« ForrigeFortsett »
plaintiff and others, they did, under the general laws of this State, become a corporation under the name of The Register Smelting and Refining Company, elected officers, and as such corporation transacted business, and that the defendant in error dealt with them as such corporation-each company acting in a corporate capacity in the transaction of the business between them.
The proper reply was filed to this answer.
The main ground of defense to the action is, that The Register Smelting and Refining Company was a corporation, doing business as such, and was so recognized by the defendant, and therefore the action can not be maintained against the plaintiff in error, and others, as copartners. It is, however, admitted that the company did not file and have recorded in the office of the county clerk, articles of incorporation. But it is insisted on the part of plaintiff in error that the organization of the company, in all other respects, was in conformity with the requirements of the law; that it transacted its business as such corporate body, and therefore it became and was a corporation de facto, if not de jure. And the plaintiff' now complains, first, that the court below erred in excluding from the jury, evidence tending to show that the defendant in error dealt with and recognized The Register Smelting and Refining Company as a corporation, and gave credit to it as such; and second, that the court erred in excluding from the jury evidence tending to show that the plaintiff in error was not a stockholder in the company. These two assignments may be considered together, for if the court erred in excluding the evidence offered in the first assignment, then the evidence offered in the second was improperly excluded; and the converse of the propositions is equally true.
In the discussion of these questions it must be borne in mind that it is the plaintiff in error who asserts that the company was a corporation, and was doing business as such corporate body; and therefore the burden of proof rests on him to show that the company was a corporation either de jure or de facto; but as above stated, it was admitted on the argument of the case that the company was not a corporation de jure. Then, was the company a corporation de facto! I think, in order
I to establish such a corporation, it is necessary to show user
of a corporate franchise by an association of persons, though the organization may be so defective as to reuder the franchise wholly invalid in a proceeding against it by the State; or in other words, it is necessary to show the existence of a charter, or some law nnder which the assuined powers are claimed to be conferred, and the user of the franchise claimed under such charter or law. In Buffalo R. R. Co. v. Cary, 26 N. Y. 77, it is said that, “ if the papers filed by which the corporation is songht to be created are colorable, but so defective that, in a proceeding on the part of the State against it, it would for that reason be dissolved, yet, by acts of user under such organization, it becomes a corporation de facto, and no advantage can be taken of such defect in its constitution collaterally by any person.” This doctrine seems to be founded upon the principle, that the existence of such corporation acting under color of a franchise, can not be qnestioned in a suit where it would only arise collaterally, because the State, the party chiefly concerned, could not be heard by counsel.
In the case referred to, the company liad its "papers filed," and acted under color of a franchise. A franchise as used in relation to corporations, means certain privileges conferred by government on individuals, which do not belong to the citizens of the country of common right: Angell and Ames on Corp. $ 4; Bank of Augusta v. Earle, 13 Peters, 595.
Hence, if the acts and proceedings of a company or association consist only of such acts and proceedings as might be performed without an incorporating act, or corporate grant or franchise, a corporation can not be inferred from such ac!s: Green v. Dennis, 6 Conn. 302.
Now bad The Register Smelting and Refining Company secured any franchise whatever, under color of which it could act as a corporation de facto? I think the evidence offered does not show any such corporate existence. The right, however, is claimed under the general incorporation law of the State. Section 123 of the statute provides, that "any number of persons may be associated and incorporated for the transaction of any lawful business, including the construction of canals, railways, bridges, and other works of internal improvements.” Two things are included in this provision; the persons may associate, unite together and then they may be incor
porated, and become a body corporate for the transaction of any lawful business. And hence, it seems to me that the sense in which the word “organization” is used in section 126, means simply the process of forming and arranging into suitable disposition the parts which are to act together in, and in defining the objects of the compound body, and that this process, even when completed in all its parts, does not confer the franchise, either valid or detective, but on the contrary, it is only the act of the individuals, and therefore something else must be done to secure the franchise. Therefore, section 126 provides that the "corporation, previous to the commencement of any business except its own organization,
inlist adopt articles of incorporation and have them recorded in the office of the county clerk of the county, or counties in which the business is to be transacted"; but section 132 permits the
commencement of business as soon as the articles of incorporation are filed by the county clerks of the counties, as required by this subdivision."
The purpose of the statute is to confer the right of franchise, or the powers of a corporation without charter, by direct legislative enactment, and to attain this object, it provides that the company must adopt articles of association and must file and have them recorded in the office of the county clerk. These requirements are expressed in affirmative language, and in District Township v. The City of Dubuque, 7 Iowa, 276, it is said, that “affirmative expressions that introduce a new rule, imply a negative of all that is not within the purview.” Now, if the articles of incorporation are not filed in the office of the county clerk, the parties acting in the matter do not bring themselves within the purview of the statute, because the filing of the articles as required is a condition precedent to the existence of the corporate franchise or corporate powers in any respect whatever; this prerequisite, I think, must be complied with. The general law under which the association is forined and the articles of incorporation adopted and filed as required, taken together are in law considered in the nature of a grant from the State and as the charter of the company. If the mere act of organization by the individuals, conferred the corporate franchise, why should the statute require the articles to be filed and recorded in the office of the county clerk as a prerequisite to corporate existence? Eastern Plank Roud v. Vaughan, 14 New York, 546; Welland Canal v. Hathaway, 8 Wend. 480; Central T. Corp. v. Valentine, 10 Pick. 142; Schenectady Co. v. Thatcher, 11 New York, 102. And if the filing of the articles is not a condition precedent, why is it provided in section 139, that a failure to comply, substantially, with the provisions in relation to giving notice and the requisites of organization, should make the property of stockholders liable for the debts of the corporation and not make them liable on failure to file the articles? Perhaps the only satisfactory answer to the question is that, according to the legislative intent, no corporate franchise or power exists until the articles are filed as required.
In Mokelumne Co. v. Woodbury, 14 Cal. 427, where the statute provided for the filing of a certificate in the office of the county clerk, and a duplicate thereof in the office of the Secretary of State, it was held that upon filing the certificate in the clerk's office, the right of corporate privileges vested in the association, and upon failure to file a duplicate in the office of the Secretary of State, the assumption of corporate powers announts to a usurpation of the sovereign rights of the State: the remedy for which is a direct proceeding on the part of the State; but the court say," the general rule is that the existence of a corporation may be proved by producing its charter, and showing acts of user under it; but this rule has no application to a corporation founded under the provisions of the general statute, requiring certain acts to be performed before the corporation can be considered in esse or its transactions possess any validity. The existence of a corporation thus formed must be proved by showing a substantial compliance with the requirements of the statuie. But there is a broad and obvious distinction between such acts as are declared to be necessary steps in the process of incorporation, and such as are required of the individuals seeking to become incorporated, but which are not made prerequisites to the assumption of corporate powers. In respect to the former, any material omission will be fatal to the existence of the corporation, and may be taken advantage of collaterally, in any form in which the fact of incorporation can properly be called in question. In respect to the latter, the incorporation is responsible only
to the governinent in a direct proceeding to forfeit the charter. The right of the plaintiff to be considered a corporation, and exercise corporate powers, depends upon the fact of the performance of the particular acts named in the statute as essential to its corporate existence”: Field v. Cook, 16 La. Ann. 153. And it is said that persons who have contracted in writing with such an association, without any color of franchise, are not estopped from denying its corporate capacity: Welland Canal v. Hathaway, supra; Williams v. Bank of Mich. 7 Wend. 539; and again, that the associates of such company assuming corporate powers, are to be treated as partners: Hill v. Beach, 1 Beas. Ch. (N. J.) 31.
From these considerations, it seems clear to me, that when persons organize as an association for the transaction of business-assuming to be and acting together as a corporation without any color of a corporate franchise, if any one of the members of such organization could escape responsibility on the ground that he does not appear as a subscriber to the stock of the concern, it might open the door to great fraud upon the public. It would enable him to furnish capital for the concern, to receive profits of the same, to act as a member thereof, and to control and direct the business affairs of the company as an officer, or otherwise, and by the use of his name in such way as to secure to the company the confidence and credit of the public; and yet, upon a failure of the enterprise, he would escape personal liability on the that he does not appear as a stockholder in the concern, and claims to be a creditor of the same. Such a system of business will not bear the test of ethical criticism; it may be fraught with great fraud upon the public, and certainly the law will not sanction it.
Now, if I have given a correct interpretation of the law of the case, then the question of fact to be found by the jury under the proofs is, not so much whether the plaintiff held himself out to the public as a partner in the concern, or whether he was to receive part of the profits or share part of the losses; but whether he was a member of the company, assuming to act as a corporation-holding himself out to the public--using his name, and engaging in its business transactions as such member of the concern. The plaintiff having utterly failed to