*1 Paper et al. Products Co. Term, 1952.) December

(Nashville, July Opinion filed

Rehearing 9, 1953. denied October (cid:127)582 *2 Memphis, all of

George E. MoeROW Martin Tate, & appellant. for Myar, of Mem- & Cloy, Donelson Davis, Mo

Snowden, phis, appellee Frank E. for Doggrell, Jr. appel- Memphis, for Apperson &

Mbtcale, Crump, lee G. Konz. W. *3 opinion the of the delivered Tomlinson

Mr. Justice Court.

Appellees, Doggrell together one with Van and Konz, in an Arkan- Jr., E. were the sole stockholders Whitaker, corporation by of For- the name formed them under principal City to with office Wood rest Inc. Products, County, in St. Arkansas. be located Francis incorpo- requires the articles of The Arkansas statute (2) Secretary (1) State and with the ration to be filed County County of the thereafter in officeof the Clerk the n corporation’s principal place the which business

to be located.

Doggrell Tennessee left the man Konz, residents, agement corporation entirely the the third stock lawyer holder, Whitaker, resident of Arkansas. Memphis prepared who the charter directed Whitaker to Secretary file it with the of State and then with the Clerk County County, of the Court of St. Arkansas. Francis Secretary Whitaker did file it with the State, Arkansas inadvertently but "to file it the the failed Clerk of County County. Court of Francis It not filed !St. was gave clerk until which this after account rise had been this suit Neither made. nor Konz were aware of the fact that the charter had not been filed required by St. Francis as the Arkansas statute. profits any Neither has received or or dividends remun corporation. from the eration Under decisions Arkansas of last corporation resort of a the stockholders are liable partners required by when the charter is not filed as county principal Arkansas statute in where the office of the to be maintained. on Based Supreme those decisions of the Court, Whit corpo in the aker, third stockholder aforementioned by adjudged been ration, Arkansas Court liable for a made before debt this charter County., was filed St. Francis Whitaker Mitchell Manufacturing (2d) Co., 219 Ark. 244 S. W. *4 judgment The Arkansas Court rendered no in that case against Doggrell and Konz because no service had been had on these Tennessee residents. operated managed who

Whitaker and the business corporation purchased goods the in the the name of corporation Paper Company from Products and issued Paper company’s payable thirty days. the note in Prod- Company iii this transaction dealt the. For- ucts City through rest Wood such and not Products, Inc. personal Doggrell credit of and Konz. These two nothing knew stockholders whatever about the account question. in City bankrupt.

Forrest Inc. became A Products, Wood Paper substantial balance of its note issued to Products Company unpaid. Paper Accordingly, remains Products Company Shelby County, instituted in this suit Ten- against Doggrell essee Circuit Court and Konz. It seeks recovery against individually them because of the holding personally Arkansas liable as partners corporation by for the accounts made whose prin- charter not in has been filed where its cipal officeis located. judgment Shelby County

It was the Circuit individually, Court that and Konz are not liable partners, obligation City or as for this of Forrest Wood penal because in Products, rule “is Arkansas and will not be in enforced nature, State Courts Paper appealed Company Tennessee”. Products (1) penal and insists rule is not (2) comity nature under law of the Arkansas applied rule should be to this case. liability

Under decisions, of a Tennessee stock holder for the debts of his is determined' the law of the State which that dom is contrary legislation iciled unless such law or public policy of Tennessee, or nature. Under these circumstances such law aof sister State will not be enforced Tennessee. Sullivan Farnsworth, 132 Tenn. 705, 179 S. 317.W.

586 upon

When a called to enforce Tennessee is Court jurisdiction the civil law aof sister it will determine penal contrary whether such law is in nature or to the public sought policy of which it is law Tennessee Ry. Nashville, to be Whitlow & enforced. v. C. L. Co., St. 114 Tenn. 68 R. A. 344,350, S. L. W. 618, 503./Whether the law con aforementioned is of Arkansas, therefore, trary public policy to a matter our or nature is to be the Court determined ease Tennessee this sought since it is in it enforce that Court that is to Arkansas rule. pro to

The Arkansas statute heretofore referred “Upon Secretary filing that vides with the of State the corporate incorporation, of articles of existence shall the (Emphasis supplied.) begin.”/Ark. 64-103. Stats. Section corporate City It follows that the existence of Forrest prior begun Inc. to the inadvertent Products, Wood had corporation’s failure of charter in to file the Whitaker County, the office the of St. Francis of an therefore, inad rule, Arkansas. The Arkansas is comply in a bona fide vertent failure to detail some corporations chartering comply to with the effort a failure in Arkan which makes liable the stockholders corporation prior for made those debts of compliance required detail. with such public policy contrary

This rule is that the wherein the rule is Tennessee, ain their case are not liable for the debts of comply a bona fide effort where there been “made inadvertently provisions “have law”, but good particular, exer and in faith have failed some ’ corporation. Cunnyngham of such cised franchises Shelby, 1147, 1149, 181-182, 136 Tenn. S. W. commonly fact known 1917B, A. L. R. /It purposes organizing for the one of the carrying relieve stockholders on of a business is to corporation. That liability for the debts of individual corporations. dealing with fact is well known to those accomplishment of rule Tennessee forwards *6 purpose. that ascertaining is

In whether the Arkansas statute Arkan- again under in nature it well that is to observe corporation liable are rule the stockholders partners commence- after the for the mere failure, corporate in the file its charter ment of to existence, liability principal This its office. of imposed regard a creditor is fact that to the without comply prejudiced by detail with this failure to not escape thereby. from the There is no not misled was penalty prescribes a rule therefore, that this conclusion, compliance of Arkan- the law a in order to enforce county where registering in the of a charter sas as principal maintained. office of the compli- prescribed by a enforce one “Penalties state by of the courts not be enforced ance with laws will 636, Tenn. another state.’’ Brower v. Watson, 99L, 26 A. R. 362, 365, S. W. L. point directly Tenn. A v. case is Woods Wicks, 75 ’ Kentucky appellees A was brief. statute 40 cited required the directors involved in that suit. That statute specified time within a of a to file and record stating amount of the in a certain officea certificate capital paid arbi were fixed and in. Stockholders stock trarily of their stock made liable in the amount double The Tennessee Court failure to file certificate. for such the failure to liable for to hold refused such rejecting In our Court such suit file such certificate. sovereignty can be “no court of another that said (cid:127)588

expected to enforce sucli 75 Tenn. .at page 50. penalty”.

Appellant cited decided subsequent several cases to Woods Wicks, seems to be supra. His insistence cases conflict with Woods v. Wicks. these Atten- tion of counsel is called to the fact the cases which he refers to do bus- corporation was seeking iness without with Tennessee compliance Tennessee law.

The must taxed to be affirmed costs judgment Paper Products and its Company surety.

On Petition to ReheaR. v. Great Southern Box Company, case Inc., decided by Appeals was United States Court for the 6th It Circuit on July 9, 1953. P. (2d) came to that Court from the Federal District appeal Court for the That case Western District Tennessee. *7 the identical law and decided question involved Arkansas in 17, this Court the instant case on by July here well considered remarks unnecessary Preceded by detail, conclusion of the United States Court in in that question that case is Arkansas Appeals faith .and within the of the full penal is not meaning Article Sec- Constitution, clause of our Federal 4, credit “the courts of Tennessee, including tion that 1; hence, in are state, United District Court sitting States in to this Arkansas law proceedings bound” to effect give of the a'creditor Arkansas brought by some of a personal money judgment against recover In that Arkansas the instant corporation. the opposite reached conclusion. Judge this Court case in Federal opinion case, in a McAllister, dissenting conclusion that reached by reached the same Court nature law. reference to the of this Arkansas penal

589 opinion majority of tire United States Because of the supra, Paper Appeals in Com its Products case, appellant pany, in filed in case, the instant the instant petition petition case its to rehear. also makes This reference to the of Broderick Rosner, 294 cases U. S. Hamilton, 55 629, S. Ct. 79 L. Ed. 643, 589, 1100; Converse v. U. S. 32 Ct. 243, 260, 415, S. L. Ed. Cf. 749; Hughes v. S., 609, 613, U. 71 Ct. 95 L. 980, Fetter, S. helpful Ed. 1212. Those cases are in however, found not, reconsidering question of whether this Arkansas law exception require- nature so as to be an ments of the full faith and credit clause. expression “law”, Arkansas rather than Arkan- by “statute”, used this Court because it is a deci- Supreme

sion of the Arkansas Court as to the effect given which comply must be a failure to with the Arkan- requiring copy corporation’s sas statute of the charter to be County filed the officeof the Court Clerk of the corporation’s principal place which the of bus- iness is ipso located. Its decision is that such failure, facto, corpo- renders each stockholder of such Arkansas every ration liable for debt incurred prior filing county, to such notwithstanding such fact that such charter had been filed with the Secretary whereby, express language State, under the “corporate begin.” statute, existence shall Mfg. Co., Whitaker v. Mitchell 219 Ark. 244 S. W. (2d) 965, and cases therein cited. opinion

This Court was of the that the instant case *8 ruling fell within the of Woods v. Wicks, 75 Tenn. 40p give wherein very Court refused to to a effect sim- Kentucky ilar statute because of its nature. The Appeals thought United Court of States its case to be distinguishable from Woods v. Wicks because the incor-

poratioii Kentucky organization of the had been com- pleted incorporation whereas such of Arkansas organization completion, lacked it so is to the extent said, copy a that of charter had been filed in Arkan- its not principal county sas of its office.

Apparently, considering material such above Kentucky stated distinction between the and Arkansas Appeals organizations, the United States Court of inad vertently give failed to effect to the fact that in Tennes of a de facto are not see corporations and that are for its de facto liable debts, comply a with "those which have made bona fide effort to provisions inadvertently of law and have failed particular, good and in faith exercised the some have corporation.’’/Cunnyngham Shelby, franchises of such v. L.R.A. 176, 181, 1147, 1149, 1917B, 136 Tenn. S. W. Judge attention to the fact that McAllister calls 572./ organization was also de facto Arkansas Arkansas/citing Harris, Bank Midland v. 114 Ark. Supply 134 Ark. 67; 170 S. W. Wesco Co. v. Smith, 344, 203 S. 23, W. Appeals felt that case

The United States Court Huntington Attrill, 146 657, U. 13 Ct. fell within S. S. that it that the L. Ed. case was held 1123. In Federal and credit clause of our Constitution full faith Maryland give required Court effect to a New Compliance penal to be character. said York statute clearly however, was intended for the statute, corporations pursuant protection of creditors created purpose provisions. can find no This to its procuring than of the better law other requirement compliance the Arkan a technical inflicting penalty merely of a because statute comply. to so failure *9 distinction between the instant case above stated supra, unnecessary Huntington it Attrill, makes

and v. proceedings in the fact that the the to further consider Huntington Maryland in Attrill were enforce v. to penal judgment on a said be a New York based statute to procure In case .at bar the effort is to a in nature. the judgment in a Tennessee Court based on an Arkansas penal regards in nature which the Tennessee Court as law public contrary policy to of its the State. requires faith the full and credit clause Whether of one state to enforce law of another Courts the the’ respects “depends upon question penal in some state purpose punish against is to an offense its whether justice private public remedy or to afford a state, " person injured by Huntington wrongful a act. v. to Attrill, supra, 13 657, 230, 146 U. S. L. Ed. 8. Ct. 1130 . heretofore Court thinks that there is stated,

As purpose escape the conclusion that the no sole from question procure compliance in a law is to the Arkansas requirement. to formal or technical statute as immediately pursuing further the above stated test But, Huntington particularly Attrill, there is furnished dissenting Judge applicable in the statement McAllister’s Company, opinion v. Great Box Southern wrong supra (2d) P. "wasno [206 682]:- t hat:—“There any filing against individual not articles committed subject party, an To innocent Clerk. incorporator original happens an stock be or to who prove may great ruin, or what financial holder, to losses pay personally obliged being all the debts merely because someone who should have requirement complied failed to do so, technical with this n to me

seems to subject appellant liability ’’ penal clearly its nature.

On principle, as well under tbe test pronounced by tbe United States Supreme this Court of' Court, tbe opinion tbe nature of tbe in question is such that tbe Tennessee Court is not *10 required tbe full faith and credit clause of our Fed eral Constitution it effect. give

The rule of does not comity apply tbe because law is contrary and public policy Wicks, this State. Tenn. supra, 75 Woods The petition to rehear be must denied.