Stout v. Zulick

The opinion of the court was delivered by The Chancellor. The plaintiffs in error, w*ho were plaintiffs below, seek to recover from the defendants the amount of a bill of goods sold by them to the New Jersey and Sonora Reduction Company. The goods were sold in New York to the company, September 16th, 1884, upon the order of its purchasing agent, and were charged to the company upon the plaintiffs’ books of account, and the plaintiffs accepted the note of the company at two months, signed by the treasurer for the price, and the goods were shipped to the company at Sonora, in Mexico. The note has not been paid. The plaintiffs brought suit for the price of the goods against the defendants, who were the persons wdio signed, as stockholders, a certificate of incorporation, dated August 4th, 1883,' the object of which was to incorporate the company under the provisions of the act “ concerning corporations.” The ground upon which the plaintiffs base their claim of liability on the of the defendants is that the proceedings for incorporation were not in compliance with the provisions of the act applicable to the subject. The act provides for the incorporation of any company of three or more persons associating themselves together for any lawful business or purpose. The steps to be taken are the making, recording and filing of a certificate which is to be proved or. acknowledged and recorded as required in case of deeds of real estate. In this case the certificate of acknowledgment of one of the defendants, Willard Richards, does not state that the contents of the bertificate of incorporation were, made known to him by the officer taking the acknowledgment, (a notary public of Saratoga county, in the State of New York,) and the accompanying certificate of authentication of the notarial act by the clerk of the courts of that county does not state that the notary was authorized by the laws of New York to take the acknowledgments and proofs of deeds or conveyances for lands, tenements or heredit [601] aments in that state, which statement is required by the supplement to the act respecting conveyances, (Rev., p. 1280,) in case of deeds for land, the acknowledgment or proof of which is taken in another state or territory before an officer so authorized. By reason and solely on account of those alleged defects, the plaintiffs insist tb £ the certificate of incorporation is a nullity, and that the d endants are consequently liable as partners for the price of ‘ e goods. It will have been see hat the goods were not sold to the defendants, but to the company to which the credit was given, and to which they were charged upon the plaintiffs’ books, and for the price of which the plaintiffs accepted a note of the company, signed by the treasurer. The contract was not with the defendants, but with the company, and the defendants) were guilty of no fraud. None is imputed, but, as before mentioned, the claim of liability is based entirely upon the proposition that the proceedings intended to effect the incorporation are, because of the alleged defects before referred to, a nullity. In the absence of a statutory provision making shareholders liable in case of failure to comply with the requirements of the charter, or with the requirements of the act under which the company is incorporated, persons who have contracted with a defacto corporation, as a corporation, cannot deny its corporate existence in order to charge its shareholders individually as partners. Taylor on Corp., § 739. See, also, Fay v. Noble, 7 Cush. 188. Where it is shown that there a charter or a law under which a corporation with the powers assumed might lawfully be incorporated, and there is a color-able compliance with the requirements of the charter or law,; and a user of the rights claimed under the charter or law, the existence of a corporation de facto is established. Methodist Church v. Pickett, 19 N. Y. 482; Buffalo and Allegheny R. R. Co. v. Cary, 26 N. Y. 75. And it is entirely settled that the corporate existence of such corporation de- facto cannot be inquired into collaterally. It is, as to all who contract with it, to be assumed to be a corporation de jure. The legality of its corporate existence may be inquired into by the state, but not [602] by any one else. And this is as true where the corporation is formed under a general law as it is where the corporate existence is claimed under a special charter. Cochran v. Arnold, 58 Penna. St. 399; Eaton v. Aspinwall, 19 N. Y. 119. Had this suit been brought against the company it could not have denied its corporate existence, neither can the plaintiffs, who contracted with it as a corporation, do so. Taylor on Corp., § 146; Swartwout v. Michigan Air Line R. R. Co., 24 Mich. 389; Rafferty, Receiver, v. Bank of Jersey City, 4 Vroom 368. Our act provides that upon making the certificate and causing it to be recorded and filed, the persons so associating, their successors and assigns, shall be, from the time of commencement of the corporate existence fixed in the certificate, and until the time limited .therein for the termination thereof, incorporated into a company by the name mentioned in the certificate. The time fixed for such termination in this case was August 4th, 1933. The law authorized the formation of the corporation; the proceedings purported to be in compliance with the requirements of the law; the certificate was made, recorded and filed, and the company claimed the right to exercise the powers conferred upon corporations duly created under the law, and it exercised them accordingly. The transaction under consideration furnishes an instance of such user. The company was a corporation de facto, and the plaintiffs,. who contracted with it, cannot be permitted to deny the! legality of its existence. The state alone can call that in question. Hor are the cases (Hill v. Beach, 1 Beas. 31, and Booth ads. Wonderly, 7 Vroom 250,) cited by the plaintiffs’ counsel, in anywise, opposed to the views above expressed. In the former, persons who associated themselves together for the purpose of carrying on the quarrying business in this state, took proceedings to incorporate themselves into a company under a general corporation law of Hew York. They were held liable as partners upon the ground that they were not a corporation, the Chancellor saying that they were not a domestic corporation and could not be sued as such, and that they were not a foreign corporation, for it was perfectly manifest [603] upon the face of their proceedings that their attempted organization under the general law of New York was a fraud upon that law. In Booth v. Wonderly, persons who had got control of a special charter creating a corporation to be' located in Trenton, but who were not named -as corporators therein, attempted to use it to establish a company under it, to be located at Jersey City, and to give such company a corporate color under that charter. The court said that the company had some semblance of a corporation in name, form of organization, and assumption of a seal, yet not enough to give it a de facto corporate existence; that the attempt to establish the1 company in Jersey City under the charter was a palpable and entire perversion of the object of the act, and a fraud upon the act; that it gave no corporate color to the company; that the doctrine that the organization cannot be inquired into collaterally had no application to that case, because the charter did not fit the company and was not intended for it, and that the organization was entirely outside of the act and had no existence as a corporation, real or de facto. It will have been seen that in each case the ratio decidendi was that the pretended incorporation was a fraud upon the act under which the defendants claimed corporate existence. The judgment of the Circuit Court should be affirmed. For affirmance—The Chancellor, Chief Justice, Dixon, Knapp, Magie, Parker, Eeed, Scudder, Van Syckel, Brown, Clement, Cole, McGregor, Whitaker. 14. For reversal—None.