Wells Co. v. Gastonia Cotton Mfg. Co., 198 U.S. 177 (1905)
U.S. Supreme CourtWells Co. v. Gastonia Cotton Mfg. Co., 198 U.S. 177 (1905)
W. L. Wells Company v. Gastonia
Cotton Manufacturing Company
Argued April 28, 1905
Decided May 8, 1905
198 U.S. 177
The charter of a corporation in Mississippi provided that the incorporators "are hereby created a body polities and corporate," and also that "as soon as ten thousand dollars of stock is subscribed and paid for, said corporation shall have power to commence business." The ten thousand dollars was not paid in, but the corporation, after doing business, commenceed an action against a citizen of another state in the Circuit Court of the United States for North Carolina for goods sold; defendant denied any knowledge or information sufficient to form a belief as to plaintiff's corporate capacity. Plaintiff recovered in the circuit court but the circuit court of appeals held that, owing to the failure to pay in the amount specified in the charter, plaintiff was not a corporation and a citizen of Mississippi, and that the jurisdiction of the circuit court did not affirmatively appear. Held error:
That the denial of defendant was sufficient under the practice of North Carolina to put the question of plaintiff's corporate capacity to sue in issue.
That, for purposes of suing and being sued in the courts of the United States, the members of a corporation are to be deemed citizens of the state by whose laws it was created.
That plaintiff became in law a corporation when its charter was approved and the great seal of the state affixed thereto, and as such was entitled to sue in the United States circuit court as a citizen of Mississippi, and the subscription and payment of the required amount of capital stock was not such a condition precedent that the corporation did not exist until it was paid. If the organization of the company as a corporation was tainted with fraud, it was for the state by appropriate proceedings to annul the charter.
The plaintiff, the W. L. Wells Company, seeks in this action to recover a balance alleged to be due from the defendant, the Gastonia Cotton Manufacturing Company on account of certain sales of cotton in the years 1899 and 1900.
The complaint averred that the plaintiff and defendant were, respectively, created and duly organized as corporations -- the former, under the laws of Mississippi, the latter, under the laws of North Carolina.
The defendant admitted that it was a corporation, duly organized under the laws of North Carolina, and a citizen and resident of that state, but averred that it had
"no knowledge or information sufficient to form a belief as to the truth of the allegation contained in the first section of the complaint, to-wit, that the plaintiff is a corporation organized under the laws of the State of Mississippi, and a citizen and resident of that state, and therefore it denies the said allegation."
The other paragraphs of the answer put in issue the allegations of the complaint touching the plaintiff's claim against the defendant.
There was another action in the same court brought by the W. L. Wells Company against the Avon mills on account of transactions like those involved in the other case.
By consent of the parties, and pursuant to an order of court, the two cases were consolidated and tried together. In answer to questions propounded by the court, the jury found that the W. L. Wells Company was, as alleged in the complaint, a corporation and a citizen and resident of Mississippi, and entitled to recover the sum of $39,313.88. A judgment was rendered for that amount against the Gastonia Cotton Manufacturing Company; the circuit court holding, upon a review of the evidence in connection with the findings of the jury, that the W. L. Wells Company was a corporation of Mississippi, and as such entitled to invoke the jurisdiction of that court as against the defendant corporation of North Carolina. 118 F. 190.
The case was then carried to the circuit court of appeals, which adjudged that the plaintiff had failed to establish the allegations of the complaint as to its corporate capacity, and therefore was not entitled to sue in the circuit court in its alleged corporate name. Without considering the merits of the case, that court reversed the judgment for want of jurisdiction in the circuit court, and the cause was remanded, with liberty to the plaintiffs, if it was so advised, to amend the complaint by inserting the individual names of those constituting the company in whose name the action was brought, which
being done a new trial should be granted, and if the plaintiff declined to amend, then the case was to be dismissed without prejudice. 128 F. 369. Subsequently, the present writ of certiorari was granted.