compliance with the provisions of the law relating to corporation, it is plainly a dictate alike of justice and public policy, that in controversies between the de facto corporation and those who have entered into contract relations with it, as corporators or otherwise, that such questions should not be suffered to be raised."

The general rule is thus stated in Brickell, C. J.: "Whoever contracts with a corporation in the use of corporate powers and franchises, and within the scope of such powers, is estopped from deny. ing the existence of the corporation, or inquiring into the regularity of the corporate organization, when an enforcement of the contract, or of rights arising under it, is sought." Cahall v. Citizens' M. B. Assn., 61 Ala. 232; Central Agr. & Mech. Assn. v. Alabama Gold Life Ins. Co., 70 Ala. 120; Schloss v. Montg. Trade Co., 87 Ala. 411.

It is conceded that the rule has been invoked and applied most frequently in suits against the stockholders or corporation, or persons who have contracted with it, where the stockholder, corporation or person is seeking to avoid a liability by denying the legality of the corporate organization. But why should it not be applicable in other cases? Why should a stockholder be estopped in a suit by a creditor of an insolvent corporation to require payment of his unpaid subscription, and the creditor allowed to ignore the existence of the corporation, and proceed against the stockholder as a partner? Why should not the estoppel be mutual? Taylor, in his work on Corporations, section 148, having stated the general rule, that a corporation when sued on its contract, and the person who contracted with it, when sued on his contract, is each estopped to deny its legal incorporation, adds: "Furthermore, persons who have contracted with a corporation as such, and have acquired claims against it, are estopped from denying its corporate existence for the purpose of holding its shareholders liable as partners." And the same rule was applied in several of the cases cited above, in which a corporate creditor was seeking to hold the stockholder liable as a partner for a corporate debt. The abrogation of the foregoing well-established rule is the logical sequence of maintaining a suit by a creditor of a de facto corporation, charging the stockholders as partners.

Another consideration. Section 8 of article xiv of the constitution declares: "In no case shall any stockholder be individually liable, otherwise than for the unpaid stock owned by him or her." Exemption from liability, other than for unpaid stock, is the declared policy of the state. It can not be imposed by legislation, or by the judgment of court. In view of the constitutional provision, it is manifest tha* the shareholders of the Dispatch Publishing Company intended, by the attempt to incorporate, to avoid individual liability for the debts contracted by the corporation. When a party deals and contracts with a corporation as corporators, exemption from individual liability enters as an element of the contract. It is true that the liability of persons associated in an enterprise or adventure is not determinable by the name they assume, but by the legal consequences of their acts. A partnership may arise as to third persons, by mere operation of

law, and contrary to the intention of the parties; but, to have this effect, the elements essential to constitute a partnership as to third persons must exist. A corporation de facto has an independent status, recognized by the law as distinct from that of its members. A partnership is not the necessary legal consequence of an abortive attempt at incorporation. As said in Fay v. Noble, supra: "Surely, it can not be, in the absence of all fraudulent intent, that such a legal result follows as to fasten on parties involuntarily, for such a cause, the enlarged liability of co-partners, a liability neither contemplated nor assented to by them. The statement of the proposition carries with it a sufficient refutation."

Maintenance of such suit involves judicial nullification of franchises and powers enjoyed and exercised by a de facto corporation, as a distinct entity recognized by the law, acquiesced in by the state; defeats the corporate character of the contract; changes the relation from that of stockholders to that of partners; substitutes other and new parties to the contract, and effects the imposition of an enlarged liability, which they did not assume, but intended to avoid; so understood by the creditor when he contracted the debt with the corporation as such. The contract is valid and binding on the corporation, which the creditor trusted. No injustice is done him, for all his rights and remedies are preserved by the principle that the corporation and the shareholder are estopped from denying its legal existence as against him. It will not answer to say that he is not repudiating, but enforcing the contract. He repudiates the party-the corporation-with which he made the contract, and seeks its enforcement against parties who never entered into contractual relations with him.

The doctrine that a creditor who has dealt with a de facto corporation in its corporate capacity can not charge the stockholders as partners with the corporate debt, there being no fraudulent intent alleged and proved, seems to us to be sustained by the weight of authority, maintained by stronger reasoning, consistent with well settled principles, and in harmony with the policy of the state.

Affirmed.

Note. See, 1882, Planters' and Miners' Bank v. Padgett, 69 Ga. 159; 1886, Stout v. Zulick, 48 N. J. L. 599, 7 Atl. Rep. 362; 1889, Larned v. Beal, 65 N. H. 184, 23 Atl. Rep. 149; 1892, Thornton v. Balcom, 85 Iowa 198, 52 N. W. Rep. 190; 1896, Hogue v. Capital Nat'l Bank, 47 Neb. 929, 66 N. W. Rep. 1036; 1896, American Mirror and Glass Bev. Co. v. Bulkley, 107 Mich. 447, 65 N. W. Rep. 291. See, also, cases, infra, p. 667. But see contra, 1886, Glenn v. Bergmann, 20 Mo. App. 343; 1891, Stivers v. Carmichael, 83 Iowa 759, 49 N. W. Rep. 983; 1892, Bradley Fertilizer v. South. Pub. Co., 17 N. Y. Supp. 587; 1895, Williams v. Hewitt, 47 La. Ann. 1076, 17 So. Rep. 496; 1901, Owensboro Wagon Co. v. Bliss, Ala. 31 So. 81; 1901, Clausen v. Head, 110 Wis. 405, 84 Am. St. Rep. 933, 85 N. W. 1028. See, also, cases below, pp. 664, 676; 1901, Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 90 Am. St. R. 907, 31 So. 81.

Sec. 176.

(c) But dealers with a pretended corporation, without knowledge that it, at the time, claims to be such, are not estopped to deny it is a corporation.

GUCKERT v. HACKE ET AL., APPELLANTS.1

1893. IN THE SUPREME Court of PennsyLVANIA.

Rep. 303-307.

159 Pa. St.

The certificate
All the details

Assumpsit against incorporators for the debt of a corporation. At the trial before PORTER, J., it appeared that plaintiff entered into a contract to make some alterations and repairs in a building occupied by the Hughes & Gawthrop Co. In October, 1890, a certificate of incorporation in proper form was presented by the Hughes & Gawthrop Co. to the governor asking for a charter. was approved and letters-patent were duly issued. required by the act of April 29, 1874, P. L. 77, were complied with, excepting only the recording of the certificate in the recorder's office of Allegheny county. The certificate was not recorded until June, 1891. In the meantime, plaintiff, without knowledge of the incorporation, made the contract with Gawthrop, upon which he sued. Subsequently, he accepted a note for the debt, signed with the corporate

name.

Defendant's points were as follows:

"1. The provisions of section 3 of the act of April 29, 1874, which provides that 'original certificates with all indorsements thereon shall then be recorded in the office of the recorder of deeds in and for the county where the chief operations are to be carried on,' are merely directory, and a failure to so record does not render the charter void or render the subscribers thereto individually liable for debts contracted by the corporation. Answer. The failure to record as stated will not of itself render the stockholders individually liable."

"2. That from the moment the letters-patent were issued by the governor of the commonwealth of Pennsylvania to the Hughes & Gawthrop Co., the subscribers to the articles of association became a corporation for every practical purpose, and any one dealing with them as a corporation is estopped from impeaching the charter in a collateral proceeding by showing that a condition precedent to the existence of the corporation has not been complied with." Affirmed.

"3. If the jury find from the evidence that letters-patent were issued to the defendants by the governor of this commonwealth to act as a corporation under the name of the Hughes & Gawthrop Co., and they were actually engaged in carrying on business under such letters-patent or charter, and that the contract sued on was made by E. 1 Arguments omitted.

1

B. Gawthrop, general manager of the Hughes-Gawthrop Co., and that the plaintiff received the promissory note of Hughes-Gawthrop Co., as a corporation, in payment of the amount due on said contract, he can not now recover from Paul H. Hacke and J. B. George, two of the defendants, as individuals." Affirmed.

Verdict and judgment against defendant, E. B. Gawthrop, and in favor of Paul H. Hacke et al., the other defendants. Plaintiff appealed.

Opinion by MR. CHIEF JUSTICE STERRETT, December, 30, 1893: It is essential to the creation of a corporation under an enabling statute that all material provisions should be substantially followed; and, exemption from personal liability being one of the chief characteristics distinguishing corporations from partnerships and unincorporated joint stock companies, it follows that those who transact business upon the strength of an organization which is materially defective are individually liable, as partners, to those with whom they have dealt. What provisions are material must be gathered from the relation of each to the purpose and scope of the act; and when, therefore, successive steps are prescribed for the creation of corporations, these must obviously be regarded as imperative. Enabling statutes, on the principle of expressio unius est exclusio alterius, impliedly prohibit any other mode of doing the act which they authorize; they must be strictly construed. Sutherland on Stat. Construction, section 454. Hence it has been uniformly held that requirements in respect of filing charters are imperative. Childs v. Smith, 55 Barb. 45; Smith v. Warden, 86 Mo. 382; Abbott v. Smelting Co., 4 Neb. 416; Beach on Corporations, section 162.

It is plain, even from a cursory reading of the act of April 29, 1874, P. L. 77, that recording of the certificate "in the office for the recording of deeds, and in and for the county where the chief operations are to be carried on," was intended to be made one of the conditions precedent to corporate existence. That was the last of successive steps required to be taken, and the right to begin the transaction of corporate business was made to depend upon the taking of that step. "From thenceforth," the act expressly declares, the subscribers and their associates and successors "shall be a corporation for the purposes and upon the terms named in the said charter." One of the purposes. of the act being exemption from personal liability in the transaction of business, it is obviously material that the public should have notice, and notice by record was accordingly prescribed. Failure to record was failure to comply with one of the express conditions of incorporation, and consequently of exemption from liability.

in

It may be conceded that had plaintiff dealt with defendants as a corporation he would have been estopped from claiming against them any other capacity, even though they failed to record their charter. Spahr v. Bank, 94 Pa. 429. But it is not pretended that he had any knowledge of the existence of the charter; and there was certainly nothing, either in the name under which they did business or in their conduct, which should have put him upon inquiry. In

these circumstances he was amply justified in dealing with them as partners. It was through their default-not his-that they were so treated; and it would be manifest injustice that he should lose his admittedly honest claim.

In the absence of an express agreement the acceptance of a note from the defendants as a corporation, after plaintiff had performed his part of the contract, can not operate by way of election or estoppel. The relation of the parties was fixed by their status when the original contract was made and can not be changed by gratuitous inference. The members of the alleged corporation were the defendants, and were not injured by the acceptance of the note. The principle which treats the acceptance of a note as additional security to and not as satisfaction of a mechanic's lien (Jones v. Shawhan, 4 W. & S. 257) is, with even more justice, applicable here.

It follows from what has been said that the instructions complained of are erroneous.

Judgment reversed and a venire facias de novo awarded.

Note. To same effect, 1889, Eaton v. Walker, 76 Mich. 579, 6 L. R. A. 102; 1896, N. Y. Nat'l Ex. Bank v. Crowell et al., 177 Pa. St. 313; 1899, Christian & C. G. Co. v. Fruitdale L. Co., 121 Ala. 340, 25 So. Rep. 566.

Sec. 177. (5) Non-dealers who injure the corporation are estopped to deny corporate existence.

(a) In case of torts against the corporation.

THE CINCINNATI, LAFAYETTE AND CHICAGO RAILROAD CO. v. THE DANVILLE AND VINCENNES RAILWAY CO.

1874. IN THE SUPREME COURT OF ILLINOIS. 75 Illinois Reports 113-118.

Appeal from the circuit court of Iroquois county, the Hon. Charles H. Wood, J., presiding.

This was a bill for an injunction, filed by the appellant against the appellee to restrain the latter taking possession of the railroad and right of way of the complainant under certain fraudulent proceedings for the condemnation of the same.

MR. JUSTICE MCALLISTER delivered the opinion of the court:

In the year 1871, certain persons, purporting to be twenty-five in number, proceeded to organize themselves, under the general railroad law of 1849, into the appellant corporation, for the purpose of sup plying a portion in this state of what was necessary to constitute a complete line of railway between the cities of Cincinnati, O., and Chicago, in this state. The amount of stock was fixed, was subscribed and paid; directors were elected, articles of association pre