conduct it on their behalf. One who joins a provisional committee is not bound by contracts entered into by the committee prior to his admission, although the contracts are in part executed subsequently to that time.2 § 161. Incorporation of partnerships-The same subject continued.-The facility with which corporations may be formed under the modern enabling acts of the several States, the great advantages to be derived from corporate existence, together with the limited liability incident thereto, has led to the reorganization of many existing co-partnerships and their establishment as bodies corporate. The former partners are not, in such cases, relieved from the individual liability attaching to them for debts incurred prior to their in 1 Reynell v. Lewis, 15 Mees. & W. 517, 530, 531. 2 Beale v. Mouls, 10 Q. B. 976. Cf. Whitehead v. Barron, 2 Moody & R. 248; Maudslay v. Le Blanc, 2 Car. & P. 409 n.; Ex parte Jackson, 1 Ves. Jr. 131; Ex parte Peele, 6 Ves. 602; Beach on Railways, § 8. 3 In a recent case, Hennessy v. Griggs, (N. D. 1890) 44 N. W. Rep. 1010, three persons formed a partnership, the articles providing that the capital should be $50,000; G. to furnish $5,000, E. $10,000, and H. $10,000; $25,000 to be held by G., to be by him negotiated and raised from outside parties, all profits to be divided in proportion to the capital furnished by each, on the basis of a capital of $50,000. The articles also provided for incorporation by the same persons, under the same name, and for the same purposes, and that all partnership effects should be assigned to the corporation, and that the capital stock should be not less than $50,000, and should be held and divided among said persons in the same proportion as the capital of the partnership. H. joined with G. and E. and two others in executing and filing articles of incorporation. The court held that the corporation dissolved the partnership, and that, although the articles provided for five incorporators, instead of three, and fixed the capital stock at $100,000, yet, as H. was one of the incorporators, he should be conclusively considered to have assented thereto, and could not be heard to say that the corporation was not the one provided for by the co-partnership articles. Also that while H. was a necessary party to a transfer of the firm property to the corporation, yet a transfer thereof by G. and E. could not be avoided by H. because he wrongfully refused to join therein. And furthermore that as all the capital stock belonged to the same persons who furnished the firm capital, and in the same proportion, it was competent for the corporation to assess its capital stock to pay the debts incurred by the firm in procuring the property that was transferred to the corporation, so long as such assessment was less than the amount that each person was originally required to furnish under the co-partnership articles, none of said parties having actually paid in their firm capital, and said corporation. The recognized value of a firm name already known in business circles, has too often led to the adoption of the same designation for the newly created corporation, and has been the cause of complications with persons who, having no notice of the change, have extended credit upon the faith of a supposed unlimited partnership liability. Under such circumstances, the nature and extent of the incorporators' liability, for debts incurred after they become a corporation, will depend upon whether or no actual notice of their incorporation was given to the plaintiffs at the time the debts were incurred.? In a recent case in the federal supreme court it was shown that the defendants held themselves out to plaintiff's agents as a partnership, that they had been partners up to a short time previous to the making of the contract in suit, had signed what purported to be a firm name to a portion of the correspondence out of which the contract had arisen, and that plaintiff had dealt with them under the belief that they were partners, and without knowledge or notice of the transformation of defendants' business from a partnership into a corporation. In view of these facts, the defendants were held to be estopped in fact and law from setting up their corporate existence as a bar to plaintiff's suit against them as individuals.' In a case involving a similar principle, the owners of land whereon a building was erected were the incorporators of a company soon after chartered. Just before the charter issued it was agreed among them that the contract for the building should be let to one of their number at a fixed sum, who should sublet it for less, the expense of building and profits to be divided among them in the ratio of the stock held. This was done, and the price of the building paid in shares issued to each; and they were all held liable as joint contractors to a material-man furnishing supplies on the order of the sub-contractor. person would not be entitled to said stock without paying such assessment; and H. would not be entitled to paid-up non-assessable stock unless he had paid the full amount, as required by the partnership articles. 1 Broyles v. McCoy, (1858) 5 Sneed, (Tenn.) 602. 2 Martin v. Fewell, (1883) 79 Mo. 401, 412. McGowan v. American Pressed § 162. (b) From illegal and irregular incorporation.Exemption from personal liability being one of the chief characteristics of corporations, distinguishing them from partnerships or unincorporated joint-stock companies,' it follows that where there has been no legal incorporation, the members are individually liable as partners for all the debts of the organization. For obligors are bound not by the style which they give themselves, but by the consequences which they incur by reason of their acts. In New York a society formed for an object not authorized by any general enabling act or special charter is held to be a partnership. An ineffectual attempt at incorporation may result in the formation of a joint-stock company. The rule that the regularity of an incorporation is not to be questioned collaterally in suits between private parties but only in direct proceedings instituted in behalf of the State, does not apply where persons assuming to act as a corporation under authority of a general law, organize for a purpose prohibited or not authorized by the enabling act, or fail to comply with its requirements in 1 Smith v. Huckabee, 53 Ala. 191, and Spense v. Iowa Valley Construction Co., 36 Iowa, 407, cited supra, §115; "Unlimited Company a Legal Anomaly," 23 Sol. J. & Rep. 273. 2 Kaiser v. Lawrence Savings Bank, (1882) 56 Iowa, 104; s. c. 41 Am. Rep. 85. See previous discussion of this topic supra, § 15. Parties assuming to act in a corporate capacity without a legal organization as a corporate body, are liable as partners to those with whom they contract; Fuller v. Rowe, (1874) 57 N. Y. 23, 26; Pettis v. Atkins, (1871) 60 Ill. 454; but when it is sought to charge any one of them as a corporator or as a partner, the same rule applies to each. If as a corporator, he must be shown to have been such when the contract sued upon was made. Fuller v. Rowe, (1874) 57 N. Y. 23, 36; Moss v. Oakley, 2 Hill, 265, 268. If as a partner, he must be shown to have been such when the contract sued upon was made. Fuller v. Rowe, (1874) 57 N. Y. 23, 26; McGuire v. O'Halloran, 1 Hill & D. 85, 86. In an action against certain persons who allege that they are a corporation, it is error to exclude the testimony of plaintiff that he did not know defendants to be a corporation, nor did he deal with them as such, but that he was informed by one of the defendants that they were a partnership, and in the belief that they were so he dealt with them. Eaton v. Walker, (1889) 76 Mich. 579. 3 Chaffe v. Ludeling, (1875) 27 La. Ann. 607. And see National Bank v. Landon, (1871) 45 N. Y. 410; Ridenour v. Mayo, 40 Ohio St. 9. 4 Koehler v. Brown, 2 Daley, 78. 5 In re Mendenhall, 9 Bankr. Reg. 497; Whipple v. Parker, (1874) 29 Mich. 369, 380. 6 Vide supra, § 13. 7 Glen v. Breard, (1883) 35 La. Ann. any material point; such, for example, as omissions or indefinite or incorrect statements in regard to material matters required to be stated in the articles of association,2 or 875; Vredenburg v. Behan, (1881) 33 La. Ann. 627. "When the entire business carried on by persons in the name of a corporation is such as the corporation is prohibited by law from doing, they cannot interpose the corporate privileges between them and the liabilities which the law imposes upon individuals in the transaction of similar business without the use of the corporate name." Medill v. Collier, (1866) 16 Ohio St. 599, 613. But under an act providing for the incorporation of companies to construct and operate railways, a company to construct alone may be formed; for it is said not to be essential to the idea of a railroad company that it should both construct and operate a railway. First Nat. Bank of Davenport v. Davies, (1876) 48 Iowa, 424; Langan v. Iowa & M. Construction Co., (1878) 49 Iowa, 317. 1 Marshall v. Harris, (1881) 55 Iowa, 182, where it was held that stockholders in a corporation which has failed to comply with the requirements of the law necessary to render their property exempt from corporate debts are primarily liable for such debts, and may be sued without the property of the corporation being first exhausted. Contra, Gartside Coal Co. v. Maxwell, (1885) 22 Fed. Rep. 197, where it was said that persons dealing with a corporation which is not legally organized can not, for this reason, proceed against the stockholders who, in good faith, supposed themselves to be incorporated, the State not having moved in the matter. As to omissions held not to be material see: McClinch v. Sturgis, (1881) 72 Me. 288, cited supra, § 16; Trowbridge v. Scudder, (1853) 66 Mass. 83, where it was held that delay in beginning the principal business for which the company was organized does not render the members liable as partners; Humphreys v. Mooney, (1881) 5 Colo. 282, where it was held that the omission from the certificate of incorporation of the latter clause in § 93 of Colorado incorporation act, as to the assessability of the stock of a mining corporation, can not in the absence of fraud, be regarded as essential to the corporate existence in an action by one against the individual members upon a contract with the company; and that no provision is made by which individual liability attaches to members of a corporation by reason of any omission to organize in the manner prescribed by that act; Stokes v. Findlay, 4 McCrary, C. C. 202, where a bank was organized and commenced business without paid-up capital, without a sworn statement of its paid-up capital to the State auditor, and without a certificate from the State auditor authorizing the association to commence business, all these things being required by Iowa Code, § 1576, it was held, construing this section with other provisions of the statutes of Iowa, that, notwithstanding these failures, there was an imperfect organization, and it was not the case of no corporation, in which the incorporators would be liable to creditors as partners. 2 In Booth v. Wonderly, (1873) 36 N. J. 250, where the misstatement was as to the principal place of business, the court said: "The doctrine that the organization can not be inquired into collaterally, has no ap delay,' or entire failure with respect to the requirements as to filing the articles of association, or as to signing and publishing them. So also if the statute under which incorporation is claimed be unconstitutional, the stockholders are liable as partners. But if the creditor has first brought suit against the corporation, he is thereby estopped from subsequently denying the legality of its existence and proceeding against its members as partners. Although the stockholders are liable as partners through the invalidity of their attempted incorporation, an action for money had and received can not be maintained by one stockholder against others for money paid by him for stock which he was induced to purchase by the alleged fraud of one of them, when it appears that such plication as the case stands, because the charter does not fit this company, and was not intended for it." 1 In Smith v. Warden, (1886) 86 Mo. 382, the defendants were sued as partners, and claimed to be a foreign corporation. It appeared, however, that the requirement of the statute of the foreign State as to filing the articles of association had not been complied with until after the accrual of plaintiff's right of action; and it was held, that the suit was rightly brought. 2 Garnett v. Richardson, (1879) 35 Ark. 144; Ferris v. Thaw, (1880) 72 Mo. 449; Field v. Cooks, (1861) 16 La. Ann. 153; First Nat. Bank of Davenport v. Davies, (1876) 43 Iowa, 424; Coleman v. Coleman, (1881) 78 Ind. 344; Abbott v. Omaha Smelting Co., (1876) 4 Neb. 416. 3 Unity Insurance Co. v. Cram, (1862) 43 N. H. 636; Kaiser v. Lawrence Savings Bank, (1881) 56 Iowa, 104; disapproving Humphrey v. Mooney, 1 Colo. 193. In Eaton v. Walker, (1889) 76 Mich. 579, it was held that a finding that defendants were a corporation, and that plaintiff knew it, and dealt with them as such, is not sustained by evidence that defendants published their alleged incorporation in the public press, and mailed to plaintiffs circulars and letter heads showing such incorporation, where it is not shown that he ever received them. 4 Eaton v. Walker, (1889) 76 Mich. 579, holding that when a law, providing for the organization of corporations, is held void on account of its title not being within the constitutional provision, an association under its provisions, each member sharing in the profits and losses of the business in proportion to the money he has put into the capital stock, will not constitute the parties thereto a corporaton de facto, and their carrying on business in the corporate name is not evidence of user which can be considered in aid of their legal existence; but they are liable as partners for debts contracted by them. Chenango Bridge Co. v. Paige, (1880) 83 N. Y. 178, 190; Williams v. Bank of Michigan, (1831) 7 Wend. 540; State v. Howard, (1846) 1 Mich. 512. Pocheln v. Kemper, (1859) 14 La. Ann. 308; Cresswell v. Oberly, (1885) 17 Bradw. (Ill.) 281. |