Jones v. Aspen Hardware Co.

Chiee Justice Hayt delivered the opinion of the court. — 266 — In November, A. D. 1889, Shepard & Bowles, as copartners, were doing a general hardware business in the city of Aspen, and during that month made a sale of their business, stock in trade, good will, etc., to A. B. Eads, the consideration for this transfer being certain real estate and the assumption of certain indebtedness of the firm of Shepard & Bowles. Eads being unable to comply with the terms of the agreement, a new arrangement was made between the parties, and an organization known as The Aspen Hardware Company was formed by Bowles, Eads and one Kettler. The articles of incorporation provided that the affairs of the company should be managed by a board of three directors, naming Bowles, Eads and Kettler as such directors for the first year. It was the evident intention of the parties that the company should be duly and legally incorporated, and to this end they caused to be executed articles of incorporation on the 16th day of November, 1889, in due form, and immediately filed the same with the clerk and recorder of Pitkin county. For some reason not explained by the evidence, the articles were not filed in the office of the secretary of state until after the levy of the writ of attachment hereinafter referred to, and not until the day upon which this suit in replevin was instituted, but whether before or after the commencement of this action does not clearly appear from the evidence. After the articles were filed with the county clerk, the board of directors held a meeting, elected officers, caused capital stock to be issued, etc., Eads being present and participating in this meeting, at which Bowles was elected president, Eads vice president, and Kettler secretary and treasurer. Thereupon, Eads, for a valuable consideration, sold and transferred the property to the new organization, and Mr. Bowles from that time forward conducted the business for The Aspen Hardware Company, selling goods and purchasing new goods in the corporate name. Eads, soon after the sale, left the town of Aspen and did’not return, nor personally take part in the business at that point, but continued as a director and vice president of the company, and — 267 — retained a portion of his stock, although he had sold a part of it prior to the levy of the writ of attachment. The business was thus continued until July 81, 1890, when a suit was commenced by Thatcher, plaintiff, against A. B. Eads, and the property in question levied upon as the property of the defendant in that suit, and this action of replevin was immediately instituted to recover possession of the property, or its value. The controversy in 'this case is narrowed to the single question of the capacity of defendant in error to take title to the property in controversy as a corporation at the time of the attempted transfer by Eads, it not having at that time filed its articles of incorporation with the secretary of state, or paid the fee for such filing, as provided by the statute of 1887. Session Laws of 1887, p. 406. This is the first time the effect of this statute has been before this court for consideration, although in Edwards v. D. & R. G. R. Co., 13 Colo. 59, the constitutionality of a somewhat similar act was under, review. That act was attacked upon several grounds, among which was that it was void because the subject was not clearly expressed in the title, the title being “ An Act to Provide for the Formation of Corporations,” and it was held that this title was sufficient to cover legislation requiring a fee to be paid for filing the certificate of incorporation, under the principle that the same was germane to the general subject expressed in the title, and that legislation fixing the amount of such fee, time of payment, etc., was not obnoxious to the constitutional provision with reference to titles. The act of 1887, now under consideration, is entitled.“An Act to Fix the Fees to be Collected by the Secretary of State for Incorporation and Certain Other Privileges.” The body of the act, however, relates entirely to the fee to be charged and collected for filing certificates of incorporation, articles of association, charters, or increase of capital stock of joint stock companies, and in addition thereto provides that no such corporation, joint stock company or association “ shall have or exercise any — 268 — corporate pouters or be permitted to do any business in this state until the said fee shall have been paid * * This provision is so closely allied to the general subject, which is the fixing of fees for filing certificates of incorporation, etc., that under the uniform rule of decisions in this state it must be held to be a proper matter for legislation under the title selected. Golden Canal Co. v. Bright, 8 Colo. 144; People ex rel. Thomas v. Goddard, 8 Colo. 432; People ex rel. Thomas v. Scott, 9 Colo. 422; Dallas v. Redman, 10 Colo. 297; Edwards v. D. &. R. G. R. Co., supra; In re Pratt, 19 Colo. 138. In this case The Aspen Hardware Company claims title to the property in dispute in it's corporate capacity, and not as a copartnership. It is admitted that the fee for filing the certificate of incorporation with the secretary of state was not paid prior to the levy of the writ of- attachment, and that the certificate was not filed in the office of the secretary of state until about the time of the bringing of the present action, the evidence leaving the exact'time, uncertain. It is to be remembered that in this case the corporation is the party plaintiff, and it may be stated, as. a general rule, that when a company relies on its corporate'‘capacity it assumes the burden of establishing such capacity. The language of the act is plain.- an.d unambiguous. It reads, “no such corporation * * * shall have or exercise any corporate powers * * The taking of title to property was certainly the exercise of a -corporate power, and as such prohibited by the express terms of the statute. This is not controverted by counsel for appellee, but it is contended that Eads having assisted in- the organization of the corporation, and having sold to it-the hardware stock, is estopped from denying the corporate existence of the company, and that the attaching creditor took the property subject to the same estoppel. The doctrine of estoppel cannot be successfully invoked, we think, unless the corporation has at least a defacto existence. The rule is stated as follows by Morawetz on Private Corporations, sec. 750, it having been first announced — 269 — in tbe the case of Brouwer v. Appleby, 1 Sandf. 158: “ A defendant who has contracted with a corporation defacto is never permitted to allege any defect in its organization as affecting its capacity to contract or sue, but that all such objections, if valid, are. only available on behalf of the sovereign power of the state.” It is also well settled that to constitute a de facto corporation there must be either a charter or a law authorizing the creation of such a corporation, with an attempt in good faith to comply with its terms, and also a user or attempt to exercise corporate powers under it. Duggan v. The Colo. Mort. & Inv. Co., 11 Colo. 113; Bates et al. v. Wilson et al., 14 Colo. 140. A de facto corporation can never be recognized in viola-¡ tion of a positive law. This principle, which seems to be supported by all the authorities, is thus stated by Morawetz on Private Corporations, sec. 758: “If the formation of a corporate association is not only prohibited by this general rule of the common' law, but is also in violation of some principle of morality or public policy, or a positive statutory prohibition, the parties forming such association will not be legally bound by their agreement of membership, and the courts will not recognize the association, either as among its members or against third parties.” To recognize the defendant as a defacto corporation, would, as we have seen, be in direct conflict with the express language of the act, which declares that without the payment of the fee the corporation shall have no corporate power. One object of this statute is to restrict the organization of “wild-cat” corporations, it being supposed that the increased fee required by the act would, in a measure at least, 'prevent the overcapitalization of companies. The legislature being of the opinion that this purpose would be advanced by requiring the fee to be paid as a condition precedent to the exercise of any corporate power, it is the duty of the courts to give effect to this intent as the same is manifest from the plain language of the act. — 270 — The taking of title to the property in controversy being the exercise of a corporate power, and, as such, forbidden until the fee for filing has been paid, it follows that the title of The Aspen Hardware Company as a corporation cannot be upheld. Having failed to comply with the statute, The Aspen Hardware Company at the time of the transfer was neither a de jure nor a de facto corporation, but simply a voluntary association of individuals in the nature of a copartnership. There is a broad distinction between those acts made necessary by the statute as a prerequisite to the exercise of corporate powers and those acts required of individuals seeking incorporation, but not made prerequisites to the exercise of such 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 government in a direct proceeding to forfeit the charter.” Abbott v. Omaha Smelting & Refining Company, 4 Neb. 416. The omission in this case is of acts of the former class, and consequently there was no corporation in esse at the time of the levy of the writ, while the evidence leaves it in doubt if this omission had been supplied prior to the institution of the present action. But although it could not at the time.-exercise any corporate power, this did not prevent The Aspen Hardware Company from taking title to the property as a copartnership. In other words, under the conceded facts-,' the company was not at the time a corporation, but this will not preclude it from maintaining the action as a copartnership. The plaintiff sues as The Aspen Hardware Company, and the facts alleged show that such company was a copartnership and not a corporation. There is nothing in the name of the association to conflict with this, as at common law partners may carry on business under any name they choose. They are bound — 271 — rather by their aets than by the style which they give to themselves. Cook on Stock and Stockholders, sec. 233; Chaffee v. Ludeling, 27 La. Ann. 607. This principle has been applied in many cases where parties have set up the defense of individual nonliability by reason of having directed an incorporation to be had, but where none in fact was consummated. Cook on Stock & Stockholders, secs. 233, 234; Abbott v. Omaha Smelting & Refining Co., supra; Empire Mills v. Alston Grocery Co., 15 S. W. Rep. 505 (Texas). The law having east this liability upon the members of the association, we thiiik they must be given the advantages accorded a copartnership. So, in this case, while we feel compelled under the statute to deny plaintiff’s right of recovery as a corporation, we think they may maintain the action as a copartnership. The cause will. accordingly be reversed and remanded, with directions to the district court to allow the parties to amend their pleadings as they may be advised. Reversed.