Court Opinion

ID: 8851007
Source: CourtListenerOpinion
Date Created: 2022-11-26 17:13:28.718857+00
Date Added: 2024-06-11T17:05:29.920987
License: Public Domain

WOODS, Circuit Judge
(dissenting). In considering whether a special finding of facts sustains a judgment it is to be remembered that all matters in respect to which the finding is silent are to be regarded as if expressly found against the party upon whom was the burden of proof. Of the two theories advanced in support' of the judgment here in question, that of statutory liability was mainly relied upon at the argument, and apparently when the declaration was drawn. In support of that view it was insisted upon the authority of Hawes v. Petroleum Co., 101 Mass. 385, that until the shares of stock had been taken by individuals, the incorporators of the company were the holders in common of the entire capital stock, and, not having paid in the required 20 per centum thereof, were personally liable, under the statute, upon the corporate contracts. There is, however, an essential difference between the statute of Massachusetts, under which that decision was .made, and the statute of Wisconsin, with which we are now concerned. Under the latter there are two distinct stages in the process of incorporation. The first consists in the execution and recording of articles, signed by corporators, who may or may not become members or shareholders, while the second stage is complete only when subscribers have taken and paid 20 per cent, of the par value of one-half or more of the capital stock, and of their own number have chosen directors and other officers; it being expressly provided that “persons holding stock, and they only, shall be members.” Under the Massachusetts statute — and, indeed, under statutes of Wisconsin concerning the formation of certain classes of corporations — there is no such distinction between a mere corporator and a member or shareholder of the body. In the case referred to, the articles of incorporation of the Anglo-Saxon Petroleum Company, it is to be observed, provided for stock, in an aggregate amount, without division into shares, and, speaking with reference to that fact, the court said: “The stock not having been divided into shares or certificates issued, the associated members of the corporation -were holders of the *99whole capital stock in common; and, it would seem, upon the facts, agreed to be liable in equal proportions for such sum as may be decreed to be paid by them in this suit.” In the case before us, Moe and Williams, by letter heads and otherwise, had represented themselves to be officers of the company, which they could not be unless they were stockholders, and were; therefore estopped to deny the fact of membership which made them responsible under the statute. But the plaintiff in error was not a stockholder in fact, and he is not found to have done or to have authorized the doing of anything whereby he is estopx>ed. The only fact in the case that can be regarded as tending to show Ms consent that Mot; and Williams should use his name is the provision in the articles of incorporation that the corporators should compose the first board of directors. Rut it was not competent, under the statute, to choose or appoint, directors in that way, and the provision can fairly be said to signify no more than an understanding between the signers of the articles at the time of signing that when, if ever, they should complete the corporate organization by taking and paying for stock, they would elect themselves directors. If this provision “may be considered as a fact tending to show intention or knowledge,” it is immaterial in a special finding, where the statement of ultimate facts only, and not of evidence, has significance. The record, however, leaves room for no question upon this point. Instead of showing affirmatively that the name of the plaintiff in error was used with his authority, the finding is express that “the evidencie does not establish that he had actual knowledge that his name was used.” The added statement, in the finding, “that under the circumstances, if he did not know it, he could have ascertained the fact by merely slight; attention to the matter, and was guilty of negligence in not knowing it,” is, I think, immaterial for the purpose of establishing liability either under the statute or by contract. The statutory liability is declared against stockholders only, and as the plaintiff in error was not a stockholder, either in fact or by estoppel, the judgment against him cannot rest upon that basis.
There is, in my opinion, no better support for the judgment on the theory of common-law liability. Wechselberg was not in fact a copartner of Moe and Williams in the business which they were doing, and I know of no principle or decision which would make him responsible for tlieir acts or contracts, either severally or as a joint obligor. The opinion of the court, as 1 understand it, rests his responsibility ultimately upon the mere fact that he and they were the signers of the recorded articles of incorporation of the company in whose name they conducted business and executed the obligation sued on. But between his act of signing the articles and his supposed responsibility for the acts of the other signers done in the corporate name, before it was lawful so to use that name, there seems to me to be neither legal nor logical connection. The statute, it is agreed, imposes no obligation except upon stockholders; and in the articles of incorporation there is to be found no promise, covenant, or undertaking to be responsible for corporate contracts, whether made before or after complete organization, and *100there is no expression or implication oí authority given by one cor-porator to the others to begin or to prosecute business in the corporate name in any mode, or as if it were a partnership name. I\o such result, it is clear, was intended by the plaintiff in error, and neither in law, equity, nor good morals do I perceive any justification for imposing liability upon him. It is found that he knew that Moe and Williams were doing business in the name of the corporation, without having complied wth' the statute; but it is not found that he knew that they were using his name, or that anything came to his notice which ought to have put him on inquiry. He did not, by signing the articles, malte the other signers his agents to do anything whatever, — not even to take the steps -necessary to perfect the corporate organization. Having no stock, he had no legal interest in what was done in that direction; and if the other signers had taken or allowed others to take the entire stock, to his exclusion, it would have been a breach of no obligation to him. Having no right in any of those particulars to control the course of the other corpo-rators, he was under no duty to the public to look after their conduct. He was, therefore, no more bound to make inquiry concerning what had been or was proposed to be done than were thii’d parties who chose to deal either with the corporation or with Moe and Williams or with others assuming to use the corporate name. Others, as well as he, knew, or were bound to know, the provisions of the statute; and if they dealt with the corporation on the faith of its responsibility, without inquiry on the subject, they are not harmed if they are without recourse upon an individual who had no part in the transaction; and if they supposed that the organization of the corporation was or might be incomplete, and counted upon individual liability, it was equally their duty to know to whom, for that purpose, they might rightfully look. The articles of incorporation, if examined, would have shown that the plaintiff in error was a signer, but as, under the law, it was the right of the other two signers to call a first meeting of stockholders without notice to him, and to complete the organization without his participation, his participation beyond the fact of signing was not to be inferred, except from his own subsequent conduct. A rightful act is no warrant for a wrongful one. The stock book was open, it was to be presumed, to show who, if anybody, were shareholders, and if any one chose to trust to the représentations of Moe and Williams rather than to inquire of Wechselberg himself whether his name was used with his consent, he can justly complain only of those who deceived him. Neither the defendant in error nor its assignor dealt with the plaintiff in error, or with others, on the faith of his name, nor were they in any way deceived by him.
The proposition that “all who are parties to the simulated corporation, as associates or shareholders, are held liable at common law for debts contracted under the corporate guise,” is more broadly stated than any of the authorities cited in the principal opinion seem to justify. In Fuller v. Rowe, 57 N. Y. 23, for instance, it is held that, in order to charge one as an incorporator or as a partner, “it must be shown that he was so acting at the time the contract sued *101on was made, or that upon some consideration be agreed to become liable with the others”; and I believe there is no case in which a subscriber to the articles or to the stock of a corporation, imperfectly organized, lias been held personally responsible for contracts made in the corporate name, unless he had had some part in the making of the contract, or an interest in it, which would have bound him independently of his subscription to the articles or stock of the association. It was so held in Rutherford v. Hill, 22 Or. 218, 29 Pac. 546. To the same effect, as I read them, are Fredendall v. Taylor, 26 Wis. 286, and Lewis v. Tilton, 64 Iowa, 220, 19 N. W. 911. See, also, Bank v. Palmer, 47 Conn. 443. One may sign an agreement to form a partnership, but if he does not in fact become a member of the firm, nor authorize the use of his name, and has no part or interest in the business, he will not be responsible for the doings or contracts of the other signers of the articles if they pursue the enterprise and incur liabilities in the business and name of the proposed partnership. Thompson v. Bank, 111 U. S. 529, 4 Sup. Ct. 689; Preston v. Foellinger, 24 Fed. 680, and note. And it is difficult to understand how the signer of articles of incorporation, who takes no subsequent action or- interest, and does not authorize the use of his name, can be held responsible for corporate contracts on the theory that he was a partner or joint contractor, when, if under the same circumstances he had signed an outright agreement to form a partnership, and thereafter had had no part or interest, he would not be responsible for contracts of his proposed partners in the business which had been agreed upon.
Upon the question of contract liability, the finding that by the use of slight diligence the plaintiff in error could have known of the use which was made of his name is no more relevant or material than upon the question of statutory liability. He ga,ve the use of his name, it is true, “for the inception of the enterprise,” but it was for a corporate enterprise, which was lawfully begun; and, the contrary not being found, it must be presumed that he neither intended nor assented to anything afterwards done in violation of the statute in conformity with which the initial steps in which he shared were taken. He was certainly not bound to anticipate, and nothing is shown to have come to Ms attention which ought to have caused him to suspect, an unauthorized use of Ms name. No one was misled in respect to his responsibility, and, if there had been, it would not, upon the facts found, have been through his fault. The fundamental error of the contrary view, as I conceive, is in the assumption that a signer of articles of incorporation like those in question owes a duty to the public which compels him, at the risk of personal liability, to prevent the making of contracts in the proposed corporate name without compliance with the statute, or beforehand, in some way not explained or shown to be possible, to disavow responsibility. But if, as it seems to be held, the recorded articles constitute a public statutory notice upon which every dealer will be presumed to have relied as proof of the individual liability of all signers ol* the articles for such contracts made by a part of the signers or by subscribers to the stock, it would seem clear that no *102disavowal of responsibility, however publicly made, could be effective, in the absence of statutory provision therefor, unless shown to have come to the actual knowledge of the party to be affected. The doctrine is not in harmony with the familiar principles of agency which govern when it is sought to make one man responsible for the acts of another, and, if carried to its logical results, will establish in many cases, which need not be further illustrated, a liability on the part of signers of articles of incorporation which will be manifestly unjust, and for which until now I believe there has been no precedent. If the supposed duty of the signer of such articles to protect the public against the wrongs of other signers be rejected as unsound and fallacious, the finding of the court below that “by merely slight attention” the plaintiff in error “could have ascertained” the use which was made of his name, becomes immaterial, and the added inference, or conclusion of law, that he “was guilty of negligence in not knowing it,” is without support. Where there is no duty there can be no negligence. It takes more than inattention to create an agency or to constitute fraud. The plaintiff in error, therefore, did not make himself party to “the assumption of corporate powers,” and is not bound, either jointly or severally, upon the contracts of those who were guilty of so doing.
If a corporator is subject, under this statute, to the supposed liability, and if, on account of sickness, absence, inattention, or for any reason, he fails to disavow his connection with the corporation, or fails to repudiate an unknown, unsuspected, and unauthorized use of his name, when will his responsibility cease? Taking no part himself, to what extent will he be responsible for the good faith of steps taken by others in perfecting the organization? It is said “that the office of corporator disappears when that of stockholder is taken on.” But suppose the corporator takes no stock, and another does, and becomes thereby liable under the statute, does the liability of the corporator cease, or is it necessary that one-half or more of the stock shall have been taken, and the required payment in cash made besides, before he can be released ? Suppose the entire stock to have been taken by responsible, or say by irresponsible, subscribers, and directors and other officers to have been elected, but, the necessary amount of cash not paid in, would the corporator who had taken no stock still be responsible? And, if compelled to pay an obligation for which stockholders were also liable, what right of contribution would he have against them, their liability being under the statute and his arising out of contract?’ The case may be stated in another way: This statute authorizes two classes of. corporations, one with and the other without capital stock. The articles which the plaintiff in error signed provided for capital stock and for the admission to membership of any who should subscribe for and become owner of one share or more of the stock. The first meeting of the stockholders could be called only when one-lialf of the stock or more had been subscribed. Notice of that meeting was required to be given to stockholders, but not to incorporators. Directors or other officers could be elected only by the stockholders. No stock was ever subscribed for, and no directors or other officers *103wore ever elected. Only directors or other officers chosen and empowered to do so could make corporate contracts, beyond subscriptions to stock, and other steps necessary to complete the organization. The assumption by Moe and Williams to represent the corporation as directors or otherwise was therefore a sheer usurpation, and the contracts which they made in tin; corporate name, being tot,ally unauthorized, were void as against the corporation, and bound nobody but themselves. This interpretation gives coherency and completeness to the statute, which imposes individual liability upon stockholders only. There was no necessity for doing more, because in such cases, without stockholders, there could not he a corporation with agents authorized to bind it; and for cases of attempts, like the one under consideration, to contract in the name of a corporation, without, authority to hind it, there was no necessity to make provision, because all actually engaged in such an attempt are responsible on common-law principles, and no one who was not party to the attempt ought in good conscience to be made responsible by statute, or be so held by (he courts, on grounds outside of (he statute. If the articles of incorporation in question had expressly forbidden the transaction of business with any other than its members until at least one-half of its capital stock had been duly subscribed and at, least 20 per centum thereof paid in, it would hardly he contended that two of the signers, without the consent of the third, could bind him by contracts made by them in the corporate name. But the prohibition is in the statute, and the plaintiff in error is entitled to the benefit of It; just; as if it bad been repeated in the articles which lie subscribed. Ordinarily, the signer of articles of incorporation becomes a member or shareholder by the act of signing, and if it were conceded in such cases that the subscriber to the article's should be presumed to have participated or had an interest in business done in the name and within the scope of the organization, it would be only a prima facie presumption. McHose v. Wheeler, 45 Pa. St. 32. But, whether conclusive or only prima facie, it could have no application in a case like this, where the corporator could not lie a member or have a legal interest/ until lie had (alcen stock, which he could do or not, at pleasure, and where, (hough the preliminary organization of the corporation was complete, a valid corporate contract could not be made, because stock had not been subscribed and paid in to the amount required, and directors or other officers with authority to act had not been chosen.