held that a cooperative association was not a farmer just because its members were." Individuality is the dominant distinguishing quality of a corporation. The stockholders or members of a corporation, as well as its officers and directors, may change constantly, but the existence of the corporation continues. It lives on as unaffected by these changes as a man is unaffected by changes of clothing. As an engine is separate from the engineer who runs it, so a corporation is normally separate from its agents, officers, stockholders, or members. The members do not have title to the property of a corporation. They cannot transfer the legal title thereto, although all of them join in the execution of papers purporting to transfer the property. It can be done only through the proper officers or agents of the corporation. A corporation can act only through its officers or agents, who, in turn, must have been authorized to act by the board of directors of the corporation. Normally, if one man acquires all the stock of a corporation, the title to the property of the corporation is not in him, and he can neither sue in his own name for damages to the property nor transfer title to it. 10 Neither can he, if not an attorney, represent the corporation in court." A stockholder as such is not an agent of the corporation. 12 A stockholder or member of a corporation has no control over any part of the assets of the corporation prior to its liquidation. A stockholder or member of an association, on the other hand, is not because of this relationship a creditor of the association; and the possession of a certificate of membership or of stock, whether common or preferred, is not evidence of indebtedness but merely of ownership. 13 6 Walling v. McCracken County Peach Growers Association, 50 F. Supp. 900 (W.D. Ky. 1943). 1Rhode Island Hospital Trust Co. v. Doughton, 270 U.S. 69, 43 A.L.R. 1374 (1926); Wabash Ry. Co. v. Amer. Refrigerator Transit Co., 7 F. 2d 335 (8th Cir. 1925); Adams v. Farmers Gin Company, 114 S. W. 2d 583 (Tex. Civ. App. 1938). City of Winfield v. Wichita Natural Gas Co., 267 F. 47 (8th Cir. 1920). "Grosfield v. First Nat. Bank, 73 Mont. 219, 236 P. 250 (1925). 10 Button v. Hoffman, 61 Wis. 20, 20 N. W. 667, 50 Am. Rep. 131 (1884); City of Winfield v. Wichita Natural Gas Co., 267 F. 47 (8th Cir. 1920). Cary & Co. v. F. E. Satterlee & Co., 166 Minn. 507, 208 N. W. 408 (1926). 12 United States v. Strang, 254 U.S. 491 (1921). 13 Sternbergh v. Brock, 225 Pa. 279, 74 A. 166, 24 L.R.A. (N.S.) 1078 (1909); Wineinger v. Farmers' & Stockmen's Loan & Investment Association, 278 S. W. 932 (Tex. Civ. App. 1925), affirmed, 287 S.W. 1091 (Tex. Com. App. 1926). It has been said that "the stockholders are the beneficial owners of the assets of the corporation."14 Normally, if one corporation owns all the stock of another corporation, a subsidiary, the courts regard the two corporations as separate and distinct. 15 One organization is not responsible for damages caused by another where the latter, although chartered by the former, functions independently. 16 Nor can a claim against one corporation be used as a setoff in a suit brought by another corporation, although both have common officers, directors and agents and one is alleged to be a subsidiary of the other."7 The fact that one corporation owns all of the capital stock of another corporation and that members of the board of directors of both corporations are the same is not sufficient to render the parent corporation liable for contracts of its subsidiary, in the absence of additional circumstances showing fraud, actual or constructive, or agency. 18 In a Montana case, 19 the corporate entity of the subsidiary was said to be in "abeyance," when all the stock was owned by one parent corporation, and the parent was taxed on the subsidiary's property. If the corporate form is being used as a cover or medium for effecting a fraud or working an injustice, the courts will disregard the separate entity of the corporation and will hold the interested persons liable or responsible. 20 14 Aransas Pass Harbor Co. v. Manning, 94 Tex. 558, 63 S. W. 627 (1901). See also Pacific Fire Insurance Company v. John E. Morris Company, 12 S.W. 2d 971 (Tex. Com. App. 1929). 15 Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333 (1925); People v. American Bell Telephone Co., 117 N.Y. 241, 22 N.E. 1057 (1889). 16 Farmers' Educational and Cooperative Union of America v. Eakins, 188 Okla. 324, 108 P. 2d 182 (1940). Hollingsworth v. Georgia Fruit Growers, Inc., 55 Ga. App. 541, 190 S. E. 802 (1937), 185 Ga. 873, 196 S. E. 766 (1938). 18 Whitehurst v. FCX Fruit & Vegetable Service, Inc., 224 N.C. 628, 32 S. E. 2d 34 (1944). 19 Commercial Credit Co. v. O'Brien, 115 Mont. 199, 146 P. 2d 637 (1943). 20 Mosher v. Salt River Valley Water Users' Association, 39 Ariz. 567, 8 P. 2d 1077 (1932); McCaskill Co. v. United States, 216 U.S. 504 (1910); First National Bank of Chicago v. F.C. Trebein Co., 59 Ohio St. 316, 52 N.E. 834 (1898); State Trust & Savings Bank v. Hermosa Land & Cattle Co., 30 N. M. 566, 240 P. 469 (1925); Home Fire Ins. Co. v. Barber, 67 Neb. 644, 93 N.W. 1024, 60 L.R.A. 927 (1903). See also Continental Oil Company v. Jones, 26 F. Supp. 694 (W.D. Okla. 1939); Hollywood Cleaning & Pressing Company v. Hollywood Laundry Service, 217 Cal. 124, 17 P. 2d 709 (1933). Under some circumstances the courts disregard the corporate fiction. In a proceeding instituted by the Federal Trade Commission, where retail dealers had formed a cooperative all the stock of which was held by them, and the cooperative acted as the purchasing agent for the retail dealers it was held that this did not make the cooperative a wholesaler.21 The courts are unwilling to allow one corporation to use another corporation for the purpose of evading its legal obligations. In an Oregon case it was said: ***the formation of the later corporation was a The court, therefore, enjoined the successor corporation. from violating the terms of a contract entered into by the predecessor corporation with a dairy cooperative obligating the predecessor corporation to obtain all the dairy products needed for meeting its requirements. It has been held that a rural electric cooperative can acquire all the securities of an electric utility company and operate the company without violating the provisions of the New Hampshire law.23 The court did not accept the argument that this permitted the cooperative to do indirectly certain things it could not do directly under the applicable statutes. The stockholders or members of a corporation, whether stock or nonstock, are not generally liable for its debts. Ordinarily a majority of the stockholders of an association may not obligate nonconsenting stockholders to supply additional capital to an association. 24 21 Mennen Company v. Federal Trade Commission, 288 F. 774 (2d Cir. 1923), certiorari denied, 262 U.S. 759 (1923). 22 Dairy Cooperative Association v. Brandes Creamery, 147 Ore. 488, 30 P. 2d 338, 342; 147 Ore. 503, 30 P. 2d 344 (1934). See also Manatee County Growers' Association v. Florida Power and Light Company, 113 Fla. 449, 152 So. 181 (1934); Citizens Mutual Fire & Lightning Insurance Society v. Schoen, 105 S. W. 2d 43 (Mo. App. 1937). 23 Petition of White Mountain Power Co., 96 N.H. 144, 71 A. 2d 496 (1950). 24 Farmers' Co-op Union v. Alderman, 126 Kan. 299, 267 P. 1110 (1928). The fact that stockholders authorize the corporate officers to incur corporate indebtedness and execute corporate obligations does not render them liable for the contribution of proportionate amounts of liability incurred by the directors on behalf of the corporation. 25 In all jurisdictions, however, stockholders or members can be compelled to pay the amount they have agreed to pay for stock of the corporation or for membership in it. Sometimes, as in New Jersey, 26 the law permits the organization of associations with limited liability of the stockholders or members for debts of the corporation. In Minnesota, the constitution formerly imposed double liability on the stockholders of all corporations except those engaged solely in manufacturing.27 In every case, the constitution and statutes of the State should be examined to determine the exact liability of stockholders or members. The Supreme Court of the United States has held that an organization may be a corporation, although its stockholders are liable for its debts.28 But, as a general rule, the stockholders of a corporation are not liable for its debts. From this fact results one of the great advantages of incorporation. It enables a man to venture a definite sum of money in a business without risk of losing more in case the business fails. Persons dealing with a corporation are charged with notice of its charter and the statutes of the State regulating its powers and duties.29 Every corporation suggests group effort on the part of those interested. Each of several of the large industrial corporations has more than 100,000 stockholders. The united effort in such organizations consists largely in the pooling of the money paid by stockholders for stock. If each of the original stockholders of one of these corporations had acted singly and independently in attempting to establish and increase the particular business involved, much less progress would probably have been made than was accomplished through the corporation. 25 Fulton v. Farmers' Union Exchange, 207 Iowa 371, 222 N. W. 889 (1929). 26 4 N.J.S.A. 13-25. 27 Lindeke v. Scott County Cooperative Company, 126 Minn. 464, 148 N. W. 459 (1914); In re Farmers' Dairy Company's Receivership, 177 Minn. 211, 225 N.W. 22 (1929). 28 Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566, 77 U.S. 566 (1870). 29 Sterling v. Trust Co. of Norfolk, 149 Va. 867, 141 S.E. 856 (1928); Stuttgart Cooperative Buyers Association v. Louisiana Oil Refining Corporation, 194 Ark. 779, 109 S.W. 2d 682 (1937). Antiquity of Corporations The idea of a corporation is an old one, having been known to the Greeks and Romans centuries before the Christian era. In England, before the Norman conquest (1066), there existed organizations having many of the elements of corporations. Churches were among the first of these organizations. It was not until the middle of the 17th century that the large trading corporations of England came into existence. Chief among these was the Hudson Bay Company, which is still active today. Power to Create Corporations In England, the power to create corporations resided in the sovereign. Originally they were created by the King; later they were created by acts of Parliament with the express or implied assent of the King.30 In this country, the power to create corporations belongs to each State and the Federal Government. A State legislature may create a corporation or provide for its creation for any proper purpose and may confer upon it such powers as it sees fit, subject only to such restrictions as are found in the State and the Federal Constitutions. 31 Whenever necessary, Congress may create corporations or other proper agencies for carrying into execution any of the powers conferred by the Constitution upon the Government of the United States.32 Congress, because it has exclusive jurisdiction over the District of Columbia, has the same power to create corporations within the District that a State has to create corporations within its borders.33 Formerly all corporations in this country were created by special enactments; that is, a special act was passed by the legislature of the State every time a corporation was created. However, this practice led to favoritism and unjust discrimination. 34 practically all the States have constitutional provisions prohibiting, with certain exceptions, the creation of corporations by special acts. Now, 30 Blackstone's Commentaries, Book 1, p. 472. 31 New Orleans Gas Co. v. Louisiana Light Co., 115 U.S. 650 (1885); Northern Securities Co. v. United States, 193 U.S. 197 (1904). 32 McCulloch v. The State of Maryland, 4 Wheat. 316 (1819). 33 Georgetown v. Alexandria Canal Co., 12 Pet. 91 (1838). 34 Wells, Fargo & Co. v. Northern Pac. Ry. Co., 23 F. 469 (D. Ore. 1884). |