for a policy after the organization should be had, and the company authorized to take risks and issue policies. Beyond that the company had no power to bind the future company. Nor does the statute authorize the corporators to contract for and issue policies. Had they issued a policy in form, would any one claim that a suit could be maintained on it against the company? Surely not, because no power to do so is conferred by the statute. And if a formal written policy would be invalid, how can it be said that a mere verbal agreement for insurance can be held binding?

In the case of Rockford, Rock Island and St. Louis R. Co. v. Sage, 65 Ill. 328, it was held that a railroad incorporation was not liable for services rendered before its organization, unless the company promised to pay after it was organized. In Stowe v. Flagg, 72 Ill. 397, it was held that the agreement of parties intending to and engaged in forming a manufacturing corporation to put in property as stock, but which never was subscribed, did not bind the corporation, nor did the property become that of the corporation, although it was used by the company. In the case of Western Screw and Manufacturing Co. v. Cousley, 72 Ill. 531, it was held where the corporators, before the organization of the company was completed, employed a superintendent, and he entered upon the duties of the place, and rendered services for the inchoate company, it, when organized, was not liable to pay for such services.

This statute only authorizes the company to transact business upon filing the certificate of the auditor of public accounts with the proper county clerk. The transaction of business in the name of the corporation before that certificate shall be thus filed is unauthorized. But in this case no policy was issued, or intended to be issued, when the application and note were executed, and the case falls within the principles announced in the cases above referred to, and they are conclusive of the question.

We perceive no error in the record, and the judgment of the appellate court is therefore affirmed.

Judgment affirmed.

Note. See, 1891, McVicker v. Cone, 21 Ore. 353; 1894, Nemaha Coal & M. Co. v. Settle, 54 Kan. 424; 1894, Aspen Water Co. v. City of Aspen, 5 Colo. App. 12, 1 A. & E. C. C. (N. S.) 12; 1894, Owen v. Shepard, 19 U. S. App. 336; 1896, Loverin v. McLaughlin, 161 Ill. 417. See Elliott, § 44; I Thompson, §§ 40, 217.

Sec. 145. Same.

(b) Immediately upon filing articles of incorporation, without stock subscription or organization.

SINGER MANUFACTURING CO. v. PECK.1

1896. IN THE SUPREME COURT OF SOUTH DAKOTA. 9 S. Dak. 29, 4 Am. & Eng. C. C. (N. S.) 591, 67 N. W. Rep. 947-48.

[Appeal from the circuit court, Minnehaha county; Joseph W. Jones, Judge.

Action by the Singer Manufacturing Company against Porter P. Peck. From From an order sustaining a demurrer to the complaint, plaintiff appeals.

Affirmed.]

CORSON, P. J. This is an appeal from an order sustaining a demurrer to the complaint. The allegations in the complaint are in substance as follows: That the plaintiff is a corporation; that the Wohlgemouth Shirt Company is a duly organized corporation of the state of South Dakota; that said last named corporation was organized and incorporated by five persons named, of whom the defendant was one; that said corporation was one de facto only, and had no legal rights to transact business or obtain credit; that it did obtain a large amount of credit, and that it purchased of the plaintiff a large number of sewing machines, of the value of six hundred dollars ($600); that said corporation had no capital, and none of its capital stock was paid for, and that said defendant Peck was the treasurer of said corporation; that an action was duly commenced by this plaintiff, and prosecuted to judgment, against the said Wohlgemouth Shirt Company, execution issued thereon, and the same returned unsatisfied, "and that said corporation has no property, and is totally and wholly in(4) And the said plaintiff further complains and alleges

that said corporation never had any funds, and that the holding out of said corporation as a legal corporation, and one that had complied with the law by the said corporators, was a fraud upon the persons from whom they obtained goods upon credit, and especially upon this plaintiff, all of which was well known to the incorporators and organizers of said company, and especially to the above named defendant. (5) And the plaintiff further alleges that it has no way of collecting said indebtedness unless the incorporators of said company shall be made to pay such indebtedness. Plaintiff, therefore, demands judgment against the defendant, Porter P. Peck, for the amount due on plaintiff's judgment against the Wohlgemouth Shirt Company, together with the costs and disbursements of this action, and such other and further relief as to the court may seem just and equitable."

1 Arguments omitted.

Only the substance of such part of the complaint as we deem material under the stipulation hereinafter referred to has been given. To the complaint a demurrer was interposed by the defendant, one of the grounds of which was that the complaint did not state facts sufficient to constitute a cause of action. The parties in the court below entered into a stipulation, the material part of which is as follows: "On said appeal the question on which the case shall be decided is the question as to whether the complaint states facts sufficient to constitute a cause of action against said defendant, on the ground that he was one of the incorporators of the Wohlgemouth Shirt Company, and that the said complaint shall be construed solely as attempting to constitute a cause of action against him; not upon contract for liability upon an unpaid stock subscription, but upon his being one of said incorporators, and upon his alleged liability, on the ground that the holding out of said corporation as a legal corporation was a fraud upon the plaintiff." Section 2905, Comp. Laws, provides: "Upon the filing of articles of incorporation with the secretary of the territory he shall issue to the corporation, over the great seal of the territory, a certificate that the articles containing the required statement of facts have been filed in his office; and thereupon the persons signing the articles, and their associates and successors, shall be a body politic and corporate by the name and for the purposes stated in said articles.' When the certificate specified in this section is issued, the corporation would seem to be perfected, and possess all the powers of a corporation. There seems to be no provision in the statutes of this state requiring any part of the capital stock to be paid in or subscribed as a condition precedent upon which the corporation is authorized to transact business.

In most of the states their incorporation acts provide for the subscription and payment of a certain proportion of the capital stock as a condition to the right of the corporation to transact business. When such is the case, incorporators who proceed to incur debts in the name of the corporation before such funds are provided have been held liable for such debts. In Wechselberg v. Bank, 12 C. C. A. 56, 64 Fed. 90, and Burns v. Beck (Ga.), 10 S. E. 121, incorporators were held liable. In the former case the court says, in the majority opinion:

1 Section 2902 of the Civil Code of Dakota Territory (still in force in South Dakota when above case was decided) provides that the articles of incorporation shall state the name, purpose, place of business, terms, number of directors, names and residences of such of them who are to serve until the election of such officers and their qualifications, and if there be a capital stock, its amount and the number of shares. Section 2904 requires the articles to be subscribed by three or more, and acknowledged. Section 2905 is given in the case above. Section 2907 makes a certified copy of the articles prima facie evidence of the existence of the corporation. Section 2913 provides that after the secretary of the territory issues the certificate of incorporation, "the directors named in the articles of incorporation must proceed in the manner specified or provided by their by-laws, or if none, then in such manner as they may by order adopt, to open books of subscription to the capital stock then unsubscribed and to secure subscriptions to the full amount of the fixed capital, and to levy assessments and installments thereon, etc."

*

"By the common law there was no individual liability of the members of a corporation for corporate debts beyond the enforcement of their agreed contributions to the capital stock. Therefore, if complete corporate existence was obtained and perfected by the act of filing the articles of association without compliance with any of the requirements of § 1773, the associates are not subject to common law liability. On the other hand, it is well settled that an attempted or pretended incorporation, not perfected as the enabling act requires, does not confer this immunity, and all who are parties to the simulated corporation as associates or shareholders are held liable at common law for debts contracted under the corporate guise. While the courts have differed in naming this liability-whether in the nature of co-partners or resting upon the ordinary principles of contract and agency,' or upon fraud—they agree in holding liable in some form all who are engaged in the defective corporate enterprise." The court then proceeds to discuss the various provisions of the Wisconsin statute and arrives at the conclusion that the incorporators, having proceeded to contract the debt before the fund required by the statute to perfect the corporation had been provided, were liable, as the act provided that the corporation should not exercise corporate functions, that is, "the transaction of business with any others than its members, until it should have provided a capital stock in conformity with $1773."

In the case of Burns v. Beck, supra, two of the corporators held the corporation out to the world as being duly organized, while according to the allegations of the complaint all the stock had not been subscribed and 10 per cent. paid in, as required by the statute of Georgia, as conditions precedent to the right to the transaction of business by the corporation. Neither these nor any other conditions precedent to the corporation transacting business in this state have been imposed. The credit, therefore, in the two cases cited—and they seem to be all the cases bearing upon this question that the researches of counsel have been able to bring to our attention-was obtained by the wrongful acts of the corporators in holding out the corporation as authorized to transact business as a corporation, when, in fact, the corporation was not so authorized. The corporators in these cases committed a fraud upon the creditors. But in the case at bar it does not appear that the corporators did any act that they were not fully authorized to do under the statute, or that they, by act or word, made any representations they were not legally authorized to make. This being so, we can discover no principle of law by which the defendant would be liable under the allegations of the complaint. In holding out the corporation as legally incorporated, the defendant committed no fraud, as the plaintiff alleges, and correctly, that the corporation was duly organized. It is true, it is further alleged that it was only a de facto corporation, but that is a mere conclusion of law. The fact that our statute does not require of corporations the subscription to and payment of a certain per cent. of its capital stock before the corporation can transact business imposes upon persons dealing with corporations organized under the laws of this state greater caution and

vigilance, but this court can not impose upon corporations a greater liability than is imposed upon them by law, and the law not having specially prescribed that corporators shall be liable in such a case as that described by the complaint, and no actual fraud or misrepresentation being alleged, this court can not discover any ground upon which the defendant can be held liable. He can not be held liable at common law. He can not be held liable on the ground of misrepresentations, as he has made none, nor upon the, ground of fraud, as none is alleged. We are of the opinion, therefore, that the court properly sustained the demurrer to the complaint, and the order of the circuit court appealed from is affirmed.

Note. See, also, 1889, National Bank of Jefferson v. Texas Investment Co., 74 Tex. 421, 27 A. & E. C. C. 358; 1890, Vanneman v. Young, 52 N. J. Law 403, 32 A. & E. C. C. 8; 1894, State of Missouri, ex rel., etc., v. American Med. Col., 59 Mo. App. 264.

Sec. 146. Same.

(c) At the time of filing the articles of association with the proper officer, but perfect or adult corporate capacity does not exist until the capital stock is provided as required.

WECHSELBERG v. FLOUR CITY NATIONAL BANK.'

1894. IN THE U. S. CIRCUIT COURT OF APPEALS, 7th Circuit, Eastern District of Wisconsin. 24 U. S. Appeals Rep. 308-330.

Before WOODS, circuit judge, and BUNN and SEAMAN, district judges.

This was an action at law by the Flour City National Bank against Julius Wechselberg, the plaintiff in error, Ernest S. Moe and Clarence H. Williams, as defendants below, for the recovery of the amount due upon a promissory note for $3,000, dated September 18, 1889, made by the Northwestern Collection Company to the Northwestern Collection, Loan and Trust Association, and indorsed to said bank. The alleged liability of the defendants below is based upon their acts in the incorporation of the Northwestern Collection Company as a corporation under the laws of Wisconsin, and the transaction at large of business thereunder, without having capital paid in as required by the statute, whereby it is asserted that they became personally obligated to pay the indebtedness so contracted.

SEAMAN, District Judge, after stating the case as above, delivered the opinion of the court.

The plaintiff in error was held by the circuit court to be jointly liaable with the other defendants below for the indebtedness contracted by their assumed corporation, the Northwestern Collection Company, in the absence of any capital stock. This liability was based upon

1 Statement of facts abridged. Dissenting opinion of WOODS, J., omitted.