Berlin State Bank v. Nelson

Clark, J. Prior to April 21, 1921, there was a copartnership in Grand Rapids of Nelson and Gage, trading as Majestic Auto Sales Company. In April, 1921, it was planned to form a corporation in Grand Rapids to be known as Majestic Auto Sales Company. Several persons subscribed for stock and gave notes therefor payable to Majestic Auto Sales Company, among them, defendants Nelson, Wilcox, Bailey, Middleton, and Kuennen. On April 21st the articles were executed and by-laws adopted. Officers were elected. Corporate meetings were held. The organization functioned as a corporation. The articles were not recorded in the office of the secretary of State nor in the office of the county clerk (2 Comp. Laws 1915, § 9025). The business failed. The corporation seems to have been promoted, largely at least, by Nelson and one Reed. For his subscription for stock, Nelson gave three notes, all dated April 4, 1921, for $1,500, $1,500, and $3,000, respectively, all payable *465 to the order of Majestic Auto Sales Company, all made by Nelson alone, the first two indorsed “Majestic Auto Sales Co., by D. L. Reed, representative,” the last indorsed “Majestic Auto Sales Co., by D. L. Reed, Gen. Sales Mgr.” The notes in question were acquired by plaintiff bank on April 15th, April 28th, and May 27, 1921, respectively. Plaintiff bank, holding the notes, declared on them in assumpsit, and made Nelson, personally, and Nelson, Wilcox, Kuennen, Middleton, Bailey and Gage, defendants, and as copartners trading as Majestic Auto Sales Company. Nelson was not served. A verdict was directed in favor of defendants Wilcox, Bailey, Middleton and Kuennen, and judgment entered thereon. Plaintiff brings error. Appellees cannot be held on the theory that they were members of the copartnership of Nelson and Gage, trading as Majestic Auto Sales Company, for they were not members of it. Nor can they be held personally liable as copartners because of the failure to record the articles of association. The incorporators proceeded in good faith. There is no evidence to the contrary. They proceeded under a valid statute (2 Comp. Laws 1915, chap. 175) and for an authorized purpose. They executed and acknowledged articles of association pursuant to that purpose. There was a corporation de facto, and appellees are not liable as copartners. Hamilton, Michigan Corporation Code (3d Ed.), § 83; Eaton v. Walker, 76 Mich. 579; Newcomb-Endicott Co. v. Fee, 167 Mich. 574. For a discussion of pertinent facts and applicable law, see Tisch Auto Supply Co. v. Nelson, 222 Mich. 196. • Plaintiff sought to hold appellees by an offer of testimony that Nelson'and Reed represented to the plaintiff at the time it purchased the notes that appellees were personally liable upon the said indorsement of the notes. In directing a verdict Judge Perkins held the *466 testimony incompetent for the reason that it was not shown that Nelson and Reed, or either of them, had authority to make such representation. He was not in error. A fraud was perpetrated on the plaintiff. But appellees are blameless. Judgment affirmed. McDonald, C. J., and Bird, Sharpe, Moore, Steere, Fellows and Wiest, JJ., concurred.