order denying a motion for a new trial.
William H. Arnoux and Haley Fislce, for app’lt; Arthur P. Hodgkins, for resp’t.

Opinion:
Barrett, J
The plea nul iiel corporation was here specially interposed. Upon the proofs, the learned judge at circuit held that a corporation defacto, though not dejure, had been established, and that the plaintiff might recover if the jury were satisfied upon the merits.
In Methodist Episcopal 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, viz.: 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." Where an attempt is made in good faith to organize a corporation under general laws, followed by actual user, a defect in the proceedings or an irregularity in the organization will not avail parties who have contracted with' it Eaton v. Aspinwall, 19 N. Y., 119; Brouwer v. Appleby, 1 Sand., 158.
User alone, however," will not suffice. People cannot create -corporations merely by acting as such. There" must at.least be an organization under some existing charter or law. And such organization must be in good faith. ' Parties cannot take a charter with which they have no concern and which belongs to other people, and effect a corporation de facto by a pretence of user thereunder. That is this case. The parties who, in this city, in the year 1886, attempted to organize a corporation tinder an act of the legislature of the state of Virginia passed in 1882, had not even a semblance of right The corporation contemplated by that act had already, in. the state of Virginia, in the year 1883, been duly orgánized by the original corporators; and that corporation has ever since regularly proceeded with its lawful business. It seems that shortly after the act of 1882 was passed, one Gallagher intimated to some "of the original corporators that he could sell the charter, and these gentlemen thereupon sent him an assignment in blank. Shortly afterwards the negotiation fell through and" the parties requested a return of the assignment, Gallagher said that he had destroyed it, as it was of no use to him, and no further notice was taken of the matter. This assignment, however, re-appeared in the year 1886, in this city, with the name of one Clough inserted as assignee in the space which was originally blank, and " one dollar " inserted as the consideration. It was under this document, supplemented by various assignments from Clough and his assignees, that the pretended organization was here attempted. The assignment itself, even if it were not fraudulent, was wholly inoperative to convey the franchise. That could only be done by organizing the company, issuing the stock and then transferring such stock to the purchasers. But the assignment was fraudulent, and under the circumstances even criminal.
The organization attempted under its authority was a complete nullity. That organization was also void for other reasons. Under the laws of Virginia, a corporation must be organized within two years after the grant of its charter. Otherwise the grant is absolutely void. And this results, without legal proceedings of any kind, from mere operation of law.
It appeared too by the testimony of a Virginia lawyer, who was a competent expert, that at the time when this organization was attempted in New York the laws of Virginia required such organization to be effected within that state.
After the sham and entirely futile organization in New York, the plaintiff was brought in as counsel by some gentlemen who were willing to advance money and to resuscitate the company, provided the charter was valid. The plaintiff advised that it was valid. He subsequently discovered that in the year 1884 the legislature of Virginia changed the name of the corporation from the London & Buckingham Construction & Mining Company (which was the name given to it in the original act of 1882) to the Flat Top Coal Company. Thereupon he proceeded to Richmond, and actually secured the passage of a bill (in May, 1887), changing the name given to the company by the act of 1884 to the "Old Dominion Mining & Railway Company." I
He did this with knowledge of the existence of the other com-' pony, which thus had its name changed without its consent by( the gratuitous act of a stranger. For certainly this was the only legal effect of the plaintiff's extraordinary action. And it was for these services in the main that the plaintiff sought compensation in this action. Hpon this state oE facts the complaint should have been dismissed. There was no corporation created by the attempted organization in this state in 1886, either de jure or de facto. There was neither semblance of an existing charter nor user. The only substantial user was the attempted organization and the action advised by the plaintiff thereunder. His opinion was expressly requested, not only on the validity of the original act of 1882, but upon the effect thereon of subsequent events. The language of the written request called for his opinion " upon the validity of the first charter of our company, and every act or event that has happened, or that may hereafter occur by legislation which has or could affect it" Plainly his clients thus put themselves in his hands, quite as a proposed purchaser of real estate does with regard to the title. It was his duty to examine the title to the charter quite as much as to pass upon the validity of the act conferring it.
If he had done his duty in this regard he would, or he certainly should, have ascertained the real facts, and have advised his clients that they had no title to the charter, and that the attempted organization was founded upon fraud in fact and nullity in law. For this service he would have been entitled to proper compensation from the persons who employed him, but not from the defendant ; for there was no such corporation, and he would, or should, have known that fact. But after he discovered that an organization had been effected in Virginia in the year 1883, that the name of the company had been changed by the legislature of that state in 1884, and that the Virginia company had been ever since uninterruptedly prosecuting its legitimate business under such changed name, he had no excuse whatever for proceeding as he did; and the claim for services subsequently rendered, even as against the individuals who originally employed him, was, to say the least, wholly without merit.
There are several other doubtful questions in the case, notably the refusal to admit in evidence the papers upon which the order amending the answer was granted.
The original answer admitting the corporation had been put in by the plaintiff. This must have had its natural effect upon the jury entirely apart from the question (taken from them by the court) whether there was a corporation de jure or de facto. It tended to throw doubt, from the defendants' own lips, upon the good faith of their present plea, that they had been badly advised as to the validity of the charter. They were consequently entitled to explain how they came to make the admission and how they came to withdraw it The affidavits and papers used upon the motion for leave to withdraw the admission and to be permitted to plead nul liel corporation were, therefore, under the circumstances, proper for the consideration of the jury.
But we need not pursue the subject or consider the other points presented by the appellants, for the reason that the questions already discussed go to the root of the action, and, so far as we can see on this evidence, must necessarily result in a dismissal of the complaint
The judgment should be reversed and a new trial ordered, with costs to the appellant to abide the event
Van Brunt, P. J., concurs ; Bartlett, J., concurs in result