If A promises B to pay him one thousand dollars if he will murder C, and B murders C, it is fair, as between A and B, that A should pay the agreed sum. But of course the courts would give no relief to B. It is proper to attach greater weight to the illegality of such a contract than to the considerations of fairness between. the parties. Now the contract between the associates and A may be such that it would not be enforced even if made by the associates as partners. Then, a fortiori, it will not be enforced when they make it as a corporation.1

The state, by its constitution or laws, may have taken affirmative action, indicating an intensified intent to prevent corporate action, for some or any purpose, except on compliance with specified requirements. For example, it may have forbidden any corporation, not organized in a specified manner, to engage in the business of banking. This affirmative action may, in the judgment of the courts, prevent them from giving legal validity to contracts which are prohibited by it.2

Assume that the considerations stated in the preceding two paragraphs are not present. Is all unauthorized corporate action illegal? That depends on how the term "illegal" is defined. Any action not legally authorized may be said to be "illegal." illegal." But this takes much of the sting out of the term. We do not advance, - it only amounts to saying that unauthorized corporate action is unauthorized.

Unauthorized corporate action is not so strongly to be condemned that legal validity is never to be given to it. If the conditions stated in the opening paragraph of this article are satisfied, the American courts are unanimous in not allowing A to avoid liability on the ground that the associates had no authority to act as a corporation.3

Where these conditions are not satisfied, the courts have not been unanimous. Suppose that there is no law authorizing such a corporation as the associates attempted to form. Some courts have then felt themselves obliged to allow A to defend. Their reasoning has taken two forms: (1) A cannot be prevented from raising the question of authority unless he is estopped, and there can be no estoppel on a question of law; (2) there can be no corporation de facto unless there can be a corporation de jure.

1 See Schuetzen Bund v. Agitations Verein, 44 Mich. 313.

2 See Medill v. Collier, 16 Oh. St. 599.

8 20 HARV. L. REV. 476, n. 33, third division.

(1) The contention that there may not be estoppel on a question of law falls flat. There may be estoppel by record on a question of law. There may be estoppel by deed on a question of law. There may be estoppel by simple contract on a question of law, the tenant is estopped, though the lease was not under seal, and whether the landlord has title is a question of law.3 A, wishing to buy a note from B, inquires of C, the maker, if he has any defense. C replies that he has not, and is estopped thereafter to assert a defense. There is nothing in the general principles of the law of estoppel which makes it improper to estop A to show that there was no law under which the associates could have obtained authority for such corporate action.5

(2) It is said that there can be no corporation de facto unless there can be a corporation de jure.

In United States Bank v. Stearns the defendant pleaded the general issue. As the law in New York then stood, this put the plaintiff to proof of its corporate existence. The trial judge decided that the charter need not be produced, because the act of incorporation of the Bank of the United States was a public act. The Supreme Court held this to be error. "The least proof which has been held sufficient is the production of an exemplification of the act incorporating the plaintiffs, and evidence of user, under their charter." The case is pertinent, therefore, to show what proof is necessary to establish that a body is a corporation de jure.

In Methodist Church v. Pickett the defendant, sued on a promise to pay money to the plaintiff, was not allowed to defend on the ground that there were irregularities in its organization. Selden, J., said: "It has been repeatedly held that as against all persons who have entered into contracts with bodies assuming to act in a corporate capacity, it is sufficient for such bodies to show themselves to be corporations de facto. This cannot be done by simply show

1 The doctrine of res judicata is not confined to questions of fact.

• Blackburn v. Bell, 91 Ill. 434, 444; Hills v. Laming, 9 Exch. 256. Taylor, Landl. & Ten., 9 ed., § 629.

The authorities are collected in 16 Cyc. 753, n. 50.

5 For further instances in which the courts have raised an estoppel on a question of law, see Perryman v. Greenville, 51 Ala. 507; Strosser v. Fort Wayne, 100 Ind. 443; Burlington v. Gilbert, 31 Ia. 356; R. R. Co. v. Stewart, 39 Ia. 267; Ferguson v. Landram, 5 Bush. (Ky.) 230; Motz v. Detroit, 18 Mich. 495; People v. Murray, 5 Hill (N. Y.) 468; State v. Mitchell, 31 Oh. St. 592; Tone v. Columbus, 39 Oh. St. 281. • See Clark v. American Co., 165 Ind. 213, 216, and cases cited. 7 15 Wend. (N. Y.) 314.

8 19 N. Y. 482 (1859).

ing that they have acted as corporations for any period of time, however long. Two things are necessary to be shown in order to establish the existence of a corporation de facto, viz.: (1) the existence of a charter, or some law under which a corporation with the powers assumed might lawfully be created; and (2) a user by the party to the suit, of the rights claimed to be conferred by such charter or law." The only authority cited for this proposition was United States Bank v. Stearns. The remark that a corporation de facto cannot exist unless there is a law under which such a corporation might lawfully be created was in no wise necessary to the decision of the case at bar.

If there is a law authorizing associates, upon the performance of certain conditions, to act as a unit, associates who have not performed the conditions and have not therefore availed themselves of the law, can in fact act as a unit. So much may, on the authorities, be taken as established. But it is difficult to see how the mere existence of such a law was necessary in order that such action could in fact be taken, or how the absence of such a law can prevent the associates from in fact taking such action. The matters required to be shown in order to prove that corporate action is authorized have no bearing whatever on the possibility of unauthorized corporate action. There must be a law in order that corporate action should be authorized. It does not follow that there must be a law in order that there should in fact be unauthorized corporate action.

66

Following in the wake of Methodist Church v. Pickett, many courts have given a restricted, technical meaning to the phrase corporation de facto." But any body of men which in fact assumes to act as a corporation may, and should, be termed a corporation de facto. In Y. B., 49 Edw. III, 3 (1375), apparently the earliest reported case bearing upon our subject, there was no law under which the gild could have been incorporated, but Brooke, C. J., commenting on the case, speaks of the gild as "a corporation made by the citizens."1 Wherever there is unauthorized corporate action there is a fact to which the courts can give legal validity. There is nothing in the nature of things to bar the courts from giving legal validity to all unauthorized corporate action. They may be deterred from so doing by reasons of policy, but it is submitted that, where A seeks to avoid liability on the ground that

1 Brooke, Abr. Corp., 15.

there was no law under which the associates could have obtained authority for their corporate action, the considerations of fairness between the parties may safely be allowed to outweigh the objections to giving validity to unauthorized action.1

So much as to contracts with the associates as a corporation. But the person seeking to make collateral attack may not have so contracted. Then the considerations of fairness between the parties drop. The associates are now seeking affirmatively to assert against a stranger a privilege, or right, which they do not possess. To permit this is repugnant to principles underlying our whole law. The chief object of the preceding article on this subject was to show that, even where the conditions stated in the opening paragraph of the article are satisfied, collateral attack should be allowed if the associates seek to assert the corporate privilege to the prejudice of a stranger. If there are not these requisites, a fortiori, collateral attack should be allowed.2

Viewing the subject as a whole, it is seen that whether or not collateral attack is to be permitted depends not so much on logical deductions as on the exercise of a sound judgment. Opposing considerations must be weighed. The law, therefore, cannot be pictured in bright lines. Some large features, however, emerge. (1) Collateral attack should be permitted to a stranger to whose prejudice the associates seek to assert a right dependent upon incorporation, and this whether there are the technical requisites of the de facto doctrine, or not. (2) The associates should not be shielded from full liability where their legal incorporation failed for some reason more serious than an informality or irregularity in their organization. (3) These effective checks by collateral attack being established, the courts may, in many other instances, properly deny such attack, and this whether there are the technical requisites of the de facto doctrine, or not. Thus, notably, where A seeks to avoid liability on the ground that there was no law under which the associates could have obtained authority for their corporate action.

In closing, attention is called to the form of the English statute of 1900. The advantage of this form of statute, in preventing liti

1 See note C, page 329.

For further questions as to collateral attack, see note D, page 329.

See the close of note B, p. 329, on English Authorities.

gation, is obvious. But it should be coupled with provisions defining the liability of the associates for false statements.

Edward H. Warren.

NOTE A.

Full Liability of Associates.

In Fay v. Noble, 7 Cush. (Mass.) 188, certain persons had been incorporated by a special act, imposing no conditions precedent to incorporation. The associates acted under the law, but did not, in their organization, conform to certain provisions. The trial court ruled that, in consequence, the associates became partners, and an exception to this ruling was sustained by the full bench. Bigelow, J., said that a corporation or its members cannot be made subject to the liabilities of a copartnership, in the absence of all statutory provisions imposing such liabilities. He found on examining the statute that the officers and members of a corporation were made individually liable for its debts in case of non-compliance with certain requisitions, “but no provision is made by which such individual liability attaches by reason of any omission to organize in the manner prescribed by law. . . . The statute, it is true, prescribes the mode of organization, but it annexes no penalty or liability to the neglect or omission to comply with it."

The learned judge then proceeded to say that if, owing to the failure to organize properly, the proceedings of the corporation were void, "there was no principal to appoint an agent. It is a familiar principle of law, that a person who acts as agent without authority or without a principal, is himself regarded as a principal, and has all the rights and is subject to all the liabilities of a principal. If a person purporting to act as agent of a corporation which had no valid legal existence makes contracts and does other acts as its agent, he becomes the principal, and is personally liable therefor... . Fuller [the alleged agent] was not the agent of a copartnership, for none existed; he was not the agent of individuals, as such, because he was not authorized so to act; he was not the agent of the West Boston Iron Company, because if the court were right in deciding that it had never organized, and that its proceedings were void, it never had the power to appoint him agent."

It seems clear that the West Boston Iron Company was a corporation de jure, and that the irregular organization was, at most, a cause for forfeiture of incorporation. On the second trial of the cause no question was made but that the company was a corporation de jure (12 Cush. 1). Therefore the only question was whether or not, by noncompliance with statutory provisions, the members of a corporation de jure incurred individual liability. This is the question primarily discussed by the court. It has, obviously, nothing to do with collateral attack upon incorporation.

The court, however, apparently was of opinion that if certain persons assumed without legal authority to act as a corporation, and appointed A an agent to the corporation, and A contracted as agent for the corporation, full liability under the contract fell upon A and no liability fell upon the associates. "There was no principal." But if a body of men though not legally authorized to act as a unit-direct A to act for them as a body, and A does so act, then this body, this corporation de facto is the principal. It is flying in the face of the facts to say that A is acting without a principal. Such a conclusion can be reached only by reverting to the conception of a corporation as a being called forth by the magic of a charter.

And ever if we concede that there was no principal, the associates should be held on another ground. For A to contract as agent, when he had no principal, was a wrong. The associates, by representing to him that there was a corporation, and