Wesco Supply Co. v. Smith

203 S.W. 6, 134 Ark. 23, 1918 Ark. LEXIS 511

• Court: Supreme Court of Arkansas
• Decided: April 22, 1918
• Status: Published

Opinions

WOOD, J.,

(after 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 clerk 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 case 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 case 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 do 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 and 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 authority 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.” Cook 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 liable as a partner for the debts of the Service Company. Appellant did not deal with the appellee but dealt with the corporation, and appellant 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 purchase 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 other 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 undisputed evidence shows that Smith was not an original incorporator and that he had in fact only entered into a contract for the purchase of 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 record. The ruling of the court in refusing to do so was correct, and its judgment is, therefore, affirmed.