CHAPTER VI ORGANIZATION AND GOVERNMENT. §49. Incorporation. $50. De Facto Organization. $51. The Corporate Government. $52. Majority Rule. $53. Meetings and Notice. $54. Voting. $55. Corporate Records. $56. Right to Inspect Records. §49. Incorporation. Incorporation is a voluntary act. The legislature has no power to compel any person or society to become incorporated. Membership in a corporation cannot be conferred upon a person without his consent. It requires his assent to bring him in, not his dissent to keep him out'. Where there is no corporation, there can be no corporators2. No corporation comes into existence, either de jure or de facto, until the articles of association have been signed and acknowledged3. This associative act gives rise to a corporation de facto, which may be developed into a corporation de jure by full compliance with all conditions precedent prescribed by the enabling law. These conditions usually consist of payment to the corporation of the amount of capital required by statute to be paid up, and further, in the due recording of the articles of association. Statutes frequently provide that a certified copy of the record of the articles, made under the hand and seal of the Secretary of State, shall be prima facie evidence of the due formation, existence and capacity of the corporation1. 1. Mason v. Finch, 28 Mich. 282-286. "No person can obtain rights of membership in a corporation except in compliance with its charter or governing law, and if that prescribes any conditions or special methods of becoming a member, the law is imperative."Justice Campbell in Carlisle v. Sag inaw Valley & St. L. Co., 27 Mich. 315-317. 2. Eaton v. Walker, 76 Mich. 579; Stewart v. Father Matthew's Society, 41 Mich. 67. 3. Carmody v. Powers, 60 Mich. 26-30; Doyle v. Mizner, 42 Mich. 332. 4. Act. 232 Pub. Acts 1903, Sec. 9. There is no general statute in this State directly conferring upon the Secretary of State power to refuse to record articles of association when he believes them defective. A strict censorship of articles of association is, however, maintained by the State department, upon the theory that, there is no law which authorizes or compels the recording of instruments violative of, or not in compliance with, the statutes. The remedy being by mandamus, and the rule of that proceeding being that a clear case must be made out before the writ will issue, the department of State is in a position to exclude from record all articles of association deemed legally objectionable. While this arbitrary exercise of its advantage by the State department has been the subject of frequent and bitter criticism, there can be no doubt that it has operated to discourage and defeat the de jure organization of many malformed or objectionable corporations. $50. De Facto Organization. Where incorporators have proceeded in good faith, under a valid statute, and have attempted to organize for a lawful authorized purpose, but through some irregularity have failed of full compliance with the law, a corporation de facto results. This is an actual corporation, and not merely a corporation by estoppel. It is, except as against the State, protected by the same estoppels that apply to de jure corporations. The acts of 5. Isle Royale Land Co. v. Secretary of State, 76 Mich. 163. Jenking v. Osmun, 79 Mich. 305. 6. In Isle Royale Land Co. v. Secretary of State, Id., Justice Long (dissenting) said: "The Secretary of State has no arbitrary power vested in him by the statutes of this State to reject the articles of association of a corporation, because in his judgment it is proposed to carry on a business not provided for by our statutes, especially when one or more of the objects for which the corporation is organized is permitted to be carried out by express provision of the statutes. If the corporation attempts to exercise powers, or carry on a business, not permitted by our statute, and such business is detrimental to the interest of the State or its citizens, a mode is pointed out to remedy the evil, but this power is not vested in the Secretary of State. 7. Jenking v. Osmun, 79 Mich. 305. 8. Justice Long, in Eaton V. Walker. 76 Mich. 579-585, made the following statement: "Two things are necessary to be shown in order to establish a corporation de facto, viz.: (a) The existence of a charter or some law under which a corporation, with the powers assumed, might lawfully be created. (b) A user by the party to the suit of the rights claimed to be conferred by such charter or law. If the law exists, and the record exhibits a bona fide attempt to organize under it, very slight evidence of user beyond this is all that can be required. corporations de facto are upon the same basis as the acts of officers de facto". Although incorporators may have failed to comply with the statute in some particulars, yet if they have, in good faith, effected a colorable organization under a valid law, the State alone can take advantage of the defect10. Both the corporation itself, and those who have recognized its corporate existence by dealing with it are estopped from denying the legality of its organization11. The existence of a corporation de facto is not dependent upon estoppels. For the purpose of transacting business, contracting and being contracted with, suing and being sued, it possesses all of the powers of a de jure organization, except as against the State. Even the State can not attack its legality in a collateral proceeding12, but only by direct suit brought for that express purpose. It has been held that the State itself may be estopped to deny the validity of a corporate charter, even in a direct proceeding, but such an estoppel must arise through a legislative waiver of the defect13. In this connection perhaps it should be said that estoppels never arise from ambiguous circumstances. They must be established by facts which are unequivocal and not susceptible to two constructions. Thus, where the acts recognized are as consistent with want of incorporation as with incorporation, no estoppel to deny corporate existence arises11. 9. Clement v. Everest, 29 Mich. 19-23. 10. City of Kalamazoo v. Power Co., 124 Mich. 74-82; Staver & Abbott Mfg. Co. v. Blake, 111 Mich. 282-288: Detroit City Ry. v. Mills, 85 Mich. 634-648; Eaton v. Walker, 76 Mich. 579, 6 L. R. A. 102. In Staver & Abbott Mfg. Co. v Blake, Justice Grant said: "It is the established rule that those dealing with corporations are estopped to deny the lawful existence thereof, and cannot, therefore, hold the stockholders individually liable, unless such liability is imposed by the statute. This rule is based upon two grounds: (a) That it is against public policy to permit the existence of these corporations to be attacked collaterally in suits between them and others. It is reserved for the State alone to question their legal existence through its law depart ment. (b) Because parties have dealt with it as a corporation, and not upon the faith of the individual liability of its stockholders." 11. Electric Light Co. v. Wyandotte, 124 Mich. 43-48; City of Kalamazoo v. Power Co., 124 Mich. 74-82; Staver & Abbott Mfg. Co. V. Blake, 111 Mich. 282-288; Swartwout v. Mich. Air Line R. Co., 24 Mich. 388-393; Detroit City Ry. v. Mills, 85 Mich. 648; City of Grand Rapids v. Hydraulic Co., 66 Mich. 606; Eaton v. Walker, 76 Mich. 579; Toledo & Ann Arbor R. Co. v. Johnson, 55 Mich. 456; 49 Mich. 148; Merchants' & Manufacturers' Bank v. Stone, 38 Mich. 779; Day v. Spiral Spring Buggy Co., 57 Mich. 150. 12. Marshall's Corp., p. 123. 13. Attorney General v. chett, 42 Mich. 436-438. Han 14. Fredenburg v. Lyon Lake M. E. Church, 37 Mich. 476-478; Doyle v. Mizner, 42 Mich. 332. So too, the fact that one may be estopped from denying the legal existence of a corporation does not prevent the introduction of evidence tending to show that the organization was formed for the purpose of perpetrating a fraud15 Where a corporation de facto reorganizes as a corporation. de jure, it cannot repudiate contracts made by it as a de facto organization. As to third parties who have dealt with it, its status is unchanged. The only change effected is in its attitude toward the State16. Where a statute is applicable to corporations in general, it includes corporations de facto. Thus, under a statute providing for punishment of embezzlement from a corporation, proof of a corporation de facto is sufficient to sustain a conviction17. The contracts of a corporation de facto being valid, it follows that subscription contracts made with it are valid18. This rule is not applicable however to preorganization subscriptions. It is an implied condition of every subscription taken prior to organization, that a de jure corporation shall be organized, unless otherwise stipulated. Formation of a de facto corporation does not comply with this condition, hence, in the absence of a waiver, the subscription remains unenforcible1o. §51. The Corporate Government. The corporation is a republic in miniature. Its charter is its constitution, its by-laws are its statutes, its stockholders are its citizens, its officers are its administrative agents. Like a republic, the corporation is a government by delegated powerspowers delegated by the stockholders and the State to officers. and agents. The powers reserved to the stockholders themselves are few, viz.: (a) The power to enact, amend and repeal by-laws, (b) The power to amend the articles of association, (c) The power to elect officers, and (d) The power to protect themselves against official fraud and breach of trust. When stockholders seek to usurp powers that have been 15. Chicago & Grand Trunk Ry. Co. v. Miller, 91 Mich. 166-182. 16. Empire Mfg. Co. v. Stuart, 46 Mich. 482-483; Merchants' & Manufacturers' Bank v. Stone, 38 Mich. 779. 17. People v. Carter, 122 Mich. 668-670; People v. Hawkins, 106 Mich. 479. 18. Schaub v. Coffin, 135 Mich. 435. 19. International Fair Ass'n v. Walker, 97 Mich. 159, 88 Mich. 62, 83 Mich. 386. delegated to officers, their action is without validity, and is analogous to an action of a mob. In the absence of charter authority, and as a general rule, neither all, nor any, of the stockholders, as such, have a right to intermeddle with the property or concerns of the corporation. They have no power to employ, direct or discharge any corporate officer or agent. Though all of the stockholders join in executing a conveyance of corporate property, the instrument, if unauthorized by due official action, will be ineffectual, unless validated by subsequent ratification, or sustained through some equitable estoppel. The corporation is an entity distinct, individual and separate from the temporary owners of its shares. Though these sell their holdings, the corporation continues unchanged; though they die, the corporation survives unimpaired. As the slave had his being, apart from that of his master, so the corporation exists, separate and apart from its owners, whose interests it is legally bound to serve throughout the period of its existence. What a corporation cannot do in its corporate capacity, all of the stockholders acting together cannot accomplish for it2o. The sum of all of the stockholders is not equivalent to the corporation. So distinct are stockholders from the corporate entity, that they are not charged with presumptive notice of corporate dealings21. Nor is the corporation charged with notice by reason of knowledge possessed by its non-official stockholders22. Yet each stockholder is so far a part of the corporation itself that he is bound by judgments against the corporation, and cannot attack the same collaterally, even though the corporation may have had a complete defense which was not interposed23. But this rule yields to an exception in cases where there is proof that the judgment was collusive or fradulent24. It is the general rule that the suit of a stockholder to obtain 20. "If the act or contract of the corporation is void under the law, so also is the joint act or contract of all of the stockholders, designed to accomplish the same purpose and thus evade the law." Chief Justice Grant in Rough v. Breitung, 117 Mich. 48-56. 21. World Mfg. Co. v. Cycle Co., 123 Mich. 620-624; Rice v Peninsular Club, 52 Mich. 87-90. In this case Justice Cooley said: "A corporator is not charged with constructive notice of corporate acts, and may deal with the corporation as a stranger may, where his personal connection with the corporate action is not such as to notify him of reasons to the contrary." 22. International Wrecking & Transportation Co. v. McMorran, 73 Mich. 467-470. 23. Mutual Fire Ins. Co. v. Phoenix Furniture Co., 108 Mich. 170. 24. McBryan v. Universal Elevator Co., 130 Mich. 116. |