Rainwater v. Childress

Hart, J., (after stating the facts). Counsel for the defendants other than Rainwater insist in their brief that the decree be affirmed. Therefore, we shall 'assume that the facts justified the court in rendering the decree as to them 'and no further consideration of that branch of the case will he given. Counsel for the plaintiff Childress and the defendant Lloyd Rainwater both urge that the defendants were jointly liable for the debt incurred by the canning factory as partners, but we do not agree with them in that contention. All of the signers to the subscription contract stated that it was the intention of the parties to form a corporation for the purpose of operating a canning factory in the town of Morrilton. Some of the defendants said that they subscribed for stock in .such a corporation and that they took no further part looking toward the organization of the corporation or in the management of the canning factory after it was put in operation. Other defendants stated that they did not intend to subscribe for stock in the corporation but only intended to donate the amount subscribed by them for the purpose of procuring the establishment of a canning factory .at Morrilton. 'Childress, Lloyd Rainwater, ¡S. W. Simpson and Walter Smith actively engaged in establishing land operating the canning factory. Walter Smith was not made a party to the suit and for that reason his liability, if any, need not be further considered. (1-2-3) • It may be stated here that the signers to the subscription contract are not liable as stockholders in a de facto corporation. The effect of our decisions in Whipple v. Tuxworth, 81 Ark. 391, and Bank of Midland v. Harris, 114 Ark. 344, is to hold that a strict or substantial compliance with the laws regulating the organization of corporations is necessary to constitute a corporation de jure. To constitute a corporation de facto, there need not be a strict or substantial compliance with the statute, but there must be a colorable compliance with the statute — that is to say, there must be color of a legal organization under the statutes and user of the supposed corporate franchise in good faith. Courts differ among themselves as to how much must be done in order to constitute a corporation de facto. But all of the courts agree that some of the statutory steps must be taken in an honest attempt to comply with the requirements of the law iand exercise by the associates of the corporate powers. See Harrill v. Davis, 22 L. R. A. (N. S.) 1153, 168 Fed. 187; and Modern American Law, Vol. 9, page 52, et seq. Here there was no attempt whatever to comply with the statutes relating to the formation of corporation. It is not enough that there is a law under which the subscribers might have incorporated and that they agreed to form a 'corporation. They had not even signed articles of incorporation. (4) None of the defendants to this suit, except Lloyd Rainwater, H. H. Childress and S. W. Simpson, were instrumental in establishing and operating the canning factory at Morrilton. It is true they lived in the town of Morrilton and knew that the canning factory was in operation, but they supposed it had been organized as a corporation and that the parties establishing - it had done so on their own account, trusting to -make it a paying business with the amount collected on the subscription contracts. They took nojpart in the business transacted by the canning facidryfeither as principals, partners, agents, directors or otherwise. They did not sign articles of association, incorporation or partnership. They did not know that Childress, Rainwater and Simpson were attempting to run the business as a partnership. Under these circumstances, we do not think the court erred in refusing'to hold them lialble as partners. See 7 R. C. L., § 332; Rutherford v. Hill, 22 Ore. 218, 29 Pac. 546, 29 A. S. R. 596, 17 L. R. A. 549; Seacord v. Pendleton, 55 Hun. (N. Y.) 579; Fuller v. Rowe, 57 N. Y. Rep. 23. The last two cases were cited in Harrill v. Davis, supra, and Judge Sanborn, who delivered the opinion of the court, said: ‘ ‘ There are cases in which stockholders who took no active part in the business of a pretended corporation which was acting without any charter or filed •articles, who supposed that the corporation was duly organized, have been held exempt from individual liability for the debts incurred; but if they had been actively conducting its business with knowledge of its lack of incorporation, those decisions must have been otherwise.” (5) In the application of these principles we hold that Childress, Rainwater and Simpson are liable as partners because they were actively engaged in establishing the canning factory 'and in operating it 'after it was established and with the knowledge that no attempt had been made to incorporate it. (6) We are also of the opinion that the court was right in holding that Simpson was not liable for the debt incurred in planting and growing tomatoes. As above stated, the business established wias that of operating a canning factory in the town of Morrilton. No other purpose was mentioned in the subscription contract or by the parties >at the time the canning factory was put in operation. Of course, it is the general rule that when express power is granted to do a particular thing, this carries with it by implication the right to do .any act which may be found reasonably necessary to effect the power expressly granted. El Dorado Farmers’ Union Warehouse Co. v. Eubanks, 94 Ark. 355. The implied power must be used to carry out the powers expressly granted.; .and can in no instance be availed of to enlarge the express powers. A person might have been willing to subscribe to the stock in a corporation organizing for the purpose of erecting and operating a canning factory or willing to enter into a partnership for that purpose and still be wholly unwilling to enter into a corporation, firm or partnership for the purpose of growing tomatoes. The two enterprises are separate and distinct. The new enterprise enlarged the original undertaking and added new responsibilities and new hazards upon the parties. Therefore, the parties could not force Simpson against his will to go into the business of growing tomatoes, and he is not liable for the debts incurred in carrying out that enterprise. The record in this casé is long .and many witnesses were examined land cross-examined at length 'by counsel for the respective parties; but we think we have in the foregoing opinion set out, substantially, the testimony bearing .upon the relation of the parties to each other and have carefully considered the facts ias applicable to the law bearing upon them. We are of the opinion that the decree of the chancellor should be affirmed, and it is so ordered.