Court Opinion

ID: 5617499
Source: CourtListenerOpinion
Date Created: 2022-01-11 04:23:19.809464+00
Date Added: 2024-06-11T08:37:17.720573
License: Public Domain

ON MOTION ROE REHEARING.
Jenkins, P. J.
Able counsel for defendant in error, in their motion for- rehearing, submit that the rule set forth in the syllabus as to the invalid by-law does not apply where the corporation concerned has no fixed capital stock. They cite Thompson on Corporations, vol. 4, as follows: “§4728. By-laws creating a personal liability. This personal liability of stockholders may undoubtedly be imposed by by-law. But it would be necessary, to give a by-law such binding effect, that it had been consented to by all stockholders, and relied upon by a creditor in dealing with the corporation and giving it credit; and as in the case of an agreement this would bind the members individually rather than as stockholders. Where a corporation having no fixed capital enacted by-laws by which each of the corporators were bound to contribute equally to all expenses incurred, it was held that the stockholders were liable for the debts of the corporation.” The citations given by the author of this work in support of the last proposition stated in the quoted excerpt are: Hume v. Winyaw &c. Canal Co., 1 Car. L. J. 217; Savage v. Putnam, 32 Barb. (N. Y.) 420. We have been able to examine only the latter of those two cases, and find that the case does not relate to a corporation at all, but to a private stock company or partnership. In the opinion the court said: “If it were a corporation, neither the outgoing member, nor indeed' any of ■ the stockholders, would be personally liable for the debts of the concern, unless made so by the law which created the corporation.” In the instant case the association is a duly chartered business corporation without capital stock, created for the purpose of conducting an agricultural, dairy, or other business on the co-operative plan. Under the law it could have been incorporated either with or without capital stock. If intended to earn a profit for itself, *711capital stock would be required, but if its purpose was purely cooperative and intended only for 'the mutual help and benefit of its members, it need not have stock. In either event it would be an “effective business organization” with power and authority to transact in its corporate name the business authorized, and as such it could acquire property, incur liabilities, and “sue and be sued in its corporate name.” The fact that such an incorporated business organization is without capital stock would not take from it its corporate character or entity, and consequently its members would, not be liable for its debts as a matter of law. Since they are not, we see no reason why a portion of the members could be authorized to render another portion individually liable for the debts of the corporation by the adoption of a by-law. We do not see why the general rule would not apply, to wit: “Where neither the charter nor the governing statute imposes on the members a personal liability to pay the debts of the corporation, such liability can not be created by any by-law or vote of the corporation so as to be binding on dissenting members.” 10 Cyc. 357 (9).
Counsel for the movant, in their motion for rehearing, say: “It might be said that on the trial of the case some of the defendants could be heard to say that they did not participate in the by-law and did not in any manner render itself liable in any manner, but, as the suit is brought, certainly the court could not, on demurrer, assume such a defense, and because of that assumption hold that there is a misjoinder of defendants.” It must be borne in mind that the plaintiff’s petition does- not allege that all the defendants, or which of the defendants, concurred in the adoption of the bylaw. The allegation of the petition amounts to nothing more than that the by-law was regularly adopted by the members at a regularly called meeting. That it was thus adopted indicates nothing further than that a majority of the members acquiesced in its adoption. No light is thrown by the petition upon which of the members actually acquiesced, or who, or how many, less than a majority, might have dissented. So far as any allegation of the petition shows, one less than a majority of the members sued might have failed to participate or might have dissented. As we construe the suit, it is planted upon the binding effect of the by-law; that it was effective as a by-law upon its adoption, or that the members by their subsequent conduct are estopped from denying its validity *712as such. The petition in no way undertakes to show that the defendants, to use the language of the decision in this ease, incurred “liability by legally pledging as individuals their personal credit for the obligations of the corporation.” For the reason that we did not consider that any such contention was the purpose or legal effect of the averments, we did not consider or discuss how or in what manner this might be done. The quoted excerpt from the motion now under consideration would seem, however, to attack the ruling on the theory that the petition was in fact based not upon the binding effect of the by-law, as such, upon each and all of the members, but upon an alleged individual assumption of personal liability by the members composing the corporation as already indicated. The petition does not set forth facts such as would permit a claim of liability on such a theory. Under either theory, the burden of alleging and proving individual liability on the part of stockholders for corporate indebtedness is on the party seeking to impose it. In our opinion the petition can not be taken as seeking to set up the individual assumption of personal liability by the members of the corporation. Without going into the question of how and in what manner the members of a corporation might, as individuals, legally pledge their personal credit for the corporate indebtedness, the petition does not even disclose what members in any way might have participated in the adoption of the alleged by-law; nor does it show who might have assented and who might have dissented in its adoption. Assuming, therefore, that the petition, as it asserts itself to be, and as it necessarily must be, is based not upon this theory, but upon the validity of the alleged by-law, which purports, as such, to bind all the members of the corporation, and being of the opinion that such a bylaw is null and void, and without any binding force and effect, we held that the individual members were improperly joined in a suit against the corporation on its corporate obligation. As stated in the decision, even if we could consider the doctrine of estoppel as having been invoked, under the explicit ruling made in Reid v. Eatonton Mfg. Co., supra, the mere holding out by the members of the corporation that such a by-law, void on its face, had been adopted would not operate to hold them, liable under its terms.

Rehearing denied.