Story Case

The Graymont Realty Company was organized under the laws of the state of Indiana for the purpose of dealing in real estate. After having engaged in business for several months, a quo warranto proceeding was instituted against it, challenging its right to exist and do business as a corporation. It seems that the law regarding the creation of corporations directed that its certificate of incorporation should be acknowledged before a notary public. In this case, this condition was satisfied, but the acknowledgment did not state that the notary was personally acquainted with the persons who signed the certificate, and for this reason, it was alleged and claimed that the corporation was defective and could be dissolved at the request of the state. What should be the decision of the Court?

Ruling Court Case. People Vs. Cheeseman, Volume 7 Colorado Reports, Page 376

Walter Cheeseman and four other men attempted to organize a corporation known as "Union Depot & Railroad Company". This was an action of quo warranto brought in the name of the people against the individual incorporators to prevent them from using the corporate name, or acting as a corporation, on the grounds that their charter was void. One alleged defect was that the articles of incorporation provided for an existence of fifty years, while the general statute required that the term of existence should not exceed twenty years; second, the notary public's certificate of acknowledgment, which was required to appear on the articles of incorporation, did not state, as was customary, that the persons acknowledging the instrument were personally known by the notary, or known by him to be the persons who had signed.

The Court said, in an opinion by Mr. Justice Helm, that these defects did not make invalid the charter of incorporation. Under a statute relating to deeds it had been held that an acknowledgment was not valid which lacked the statement in question, but that in this case the purpose of the acknowledgment had been fully served without this requirement. As to the term of existence, it was held that, since the corporation could not endure longer than the statutory period, it was not material that the articles stated that a longer existence was desired. There was no positive requirement of the statute which was here disregarded. The most that could be said was that directions or instructions as to the manner of doing certain things had not been complied with. If there is merely failure to meet directory provisions in an incorporation law, the charter is not thereby made void, but is to be given full legal effect, both as against the state and interested third parties.

It was therefore adjudged that Cheeseman and his associates were entitled to use the corporate franchise which they had assumed, and the writ of quo warranto was dismissed.

Ruling Law. Story Case Answer

Heretofore, it has been stated that certain terms and conditions are mandatory; compliance with such is a condition precedent to the right to exist and do business as a corporation. Unless strict compliance therewith has been had, the state may, by quo warranto proceedings, prohibit the organization from existing and doing business as a corporation. On the other hand, certain requirements may be merely directory; the state may specify that it is desirable that certain things shall be done, but failure to do those things does not deprive the organization of its corporate character. Just what provisions are mandatory and what provisions are directory will largely depend upon the laws governing the corporations in a given state. In the Story Case, probably the failure to acknowledge in precisely the customary way is not a failure to comply with a mandatory requirement; and the right of the organization to exist and do business as a corporation cannot be denied for that reason.