Court Opinion

ID: 7807289
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:08:05.456823+00
Date Added: 2024-06-11T16:30:21.552388
License: Public Domain

on rehearing. McCulloch, C. J. Counsel for appellants, Dyke Bros., call -our attention to the fact that we failed to decide the question raised by them that the proof was incomplete to establish the corporate existence of the Bank of Midland, and it is insisted, for that reason, that the judgment is not supported .by sufficient evidence. The opinion of the court is silent on that question and a decision on the petition for rehearing calls for a discussion of that subject. Dyke Bros, denied the corporate existence of the Bank of Midland, and they were the only ones of the defendants who raised that question. The plaintiff introduced in evidence the original articles of incorporation filed in the office of the county clerk, and also the record made in the office of the clerk, but there was no attempt to prove that the articles had ever been filed in the office of the Secretary of State. The case, therefore, stands, according to the record, as if the articles of incorporation were never filed with the Secretary of State and no certificate of incorporation ever issued by that officer. The proof is undisputed, however, that there was an organization of the bank pursuant to the articles filed in the office of the county clerk, that directors and other officers were duly elected, and that the business was operated thenceforth as a banking corporation. Our statute provides that before 'any such corporation shall commence business, the president and directors shall file the articles of association, together with a certificate, setting forth the purposes for which the corporation is formed, the amount of capital stock, the ■amount actually paid in, the names of its stockholders and the-number of shares owned by each, with the county clerk of the county in which the corporation is to have its principal place of business; and also shall file said articles of incorporation and certificate, with the endorsement of the county clerk, in the office of the Secretary of State, and that the latter officer shall, upon the filing of such endorsed articles and certificates and the payment of the fees required by law, issue to the incorporators a certificate of incorporation which “shall be admissible in all the courts of the State as prima facie evidence of due incorporation.” Kirby’s Digest, § 845.  (10) It must be conceded that, strict compliance with the requirements of the statute is essential to create a corporation de jure. The authorities are unanimous on that proposition. But it is established by the overwhelming weight of authority that strict compliance with all the provisions of the statute is not essential to the de facto existence of a corporation. “The statutory requirements for the organization of corporations,” says Professor Thompson, “are generally regarded as conditions precedent to the formation of a corporation, and a substantial compliance is necessary in order to constitute a corporation de jure. But in the nature of the case, and under the definition given, if some step in the progress of the organization is unintentionally omitted, and the other requirements are present, there will be a corporation de facto. The accidental failure to comply with some legal requirement is one of the elements to the corporate existence de facto; otherwisej it would be a corporation de jure. A very common omission of strict or substantial compliance is found in the failure either to properly execute, acknowledge or record the certificate of incorporation or articles of association. The general rule is that The mere failure to properly execute and acknowledge the certificate or the failure to record the certificate or articles of association will not be fatal to the existence of a corporation de facto, where the other elements are present.” 1 Thomp. Corp. (2 ed.), § 234. Further on in the same volume (section 255) the learned author says: “Not only is the corporation itself bound, but its officers and stockholders, or other persons interested, as well as those who have dealt with the pretended corporation with knowledge of a claim of corporate capacity, are not permitted to set up either for themselves, or on behalf of the corporation, any irregularity in the organization, for the purpose of either shielding the corporation, or of freeing themselves from personal liability. The certificate of incorporation is made for the benefit of the public, and neither for the corporation nor its stockholders.” Another text writer on the subject states the rule broadly that “the corporation is a de facto- corporation where there is a law authorizing such a corporation and where the company has made an effort to organize under the law and is transacting business in a corporate name.” 1 Cook on Corporations (7 ed.), § 234. Still another text writer states the same rule in the following language: “Cases not seldom arise in which some condition precedent to the legal organization of a corporation has been omitted, and in which no conclusive certificate of due incorporation exists, and in which no estoppel to deny the company’s existence can be invoked. In such cases, the American courts generally will, under certain conditions, hold that the association although not legally incorporated, is nevertheless a corporation de facto, that is to say, an association whose right to corporate functions and attributes is complete as against all the world except the sovereign.” 1 Machen on the Modern Law of Corporations, § 284. To the same effect see Helliwell on Stock and Stockholders, § 438. The text writers fortify their conclusions with numerous citations of ¡authorities, showing (beyond peradventure that this is the generally established rule. Judge Battle, in delivering the opinion of the court in Forbes v. Whittemore, 62 Ark. 229, recognized that principle by using the following language: “They (the parties who were attempting to escape liability as they were stockholders) never undertook to organize themselves into a corporation, and were not a corporation de facto.” This court decided in the ease of Garnett v. Richardson, 35 Ark. 144, that where the act of incorporation was incomplete by reason of the same defect in this case (i. e., not filing the articles with the Secretary of State), the incorporators were personally liable as partners. That decision seems to be against the weight of modern authority, and the doctrine of it should not be extended any further. It does not follow that the corporation itself would not also be liable as a de facto corporation, nor that statutory liability of incorporators would be unenforceable,  (11) We have here a case of statutory liability of the stockholders for public funds borrowed from the bank, iand the rule stated by the text Avriters undoubtedly is conclusive that Avhere there is a de facto corporation the stockholders are estopped to dispute its legal corporate existence for the purpose of escaping liability.  (12) We hold, therefore, that the proof in this case was sufficient to establish a de facto existence of the corporation and that the stockholders are liable for the public funds deposited in the bank while doing business as such corporation, they being estopped to deny the legality of the corporate existence. It is also insisted that we erred in holding that the evidence was sufficient to show that Dyke Bros. Avere stockholders. They were not mentioned as stockholders in the original certificate to the articles of incorporation, but were listed as stockholders in an annual certificate filed by the president and secretary pursuant to the terms of section 848 of Kirby’s Digest, which provides that the president and secretary of every snch corporation shall annually make a certificate showing, among other things, the amount of capital actually paid in, and the name and number of shares of each stockholder. We said in the former opinion in this case that such certificate was prima facie evidence of the facts therein recited, and also that the testimony of one of the witnesses introduced by the plaintiff tended to show that Dyke Bros, were stockholders. We adhere to that conclusion. It is insisted that the testimony of the witness referred to was purely hearsay, and therefore inadmissible, but, after a careful re-examination of it, we think that the testimony as it appears in the record is not altogether hearsay. The statements of the witness are to some extent contradictory, and in some places appear to be statements of fact within his own knowledge and at other places mere hearsay. We can not, however, from a perusal of the statements of the witness, say definitely that all of it is hearsay, for we think that was a question for the determination of the court and jury who heard the witness testify in person and could better judge of his statements as to personal knowledge of facts which he attempted to relate. Rehearing denied. Hart and Kirby, JJ., dissenting.