Court Opinion

ID: 9643666
Source: CourtListenerOpinion
Date Created: 2023-08-22 20:37:00.565299+00
Date Added: 2024-06-11T18:11:02.097254
License: Public Domain

On Petition to ReheaR.
The case of Doggrell v. Great Southern Box Company, Inc., was decided by the United States Court of Appeals for the 6th Circuit on July 9, 1953. 206 P. (2d) 671. It came to that Court by appeal from the Federal District Court for the Western District of Tennessee. That case involved the identical Arkansas law and question decided by this Court in the instant case on July 17, 1953.
Preceded by well considered remarks unnecessary here to detail, the conclusion of the United States Court of Appeals in that case is that the Arkansas law in question is not penal within the meaning of the full faith .and credit clause of our Federal Constitution, Article 4, Section 1; hence, that “the courts of Tennessee, including a United States District Court sitting in that state, are bound” to give effect to this Arkansas law in proceedings brought by a'creditor of the Arkansas corporation to recover a personal money judgment against some of the stockholders of that Arkansas corporation. In the instant case this Court reached the opposite conclusion. Judge McAllister, in a dissenting opinion in the Federal case, reached the same conclusion as that reached by this Court with reference to the penal nature of this Arkansas law.
*589Because of the majority opinion of tire United States Court of Appeals in its case, supra, Paper Products Company, appellant in the instant case, has filed in the instant case its petition to rehear. This petition also makes reference to the cases of Broderick v. Rosner, 294 U. S. 629, 643, 55 S. Ct. 589, 79 L. Ed. 1100; Converse v. Hamilton, 224 U. S. 243, 260, 32 S. Ct. 415, 56 L. Ed. 749; Cf. Hughes v. Fetter, 341 U. S., 609, 613, 71 S. Ct. 980, 95 L. Ed. 1212. Those cases are not, however, found helpful in reconsidering the question of whether this Arkansas law is penal in nature so as to be an exception to the requirements of the full faith and credit clause.
The expression Arkansas “law”, rather than Arkansas “statute”, is used by this Court because it is a decision of the Arkansas Supreme Court as to the effect which must be given a failure to comply with the Arkansas statute requiring a copy of the corporation’s charter to be filed in the office of the County Court Clerk of the County in which the corporation’s principal place of business is located. Its decision is that such failure, ipso facto, renders each stockholder of such Arkansas corporation liable for every debt incurred by that corporation prior to such filing in such county, notwithstanding the fact that such charter had been filed with the Arkansas Secretary of State, whereby, under the express language of the statute, its “corporate existence shall begin.” Whitaker v. Mitchell Mfg. Co., 219 Ark. 779, 244 S. W. (2d) 965, and cases therein cited.
This Court was of the opinion that the instant case fell within the ruling of Woods v. Wicks, 75 Tenn. 40p wherein this Court refused to give effect to a very similar Kentucky statute because of its penal nature. The United States Court of Appeals thought its case to be distinguishable from Woods v. Wicks because the incor-*590poratioii of the Kentucky organization had been completed whereas such incorporation of the Arkansas organization lacked completion, so it is said, to the extent that a copy of its charter had not been filed in the Arkansas county of its principal office.
Apparently, in considering material such above stated distinction between the Kentucky and Arkansas organizations, the United States Court of Appeals inadvertently failed to give effect to the fact that in Tennessee the stockholders of a de facto corporation are not liable for its debts, and that corporations de facto are "those which have made a bona fide effort to comply with the provisions of law and have inadvertently failed in some particular, and in good faith have exercised the franchises of such corporation.’’/Cunnyngham v. Shelby, 136 Tenn. 176, 181, 188 S. W. 1147, 1149, L.R.A. 1917B, 572./ Judge McAllister calls attention to the fact that the Arkansas organization was also a de facto corporation in Arkansas/citing Bank of Midland v. Harris, 114 Ark. 344, 170 S. W. 67; Wesco Supply Co. v. Smith, 134 Ark. 23, 203 S. W. 6.
The United States Court of Appeals felt that its case fell within Huntington v. Attrill, 146 U. S. 657, 13 S. Ct. 224, 36 L. Ed. 1123. In that case it was held that the full faith and credit clause of our Federal Constitution required the Maryland Court to give effect to a New York statute said to be penal in character. Compliance with that statute, however, was clearly intended for the protection of creditors of corporations created pursuant to its provisions. This Court can find no purpose of the Arkansas law other than that of the better procuring compliance with a technical requirement of the Arkansas statute by inflicting a penalty merely because of a failure to so comply.
*591The above stated distinction between the instant case and Huntington v. Attrill, supra, makes it unnecessary to consider the further fact that the proceedings in the Maryland Court in Huntington v. Attrill were to enforce a New York judgment based on a statute said to be penal in nature. In the case .at bar the effort is to procure a judgment in a Tennessee Court based on an Arkansas law which the Tennessee Court regards as penal in nature and contrary to the public policy of its State.
Whether the full faith and credit clause requires the’ Courts of one state to enforce the law of another state penal in some respects “depends upon the question whether its purpose is to punish an offense against the public justice of the state, or to afford a private remedy to a person injured by the wrongful act. " Huntington v. Attrill, supra, 146 U. S. 657, 138. Ct. 224, 230, 36 L. Ed. 1130.
As heretofore stated, this Court thinks that there is no escape from the conclusion that the sole purpose of the Arkansas law in question is to procure a compliance with its statute as to a formal or technical requirement. But, pursuing further the immediately above stated test furnished by Huntington v. Attrill, there is particularly applicable the statement in Judge McAllister’s dissenting opinion in Doggrell v. Great Southern Box Company, supra [206 P. (2d) 682]:- that:—“There "was no wrong committed against any individual in not filing the articles with the County Clerk. To subject an innocent party, who happens to be an incorporator or original stockholder, to what may prove great financial losses or ruin, in being obliged to pay personally all the debts of the corporation merely because someone who should have complied with this technical requirement failed to do so, *592seems to me to subject appellant to a liability that is clearly penal in its nature. ’ ’
On principle, as well as under tbe test pronounced by tbe United States Supreme Court, this Court is of' tbe opinion that tbe penal nature of tbe Arkansas law in question is such that tbe Tennessee Court is not required by tbe full faith and credit clause of our Federal Constitution to give it effect.
The rule of comity does not apply because tbe Arkansas law is contrary to the law and public policy of this State. Woods v. Wicks, supra, 75 Tenn. 40, 46.
The petition to rehear must be denied.