Timberline Equipment Co. v. Davenport

Oregon Supreme Court · Corporations

Corporationsde facto corporationcorporation by estoppelpersonal liability of promoters or participantsORS 57.321ORS 57.793certificate of incorporationde facto corporation abolished

Facts

Dr. Bennett signed articles of incorporation for Aero-Fabb Co. on January 22, 1970, but the original articles did not comply with the statutes, so no certificate of incorporation issued until June 12, 1970, after new articles were filed. The equipment leases and accrued rentals all arose during the period before the certificate issued. The trial court found the defendants had been operating as partners under the name Aero-Fabb Co. before June 1970, and the leases were made with Kenneth L. Davenport doing business as Aero-Fabb Co. or Aero-Fabb Corp. Dr. Bennett invested in the venture, retained some control over management, signed checks, visited the site, discussed operations with employees, and knew of the equipment rentals before most rent accrued.

Issue

Whether Oregon still recognizes de facto corporation status for a defectively organized business before issuance of a certificate of incorporation, whether plaintiff was estopped from denying corporate existence, and whether Dr. Bennett was personally liable for the rental debt under ORS 57.793.

Rule

Under the Oregon Business Corporation Act, corporate existence begins only upon issuance of the certificate of incorporation, and the de facto corporation doctrine no longer exists in Oregon. Under ORS 57.793, persons who assume to act as a corporation without a certificate are jointly and severally liable for debts incurred; this includes those who have an investment in the organization and actively participate in its policy and operational decisions, but not persons whose only connection is as passive investors. In this type of estoppel claim, defendants must at least show that the plaintiff believed it was contracting only with a corporate entity.

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In Portland, Nora Kim and Elias Romero mailed articles for Cascade Survey Works, but the articles failed to comply with Oregon filing requirements. Before any certificate of incorporation issued, the business rented office trailers on credit and then defaulted. When sued, Nora argues the business was at least a de facto corporation because the organizers made a good-faith effort to incorporate.

How should an Oregon court rule on Nora's de facto corporation argument?

Explanation. The majority held that Oregon abolished the de facto corporation doctrine after adoption of the Business Corporation Act. ORS 57.321 makes corporate existence begin upon issuance of the certificate, and ORS 57.793 reinforces that no other form of apparent compliance creates authority to act as a corporation. Good faith or partial compliance is therefore insufficient.