Quinn v. Woods

Sykes, J.,

delivered the opinion of the court.

In this case the appellee in his bill seeks to recover a decree against the appellants as partners, or, if mistaken as to their liability as partners, then to recovei a decree against the Home Securities Company, a corporation. The material allegations of the bill are as follows, namely: That the Home Securities Company, which is either a partnership or a corporation, was engaged in the business of buying and selling lands, negotiable instruments, and in constructing houses, and was a trading corporation. That this company became indebted to the plaintiff in accordance with promissory notes attached to the bill. That these notes are past due and unpaid. That certain of these defendants made application for a charter of incorporation, which charter was never recorded in the chancery clerk’s office of Lauderdale county, nor was the report of its organization and election of officers made to the secretary of state. The names of the parties composing this company are then stated in the bill, and the charge is made that, even if the company has perfected its incorporation, the directors are liable to the creditors, because the company incurred more indebtedness than the capital stock paid in. Discovery is asked about the incorporation, amount of capital stock, amount of indebtedness, who the stockholders and directors are, or who the partners are composing the partnership, if not a corporation.

The testimony showed that a charter was granted and proper report of the organization was made to the secretary of state, but that the charter was never filed for record in Lauderdale county.

The court held that no corporation was organized because twenty-five per centum of the capital stock was not paid in before it began business and entered a personal decree against certain of the defendants for the proper amount due appellee.

Chapter 244, Laws of 1920 (section 4150b, Hemingway’s Supplement), reads as follows:

“Any corporation hereafter chartered in this state, be, and the same is hereby authorized to begin business when so much as twenty-five (25%) per centum of the authorized capital stock shall have been paid into the treasury of the corporation, except when and as otherwise provided by law. That the provisions of this act shall not apply to building and loan associations.”

The narrow question here presented for decision is whether or not the directors or stockholders of a corporation may be held liable as partners for the debts of the corporation, when it (the corporation) began business before twenty-five per centum of the authorized capital stock had been paid into the treasury. In other words, is this provision a condition precedent or a condition. subsequent. If a condition precedent, then the chancellor was correct. If a condition subsequent, then only the state by proper proceeding can take steps to have the charter forfeited.

It will be noted that this statute authorizes a corporation to begin business when twenty-five per centum of the authorized capital stock shall have 'been paid into the treasury of the corporation. It does not require it to be done as a condition precedent.

In volume 4 (2d Ed.) Thompson on Corporations, sections 3933, the rule relating to this subject is stated as follows:

“Laws are in force in many of the states which require the payment of a specified amount of the capital stock prior to incorporation. But such a payment is not a condition precedent to the entry upon a corporate career unless it is expressly made so by statute. ’ ’

In the casé of Perkins v. Sanders, 56 Miss. 733, this court expressly held that upon the acceptance of a charter with the provision that they “and all others who are now, or may hereafter become, associated with them, and their successors, and assigns, be, and they are hereby, created a body politic and corporate,” the corporation “is in existence, for all the purposes of its creation, from the beginning, except so far as there may be restraints placed on it by the charter, either expressly or by plain implication.”

The Home Securities Company was granted a charter and reported its organization to the secretary of state as required by law. This completed the organization of the corporation.

This exact question is settled in the opinion of the supreme court of the United States in case of Wells Co. v. Gastonia Cotton Mfg Co., 198 U. S. 177, 25 Sup. Ct. 640, 49 L. Ed. 1003. There was no statute-in Mississippi at the time of the incorporation of the Gastonia Company. The charter therein expressly provided:

“The capital stock of said corporation shall be fifty thousand dollars' divided into shares of five hundred dollars each and as soon as ten thousand dollars is subscribed and paid for said corporation shall have power to commence business.”

It will be noted that this provision of the charter in that "case is practically the same as the statute here 'in question. The circuit court of appeals held that this provision was a condition precedent to the existence of a corporation. The supreme court in reversing the circuit court of appeals in part said:

“As already indicated, we are of opinion that no such condition precedent was prescribed, and that under the statutes of Mississippi and independently of the subscription of a certain amount of stock and its payment, the plaintiff became, in law, a corporation when the governor approved its charter and the fact of such approval was certified by the secretary of state under the great seal of Mississippi. It could not thereafter dispute its liability for acts done by it in its corporate name, nor be denied the right to sue in that name. ’ ’

We are of the opinion that the court erred in holding that the corporation was not in existence.

It is contended by the appellee that the decree of the lower court should be affirmed also because of the provisions of section 924, Code of 1906 (section 4098, Hemingway’s Code), which reads as follows:

“The amount of debts which any trading corporation or company may contract or owe shall not exceed the. amount of its capital stock paid in; and, in case the debts exceed that amount, any directors who contracted such debts shall be individually liable for the excess over the amount of capital stock, and may be sued therefor by any creditor, whether the debt be due at the time of suit.brought or not, if such creditor was without notice or knowledge of the excess at the time his debt was made. ’ ’

It is true that some allegations in the bill vaguely point to a recovery under this section. Neither from the proof nor the pleadings can we tell whether or not there is any individual liable under this section.

The decree is- reversed, and the cause remanded, with leave to both sides to amend their pleadings if they so desire.

Reversed and remanded.