Schloss & Kahn v. Montgomery Trade Co. , 87 Ala. 411 ( 1888 )

SOMERVILLE, J. —

It is true, that where one contracts with an alleged corporation as such, and in such manner as to recognize its corporate existence de jure or de facto, he will often be estopped to deny the fact thus admitted, whether the denial go to the question of an originally legally organized body, or to that of a cessation of corporate existence. These are cases where the action is brought against one who contracts with the plaintiff in its real or asserted corporate capacity.

But this principle has no reference to cases where a subscription for stock is made by one in anticipation of organizing a corporation, which is at the time only in process of formation. “The rule that a person contracting with a corporation recognizes thereby its capacity to contract, and can not afterwards deny it in that transaction, does not apply to one who subscribes before incorporation. He may insist upon the organization of a regular and legal corporation.” Cook on Stock and Stockholders, §§ 185-186, and cases cited in note 2, p. 173.

It is perfectly well settled, that before a suit can be maintained by an alleged corporation, although it may not be necessary to prove the legality of the existence of such corporation, its actual or de facto existence must be proved, or else a state of facts shown which will operate to estop the defendant from denying such de facto existence. When the plea of nul tiel corporation in proper form is interposed, in the absence of any regulating statute on the subject, the burden is on the plaintiff corporation, if private, to prove its existence, either by production of its charter or articles of corporation, or by some express or implied admission on the part of the defendant, or else to show an estoppel which precludes a denial of the fact. —2 Morawetz on Corp. (2d Ed.), §§ 770, 772, 774, 776; Lehman v. Warner, 61 Ala, 455. The act approved February 26, 1889 (Acts 1888-89, p. 57), provides, that when a suit is brought by a corporation, the plaintiff must not be required to prove the existence of such corporation, unless the same is denied by sworn plea, filed within the time allowed for filing pleas in abatement. But that act was not in force when the present case was tried, and hence did not govern it.

A subscriber to stock may, like any other person, be estopped from disputing the de facto existence of a corporation, especially as against creditors, where he attends the meetings of stockholders, or otherwise participates in the business of the company, thereby inducing others to act upon the faith of his admissions to their prejudice, or for his benefit. “But, “to warrant holding a person estopped from disputing the existence of a corporation, on the ground that he has co-operated in its organization and action, the acts shown must be unmistakably corporate acts.” — 2 Herman on Estoppel, § 1247. If the act done, or admission made, is just as consistent with the existence of an unincorporated association, as of one incorporated, its ambiguous character will be so equivocal as not to raise an estoppel. —Fredenburg v. M. E. Church, 37 Mich. 476.

Conceding that the mere description of the plaintiff in the title of the cause as “a corporation” is sufficient, without any positive averment in the complaint of its corporate character, or without alleging whether it is a foreign or domestic corjporation, defendants, in their first and sixth pleas, deny that there was at the commencement of this suit any such corporation as the Montgomery Trade Company — the name in which the suit is brought. This cast on the plaintiffs, under the principles above stated, the burden either to prove their corporate existence de-jure or de facto, by admission of the defendant, or by production of their charter, with some evidence of user or acceptance, or by other competent evidence, or else to show an estoppel which would operate to preclude the defendant from denying the plaintiff’s corporate existence. The only fact relied on to raise such estoppel, suggested in the demurrer to these pleas, is the conduct of the defendants in having paid all of their subscription for the fifteen shares of stock except the twenty per cent, here sued for, which latter sum is alleged to have been “duly and regularly called in by the plaintiff, and demand therefor made upon said defendants,” which they refused to pay. We perceive no element of estoppel in this fact, standing alone, The circumstances under which this subscription was paid, are no where stated. It does not appear that it was called for by assessments made even under color of corporate organization or capacity. The payment made does not imply a recognition of corporate existence, or of an unequivocal corporate act performed by the plaintiff, or any participation by the defendants in the corporate meetings or proceedings. There is nothing inconsistent between the facts alleged in the complaint, and the fact of defendants’ payment of eighty per cent, of their subscription preliminary to any corporate organization then contemplated, or in anticipation of such event. —Somerset & K. R. R. Co. v. Cushing, 45 Me. 524; Cabot v. Chapin, 6 Cush. 51; Kansas City Hotel v. Harris, 51 Mo. 464; Knox v. Childersburg Land Co., 86 Ala., 180.

The fact that all the capital stock was not subscribed for, might have been a good defense to this suit against the defendants, under the general rule of law, apart from the statute. — Cook on Stock and Stockholders, § 176. But the statute has changed this rule, so as to authorize the organization of corporations of the class to which plaintiffs prima facie belong, upon the payment of fifty per cent, of the proposed capital stock, which may have been subscribed.- — Code, 1886, § 1663; Code, 1876, § 1806; Acts, 1882-83, p. 5.

The other contentions of appellant are without merit.

It follows from what we have said, that the City Court erred in sustaining the demurrer of the plaintiff to the first and sixth pleas of the appellants, but not in sustaining the demurrers to the other pleas.

Beversed and remanded.

Clopton, J., not sitting.