*1 SOUTHERN DOGGRELL v. GREAT CO., INC., BOX MISSISSIPPI. OF
No. 1 1701. Appeals
United States Sixth Circuit.
July 9, 1953.
spring corporation under of 1948 aas time Concededly, laws of at Arkansas. in- upon the debt was incurred or- corporate grounded, stant action is completed in com- ganization had not been pliance requirements section with the Statutes, Annotated, 64— provides “corporate exist- upon filing 'begin” ence Articles shall State; Incorporation Secretary with provided, however, Articles of “a set of the * * * Incorporation filed for shall be County of the Coun- record Clerk ty corporation’s principal office in which the place in this is locat- of business State ed.” filed for charter was not Francis
record with the of St. Clerk County, place principal business county corporation, any 19, 1951, nearly until March years three the char- after the issuance of ter Arkansas. Secretary of State of controversy During period, this the debt in City was incurred while Forrest Wood conducting a manu- Products was furniture City, facturing Arkan- business at Forrest appellee against sas. The action of instant appellant brought Konz was recover and Wellford, Harry Memphis, Tenn. W. which, price the invoice of merchandise Donelson, III, Harry (Lewis Well- R. W. pursuant fall made in the contract Davis, brief; Snowden, ford, Mc- shipped to Forrest it had sold and Memphis, Tenn., Myar, Qoy, Donelson & Products, City Inc. Wood The latter or- appellant. counsel), for bankruptcy ganization was in at the time Mack, Memphis, (Clarence B. John suit was filed. Tenn., Clifton, Mack, Memphis, on B. John appel court held that Mack, district brief; W. Kirk- & Clifton J. Konz, lant Tenn., and stock Norton, patrick, & Memphis, Norton Products, City holders of appel- Forrest Wood Ark., counsel), City, for Forrest Inc., jointly were liable as lee. severally debts, including the one MARTIN, McALLISTER Before involved in incurred that or MILLER, Judges. Circuit appealed ganization. Koiiz has judgment. opinion, In his oral MARTIN, Judge. Circuit Judge United District rested his de States $3,332.47, interest, Judgment opinions of three cision appellant Frank E. Dog- entered Court Arkansas: Whit Konz, Co., 1952, Jr., Mfg. in an grell, and W. G. action aker v. Mitchell appellee brought Publishing in the United by the States Gazette S.W.2d Brady, Ap- Tennessee. 204 Ark. District Court Western Co. v. S.W.2d Richardson, pellant original was one of three in- Garnett v. Ark. 144. corporators distinguished an stockholder an Arkansas case cited and also He Products, Inc., Smith, appellant, Supply Company v. Forrest Wood Wesco attempted organization be created 134 Ark. 203 S.W. its facts. purported corporation not filed its Ar- district undoubtedly We think Secretary cor- ticles with of State and opinions both the the Arkansas judge construed (attempt- case, supra, the individuals is di- Clerk rectly. The Whitaker *3 ing for There, corporation) of Ar- to form the were liable point. State rectly in upon the a contracted debt.” passed Supreme Court kansas’ Forrest incorporation of legality of the Davis, In Harrill 168F. the Court Inc., time the Products, at the City Wood Appeals Eighth Circuit held in- Whit- was incurred. herein debt in issue partners corporators individually liable as incorporator of Forrest was the third aker prior filing incurred for a debt directly Products, Inc., and City was Wood Incorporation, they their where Articles of responsible to record the the failure for places in both failed to fib: such articles re- County, corporate Francis charter in St. quired by Arkansas statute. incurred. the debts were before supra, Supply Company Smith, Wesco manager president general He was appellant herein, cited was distin- corporation in both purported guished that, from case in the Garnett They appellant were inactive. and Konz case, bought the first-mentioned Smith that Whitaker had not even been aware attempt- stock in the after required by the certificate had not filed corporate organization ed and knew noth- in business creat- engaging before ing of the failure to file the charter as re- they corporate debt for which were ing the Therefore, quired he by law. was held not partners. sued as personally liable merchandise sold to opinion purported corporation. Mitchell In its in Whitaker v. In concluding Supreme Mfg. Co., supra, case, the Arkansas in the Whitaker the high- appellant sought “Regardless Court said that Whitaker est court of Arkansas said: distinguish his case its facts of what our views be were this a Company Brady, Publishing impression, presented Gazette su- case of first the issue pra; only squarely passed but that the factual difference here was inon the Gazette that, case, supra, between the two cases was compelling and we find no rea- case, Incorpora- Whitaker disturbing Articles of son for that decision.” tion were filed with the Clerk on After Judge the United States District trial, day of the while in the Gazette appellee had decided this case favor they never “were so filed.” The dif- appeal Doggrell and while the pend- was was held to be of no ference avail to Whit- ing, judge Chancery aker for reason that he if were liable Tennessee, Shelby County, sitting at Mem- individually obligation when the was in- phis, contrary reached conclusion of law later, curred he could not without consent brought against in a suit appellant and creditor, anything escape do such Konz, based on an indebtedness For- liability. rejected The court also con- Products, rest Wood Inc. [Turner tention of Whitaker that the Gazette case Doggrell, Jr., Brass Works v. and Konz]. pointed should be overruled. It was out A Tennessee creditor instituted the action. that the insistence that existence The Tennessee cognizance Chancellor took began Incorporation when the Articles of of the decision of the Court of were filed Secretary of .State had Arkansas in Whitaker v. Mitchell Mfg. been accepted considered but not in the Co., supra; but, upon the authority stated case, Gazette inasmuch as a line of deci- Wicks, of Woods v. refused sions, beginning with Garnett v. Richard- pronounced to follow the Arkansas law as son, supra, had held that under the statutes by highest court of that state for the of Arkansas Incorporation the Articles of asserted reason that the sought must be filed with both Secretary enforced in character and State and the Clerk. The court would therefore not be enforced in the said 244 S.W.2d [219 966.]: Tennessee forum. The held, Chancellor case, supra, “The Garnett decided in too, that the bill should be dismissed for is short and simply holds that, that where a the further reason under the uniform
674
partnership
prece
laws of both Tennessee and ticular case and do not constitute
any
Arkansas —the
be- dents in
other
cases
that court or in
ing
partnership
obligations
any
debts and
King
court of the
v. Or
state.
involved, joint
only
the sort
and not der of United
Commercial Travelers
joint
Whitaker,
though
America,
a nec-
158-162,
U.S.
S.Ct.
several —
essary party,
joined
had not been
de-
L.Ed.
In writing
the unan
that,
Appellant urges
fendant.
the imous
Electric
of Klaxon Co. v. Stentor
pointed
Chief
Vinson
out
Justice
Mfg.
S.Ct.
the Erie Railroad decision had left
open
the federal court must follow
question
the difficult
of the effect to
*4
the law
given
of the forum in which the federal be
decisions of lower state courts on
that, therefore,
points
court sits and
the decision
passed
by
upon
had not been
binding,
highest
of the state court chancellor is
not
court of the state whose laws
Court,
only on the
applicable.
United States District
were
He directed attention to
but
court as
also
well.
aspects
the fact that some
of the case had
presented
cases,
been
in a series of four
We are not
'accord with the
three of which it had been held that federal
statement
that
the decision
the Ten
of
by
courts are bound
of a
decisions
judge
nessee trial
Turner
Brass
state’s
appellate
intermediate
courts unless
case,
binding
Works
on the federal
persuasive
there be
evidence
the high
'Chancery
Shelby
court. The
of
Court
otherwise,
est state court would rule
Six
County,
record,
though a court of
does not
Companies
District,
Highway
311 U.S.
opinions.
publish
Many years ago,
the 180,
186,
114;
61 S.Ct.
85 L.Ed.
West v.
stated,
of
Co.,
223,
American T. & T.
311 U.S.
61 S.
respect
its own
to one
decisions: “The
of
179,
Ct.
85 L.Ed.
Stoner v. New York
opinion
published
was not ordered
in our
Co.,
464,
336,
Life Ins.
61 S.Ct.
reports.
remained, therefore,
It
counties
penalty.”
force such a
litigants attorneys difficult for
more
Farnsworth,
In Sullivan v.
chancery courts
decisions
find the
held that
179 S.W.
it was
subject than
any given
of Tennessee
stock,
subscriptions
capital
unpaid
prius
nisi
decisions
find the
would be to
pay
inadequate to
other assets are
where
clear,
It seems
in South Carolina.
courts
corporation, constitute a
the debts of a
binding
more
effect
therefore,
no
fund for the benefit of creditors
trust
the decision
be accorded
compelled
pay
every
may be
stockholder
Tennessee),
judge
(a trial
chancellor
up
par
him to its
for stock subscribed
judgment entered
in a
followed
which was
*6
value, if
of
much would
an assessment
by
judge of the Cir-
trial
a
without
corporate
necessary
pay the
debts.
be
to
County, Tennessee
Shelby
of
cuit Court
corporation involved had been created
The
Company
Frank E.
[Paper Products
The
laws of Maine.
Tennessee
was
Jr.,
Konz],
'G.
than
and
Doggrell,
W.
that,
regardless
comity,
held
of common
decision of the court
given the
duty
obligation
the
was its
to enforce
King
in the
pleas
Carolina
of South
stockholder, a
cit-
the
Tennessee
defendant
supra.
izen,
provided by the laws
in the manner
Wicks, 75 Tenn.
think that Woods v.
We
The
“The
of Maine.
asserted:
40, upon
Tennessee Chancellor
which the
liability
foreign
of a stockholder in a
cor-
appellant urges here as
which
relied and
poration
corporation
for the debts of such
position, distinguishable
is
authority for his.
is
be determined
the laws
the
to
state
bar, in that there the or-
at
from the case
incorporation.
liability
If the
is in the
corporation
foreign
ganization of the
contract,
opposed
is not
nature of
and
to
in-
completed and the certificate of
been
public policy
legislation
the
or
of the state
required by law in the
corporation filed as
sought
enforced,
in
it is
the
which
be
Kentucky county
appropriate
the
office of
If
courts will enforce it.
the
clerk,
present
the
while in the
court
nature,
penal' in its
it will not be enforced
Incorporation
of Forrest
Articles
creating it.
of the state
Woods
outside
Inc.,
Products,
filed
had not been
Wood
Wicks,
therefore, deciding this case con- judg liability should be to be conceded plaintiff, upon ground that the- in tractual in nature therefore enforce- it bound and ment which was was not one enforce, judg according able to the laws any to the denied manner to credit, party liti- faith, necessary effect Whitaker is a and ment full gation in District Court the United States constitution which it was entitled Hunting support argument, in Tennessee. In of this United States.” and laws of the 670, 668, that, under it was said the chancellor Attrill, 146 ton v. Partnership Compare provisions 224, 1123. Uniform 686, 13 36 S.Ct. Law, Bank, Ar- effective in both and 176 U. National Whitman v. Oxford kansas, obligation sought to be created 477, “the 567, 44 L.Ed. 559, 20 S.Ct. S. the Arkansas laws partners held must be v. Nashville C. of Tennessee Whitlow that, joint liability only”; to be a 349, 344, Ry. Co., & St. L. therefore, necessary and Whitaker was a Huntington cites 68 L.R.A. indispensable party. Attrill, supra, effect the test to the Appellant 19(a) cites of the Fed- penal is Rule whether whether statute is U.S.C.A., Procedure, eral Civil wrong Rules of sought be redressed is wrong point persons having a in- joint to the public an individual. wrong litigation partners terest must made ' “full faith thinkWe joined plaintiffs side as same Consti clause the Federal credit” that, upon the defendants. It is contended tution, Arkansas statute where the Washington of State of United in the instant States, Cir., indis- F.2d in the sense grounded is not pensable join Whitaker as a defendant another in the forum of enforced cannot be party in the instant for he was “the Tennessee, including state, courts of most who alone was familiar with sub- in that sitting District Court United States controversy, ject matter of the and most apply existing to the bound to responsible liability.” alleged It pertinent Arkansas factual situation urged that, Partnership under the Uniform construed.by the statute as Act, operative in Ar- both Tennessee and Rosner, Broderick state. See kansas, Code, Ann., Williams Tenn. section 629, 643, 55 S.Ct. 79 L.Ed. 294 U.S. Statutes, Ann. Hamilton, Converse 65-115, section 749. Cf. 56 L.Ed. S.Ct. corpora- of a obligations debts and *8 Fetter, 1951, 341 U.S. Hughes v. joint, tion of the character here involved is 980, 1212. 95 L.Ed. 71 S.Ct. joint not and and several. Supreme the two considered We have Linton, 540, Southgate v. 181 181 appellant’s brief cited Court decisions 888, is cited to the effect obli S.W.2d Must caption “Federal Result gations partnership growing of out of Both Procedural and to States Conform joint joint contract liabilities and not are Guaranty Trust Co. v. Issues”: Remedial several, partners and that must be 1464, York, 99, L.Ed. 65 S.Ct. 89 326 joined brought against action in an 2079, Realty v. Interstate and Woods Appellant partnership. points out 1524; 93 L.Ed. 69 S.Ct. partners indispensable to an whether are authority, when that neither but we think action to be determined and not state appel- analyzed, supports argument of by federal rules. See Kroese v. General in contro- the Arkansas statute lant that Corp., Cir., 179 Castings 3 F.2d Steel applied by versy a Tennessee Upon A.L.R.2d 1117. 15 of impose liability upon appellant. court to Corporation Reconstruction Finance Teter, Cir., appellant, of and al- 7 117 F.2d is insisted contention The final indispensable parties of ground the decision the that absence so second of action; ground for the 'dismissed of an Brass a Chancellor in Turner Tennessee
679 Cir., Rubenstein, 6 164 tions promises joint and Schuckman v. are made and sev- * * eral, authority for the pressed F.2d as joinder proposition of that the fact So, even if Uniform Partner they are parties ground absent ship Law of each the two states makes indispensable may deprive federal court partners jointly liable for debt parties jurisdiction make such does not concerned, character here foregoing indispensable. any less Baltimore & Cf. joint statute each stale lia makes that Parkersburg, 268 City R. R. U. Ohio bility joint Therefore, it was and several. S. 45 S.Ct. necessary that Whitaker be made a appellant arguments party All these action in or defendant the instant impressive blush Doggrell on first seem der to hold individually and Konz by simple as analysis are nullified the stat for the debts de fectively organized corporation, utes Arkansas. Prior to Forrest Products, Partnership enactment of Wood Inc. the Uniform states, part Laws in both judgment The of the district court is af- joint Mahoney ners and several. See firmed. Bros., v.Co. Sams Jones 1094; Thompson, S.W. House v. 40 Tenn. McALLlSTER, Judge (dissent- Circuit 512; Hamm, Clothing Curlee Co. ing). 483, 254 Ark. and Coats Mil incorporation In this articles ner, S.W. 701. Secretary were filed with the State They Arkansas. were not filed with the appellant that contention county Clerk of the in which the obligation con we here corporation’s principal place 'business governed by the Uniform Part cerned is was located. The of Ar- nership in both Arkansas Laws effective kansas construes stat- unsound, for the reason and Tennessee providing incorporators ute as that, in v. Mitchell Manufactur Whitaker corporation organized stockholders of a years Co., supra, ten ing decided more than under Arkansas personally liable, law are after the enactment of the Arkansas Uni partners, obligations for all incurred be- Partnership Law, form fore the articles are filed in both the office incorporators Arkansas held the Secretary of State and the incompletely organized corporation to 'be proper comity. fact, Clerk That individually partners. liable as however, not, does my opinion, require existing Certain statutes in both of Tennessee, Ten- that the courts or a federal joint Tennessee, nessee and Arkansas obligations make court in applying the law the Statute, joint forum, and several. hold stockholders or 27-810, provides: obliga- section of an Arkansas personally “Joint liable, partners, shall be construed to tions have the same corpor- for debts of the joint obligations, effect several and ation because of the technical defect of *9 on, be inay noufilitig sued and recoveries had there- in County the officeof the Clerk. Tennessee, like In on in manner.” the This conclusion is based on grounds: two 1931, of official Code (1) law, same which under contains Arkansas corpora- the tion, section of the Uniform Partnership by filing virtue of the of its articles defining partner’s nature State, Law of a Secretary lia- with the was de a facto 7854, and, bility, corporation, section also contains section laws Ten- provides: 8613, joint nessee, “All obliga- the members of de a corpora- facta * * * the Articles 64-103, Statutes, Incorporation Arkansas 1. Section An notated, 1SH7, provides, shall County far as so filed here for record with the “Upon Clerk of relevant, filing Corpo as follows: which the Secretary principal place of busi State with the of articles office or ration’s incorporation, existence in this located.” ness State is begin. Provided, however, shall a set of 680 of a capacity, powers by possessed all the lia-ble, partners,
tion cannot be held as was sub- corporation except it jure de them their persons with third who deal of Arkan- ject merely ac- to direct attack the State supposed corporate capacity, sas. the forma- defect in count of a technical corpora- corporation; (2) tion of the that, by the law An association statute, the courts tion as construed incorpor- purports to be state which statute, Arkansas, is a ated, dealt corporation, is de will a be. facto not enforce. of another state do courts de a domestic with in another state as facto corporation by the law is dealt with liability of general as to rule Co. v. Title & Securities latter state. First corporation is set a de members of facto 1019, Co., 211 Iowa Gypsum United page States Jurisprudence, forth in 13 American 137, A.L.R. 1196. 233 73 de N.W. “The members of a as follows: as held liable corporation 'cannot be facto 40, 41, the Wicks, In Woods v. rule, prevailing partners, according to the cited, aas them with persons third who deal conclusion, holding sound merely Lord, supposed corporate capacity their v. Appeals York in Chase New defect in the for technical on account a “after a cor effect 77 N.Y. Ten corporation.” Under acquired, per mation of porate capacity a has been law, individual stockholders are not nessee incon sonal of the stockholder de cor imposed the debts of a ly liable for therewith, -cannot be sistent facto 59 Magiveny, poration. except Merriman v. perform some act for a failure Gray, 154 Tenn. 494. See also Crouch legislative direction.” a clear 391, 50 A.L.R. S.W. clearly foregoing All of the would seem that) of Mid- appellant’s in Bank In it is held to sustain contention Tennessee, a Harris, 114 Ark. S.W. he not as land the law of statutory requirements organi- Arkan partner for the debts de facto corporations .generally re- an incor corporation are of which he was zation sas stockholder; precedent question its for- porator and no garded conditions requirement ever, perhaps, mation, valid 'have if of his but some would omitted, quirk Ar except peculiar as failure such arisen for a organization is law, incorporation of a with for in that members kansas file its articles held, contrary officer, requirements de are proper facto authorities, individually liable as met, result de all other there will corpora all is, the debts of the right an association whose facto, tion, has been a to file where there failure corporate functions and attributes County Clerk, as well except the articles complete the world Secretary of State. with sovereign. company, having filed articles Where early This rule stems one of the Clerk, complete does construing incorporation cases by filing incorporation articles with the Richardson, 1879, Garnett statute. Secretary State, but business as does The statute itself contains no Ark. 144. corporation. corporation, de liability.2 provisions as to such individual facto Smith, Supply Co. v. Wesco only from the construction of results That foregoing it was 6. In the court. In by the Bank of Mid the statute in- who was held that one Harris, 114 Ark. land S. only entered into a con- corporator but McCulloch, speaking Chief W. Justice stock, *10 purchase of was not for the tract court, that the Garnett for the observed partner the Arkansas stat- as a under liable weight to contrary was the modern case ute. later, authority, Supply Wesco Co. Smith, 134 Ark. corporation in this case involved judge, dissenting opinion, corporate the same a had, a facto, de aas 1, ante. 2. See footnote part personal liability the no on there is be better thought it would he stated that appellant of the de for the debts in ex Richardson Garnett to overrule corporation. attempt to dis than to press rather words facto the then tinguish case before it from the appellant why There reason is a further however, Later, in Whitaker court. personally should be held 779, 244 1952,219 Ark. Mfg. Mitchell incorpora corporation. debts of the Ar Supreme 965, 967, the S.W.2d Arkansas, construed tion statute of Garnett follow the to kansas continued state, holding the Court of said, our case, “Regardless what personally incorporators stockholders question first might be were views corpora the liable for of a de debts facto free do so impression,” were “if we statute; tion, is, my penal opinion, a agree dissenting the we nature, it will liability penal where in its is he in which McCulloch Chief Justice the creat not be enforced outside of state the de better to overrule would be stated it Wicks, 40. As ing it. Woods v. Temí. tty rather than cision in the Garnett opinion, wheth accompanying stated conclusions, which distinguish it.” Such which, state, er a statute in some of one announce, obliged feels aspects, might penal, is called a be utmost lead law of law in the that it international sense can parties, injustice to innocent hardship and not be enforced in the courts another realizes, as, course, but it feels the court state, depends purpose whether adjudication on bound to follow its earliest pertinent punish statute is to an of subject. public fense justice there 'certain It is to be said that seems a private remedy person, afford or to a to a inconsistency decisions, in the Arkansas act; injured by wrongful a and the test Smith, since, Supply in Wesco Co. penal, whether a law strict and the court in its 203 S.W. primary sense, whether wrong approval quoted with from Cook sought be wrong is a redressed to the Corporations, on Vol. Section as public, wrong or a to the individual. Hunt great weight “The follows: ington v. Altrib, 146 S.Ct. clearly rule established the that where 231, foregoing case, In supposed corporation doing a business as foreign it was held that a statute of a corporation, de facto stockholders corporation, which made the officers of a partners, although he held liable as cannot sign and who record false certificate of irregularities, there [may] have been omis- capital stock, the amount of its liable for sions, incorporating mistakes in or or- debts, penal. all the was not The court ganizing company.” emphasized pains that the statute took proper corporate secure and maintain a however, appears, It payment fund for the Arkansas holds that Court of there is in- debts, and, aim, with this made the stock liability part of incorpora- dividual holders individually liable for the debts of corpora- tors of a de or stockholders facto capital until the stock was tion. Tennessee holds there is no in- paid in and payment certificate liability part incorpora- dividual on made the officers. The individual lia tors corpora- or stockholders de facto bility of the place stockholders took the Here, applied tion. the rule should corporate fund, until that fund had been by the law association of the state created; duly and the individual purports incorporated, in which it to he place of the officers took the fund, corporation, da will be treated in facto their in case statement it had been duly another state as a domestic de cor- facto created false. “If officers do poration is treated of the latter there, truly state and record the facts which personal ex state. is no Since liability, empt they them from part or stockholders made directly corporation Tennessee, every of a creditor of the liable the com de facto pany, forum of this be held that who reason their wrongful *11 payment Unless it be under security, acts not the held law, stock- original corporate property, or his debt out of on * ** per- right rely. holders of de he had a facto gives private sonally of the cor- remedy, a civil debts at the suit poration comply with for failure to only, creditor measured requirements judg- debt, clearly filing, minor him amount of his it is as to reversed; and, my opin- ment should be To a suit is not remedial. maintain such n ion, holding imposed upon such should be the punishment administer state, simply against an but to court. offender its private right
enforce secured sup (Emphasis
laws an individual.”
plied.) liability under statute such A in the above
the court was concerned with quite from the different imposed incorporation statute DEAL et IMPLEMENT HOLSTON al. Arkansas. CO. INS. MUT. ERS FIRE statute, the Arkansas It seems me No. 14318. Supreme Court of that as construed Appeals infrac- United punishing the States is directed Fifth Circuit. filing in not articles the statute tion of Aug. 6, County the office of association Secretary of Clerk, as well as how it can be said I do see State. private remedy to affords a such a statute wrongful act of person injured corporation is considered
nonfiling. as a of Arkansas
by the person and no corporation. No
de facto be, injured in been, could creditor has or indirectly, directly degree, slightest file of one of the officers to the failure the offices
the articles mere technical omis- This was a
Clerk. require- comply the details of with
sion to not affect It did under the statute.
ments to do business right corporation, jure way a de same corporate functions and at- rights
tributes, complete against all the world acting direct-
except State of corporation. Bank Mid-
ly against the supra. There no Harris,
land v. any individual
wrong committed filing articles with the
in not party, subject who an innocent To Clerk. incorporator happens to
stockholder, may prove great to what ruin, being obliged losses or
financial corpora- debts of the all the personally pay who someone merely because tion require- complied with this technical
have so, to me to sub- to do seems failed ment clearly that is appellant to ject nature.