64 F. 90 | 7th Cir. | 1894
Lead Opinion
(after stating the facts as above). The plaintiff in error w7as held by the circuit court to be jointly liable with the other defendants below for the indebtedness contracted by their assumed corporation, the Northwestern Collection Company, in the absence of any capital stock. This liability was based upon the facts found in his relation and conduct as a cor-porator, and the court did not undertake to determine at the trial whether it arose under the statute or at common law. Corporations are entirely the creatures of statute, and, when duly formed, one of their chief characteristics, distinguishing them from partnerships and other joint ventures, is the exemption of the individual associates from liability for the corporate obligations, except as the enabling act may impose liability. This immunity, which is an important advantage of membership, can only be secured by compliance with the statutory requirements for incorporation. In the case of corporations organized for a purpose and under a law requiring capital stock, the capital becomes a fund to which creditors must look for satisfaction of debts. It is a substitute for individual liability, and constitutes a trust fund for the benefit of creditors. Upton v. Tribilcock, 91 U. S. 45; Adler v. Manufacturing Co., 13 Wis. 57; 1 Beach, Priv. Corp. § 116. Capital stock is, therefore, the vital requirement of every business corporation, and its actual existence is usually placed by enabling statutes as a condition precedent to corporate existence. It is found and conceded in this case that there was no capital stock in fact, and no capital paid in or subscribed; that the articles of incorporation which were entered into by the plaintiff in error with the other defendants below prescribed $5,000; that these articles were duly executed by the three parties,- and duly filed and recorded ; that without capital, and without the actual taking of any further steps towards organization, business was opened by. Moe and Williams as actors, in the name of the assumed corporation; that this was known to the plaintiff in error, but he' did not take part in their operations, or receive any profit or emolument; that printed matter was used and distributed, wherein the plaintiff in error was named as vice president, and, while “the evidence does not establish that he had actual knowledge” of this use of his name, it is found that “under the circumstances, if he did not know it,
The statute which authorizes incorporation for the purposes stated in these articles is chapter 8(i, tit. .19, of the Revised Statutes of Wisconsin, contained, with amendments, in 1 Sanb. & B. Ann. St. c. 86. Section 1771. provides that “three or more adult persons, residents of this state, may form a corporation in the manner provided in this chapter,” for objects there named. Section 1772 provides: “In order to form such a corporation, the persons desiring so to do shall make, sign and acknowledge written articles,” with declarations of (1) purpose, (2) name and location, (3) capital stock, if any, and number and amount of shares thereof, (4) designation of general officers and number of directors, (o) duties of officers, (6) conditions of membership, and (7) “such other provisions or articles, if any, not inconsistent with law, as they may deem proper.” The section further provides: The original articles, or a verified copy, must be filed, for record with the register of deeds of the county, “and no corporation shall, until such articles be so left for record, have legal existence.” It also declares that “in stock corporation, persons holding stock, according to the regulations of the corporation, and they only, shall be members.” A verified copy of the articles must also be filed with the secretary of state, or penalty is incurred. There was in this case formal compliance with the foregoing requirements, but entire failure to complete incorporation under the succeeding section. By section 1773 it is prescribed that until directors are elected the signers of the articles shall “have direction of the affairs of the corporation, and make such rules as may be necessary for perfecting its organization. accepting members or regulating the subscription to the capital stock”; that in stock corporations the first meeting may be held when half the capital stock is subscribed, and may be called by any two of the signers of the articles, upon certain notice, or be held without notice when all subscribers for stock are present. It then further provides: such corporation shall transact business with any other than its members, until at least one-half of its capital shall have been duly subscribed, and at least twenty per centran thereof actually paid in; and if any obligation shall be contracted in violation hereof, the corporation offending shall have no right of action thereon; but the stockholders then existing of such corporation shall be personally liable upon the same.” Section 1775 declares: “Every such corporation, when so organized, shall be a body corporate,” and have “the powers of a corporation conferred by these statutes,” etc.
By the common law there was no individual liability of the members of a corporation for corporate debts, beyond the enforcement of their agreed contributions to the capital stock. Terry v. Little, 101 U. S. 216; U. S. v. Knox, 102 U. S. 422; 1 Beach, Priv. Corp. § 143. Therefore, if complete corporate existence was obtained and perfected by the act of filing the articles of association, without compliance with any of the requirements of section 1773, the associates- are not subject to common-law liability. On the other hand, it is well settled that an attempted or pretended incorporation, not perfected as the enabling act requires, does not confer this immunity, and all who are parties to the simulated corporation as associates or shareholders are held liable at common law for debts contracted under the corporate guise. While the courts have differed in naming this liability, — whether in the nature of copartners or resting “upon the ordinary principles of contract and agency” or upon fraud, — they agree in holding liable in some form all who are-engaged in the defective corporate enterprise. Fuller v. Rowe, 57 N. Y. 23; Pettis v. Atkins, 60 Ill. 454; Hill v. Beach, 12 N. J. Eq. 31; Coleman v. Coleman, 78 Ind. 344; Abbot v. Smelting Co., 4 Neb. 416; Kaiser v. Bank, 56 Iowa, 104, 8 N. W. 772; Lawler v. Murphy, 58 Conn. 313, 20 Atl. 457; Johnson v. Corser, 34 Minn. 355, 25 N.
In the light of the evident purposes of this enactment and of these distinctions, and considering that the requirements imposed by section 1773 are of the essence of corporate organization, and are followed by the declaration, in section 1775, of complete incorporation “when so organized,” we are of the opinion that it was the legislative intent that full effect as a corporation should not obtain until compliance, and that the common-law liability is preserved up to that event. While section 1773 provides that any obligations contracted before compliance shall not give a right of action to the corporation, “but the stockholders then existing” shall be personally liable, this imposition is not in derogation of the common law, but is rather declaratory, of or supplements it. Even as a statutory liability, it may be remarked in passing, that this is not penal in its' nature, and does not call for the strict construction which is claimed in another branch of the argument for the plaintiff in error, but it is one of contract, which the members take upon themselves in forming a corporation, and is primary and absolute. Flash v. Conn, 109 U. S. 371, 3 Sup. Ct. 263; Coleman v. White, 14 Wis. 700; Day v. Vinson, 78 Wis. 198, 47 N. W. 269. For the consideration here the statute must be taken in its entirety, as an enactment granting privileges. When privilege is asserted under it, the interpretation of the statutory prerequisites should be reasonable, and the legislative intent should be given effect, and not thwarted.
So construed, the parties who entered into the assumed corporate undertaking will be held to liability for obligations which have been incurred under that assumption. Is the. plaintiff in error within that rule? He executed the agreement or articles by which he engaged with the other defendants “to form a corporation” which should have a capital stock of $5,000. He was party to every step which was taken under the statute. Without his participation (or some third party), even .the semblance of corporate existence could not have been obtained for the venture. This act, followed by the filing of the instrument, was a solemn acceptance, by the parties jointly, of the privileges of incorporation. In the argument for
Upon this record all of the signers of the articles of incorporation have made themselves parties to the assumption of corporate powers, and they are jointly bound for the indebtedness which was therein contracted. Their liability is of the same nature which would, be imposed if the original plan had been' to form a partnership. Cook, Stock & S. § 235. The agreement which gave color to the assumed corporate action is the foundation. The reason for holding the liability is well stated in Fredendall v. Taylor, 26 Wis. 286, as springing- “from the fact that there was no responsible body or corporation behind them.” Having no principal, they bound themselves individually. Lewis v. Tilton, 64 Iowa, 220, 19 N. W. 911, is to the same effect.
Dissenting Opinion
(dissenting). In considering whether a special finding of facts sustains a judgment it is to be remembered that all matters in respect to which the finding is silent are to be regarded as if expressly found against the party upon whom was the burden of proof. Of the two theories advanced in support' of the judgment here in question, that of statutory liability was mainly relied upon at the argument, and apparently when the declaration was drawn. In support of that view it was insisted upon the authority of Hawes v. Petroleum Co., 101 Mass. 385, that until the shares of stock had been taken by individuals, the incorporators of the company were the holders in common of the entire capital stock, and, not having paid in the required 20 per centum thereof, were personally liable, under the statute, upon the corporate contracts. There is, however, an essential difference between the statute of Massachusetts, under which that decision was .made, and the statute of Wisconsin, with which we are now concerned. Under the latter there are two distinct stages in the process of incorporation. The first consists in the execution and recording of articles, signed by corporators, who may or may not become members or shareholders, while the second stage is complete only when subscribers have taken and paid 20 per cent, of the par value of one-half or more of the capital stock, and of their own number have chosen directors and other officers; it being expressly provided that “persons holding stock, and they only, shall be members.” Under the Massachusetts statute — and, indeed, under statutes of Wisconsin concerning the formation of certain classes of corporations — there is no such distinction between a mere corporator and a member or shareholder of the body. In the case referred to, the articles of incorporation of the Anglo-Saxon Petroleum Company, it is to be observed, provided for stock, in an aggregate amount, without division into shares, and, speaking with reference to that fact, the court said: “The stock not having been divided into shares or certificates issued, the associated members of the corporation -were holders of the
There is, in my opinion, no better support for the judgment on the theory of common-law liability. Wechselberg was not in fact a copartner of Moe and Williams in the business which they were doing, and I know of no principle or decision which would make him responsible for tlieir acts or contracts, either severally or as a joint obligor. The opinion of the court, as 1 understand it, rests his responsibility ultimately upon the mere fact that he and they were the signers of the recorded articles of incorporation of the company in whose name they conducted business and executed the obligation sued on. But between his act of signing the articles and his supposed responsibility for the acts of the other signers done in the corporate name, before it was lawful so to use that name, there seems to me to be neither legal nor logical connection. The statute, it is agreed, imposes no obligation except upon stockholders; and in the articles of incorporation there is to be found no promise, covenant, or undertaking to be responsible for corporate contracts, whether made before or after complete organization, and
The proposition that “all who are parties to the simulated corporation, as associates or shareholders, are held liable at common law for debts contracted under the corporate guise,” is more broadly stated than any of the authorities cited in the principal opinion seem to justify. In Fuller v. Rowe, 57 N. Y. 23, for instance, it is held that, in order to charge one as an incorporator or as a partner, “it must be shown that he was so acting at the time the contract sued
Upon the question of contract liability, the finding that by the use of slight diligence the plaintiff in error could have known of the use which was made of his name is no more relevant or material than upon the question of statutory liability. He ga,ve the use of his name, it is true, “for the inception of the enterprise,” but it was for a corporate enterprise, which was lawfully begun; and, the contrary not being found, it must be presumed that he neither intended nor assented to anything afterwards done in violation of the statute in conformity with which the initial steps in which he shared were taken. He was certainly not bound to anticipate, and nothing is shown to have come to Ms attention which ought to have caused him to suspect, an unauthorized use of Ms name. No one was misled in respect to his responsibility, and, if there had been, it would not, upon the facts found, have been through his fault. The fundamental error of the contrary view, as I conceive, is in the assumption that a signer of articles of incorporation like those in question owes a duty to the public which compels him, at the risk of personal liability, to prevent the making of contracts in the proposed corporate name without compliance with the statute, or beforehand, in some way not explained or shown to be possible, to disavow responsibility. But if, as it seems to be held, the recorded articles constitute a public statutory notice upon which every dealer will be presumed to have relied as proof of the individual liability of all signers ol* the articles for such contracts made by a part of the signers or by subscribers to the stock, it would seem clear that no
If a corporator is subject, under this statute, to the supposed liability, and if, on account of sickness, absence, inattention, or for any reason, he fails to disavow his connection with the corporation, or fails to repudiate an unknown, unsuspected, and unauthorized use of his name, when will his responsibility cease? Taking no part himself, to what extent will he be responsible for the good faith of steps taken by others in perfecting the organization? It is said “that the office of corporator disappears when that of stockholder is taken on.” But suppose the corporator takes no stock, and another does, and becomes thereby liable under the statute, does the liability of the corporator cease, or is it necessary that one-half or more of the stock shall have been taken, and the required payment in cash made besides, before he can be released ? Suppose the entire stock to have been taken by responsible, or say by irresponsible, subscribers, and directors and other officers to have been elected, but, the necessary amount of cash not paid in, would the corporator who had taken no stock still be responsible? And, if compelled to pay an obligation for which stockholders were also liable, what right of contribution would he have against them, their liability being under the statute and his arising out of contract?’ The case may be stated in another way: This statute authorizes two classes of. corporations, one with and the other without capital stock. The articles which the plaintiff in error signed provided for capital stock and for the admission to membership of any who should subscribe for and become owner of one share or more of the stock. The first meeting of the stockholders could be called only when one-lialf of the stock or more had been subscribed. Notice of that meeting was required to be given to stockholders, but not to incorporators. Directors or other officers could be elected only by the stockholders. No stock was ever subscribed for, and no directors or other officers