Walton v. Oliver

Opinion by Green, C.:

This action was commenced in the district court of Cowley county by the defendants in error to recover the sum of $295 debt, and $45.40 costs, from the plaintiffs in error, who were alleged to be the directors of the Arkansas City’ Athletic Association. The petition charged that, after making and filing a charter in the office of the secretary of state, the.'defendants never perfected the organization of the corporation by opening books for the purpose of receiving subscriptions; that they did not levy and collect any money from themselves, nor adopt any by-laws or other rules for the government of the corporation; that no meeting had ever been called | for the election of directors or other officers ; that the defendants had failed to comply with any of the requirements of the law for the government of corporations after the articles of incorporation had been filed; that on the 18th day of January, 1889, the plaintiffs recovered a judgment against such corporation for the sum of $295, and $45.40 costs; that an execution was issued upon such judgment and returned “no property found.” It was further alleged—

“That after the filing of the said act of incorporation, the defendants assumed to act as such corporation, and for that purpose leased real estate, and purchased of the plaintiffs material and lumber, with which they erected a grand stand or *111 amphitheater upon said leased ground, to the amount and value of several hundred dollars, and paid to the plaintiffs thereon all but the amount represented by the aforesaid judgment; and in all their dealings with the plaintiffs, dealt in the name of said judgment defendant hereinbefore referred to; and the plaintiffs aver that, knowing of the filing of the aforesaid articles of incorporation, and believing that said defendants were acting in good faith, and that they were complying with the provisions of the laws of Kansas in such cases made and provided in all things, and having no cause to think otherwise, on the faith and credit of these men they sold said lumber and building material to them, and charged it to said corporation of which they were the proprietors and incorporators, by their direction and instruction; that but for all of which the plaintiffs would not have furnished them with said materials and credit; that after said execution had been issued and returned unsatisfied, the plaintiffs applied to these defendants for the names of the officers and stockholders of said corporation, and these defendants declined to furnish either the names or the places of residence, and insolently informed the plaintiffs that there were no officers, no books, no directors, no stockholders, and no subscriptions, and that if the plaintiffs thought they had any remedy looking to the collection of said judgment, interest and costs they were mistaken, etc., and now refuse to give the plaintiffs any information of any kind relative thereto whatsoever; that plaintiffs only learned the foregoing facts after the rendition of the aforesaid judgment.”

The defendants filed a demurrer to this petition, which was overruled by the court, and judgment was rendered for the amount prayed for in the petition. The defendants elected to stand upon the demurrer, and bring the case here for review.

It is first urged by the plaintiffs in error that the petition did not state a cause of action; that the petition did not show that the goods furnished, for which the original judgment was rendered, were furnished at the request of the plaintiffs in error before the Arkansas City Athletic Association became a body corporate; but that the petition showed upon its face that the goods were sold upon the credit of the corporation, and that part of the purchase-price of the goods was paid by the corporation. It is further insisted that the Arkansas *112 City Athletic Association was legally incorporated, and that the organization became complete upon the filing of the charter with the secretary of state. This contention is not sound. The statute only provides that the existence of the corporation shall date from the time of filing the charter, and the certificate of the secretary of state shall be evidence of the time of such filing. (Gen. Stat. of 1889, ¶ 1166.) The statute is silent as to the organization. The rule is well established that a corporation must have a full and complete organization and existence as an entity, and in accordance with the law to which it owes its origin, before it can assume its franchise or enter into any kind of contract or transact any business; and whatever be the mode prescribed by the act of incorporation, a substantial compliance with all the provisions of the law under which it is created is required before the corporation can be said to have such an existence as will entitle it to do business. (4 Am. & Eng. Encyc. of Law, 197, and authorities there cited.) Now it is conceded in this case that nothing was done to perfect the organization after the charter was filed. A corporation cannot act without officers and agents, and it is powerless to do anything until its incorporators or promoters give it the means whereby it can act. The words “organize” or “organization” have a well-understood meaning; and as we construe them they mean the election of officers, providing for the subscription and payment of the capital stock, the adoption of by-laws, and such other steps as are necessary to endow the legal entity with the capacity to transact the legitimate business for which it was created. In this sense the corporation was not fully organized. While it had an existence, the organization was never completed so that the corporation could do business.

In the case of Hurt v. Salisbury, 55 Mo. 310 , which was an action brought upon a note purporting to have been executed by the directors of an agricultural association, the suit was brought against the directors, upon the ground that the association was not incorporated at the time the note was given, and that the directors were therefore individually *113 liable. It appeared .that the association was not fully incorporated when the note was executed. The law required the charter to be filed with the recorder of the county where the corporation was located, and also in the office of the secretary of state. The charter was only filed with the recorder. The court held that' the officers of the corporation had no power to issue the note, and that a note issued and signed by them would bind them personally, and not the corporation. The court said, in speaking of the attempted organization of that corporation:

“It had organized under §2, chapter 69, General Statutes •of 1865, page 367, by signing and acknowledging and recording in the recorder’s office of the proper county the articles of association. This step being taken, it was an organized corporation not for the transaction of business but for the purpose •of taking the next and last step to complete its authority to transact business and give date to its legal existence. Until the officers took this final and necessary step by depositing and filing in the office of the secretary of state a copy of the articles of association, as they stood recorded in the county, this corporation had no power to issue the note sued on. As it had no power to issue this note, the defendants' are undoubtedly liable.”

“If a corporation be illegally formed, its members or stockholders are liable as partners for its acts or contracts; and directors, officers and agents acting and contracting in its name render themselves personally liable.” (Beach, Priv. Corp., § 16; Marshall v. Harris, 55 Iowa, 182 ; Kaiser v. Savings Sank, 56 id. 104; Coleman v. Coleman, 78 Ind. 344 .)

While, in this case, the charter was filed with the secretary of state, the corporation had no officers outside of the directors named for the first year. No portion of the capital stock had been subscribed and no books opened, as required by ¶ 1173 of the General Statutes of 1889. In fact, nothing had been done to complete the preliminary business of organizing the corporation. We do not understand that a corporation can proceed to the transaction of business without any portion of its capital stock being subscribed or paid. It may have been the English rule, but in the United States it is otherwise. *114 (Boone, Corp., § 113.) The corporation has no means or capacity to act until some portion of the capital stock named in the charter has been subscribed and paid. Some states have, by a legislative rule, made directors of certain corporations jointly and severally liable for all debts of the corporation, until the whole amount of the capital stock has been paid in. (Rev. Stat. of Wis., 1878, §1901.)

It is unnecessary for us to consider the other assignments of error, as-tbe view that we take of the liability of the plaintiffs in error is not that of stockholders, and hence the rule laid down in the case of Abbey v. Dry Goods Company, 44 Kas. 415 , has no application in this case.

The question as to whether or not two of the defendants below were served with summons is not properly raised by the record. The summons is not in the record, and we cannot say whether these two defendants were served or not.

We advise an affirmance of the judgment.

By the Court: It is so ordered.

All the Justices concurring.