§ 4279. Contracts that stock shall be nonassessable. A corporation may agree with its stockholders that their stock shall be nonassessable, and such an agreement may be enforced by the stockholders against the corporation where the rights of creditors are not directly involved.13 And this is equally true though the statute permits, but does not require, the levying of assessments upon paid up stock for the purpose of paying corporate debts,14 or restoring impaired capital,15 and the assessment is made for that purpose, or though the constitution makes each stockholder liable for a proportionate share of the corporate debts.16 Such a contract may be evidenced by provisions to that effect in the by-laws, 17 or in the stock certificates, 18 or it may be contained in provisions in both 13 Lum v. American Wheel & Vehicle Co., 165 Cal. 657, Ann. Cas. 1915 A 816, 133 Pac. 303; Browne v. San Gabriel River Rock Co., 22 Cal. App. 682, 136 Pac. 542, 544; Wall v. Basin Min. Co., 16 Idaho 313, 22 L. R. A. (N. S.) 1013, 101 Pac. 733; Porter v. Northern Fire & Marine Ins. Co., 36 N. D. 199, 161 N. W. 1012. See also More v. Courier-News, 29 N. D. 385, 151 N. W. 2. An agreement by an irrigation company that stock shall not be assessed until the person to whom it is issued sells it or uses water, is valid, and a pledge of the stock is not a sale thereof within the meaning of its provisions. Farmers' Pawnee Canal Co. v. Henderson, 46 Colo. 37, 102 Pac. 1063. The corporation is bound by the provision of a promoters' contract, ratified and affirmed by it after its organization, that the other stock shall not be subject to assessment until the promoters have paid 25 cents a share on their stock, and an assessment in violation of such a contract is void. Mantle v. Jack Waite Min. Co., 24 Idaho 613, 136 Pac. 1130, 135 Pac. 854. ute will not be construed to mean "must.'' Lum v. American Wheel & Vehicle Co., 165 Cal. 657, Ann. Cas. 1915 A 816, 133 Pac. 303; Wall v. Basin Min. Co., 16 Idaho 313, 22 L. R. A. (N. S.) 1013, 101 Pac. 733. 15 The provisions of Comp. Laws 1913, § 4866, authorizing assessments for this purpose are not mandatory. Porter v. Northern Fire & Marine Ins. Co., 36 N. D. 199, 161 N. W. 1012. 16 The provision of the California Constitution to this effect refers to the direct personal liability of the stockholder to the creditor, and not to the relations existing between the corporation and its stockholders." Lum v. American Wheel & Vehicle Co., 165 Cal. 657, Ann. Cas. 1915 A 816, 133 Pac. 303. 17 See Porter v. Northern Fire & Marine Ins. Co., 36 N. D. 199, 161 N. W. 1012; More v. Courier-News, 29 N. D. 385, 151 N. W. 2. 18 A provision in the certificates issued to the stockholders that the stock represented thereby is nonassessable, amounts to such a contract on its part, and as against them, precludes it from thereafter levying an assessment upon such stock which has been fully paid. Lum v. American Wheel & Vehicle Co., 165 Cal. 657, Ann. Cas. 1915 A 816, 133 Pac. 303; Wall v. Basin Min. Co., 16 Idaho 313, 22 L. R. A. 14 Lum v. American Wheel & Vehicle Co., 165 Cal. 657, Ann. Cas. 1915 A 816, 133 Pac. 303; Wall v. Basin Min. Co., 16 Idaho 313, 22 L. R. A. (N. S.) 1013, 101 Pac. 733. The word "may" in such a stat the contract of subscription and the stock certificates.19 The effect of secret agreements relieving subscribers to stock from the obligation to pay for the same in full,20 and the rights and liabilities growing out of the issuance of watered or fictitiously paid up stock,21 have already been considered. XXXVI. INDIVIDUAL LIABILITY AND RIGHTS ON FAILURE TO INCORPORATE § 4280. Scope of subdivision. As we have seen in a previous chapter, persons who attempt in good faith to organize as a corporation under a law authorizing them to incorporate, and colorably comply with the provisions of the law, and afterwards exercise corporate powers in pursuance of such organization, have a de facto corporate existence, at least for the purpose of contracting, and their existence as a corporate body cannot be collaterally attacked for the purpose of holding them individually liable on a contract made by them as a corporation.22 And we have also seen that, as a general rule, a person who contracts with an association as a corporation is estopped to deny its incorporation for the purpose of holding the associates individually liable.23 Persons, however, may assume to act and contract as a corporation when they have not even a de facto corporate existence, and the circumstances, or the law in the particular jurisdiction, may be such that a person contracting with them is not estopped to deny that they are a corporation; and it is their liability under such circumstances that we are here to consider. The personal liability of the promoters of a corporation on contracts made by them,24 and the liability of the members of a partnership, which becomes incorporated, for debts and on contracts incurred (N. S.) 1013, 101 Pac. 733. See also Upton v. Tribilcock, 91 U. S. 45, 23 L. Ed. 203. 19 Where the subscription agreement provides that the stock shall be fully paid and nonassessable, and the certificates are stamped "Fully Paid and Nonassessable," minority stockholders may enjoin the collection of an assessment levied by the directors. Porter v. Northern Fire & Marine Ins. Co., 36 N. D. 199, 161 N. W. 1012. The term "nonassessable" negatives liability for any added contribution to the capital of the corporation above the subscription lia bility or above the par value of the stock where the subscription liability is fully paid and the stock has been sold at par or above. Id. Such a contract precludes both assessments under Comp. Laws 1913, $$ 4570-4572, relating to corporations generally, and assessments on stock of insurance companies authorized by $4866, to make good impairments of capital. Id. 20 See $606, supra. 21 See § 3517 et seq., supra. 22 See Chap. 10, § 273 et seq., supra. 23 See Chap. 11, § 322 et seq., supra. 24 See §§ 158, 159, supra. or made while they were doing business as partners,25 has already been considered. The personal liability of stockholders for debts of a corporation contracted in its name in a state other than that in which it was incorporated, by reason of a failure to comply with the statutes relative to foreign corporations,26 and the liability of stockholders of a corporation which continues to transact business after its charter has expired or it has been dissolved,27 will be considered in subsequent chapters. 84281. Liability to third persons generally. As a rule, persons who assume to act in a corporate capacity without a legal existence as a corporation, either de jure or de facto, are personally and individually liable as partners to those with whom they contract.28 25 See § 384, supra. 26 See the chapter on Foreign Corporations, infra. 27 See the chapter on Dissolution, infra. 28 United States. Owen v. Shepard, 59 Fed. 746; Smith v. Colorado Fire Ins. Co., 14 Fed. 399; In re Mendenhall, Fed. Cas. No. 9,425. Arkansas. Rainwater v. Childress, 121 Ark. 541, 182 S. W: 280; Forbes v. Whittemore, 62 Ark. 229, 35 S. W. 223. Florida. Duke v. Taylor, 37 Fla. 64, 31 L. R. A. 484, 53 Am. St. Rep. 232, 19 So. 172; Taylor v. A. G. Branham & Co., 35 Fla. 297, 39 L. R. A. 362, 48 Am. St. Rep. 249, 17 So. 552. See also Winfield v. Truitt, 71 Fla. 38, 70 So. 775. Illinois. Seeberger v. McCormick, 178 Ill. 404, 53 N. E. 340, aff'g 73 Ill. App. 87, writ of error dismissed 175 U. S. 274, 44 L. Ed. 161; Loverin v. McLaughlin, 161 Ill. 417, 44 N. E. 99; American Laundry Mach. Co. v. Chamales, 202 Ill. App. 302; Standard Varnish Co. v. Jay, 149 Ill. App. 25. Kentucky. Cincinnati Cooperage Co. v. Bate, 96 Ky. 356, 16 Ky. L. Rep. 626, 49 Am. St. Rep. 300, 26 S. W. 538; Friedman v. Janssen, 23 Ky. L. Rep. 2151, 66 S. W. 752. Maine. Smith v. Schoodoc Pond Packing Co., 109 Me. 555, 84 Atl. 268. Missouri. Farmers' State Bank v. Kuchs, 163 Mo. App. 606, 147 S. W. 862; Sexton v. Snyder, 119 Mo. App. 668, 94 S. W. 562; Simmons v. Ingram, 78 Mo. App. 603; Railroad Gazette v. Wherry, 58 Mo. App. 423. New York. Fuller v. Rowe, 57 N. Y. 23; Perrine v. Levine, 68 Misc. 327, 123 N. Y. Supp. 1007; Kuccillo v. Pittelli, 127 N. Y. Supp. 314. See also Stevens v. Episcopal Church History Co., 140 App. Div. 570, 125 N. Y. Supp. 573. Texas. Empire Mills v. Alston Grocery Co., 4 Willson Civ. App. 221, 15 S. W. 505. "Parties assuming to act in a corporate capacity without a legal organization as a corporate body, are liable as partners to those with whom they contract." Fuller v. Rowe, 57 N. Y. 23, quoted with approval in Cincinnati Cooperage Co. v. Bate, 96 Ky. 356, 16 Ky. L. Rep. 626, 49 Am. St. Rep. 300, 26 S. W. 538. "Where persons associate themselves together to form a corporation and the effort proves abortive, they will be held as copartners." Simmons v. Ingram, 78 Mo. App. 603. "Persons who associate themselves Especially is this true where they act knowingly and fraudulent together by articles of agreement to become a corporation, but do not compay with the law so as to become a corporation, will be liable as partners for contracts made by them in the assumed the corporate rame." Sceberger V. McCormick, 178 Ill. 404, 53 N. E. 340, aff'g 73 Ill. App. 87, writ of error dismissed 175 U. S. 274, 44 L. Ed. 161. Lame as Persons who merely sign articles of incorporation, and do nothing further towards incorporating, are liable as partners for goods purchased by them in the name of the proposed corporation. Bigelow v. Gregory, 73 Ill. 197. Persons who carry on a mercantile business before a corporate charter is granted to and accepted by them are liable as partners for goods purchased for the business, although they agree among themselves to do business as a corporation until they can get a corporate charter. Meinhard, Schaul & Co. v. Bedingfield Mercantile Co., Ga. App. 176, 61 S. E. 34. 4 Persons who unite to form a corporation, but, after obtaining a charter, do no act indicating an acceptance thereof, or colorable compliance with its requirements, or user of the rights claimed thereunder, are liable as partDers to third persons dealing with them, not in any corporate capacity, but as individuals using the corporate Brooke name solely as a trade name. v. Day, 129 Ga. 694, 59 S. E. 769. In Lynch v. Perryman, 29 Okla. 615, Ann. Cas. 1913 A 1065, 119 Pac. 229, it is said: "It is generally held that where parties associate themselves together for the purpose of organizing a corporation and fail, they thereupon become partners to the extent of their interest."' In this case, however, it was held that the defendant was estopped to deny the existence of the corporation. In Friedman v. Janssen, 23 Ky. L. Rep. 2245, 66 S. W. 752, it was held that, if a purported corporation had no legal existence, its stockholders were to be regarded as partners, and property bought for the purpose of carrying on the business of the association was liable for its debts. Where the officers and stockholders of a corporation attempt to establish it under another name in a state where it is not authorized to do business under its charter, the parties to such attempt are a commercial partnership, at least as to third parties, and property acquired by such partnership will be devoted to the payment of debts contracted by it. Campbell v. J. I. Campbell Co., 117 La. 402, 41 So. 696. In Forbes v. Whittemore, 62 Ark. 229, 35 S. W. 223, it was held that persons who purchased the property and "the right, franchise, and privilege" belonging to a corporation, but made no attempt to incorporate, were liable as partners on contracts made by them in the corporate name. Persons issuing a policy of insurance in the name of a corporation not authorized to do business in the state may be personally liable thereon. Merchants' Reciprocal Underwriters of Dallas v. First Nat. Bank of Canadian, Tex. Civ. App. 192 S. W. 1098. The rule applies only where some step necessary in the process of incorRailroad poration has been omitted. Gazette v. Wherry, 58 Mo. App. 423. See also the cases cited in the following notes. ly,29 if the other party to the contract is not estopped to deny there is a corporation.30 And it has been held by a number of courts that they are also liable as partners are for the torts of their agents or employees committed in the course of the purported corporation's business.31 So persons who attempt to form a corporation under an 29 Louisiana Nat. Bank v. Henderson, 116 La. 413, 40 So. 779; Provident Bank & Trust Co. v. Saxon, 116 La. 408, 40 So. 778; Journal Co. v. Nelson, 133 Mo. App. 482, 113 S. W. 690; Bartholomew v. Bentley, 15 Ohio 659, 45 Am. Dec. 596. "Persons who actively engage in business for profit under the name and pretense of a corporation which they know neither exists nor has any color of existence may not escape individual liability because strangers are led by their pretense to contract with their pretended entity as a corporation.'' Harrill v. Davis, 168 Fed. 187, 22 L. R. A. (N. S.) 1153, rev 'g 7 Indian T. 152, 15 Ann. Cas. 1134, 104 S. W. 573. Persons who knowingly and fraudulently assume a corporate existence, or pretend to have a corporate existence, may be held liable as individuals. Gartside Coal Co. v. Maxwell, 22 Fed. 197. In order to hold the stockholders liable as partners it may be shown that a pretended corporation is a mere fraudulent device on the part of the incorporators to escape liability as partners, by putting forward a sham corporation without capital or assets to cover a real partnership. Christian & Craft Grocery Co. v. Fruitdale Lumber Co., 121 Ala. 340, 25 So. 566. As to whether there is a de facto corporation where a special charter has been obtained by fraud, or where there has been a fraudulent attempt to incorporate under a general law, see §§ 287, 288, supra. 30 See Chap. 11, § 322 et seq., supra. 31 Vredenburg v. Behan, 33 La. Ann. 475, 627; Smith v. Warden, 86 Mo. 382. In Liebold v. Green, 69 Ill. App. 527, it was held that, where steps were taken to incorporate, but the incorporation was never completed, the principal stockholder of the company, and its superintendent who was also a stockholder, were partners in the business, and to be individually liable for torts committed in carrying it on. The managing officers of a corporation are liable as partners for a tort committed by one of its employees in the transaction of business which was not within the purposes for which a corporation could be formed. Staacke v. Routledge, Tex. Civ. App. —, 175 S. W. 444. A member and officer of a temporary organization formed by the subscribers to the stock of a proposed corporation is responsible for the acts of the manager of such organization in furtherance of the work being carried on by it for the benefit of such corporation, and hence is liable for injuries received by an employee engaged in such work, although he was not present at the time of the injury, and did not at the time give any orders to the injured person. Farmers' Gin & Milling Co. v. Jones, Tex. Civ. App. 147 S. W. 668. In Mandeville v. Courtright, 142 Fed. 97, 6 L. R. A. (N. S.) 1003, rev'g 126 Fed. 1007, it was held that officers |