Cook v. J.I. Case Plow Works Company ( 1923 )

The privilege of forming corporations and of doing business as such are not matters of right, but of grant from the State; and the grants of privileges or franchises both to exist as a corporate entity and to operate as such, may be made subject to any conditions the State lawfully imposes, the existence and operation of the corporate entities and of their rights and liabilities as well as the rights and liabilities of their members and officers, being also subject to lawful governmental regulation. And within the limitations of the police power, the State may prescribe regulations of the contract rights and liabilities of the members of voluntary partnerships. As a necessary consequence, the State may prescribe regulations of the rights and liabilities of the members or stockholders of corporations, and may make a granted limitation of their contractual liability depend upon compliance by the officers of the corporation with requirements designed to protect creditors of the corporation of which the stockholders become voluntary members for their own benefit.

In this State the statutes prescribe the means by which persons may form corporations and also prescribe the conditions on which created corporate entities may do business, a compliance with the conditions made a prerequisite to doing business having the effect through the statute of limiting the liability of the members for the debts of the corporation, and, under the statute, a failure to comply with such statutory conditions in effect makes operation under the corporate charter a mere partnership under-taking with resultant partnership liability of its members for the debts of the corporation. The liability in either case is contractual resulting from voluntary membership. In some States the liability of stockholders as partners may be affected by waiver or estoppel, there being no controlling statute. See Inter-Ocean Newspaper Co. v. Robertson, 296 Ill. 92,129 N.E. Rep. 523; 1 Cook on Corp. § 233 and notes. In this State there is a mandatory statute prescribing the liability of stockholders, and to permit the ordinary rules of waiver and estoppel to relieve the members or stockholders of the corporation from full partnership liability where that is imposed by the statute would nullify the particular express requirement of the statute and make unconditional a franchise right that is expressly granted on conditions. Charles v. Young, 74 Fla. 298, 76 South. Rep. 869. See Whitfield v. Aetna Life Ins. Co. of Hartford, 205 U.S. 489,27 Sup. Ct. Rep. 578. The doctrines of estoppel and of waiver do not apply in transactions that are forbidden by statute or that are contrary to public policy. See Montsdoca v. Highlands Bank Trust Co., decided this term.

When the conditions that are expressly made a prerequisite to the transaction of business by a corporation are not complied with, the liability of the stockholders is not thereby made penal in its nature, but the liability remains contractual by virtue of the voluntary membership, though the liability is not limited as it would be under the statute, had the conditions of the grant of authority to do business through the medium of the created corporation been complied with. Where a corporation is duly formed, but the statutory conditions on which it may do businessas a corporation have not been complied with, the corporation may remain existent; but under the statute prior to the amendment of 1921, any business done by or in the name of the corporate entity, renders its members or stockholders liable for debts incurred by or for the corporation as though the stockholders were doing business as a partnership. There is no penalty imposed by the statute on stockholders for a failure of the officers of a corporation to comply with the conditions that are expressly made a prerequisite to doing business by the corporation, but no exemption from full liability as partners is granted by the statute to the stockholders unless the prerequisite conditions are complied with before business is done by or in the name of the corporation. The statute merely grants a limitation of liability to the stockholders on condition that certain things be done to show good faith in forming the corporation and to provide a present available fund for the payment of creditors of the corporation. When business is done by or in the name of a corporation where the conditions on which the corporation may do business have not been complied with, the stockholders of the corporation are by the terms of the statute "personally liable for all the corporation debts as if they were members of a general partnership and not stockholders of a corporation." This being the nature and extent of the liability of the stockholders, the parties and proceedings in actions against the stockholders brought by creditors of the corporation, should conform to the procedure that is appropriate in actions against partners for the debts of a partnerships. See Mechanics Metals Nat. Bank of City of New York v. Angel, 79 Fla. 761, 85 South. Rep. 675.

On Petition for Rehearing.