Finnegan v. Noerenberg

Gilfillan, C. J. Eight persons signed, acknowledged, and caused to be filed and recorded in the office of the city clerk in Minneapolis, articles assuming and purporting to form, under Laws 1870, ch. 29, a corporation, for the purpose, as specified in them, of “buying, owning, improving, selling, and leasing of lands, tenements, and hereditaments, real, personal, and mixed estates and property, including the construction and leasing of a building in the city of Minneapolis, Minn., as a hall to aid and carry out the general purposes of the organization known as the ‘Knights of Labor.’” The association received subscriptions to its capital stock, elected directors and a board of managers, adopted by-laws, bought a lot, erected a building on it, and, when completed, rented different parts of it to different parties. The plaintiff furnished plumbing for the building during its construction, amounting to $599.50, for which he brings this action against several subscribers to the stock, as copartners doing business under the firm name of the “K. of L. Building Association.” The theory upon which the action is brought is that, the association having failed to become a corporation, it is in law a partnership, and the members liable as partners for the debts incurred by it. ■It is claimed that the association was not an incorporation because —First, the act under which it attempted to become incorporated, to wit, Laws 1870, ch. 29, is void, because its subject is not properly expressed in the title; second, the act does not authorize the formation of corporations for the purpose or to transact the business [243] stated in the articles; third, the place where the business was to be carried on was not distinctly stated in the articles, and they had, perhaps, some other minor defects. It is unnecessary to consider whether this was a de jure corporation, so that it could defend against a quo ivarranto, or an action in the nature of quo warranto, in behalf of the state; for, although an association may not be able to justify itself when called on by the state to show by what authority it assumes to be, and act as, a corporation, it may be so far a corporation that, for reasons of public policy, no one but the state will be permitted to call in question the lawfulness of its organization. Such is what is termed a corporation defacto, — that is, a corporation from the fact of its acting as such, though not in law or of right a corporation. What is essential to constitute a body of men a de facto corporation is stated by Selden, J., in Methodist, etc., Church v. Pickett, 19 N. Y. 482, as “(1) the existence of a charter or some law under which a corporation with the powers assumed might lawfully be created; and (2) a user by the party to the suit of the rights claimed to be conferred by such charter or law.” This statement was apparently adopted by this court in East Norway Church v. Froislie, 37 Minn. 447, (35 N. W. Rep. 260;) but, as it leaves out of account any attempt to organize under the charter or law, we think the statement of what is essential defective. The definition in Taylor on Private Corporations (page 145) is more nearly accurate: “When a body of men are acting as a corporation, under color of apparent organization, in pursuance of some charter or enabling act, their authority to act as a corporation cannot be questioned collaterally.” To give a body of men assuming to act as a corporation, where there has been no attempt to comply with the provisions of any law authorizing them to become such, the status of a de facto corporation might open the door to frauds upon the-public. It would certainly be impolitic to permit a number of men to have the status of a corporation to any extent merely because there is a law under which they might have become incorporated, and they have agreed among themselves to act, and they have acted, as a corporation. That was the condition in Johnson v. Corser, 34 Minn. 355, (25 N. W. Rep. [244] 799,) in which it was held that what had been -done was ineffectual to limit the individual liability of the associates. They had not gone far enough to become a de facto corporation. They had merely signed articles, but had not attempted to give them publicity by filing for record, which the statute required. “Color of apparent organization under some charter or enabling act” does not mean that there shall have been a full compliance with what the law requires to be done, nor a substantial compliance. A substantial compliance will make a corporation de jure. But there must be an apparent attempt to perfect an organization under the law. • There being such apparent attempt to perfect an organization,the failure as to some substantial requirement will prevent the body being a corporation de jure; but, if there be user pursuant to such attempted organization, it will not prevent it being a corporation defacto. The title to chapter 29 is “An act in relation to the formation of co-operative associations.” Appellant’s counsel argues that the body of the act does not contain-a single element of “co-operation,” as that term is generally understood. But how it is generally understood he does not inform us. In a broad sense, all associations, whether corporations or partnerships, are co-operative, for all the members, either by their labor or capital, or both, co-operate to a common purpose. There is undoubtedly, in popular use of the terms, a more limited sense, though the precise limits are not well defined. There is no legal, as distinguishable .from their popular, signification. In the Century Dictionary the term “co-operative society” is defined, “A union of individuals, commonly laborers or small capitalists, formed * * * for the prosecution in common of a productive enterprise, the profits being shared in accordance with the amount of capital or labor contributed by each member.” Taking the distinctive feature of a co-operative society to be that it is made up of laborers or-small capitalists, it is manifest that the chapter intends to deal with jfist that sort of associations. Not only does it contemplate that the operations of the corporations shall be local, but the capital stock is limited to $50,000, the stock which one member may hold- to $1,000. No one can become a shareholder without the [245] consent of the managers, and no one is entitled to more than one vote. The provisions in the body of the act are in accord with the title, and it is therefore not open to the objection made against it. The purposes for which, under the act, corporations may be formed, are “of trade, or of carrying on any lawful mechanical, manufacturing, or agricultural business.” The main purpose of the act being to enable men of small capital, or of no capital but their labor and their skill in trades, to form corporations, for the purpose of giving employment to such capital or labor and skill, the language expressing the purposes for which such corporations may be formed ought not to be narrowly construed. Giving a reasonably liberal meaning to the word “trade” in the act, it would include the buying and selling of real estate, and, upon a similar construction, the word “mechanical” would include the erection of buildings. The doing of the mason, or brick, or carpenter, or any other, work upon a building is certainly mechanical. There can be little question that corporations might be formed to do either of those kinds of work on buildings, and, that being so, there is no reason why they may not be formed to do all of them. There is no reason to claim that such a corporation must do its work as a contractor for some other person. It may do it for itself, and, as the act authorizes the corporation to “take, hold, and convey such real and personal estate as is necessary for the purposes of its organization,” it may, instead of working for others as a contractor, make its profit by buying real estate, erecting buildings on it, and either selling or holding them for leasing. The omission to state distinctly in the articles the place within which the business is to be carried on, though that might be essential to make it a de jure corporation, would not prevent it becoming one de facto. The foundation for a de facto corporation having been laid by the attempt to organize under the law, the user shown was sufficient. Judgment affirmed. (Opinion published 53 N. W. Rep. 1150.)