Story Case

The general incorporating laws of the state of Wisconsin outlined the method and procedure of creating a corporation; among other things, it was provided that an organization should not be deemed to be a corporation until one-half of its stock had been subscribed and paid for. Certain persons organized and proceeded to incorporate under the laws referred to. Having complied with all laws, so far as they thought necessary, they began business under the name of Milwaukee Brewing Company. In the course of their business, a large consignment of hops was purchased from Mr. H. K. Macklin. The organization, failing to pay for the hops, Mr. Macklin brought this action against the incorporators, seeking to charge them, personally, as partners, for the hops. What should be the decision of the Court under the foregoing circumstances?

Ruling Court Case. Bigelow Vs. Gregory, And Others, Volume 73 Illinois Reports, Page 197

Gregory, Watriss, Howe and Hatch attempted to form a corporation, which they called "Warfield's Cold Water Soap Company of Milwaukee." The statutes of Wisconsin, under which they claimed to be incorporated, required that the articles of association be published in two newspapers, and that a certificate, stating the amount of the stock and the names of the shareholders, be deposited with the secretary of the state and filed with the town clerk where the corporation is to do business.

On March 2, they bought, from Bigelow, a quantity of soap, but at this time had not yet filed their certificate with the city clerk of Milwaukee. The other requirements in the incorporation had been completed, but the certificate was not filed until August 23. When Bigelow sued the individual members of the company for payment of the soap, the Court held, in an opinion by Mr. Justice Sheldon, that at the time this contract was made, the defendants were not incorporated. The one unfulfilled requirement was so essential to the protection of those dealing with the company, that without it, not even a corporation de facto had been established.

In the absence of a charter as a corporation, or an attempted incorporation, sufficiently colorable to establish a corporation de facto, nothing remained to protect the defendants from the joint liability, as partners, which they had incurred by carrying on a common enterprise for profit. Judgment was, therefore, given for the plaintiff against the defendants, as partners.

Ruling Law. Story Case Answer

If incorporators have not complied with the law, we have seen that no corporation de jure will result; consequently, no liability can be imposed upon the organization as a corporation de jure; if they have not made a substantial, or colorable, attempt to comply with the incorporating laws, or if there were no valid laws under which they might have incorporated, or if there has been no user by the organization as a corporation, we have seen that there can be no corporation de facto; consequently, no liability can be imposed upon the organization as a corporation de facto. What, then, is the remedy of a person who has dealt with an organization, which is neither a corporation de facto nor a corporation de jure? In such a case, persons may hold them as partners, because they are conducting a joint venture. In this case, each and every incorporator is personally liable for all the debts which have been incurred in the name of the organization. In the Story Case, a substantial compliance with the provisions of the statute was not evident, and not even a corporation de facto resulted from their efforts; consequently, the incorporators may be held as partners.