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OF

OHIO CASES PUBLISHED IN

FIFTEEN VOLUMES

American Law Record

1872-1887.

Volume II.

Reprinted for

The Ohio Decisions Series

Of Ohio Case Law Books.

NORWALK, O.
THE LANING PRINTING COMPANY.

1897.

Entered according to Act of Congress in the year 1897

BY THE LANING PRINTING CO.

In the Office of the Librarian of Congress, at Washington.

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REPORTS

OF

CASES ARGUED AND DETERMINED

IN

OHIO COURTS OF RECORD

PUBLISHED ORIGINALLY IN

THE AMERICAN LAW RECORD.

DE FACTO CORPORATIONS.
[Superior Court of Cincinnati, General Term, January, 1878.]

Tilden, Yaple and Force, JJ. † MEADER FURNITURE Co. v. ROWLAND, ET ALS. Where an association of persons for business attempted to form a corporation, com

plying with all the forms of the statute requisite to create a corporation, and such persons are by judgment of the supreme court in proceedings in quo warranto, ousted from the franchise of being a corporation because no law authorized the formation of a corporation for the objects stated in their certificate, a creditor, becoming such before the proceeding in quo warranto was begun, and who dealt with such association, supposing it to be a corporation, may hold individually liable the subscribers for stock who were such when the

contract sued on was made. FORCE, J.

This case comes up by reservation on the pleadings and a certified statement of facts. The defendants constituted an association under the name of the Southwestern Transportation and Wharf boat Company, which had gone through all thes for os required by law for the formation and organization of corporations, and was supposed by the members and others to be a corporation. The company gave it, promisory note, 12th of March, 1873, to John McCune, treasurer of the company in payment of an installment of his salary, and he, for value, indorsed it before maturity to the plaintiff. Plaintiff brought suit in the common pleas on the note against the company as a *corporation and recovered judgment. The state, on the

The judgment in this case was reversed by the supreme court in Rowland v'. Meader, 38 0. S., 269.

Vol. VII.

Superior Court of Cincinnati.

relatiou of the attorney general, filed information in quo warranto in the supreme court against the company as a corporation, and judgment was rendered ousting it of the 'ranchise of doing the business which it was carrying on. (23 0. P.). A suit was brought in this court in which the company and its creditors were made parties; the property was sold and proceeds distributed, and the company transacted no further business. The state, on the relation of the attorney general, then filed information in quo warranto in the supreme court against the members of the company charging them with usurping the franchise of being a corporation without auy grant or authority, and the supreme court found they did so usurp, and ousted them of the franchise of being a corporation. This case was never reported, but a transcript of the record is in evidence. Plaintiff now brings suit against the members of the company to hold them personally liable for the balance due.

The first question is this: Were the defendants ever incorporated ? In the second proceedings in quo warranto, the information was filed against the defendants as individuals, charging them with usurping the franchise of being a corporation without grant or authority. It was a proceeding under the third subdivision of the first section of the act concerning quo warranto against an association of persons acting as a corporation without being legally incorporated. The judgment of the court found the fact to be that they were not incorporated. There was no defect alleged or claimed in the regularity of the proceedings by which they had obtained and recorded their certificate of incorporation. The defect was that no law authorized the forniation of a corporation for the purposes named in their certificate. The law provides for “the building and repairing of steamboats and other watercrafts.” The certificate of this company was for "the building, repairing and maintaining of wharf boats." The supreme court held that the "inaintaining of wharf boats" from "building and repairing steamboats and ollier watercrasts." Hence it determ ned that although there was no informality in the proceedings by which the defendants attempted to become incorporated, the attempt failed because there was no law authorizing the existence of a corporation for such a purpose.

*The next question is this: Although it is true, and is a fact ascertained U by the judgment of the supreme court, that the defendants were never incorporated, can the plaintiff now assert that fact or is he estopped? The earliest case in which this precise question was presented is Fay v. Noble, 7 Cush., 188. The company attempted to organize as a corporation, but by reason of some irregularity, the proceeding did not comply with the law. The defect was cured and the company became a legal corporation. Fay lent money to the company before the defect was cured; and, not being paid, sued the stockholders as partners. The court said it was a novel claim and not sound. The parties having contracted on both sides for a corporate liability, could not hold the promissor to a partnership libility.

The court of appeals of New York, in a later case, Fuller v. Rowe. 57 N.York., 23, declared the contrary to be undisputed law. All the cases out of Massachussetts differ from the decision in 7th Cushing. They state the principle to be, that where an association of persons engaged as an association in business, make contracts, the members are personally liable unless they have taken the steps pointed out by law to exempt themselves from liability. If they undertake for this purpose to become incorporated, and fail, either because they omit some material step required by law, or because the law does not authorize a corporation for the proposed purpose, they fail to relieve themselves from their personal liability, and remain individually liable. It was so expressly held in Field & Co. v. Cooks, et al., 16 La. A1., 153 and Bigelow v. Gregory, 83 Ill., 197, where material steps were omitted, and in re Mendenhall, 9 Nat. R. R., 497, by the U. S. district court for Minnesota, where the law did not authorize incorporation for the purpose proposed. Where the supposed corporation is formed, as its certificate shows, for a purpose not warranted by law, no estoppel can arise, because every one is bound to know the law. And although in the case of this transportation company, this court, and the common pleas and the supreme court, treated it as a corporation till the supreme court, in the second quo warranto, determined it never was a corporation, and, under the law could not be one, the fact appears since that last decision that everybody was always bound to know it was not a corporation a "The fact that both parties to the contract supposed the transportation com* pany to be a corporation and made the contract with that view, therefore, does not estop the plaintiff from holding the defendants personally liable. The next question is, is the plaintiff estopped by the fact of having recovered judgment against the company as a corporation and received a dividend from the proceeds of its property? In Louisiana it has been expressly decided that there is an estoppel in such case. If, indeed, the company is sued by its associated name, but it is not stated to be a Vol. VII.

Furniture Co v. Rowland et als.

corporation, the plaintiff is not estopped from bringing suit on the same obligation against the members personally. Field v. Cooks, et al., 16 La. An., 153. But if he sues the company by its associated name, stating it to be a corporation, he is estopped. Pochelu v. Kemper, 14 La. An., 308.

But in Ohio, estoppel mainly rests upon the ground of misleading a party, inducing him to some action. In a recent case, where defendants were sued personally as bankers, under an associated name, and it was averred by way of defense that the association was a corporation and had been declared a bankrupt, and the plaintiff had presented in the proceedings in bankruptcy the claim now sued on as a personal claim, and had received a dividend thereon, the supreme court held the receiving such dividend was ro esto pel; diminishing the claim by receiving corporate assests was no injury to the defendants if they were in fact personably liable. Ridiour v. Mayo, 29 0. S, 138. And we are directly advised that obtaining a judgment against a company in its corporate name does not estop the plaintiff from subsequently obtaining a judgment against the members. For in the first proceeding in quowarranto against the transportation company, the supreme court rendered a judgment against it as a corporation; and in the second, upon relation of same plaintiff, the supreme court rendered judgment against the members on the ground that they never were incorporated.

When the members are sued personally, it must be shown that they were members at the time the contract was made. The suprenie court, in Collier v. Medill, 16 O. S., 599, determine what evidence is sufficient. The same evidence is given in the present action to charge the delendants.

*After considering the case with some care, the majority of the court find themselves confronted at every step by precedents which they do not feel at liberty to disregard; an I feel bound to give judgment for the plaintiff, believing a different judgment could be given only by a court whose province is to make precedents.

Harmon, J., concurred; Yaple, J., dissented.
Challen, counsel for plaintiff.

Hoadley, Johnson & Colston ; Harrison; Lincoln, Smith & Stevens, counsel for plaintiff. *YAPLE, J.

497 + Dissenting opinion.

This association was not illegal or unlawful, on the contrary, the testimony conclusively shows that its objects were not only entirely lawful, but highly commendable and useful. It was merely authorized by law as a corporation. The corporation statutes being simply too narrow to permit such business to be prosecuted by a corporation.

Upon the whole, therefore, it appears that there is 110 case deciding that a jointstock company with transferable shares, not incoryorated by character or act of parliament, is illegal at cominon law. 1. Lindley on Part, page 196, 16 O. S., 1613. The defendants in this case, in good faith, believed that the Southwestern Transportation and Wharf Boat Cowpany was a corpora'ion under the laws of this state; they, in good faith, subscribed for their respective shares of stock in it, as shares of stock in such corporation subjecting them only to the possible individual liability attaching by law the stockholders in this class of corporations. Thev never agreed to share or supposed they were to share losses of the business to any greater extent than corporate individual liability of stockholders in such corporations, and an agreement to share losses is of the very essence of a partnership. They never held themselves out to this plaintiff, or to any one else as partners, nor among themselves did they consider themselves partners. They, it is true, must be 100

498 held to know the law of the state, and so must the plaintiff be held to have 4 known it. They did not induce the plaintiff to purchase the note in question, and did not know, until afterwards, that he had bought it of the payee. And ihe plaintiff, when it bought the rote from the payee, did not thin: it was taking the vote of a partnership, the vote did not purport to be a partnership note. The plaintiff sought to and thought it was taking the note of a crporation.

What then was the plaintiff's contract? If limited as it intended to, and did, as far as it could, intend and assent to and make it, why should it now b'given, by law, a different and much more broad and comprehensive contract than it ever wished to make ?

tThis opinion was brought forward from 7 Rec. page 497.

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