Wesco Supply Co. v. Smith
203 S.W. 6
Ark.
1918
Check Treatment

Lead Opinion

WOOD, J.,

(аfter stating, the facts). Appellant seeks to hold appellee liable “not as a promoter, incorporator, or stockholder in a corporation,” but because of the fact that he became in the language of the witness Bratton “one of the principal owners of the thing,” and for a time in active charge and management of the business conducted by the Service Company. Appellant relies upon Garnett et al. v. Richardson et al., 35 Ark. 144. In that case one Garnett, Huffman and Beaty, signed articles oh association for the incorporation of the Hot Springs Ice Company, which were filed in the office of the clerk of the county court of Garland County. After the articles were filed in the office of the county сlerk the parties named as the incorporators were associated together in business known as the Hot Springs Ice Company, and while thus transacting business incurred the indebtedness for which they were held liable. They afterwards filed the articles of association with the Secretary of State. In that cаse the court said: “AppeEants could not do business as a corporation until their articles of association were filed in the office of the Secretary of State * * * For the purchases made by them before then they were personally liable as partners.”

In Bank of Midland v. Harris, 114 Ark. 344-58, speaking of the casе of Garnett v. Richardson, supra, we said: “That decision seems to be against ‍‌​​​​‌​‌​‌​​‌​‌​​‌​‌​‌‌​‌​‌​​​‌‌‌‌‌​​‌​​‌‌​‌​‌‌‌‍the weight of modern authority and the doctrine of it should not be extended any further.”

(1) The facts set forth in the statement constituted the Service Company a d& facto corporation. Bratton and his associates signed the articles and filed the same in the office of the county clerk, intending afterwards to also file the same with the Secretary of State but neglected to dо so and Bratton said that he did not care to do so. But in the meantime the Service Company continued to conduct business in the name of the proposed corporation as set forth in its articles. The notes in suit were signed in the name of the Service Company by Brat-ton, as its President, and to all intents аnd purposes it held itself out to the world as a corporation and the appellant transacted its business with it as a corporation.

Mr. Cook says: “The corporation is a de facto corporation where there is a law authorizing such a corporation and where the company has made an effort to organize under the law and has transacted business under a corporate name.” He further says: “The great weight of authоrity has idearly established the rule ‍‌​​​​‌​‌​‌​​‌​‌​​‌​‌​‌‌​‌​‌​​​‌‌‌‌‌​​‌​​‌‌​‌​‌‌‌‍that where a supposed corporation is doing business as a de facto corporation, the stockholders can not be held liable as partners, although 'there have been irregularities, omissions, or mistakes in incorporating or organizing the company.” Cоok on Corporations, vol. 1, sec. 234; Rainwater v. Guilders, 121 Ark. 541.

(2) The undisputed facts here show that appellant dealt with the Service Company as a corporation. Such being the case, there is no good reason why the appellant' should be permitted to hold the appellee individually liablе as a partner for the debts of the Service Company. Appellant did not deal with the appellee but dealt with the corporation, and аppellant would get all that it was entited to in justice according to its contract if it maintained a liability against the corporation or its individual .stockholders. Appellee under the evidence was certainly not one of' the original incorporators and did not undertake by his supposed purсhase of stock to become liable as a partner for the debts of the corporation nor assume any other liability than would be incumbent upon him as a shareholder in proportion to Ms interest.

Appellant would be estopped from attempting to hold appellee in any othеr capacity or for any greater sum. See 10 Cyc. 662; 1 Cook on Corp., supra. In Bank of Midland v. Harris, supra, we said: “It does not follow that the corporation itself would not also be liable as a de facto corporation, nor that statutory liability of incorporators would be unenforceable.” But neither does it follow that because the incorporators or the individual stockholders might be liable under a given state of facts, one who had contracted for the purchase of stock, but to whom no stock in fact had been transferred, would also be liable as a partner.

Here the undisрuted evidence shows that Smith was not an original incorporator and that he had in fact only entered into a contract for the purchase оf stock. It would be greatly extending, and without reason, ‍‌​​​​‌​‌​‌​​‌​‌​​‌​‌​‌‌​‌​‌​​​‌‌‌‌‌​​‌​​‌‌​‌​‌‌‌‍the doctrine of Garnett v. Richardson, supra, to hold him liable as a partner under the facts of this reсord. The ruling of the court in refusing to do so was correct, and its judgment is, therefore, affirmed.





Dissenting Opinion

McCULLOCH, C. J.,

(dissenting). The Arkansas Public Service Company was undoubtedly a de faсto corporation, according to the great weight of modern authority. So was the concern dealt with in the case of Garnett v. Richardson, 35 Ark. 144. Thе facts in the two cases are identical so far as concerns the ineffectual attempt to organize a corporation. The principle which formed the basis of the decision in Garnett v. Richardson is that participation in the operation of a business under corporate name without 'Completion of the organization so as to constitute a corporation de jure, makes such participants copartners in thе business and renders them liable for the debts of the concern. The facts in Garnett v. Richardson were that the defendants were original organizers of the incomplete corporation, but it was their participation in the business which rendered them liable for the debts of the concern. This was made plain in the case of Breitzke v. Tucker, 129 Ark. 401, where we said that “to hold persons attempting to incorporate liable as partners, there must not only be аn abortive attempt to incorporate, ‍‌​​​​‌​‌​‌​​‌​‌​​‌​‌​‌‌​‌​‌​​​‌‌‌‌‌​​‌​​‌‌​‌​‌‌‌‍but there must also have been an attempt, after the failure to incorporate, to conduсt the business for which the corporation was intended.”

In the present case the party sought to be held liable for the debts was not an original incorporator, but he purchased stock in the corporation and actually participated in tSh.e operation of the business as an interestеd party — not as a mere employee. He was just as much a participant in the operation of the business as if he had been an original stockholder, and the fact that the stock had not actually been transferred to him is not important. He was the real owner of the stock, 'and particiрated in the operation of the business as one interested in the results of the operations. This brings him clearly within the doctrine of Garnett v. Richardson, which hаs not been overruled and which the majority does not now seem disposed to expressly overrule. We did not overrule it in Bank of Midland v. Harris, 114 Ark. 344, but, on the contrаry, we recognized its binding force as a precedent by distinguishing it from the case under consideration. I think it would be better to overrule Garnett v. Richardson in express words rather than to attempt to distinguish it from the present case.

There is a conflict in the testimony in this case, and ‍‌​​​​‌​‌​‌​​‌​‌​​‌​‌​‌‌​‌​‌​​​‌‌‌‌‌​​‌​​‌‌​‌​‌‌‌‍the issues ought to have been submitted to the jury.