Court Opinion

ID: 7003105
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:45:39.038807+00
Date Added: 2024-06-11T16:09:47.910436
License: Public Domain

Mr. Justice Waterman delivered the opinion of the court. The principal question presented in this case is as to the position of stockholders in a body that, having attempted to become incorporated in this State, proceeded so far as to have obtained from the secretary of state a certificate of complete organization, and failed in fully complying with the statute concerning incorporations only in omitting to record this certificate in the recorder’s office of the county wherein the principal office of the' company was located. All this having been done in an honest attempt to comply with the law and form a corporation in accordance therewith, the de facto corporation thereafter proceeded in good faith to do business as a corporation, and purchased goods from appellees, who, having sold to and dealt with it as such, now seeks to hold all its stockholders liable as partners for the indebtedness thus incurred. While there has been and is a contrariety of opinion upon this subject, the great weight of authority is that where a supposed de jure is really but a de facto corporation, yet is doing business in good faith as a corporation duly and completely organized, one who does business with and gives credit to it as such, can not hold the stockholders liable to him as partners. Bushnell v. Consolidated Ice Machine Co., 138 Ill. 67-73-74-75; Tarbell v. Page, 24 Ill. 46-48; 3d Ed. Cook on Stock & Stockholders, Sec. 233-234; Morawetz on Private Corporations, Sec. 748; Taylor on Private Corporations, Sec. 348; Spelling on Private Corporations, Sec. 833; Mechem’s Elements of Partnership, Secs. 10 and 11; Bates on Partnership, Sec. 4; Whitney v. Wyman, 101 U. S. 392; Fay v. Noble, 7 Cushing, 188; First National Bank of Salem v. Almy, 117 Mass. 476; Stout v. Zulick, 48 N. J. Law, 599; Merchants & M. Bank v. Stone, 38 Mich. 779; Gartside Coal Co. v. Maxwell, 22 Fed. Rep. 197; Planters & M. Bank v. Padhett, 69 Geo. 159-164; Shider Sons Co. v. Troy, 91 Ala. 224; Bank v. Hall, 35 Ohio St. 158-169; Medill v. Collier, 16 Ohio St. 599; McClinch v. Sturgis, 72 Maine, 288; Humphreys v. Mooney, 5 Colorado, 282; Harod v. Hamer, 32 Wisc. 162; Stafford Bank v. Palmer, 47 Conn. 443; Ward v. Brigham, 127 Mass. 24; Methodist Episcopal Union Church v. Pickett, 19 N. Y. 482; Heaston v. The Cincinnati R. R. Co., 16 Ind. 275; Swartout v. Michigan Air Line R. R. Co., 24 Mich. 393; Vanemare v. Young, 53 N. J.; Walton v. Riley, 85 Ky. 413-421; Welch v. Importers Bank, 122 N. Y. 177; Merchants National Bank v. Pendleton, 9 N. Y. Suppl. 46; American Salt Co. v. Heidenheimer, 60 Tex. 344; Merriam v. Magivney, 12 Heisk. 494; Blanchard v. Kaull, 44 Cal. 440. There are many authorities to the contrary; some of these, however, as in Iowa and Nebraska, are based upon imperative provisions of the state statute. Notwithstanding the authorities to the contrary, the rule, before stated, as to the non-liability of stockholders in cases of defective or incomplete organization is, as said by Cook, in his work on Stock and Stockholders, settled “ beyond reasonable doubt.” It has been said that the stockholders of a merely defacto corporation may be held liable as partners, upon the principle that one unknowingly dealing with an agent may hold the principal when discovered. The difficulty with the application of this rule is that the corporators in the case considered, have never authorized any of the agents or members of the de facto corporation to bind them personally or transact any business for them as such, but have merely given authority to deal with and bind their interest' in an organization believed to be incapable of fastening a personal liability upon any stockholder; there has in such case neither been represented to be, nor secretly known to be, an agency of or for any principal save the artificial de facto corporation. Where a defacto corporation has in good faith dealt as such, and creditors have treated with and trusted it alone, to, upon discovery of incompleteness in or defects of organization, permit creditors to hold the stockholders liable as partners, is to disregard the contract,, representation and understanding under which credit was extended, and to give to creditors not only that for which they never contracted, but which it was definitely understood they were not to have. The consequences of such a doctrine, in these days when nearly every man is a member of sopie private corporation, would be most serious. Practically, it is not possible for each stockholder to know that all the steps necessary to the creation of a cle jure corporation have been, taken. He may put aside stock purchased as a provision for his old age or a heritage for his children, only to find that he has gathered, not an asset, but a liability, by which his entire estate may be swept away. That the Thompson & Edwards Fertilizer Company was a de facto corporation is established by Bushnell v. Consolidated Ice Machine Co., 138 Ill. 73; Hudson v. Green Hill Seminary Corporation, 113 Ill. 618; Gade v. Forest Glen Brick Co., 165 Ill. 367; same v. same, 55 Ill. App. 181. We are not here considering the question presented in Loverin v. McLaughlin, 161 Ill. 417, and Kent v. Clark Co., 181 Ill. 237, of the liability under section 18 of the general incorporation act of this State, of officers and directors of corporations incompletely organized. In the case of Loverin v. McLaughlin attention is called to the marked “distinction” existing between the case when the suit is between the corporation and a stockholder, and the case of a suit by creditors against individuals assuming to act as agents or officers or directors of a corporation. “ In the latter case it is the duty of such persons to prove that their principal had a legal existence and was capable in law of contracting the debt for which they are sought to be held liable.” Hor are we considering the case of a corporation illegally organized. There was nothing illegal or unlawful in the organization of the Thompson & Edwards Fertilizer Company. It was organized under a valid law and in entire accordance therewith. In pursuance of the statute there was issued to it by the secretary of state “acertificate of the complete organization of the corporation.” Not intentionally, but inadvertently, it omitted to record in the county wherein its principal office was located the “ certificate of complete organization.” It proceeded to business before, for lack of such recording, it was authorized to do so; nevertheless it was a de facto corporation. Bushnell v. Consolidated Ice Machine Co., 138 Ill. 67-73. The quotation from Beach on Private Corporations, in Loverin v. McLaughlin, 161 Ill. 417-436, “ If a corporation be illegally formed, its members or stockholders are liable as partners for its acts or contracts,” we do not regard as inconsistent with the view taken in this opinion. The distinction between corporations illegally formed—as where there is no law for such formation, and for the purpose could be no de jure corporation, or where there has been no attempt to comply with the law, or there has been a fraudulent assumption of corporate powers—-and cases such as that now under consideration, where a defacto corporation has been brought into existence, but has proceeded to business omitting to file a certificate or make a publication, or some other requirement of the law-—is pointed out by most of the text writers and many courts. Nor have we here under consideration the liability of agents, officers or directors of a de faeto corporation that has proceeded to business before authorized to do so, or of directors who have contracted in excess of the power of the corporation, upon which the court passed in Seeberger v. McCormick, 178 Ill. 404. The capital stock of this corporation was necessarily fully subscribed, and a copy of the subscription list furnished to the secretary of state before he issued the certificate of “ the complete organization.” Secs. 3 and 4, Chap. 32, R. S. The liabilities of the stockholders under section eight became thereby fixed and determined. There is no hint in the general incorporation act that if thereafter there be an omission to record the certificate of “ complete organization,” or any other failure or act by which the corporation may be dissolved, or its charter taken away, the stockholders shall be liable as partners; while there are provisions for liability by officers, directors and agents for all debts in case certain things are or are not done. Sections 16, 18, 19 and 21 of Chapter 32, E. S. The order dissolving the attachment was not void. The court had jurisdiction of the subject-matter and the parties, and however erroneous, its order was not void. Hughes v. Foreman, 78 Ill. App. 460. We are not prepared to hold that because the statute permits a defendant in attachment to, in term time, enter into a recognizance for the payment of whatever judgment may be found against him, 'therefore the court may not take a bond with adequate sureties. The judgment of the Circuit Court will be reversed without remandment and with a finding of facts.