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or his right to work at his trade, intentionally causes damage to his neighbor, the question arises whether his right (assuming no bad motive for its exercise) justifies him in inflicting the damage. If that question is answered in the negative, there is then no occasion to consider what effect the presence of bad motive would have. He is liable irrespective of motive. If the above question is answered in the affirmative, then there arises the point we have been discussing; namely, whether the presence of bad motive would destroy his otherwise sufficient justification. Our impression is that it should not have that effect.
COLLATERAL ATTACK ON INCORPORATION.
DE FACTO CORPORATIONS.
Dedicated to Professor Langdell.
B, and C wished to engage in the business of retailing ice.
By statute it was provided that if any three persons did specified acts, they acquired the privilege of engaging, as a corporation, in any designated business. A, B, and C, intending in good faith to avail themselves of the provisions of this statute, did all the acts required except one. By inadvertence, no statement of the amount of capital to be employed was made in the certificate of incorporation. Believing that they had received the franchise of the state to act as an artificial person, they assumed, as such person, to engage in the designated business for a number of months. They employed D, and he, while delivering ice and solely by reason of his own negligence, injured E. The alleged corporation has become insolvent, and E seeks to establish that A, B, and C are personally responsible for the tort to him.
“But,” say A, B, and C, “although we were not a de jure corporation, clearly we were a de facto corporation. It is for the state to grant the franchise to be a corporation, and is it not therefore for the state alone to complain if persons usurp that franchise? Is it not well settled that, except as against the state, a de facto corporation is just as good as a de jure corporation? Has it not been written that the existence of a corporation shall not be attacked collaterally?” It will be the attempt of this article to meet these questions.
The doctrine of de facto public officers was established at a comparatively early date. Suppose that a justice of the peace has authority to issue warrants of distress. The law has created the office. A is generally reputed to be entitled to it, and is openly exercising its powers. He issues a warrant, and B, believing that A is a justice of the peace, acts under the warrant and distrains the goods of C. Csues B for the trespass, and shows that A, owing to his failure to take a certain oath, was
not authorized to act as a justice. The courts protect B. It is not to be expected that those who have occasion to deal with a person exercising the powers of a public office shall examine with particularity into all the circumstances affecting his appointment (or election) and qualification, particularly as he is under no duty to disclose the pertinent evidence. If persons dealing with those actually exercising the powers of public offices were held to do so at their peril, the business of the community could not be conducted with reasonable despatch. Moved by these urgent considerations of public policy, the courts have felt themselves justified in giving, for the benefit of a person dealing in good faith with a de facto public officer, the same effect to his acts as would be given to the acts of a de jure officer.
Is the law of corporations analogous? The owner of land purports to grant it to the M corporation, and M, the alleged corporation, to grant it to A. A brings ejectment against X, a stranger to the title. If M was a de facto corporation, A should be allowed to prevail. A large and increasing proportion of business transactions involve the acceptance of a title purporting to pass (or to have passed) from a corporate grantor or vendor. The considerations of public policy moving the courts to facilitate such transactions may not be so urgent as those respecting transactions with public officers, but they have great force. And the courts hold that a de facto corporation may be a conduit of title.3
1 Margate Co. v. Hannam, 3 B. & Ald. 266. See also Leak v. Howel, 2 Cro. Eliz. -533.
2 Denver v. Mullen, 7 Colo. 345, 358 (lessees of a de facto corporation protected); Duggan v. Colorado Co., 11 Colo. 113 (mortgagee protected); Georgia Co. v. Mercantile Co., 94 Ga. 306 (mortgagee protected); Finch v. Ullman, 105 Mo. 255 (grantee maintained ejectment); Crenshaw v. Ullman, 113 Mo. 633; Lusk v. Riggs, 102 N. W. Rep. 88 (Neb.); Saunders v. Farmer, 62 N. H. 572 (grantee maintained a writ of entry); Hackensack Co. v. DeKay, 36 N. J. Eq. 548, 559 (mortgagee protected); Society Perun v. Cleveland, 43 Oh. St. 481 (grantees protected, although state had maintained quo warranto proceedings against the de facto corporation).
See also the reasoning of the court in Quinn v. Shields, 62 Ia. 129, 139; Keene v. Van Reuth, 48 Md. 184, 193; East Norway Church v. Froislie, 37 Minn. 447, 450; Elizabethtown Co. v. Green, 49 N. J. Eq. 329, 337; American Co. v. Heidenheimer, 80 Tex. 344, 348; Ricketson v. Galligan, 89 Wis. 394. In Fay v. Noble, 7 Cush. (Mass.) 188, the plaintiff did not ask for relief on this ground.
A fortiori, a court may hold that slight evidence of due incorporation is sufficient to make a prima facie case (see note 15). See Hamilton v. McLaughlin, 145 Mass. 20; Tarpey v. Deseret Co., 5 Utah 494.
If the defendant has dealt with the de facto corporation (under which plaintiff claims) as a corporation, this precludes him from attacking its existence (see note 33). Fars
These doctrines do not restupon any principle of estopper. There is no basis for any argument addressed ad hominem, the plaintiff who sued because his goods were distrained had never dealt with the alleged justice of the peace, and the defendant who resisted the attempt to eject him had never dealt with the alleged corporation. The doctrines must find their support in considerations of public policy.3
The doctrine of de facto public officers is applied only for the benefit of persons dealing with such officers. It is in no wise remedial to the de facto officer himself. He cannot enforce a right incident to the office, and if he assumes to do an act which would be a tort were it not for the protection of the office, he is, notwithstanding that he acted in the best of faith, liable for the tort.5
worth v. Drake, 11 Ind. 101 ; Hasselman v. U. S. Mortgage Co., 97 Ind. 365; Jones v. Hale, 32 Ore. 465; Douglas County v. Bolles, 94 U. S. 104 (a municipal corporation is bound by bonds issued for stock in a de facto railroad corporation and sold by the railroad corporation); County of Leavenworth v. Barnes, 94 U. S. 70; Andrews o. National Foundry, 77 Fed. Rep. 774; Toledo Co. v. Continental Trust Co., 95 Fed. Rep. 497. See also Sherwood v. Alvis, 83 Ala. 115; Goodrich v. Reynolds, 31 Ill. 490; Mitchell v. Deeds, 49 Ill. 416; Snyder v. Studebaker, 19 Ind. 462; Brown v. Phil. lipps, 16 la. 210; Franklin v. Twogood, 18 la. 515, 524; Ragan v. McElroy, 98 Mo. 349; Briar Co. v. Atlas Works, 146 Pa. St. 290; County of Macon v. Shores, 97 U. S. 272; Close v. Gleenwood Cemetery, 107 U. S. 466; Beekman v. Hudson River Co., 135 Fed. Rep. 3.
A fortiori, the fact of such dealing may properly be held to make a prima facie case of incorporation. See Williams v. Cheney, 3 Gray (Mass.) 215; Topping v. Bickford, 4 Allen (Mass.) 120; Den v. Van Houten, 10 N. J. L. 270; Ryan v. Martin, 91 N. C. 464. Cf. Hungerford Bank v. Van Nostrand, 106 Mass. 559.
On the question of good faith, see note 13. The grantee from a de facto corporation should be protected, if he has acted in good faith, even though the attempt to form the corporation was not made in good faith. Duggan v. Colorado Co., ui Colo. 113, 117; Elizabethtown Co. v. Green, 49 N. J. Eq. 329, 337. Cf. Doyle v. Mizner, 40 Mich. 160. And it is submitted that the courts should refuse to inquire whether persons asserting a title derived from a de facto corporation had notice of the defective organization at the time of their purchase, and that therefore a de facto corporation should be held to have a marketable title. It was so held in Lancaster v. Amsterdam Co., 140 N. Y. 576, 583. (It may also be noted that the courts will protect the grantee of a corp ration, even though the acquisition of the land by the corporation was ultra vires, and the grantee is charged with constructive notice of the powers of the corporation.) Where the sole question before the court is as to the capacity of an alleged corporation to be a conduit of title, a wide scope may very properly be given to the de facto doctrine.
3 Consideration is omitted of the questions, (a) whether the de facto doctrine is available to the state in criminal prosecutions, and (6) whether collateral attack may ever be made upon the existence of a de facto municipal corporation.
4 Dolan v. New York, 68 N. Y. 274. 6 Short v. Symmes, 150 Mass. 298.
The question therefore becomes this: is there any doctrine of de facto corporations (where there is no basis for the argument ad hominem) which goes beyond the analogy of the doctrine of de facto public officers, and is remedial to the associates themselves?
Some rights may be lawfully acquired forthwith by mere appropriation. Thus in the case of wild animals, of abandoned chattels, of land made vacant by the death of a tenant pur autre vie. But no court has ever held, or intimated, that the franchise to be a corporation may be lawfully acquired forthwith by mere appropriation.
Many rights may be lawfully acquired by appropriation continued for a considerable lapse of time, under the operation of statutes of limitation, or by force of analogies from such statutes, or by force of artificial presumptions of a lost grant. The franchise to be a corporation may be thus lawfully acquired.
If A is in the actual possession of property belonging to X, then, even though A obtained such possession wrongfully, B, who has himself no right to the property, must not disturb A's possession. Such a rule works no injustice to B, and tends to preserve the public peace.
But does the law ever permit A, who has usurped a right, to require B, an innocent stranger, to submit to an affirmative assertion of such right against him? The propositions of the preceding three paragraphs are no authority for such a doctrine.
A deed is placed in escrow to be delivered to A when A executes a bond to support B. A never executes a bond, but he in fact supports B and assumes in good faith to act as owner of the property. He does not thereby acquire title.7
A father leaves a child with a charitable institution. The institution has a statutory right, upon the performance of specified acts, to apprentice the child. Most, but not all, of the specified acts are performed, and the institution assumes to apprentice the child to the defendant, who believes he has become its master. If the father wishes to resume the support of the child, it is difficult to see how the “ de facto master” can successfully resist him.8
6 Robie v. Sedgwick, 35 Barb. (N. Y.) 319, 326; King v. Beardwell, 2 Keb. 52; Crafts of Mercers v. Hart, i C. & P. 113. See also State v. Bailey, 19 Ind. 452.
7 See Hinman v. Booth, 21 Wend. (N. Y.) 267.
& The case put in the text was suggested by People v. Weissenbach, 60 N. Y. 385. It was there held that the failure of the respondent to give a bond might give the child