Story Case

Pursuant to a contract existing between Alden Anderson, Marion Sansom, and Felix Tennison, a Saving and Trust Bank was formed called the Dallas Joint Stock Bank. The contract was filed with the recorder of the county in which the principal office was located. The statute of the state permitted the parties to provide by contract for stock certificates, evidencing the interests of the members, and that these certificates were transferable, without affecting the existence of the company. The law also enabled the parties to agree upon a company name, elect directors and officers, and provided that the contract should authorize and designate one officer to sue and be sued for the organization. The statute did not cover the point of individual liability of the members for the obligations of the company.

The Dallas Joint Stock Bank did not prosper and finally became financially embarrassed. The question of personal liability of the members then became of vital importance. How should the point be determined?

Ruling Court Case. People Vs. Coleman, Volume 133 New York Reports Page 279; Volume 16 Lawyers' Reports Annotated, Page 183

New York had a statute, enacting that "all monied or stock corporations deriving an income or profit from their capital, or otherwise, shall be liable to taxation on their capital in the manner hereinafter prescribed." Coleman, the commissioner of taxes of the State of New York, assessed under this statute the capital stock of the National Express Company, and this proceeding was brought by the express company to review that action. The express company was an association of the kind known as joint stock companies, and the question in this case was whether such an association was a corporation within the taxing statute. The defendant, Coleman, claimed that it had been made practically a corporation by the statutes of New York, which recognized a joint stock company, allowing it to sue and be sued in the name of the president or treasurer, instead of in the name of all of its members, as had been formerly held necessary by the Courts.

Mr. Justice Finch, delivering the opinion of the Court, said: "The company was formed as a joint stock company by a written agreement of eight individuals with each other, the whole force and effect of which, in creating the organization, rested upon the common law rights of the individuals and their power to contract with each other. The relation they assumed was wholly the product of their mutual agreement and depended in no respect npon the grant of authority of the state. It was entered into under no statutory license or permission, and not under any franchise from the sovereign, but was founded wholly upon the individual rights of the associates to join their capital in a common enterprise similar to a partnership. It is true, that many corporate attributes have by legislative enactment been bestowed upon joint stock associations, and yet an original and inherent difference remains. It is that the creation of the corporation merges in the artificial body and drowns in it the individual rights and liabilities of the members, while the organization of a joint stock company leaves the individual rights and liabilities unimpaired and in full force. It is an essential and inherent characteristic of a corporation that it alone is primarily liable for its debts. Exactly the opposite is true of joint stock companies. Between themselves, the members have agreed to apportion losses and gains of the business, but the debts of the association are still the debts of each member. Permission to sue the president or treasurer is only a convenient mode of enforcing the liability which all the individuals have in common. The debt of the corporation is its debt, and not that of its members, - the debt of the joint stock company is the debt of the associates, however enforced. The creation of the corporation means the birth of a new person in the eyes of the law. The creation of the stock company leaves unchanged the liabilities of the members. The one derives its existence from the sovereignty of the state, the other from the contract of the individuals. The two are alike, but not the same."

Since the statute attempted to tax only corporations, it was held that the National Express Company could not lawfully be assessed.

Judgment was given for the plaintiff.

Ruling Law. Story Case Answer

A joint stock company is a partnership from which the law has taken certain characteristics of a partnership and has given certain attributes of a corporation. A joint stock company resembles a corporation, in that the interest of the company is divided into stock held by members. This stock may be transferred freely by members, without affecting the continued existence of the company. In this respect, it has perpetual succession like a corporation. Both a corporation and a joint stock company act through a board of directors or managers. A corporation, however, always sues, or is sued as a separate person. Whereas a joint stock company, sues or is sued in the names of some designated officer.

The Story Case contains an excellent illustration of a joint stock company; the organization came into existence by the contract of the parties, and not by charter from the state, and it had no power to sue or be sued in its own name. The organization is a partnership and the individuals are personally liable for its obligations.