Court Opinion

ID: 6517970
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:28:25.890902+00
Date Added: 2024-06-11T15:55:04.500673
License: Public Domain

McCLELLAN, O. J.
— The appellees in this case contend for, the appellant recognizes, and nobody doubts, the principle that where parties contract with each other as corporations they are in respect of such contracts estopped to deny, corporate existence. It must be equally free from doubt that where a party contracts with another but not as a corporation, he is not as to such contract estopped to deny the corporate existence of such other party or to show that the entity with which he dealt was an individual or partnership. So that in a case like the present one, where the plaintiff, the Grocery Company, seeks to establish and enforce a personal liability against certain individuals who defend on the ground that they were only stockholders and officers of a de facto corporation with which plaintiff, they assert, dealt as a corporation, it is obviously competent and most material for the plaintiff to show that it did not deal with the defendants as a corporation but as individuals composing a partnership; and this though the partnership assumed and did business under a name more appropriate to a corporation than to a partnership, and the plaintiff contracted with the defendants under that name. The plaintiff sought to prove that it sold its goods to the Fruitdale Lumber Co. as a partnership composed of the individuals now sued, and not as a corporation, by testimony to the effect that the defendant Hall purchased said goods for the Fruitdale Lumber Co, *344on tlie representation that said company was a partnership composed of himself and the other defendants. The trial court excluded this evidence. This was error. It ■was not competent to show that the Fruitdale Lumber Co. was not a corporation de jure or de facto, nor that it was a partnership composed of the defendants; but it was competent as tending to show that the plaintiff dicl not contract with that company as a corporation but as ■a partnership, and hence was not estopped to show by Other evidence, if any such it could adduce, competent to that result that said company was not a corporation, but was a partnership composed of the defendants. Whether this error was prejudicial to plaintiff and, therefore, available to reverse the judgment depends upon whether the presumption of injury from error committed is overturned by unconflicting evidence that the Fruitdale Lumber Co. was in fact a corporation. Assuming that the jury would have believed the excluded testimony, as they had a right to do, and have found in line with it, as it would have been open .to them to do, that plaintiff did not deal with the Fruitdale Lumber Co. as a corporation, the effect of admitting this testimony would have been to raise the estoppel resting on plaintiff from the fact that it had contracted with the lumber company in the name under which it was attempted to be incorporated, or was nominally incorporated, and to leave the plaintiff free to prove by other evidence that the company was a partnership Avhose members were individually liable for plaintiff’s debt. And we could not assume that there was no such other evidence, even if the record were silent on the point: We should have to take it that there was such other evidence which plaintiff was prevented to introduce by the ruling which virtually estopped him to show the fact it would have tended to establish; and we should have to allow the presumption of injury from error to stand. But the record is not silent, it does not stop here. It shows further that the plaintiff proposed to assault and offered evidence attacking the corporate existence of the •Fruitdale Lumber Co. It proposed to show that said company had never paid the incorporation fee required *345by the act of 1895, without which by the terms of the ■ statute the issuance of a commission to the corporators to do business as a corporation is forbidden and all contracts attempted to be made by the concern are wholly void. — Acts 1894-5, pp. 1024-5-6. And in addition to this, it offered further evidence tending to show that the pretended corporation was a sham, a delusion and a snare, fraudulent in intent and execution, wholly without capital and devised solely to cloak a partnership enterprise against individual liability of partnership- members. The evidence offered and rejected went to show that nothing Avas paid for the shares of the pretended corporation’s pretended capital stock, that the affidavits of subscriptions made and paid were knoAvingly false and fraudulent, that no money nor any property of value was ever paid or transferred to the company to constitute its capital, that no corporate function Avas ever performed except the pretended election of officers‘and directors, that no meeting of the directors Avas ever held, but the business for which the corporation was pretended to be formed Avas carried on by these defendants as individuals associated together as partners, and that all this was in furtherance and execution of an intention all along existing to carry on a partnership by means of the pretended incorporation in such a way as that the company would have no assets to meet debts, and as that these individuals could not be held liable for debts contracted in the name of the company. We are, therefore, clear to the conclusion not only that the plaintiff should have been alloAved to prove the declarations of Hall that the Fruitdale Lumber Oo. Avas a partnership composed of the defendants, but that all the evidence offered by it tending to shOAV that the incorporation of said company was a fraud and a pretense intended to cover a partnership business, to shield the partners from individual liability and to set up a straAV corporation without capital and without assets, should have been alloAved to *go to the jury. And the fact that the fee for incorporation had not been paid Avas also competent in this connection, as some evidence toward a conclusion of fraud — a badge of fraud, so to speak, going in some degree to show that the parties did not in good faith intend and attempt *346to bring into being a real, substantive artificial entity. But this fact of the non-payment of the fee would not, of itself, in our opinion, prevent the imperfect and incomplete organization from being a de facto corporation. It is a prerequisite to the issuance of a commission, but if without it, a commission is issued, the contemplation of the statute is not that there is no de facto corporation, but that the contracts of such a corporation should be wholly void.
Of course the views we have expressed lead to and involve this proposition: That where there is no bona fide purpose and effort to organize a real corporation with a capital to respond to its liabilities, but the purpose and effort is to put forward a sham without capital or assets to cover a real partnership and the carrying on of a partnership business exempt from liability as a partnership, the purpose and effort are abortive, the pretended existence of a corporation is open to collateral attack as a mere fraudulent device, and, though on the face of the proceedings there is a regular and complete incorporation, the pretended corporate entity is to be taken as non-existent except as to persons who have contracted with it as a corporation in such way as to estop them- . selves to show the fraud.
For the error committed by the trial court in excluding the evidence referred to, offered by plaintiff, the judgment must be reversed. The cause is remanded.
Reversed and remanded.