Frontier Ref. Co. v. Kunkel's - 407 P.2d 880 (Wyo. 1965)

Rule:

All persons who assume to act as a corporation without authority to do so shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.

Facts:

Clifford D. Kunkel approached B. L. Warren, zone manager of Appellant Frontier, to discuss taking over a filling station and truck stop owned by Frontier. Kunkel approached Fairfield and Beach to discuss obtaining a loan to fund the venture. Fairfield declined. There was a discussion about Kunkel incorporating and Beach and Fairfield taking stock as an investment. Warren claimed that he met Fairfield when he came to look over the station and the latter told him the business would be a corporation but Fairfield denied the same. Through a memo, Appellant was advised that the business would be incorporated under the name of “Kunkel’s, Inc.” financed by Beach and Fairfield. Subsequently, Appellant executed several agreements signed either “C.D. Kunkel” or “Clifford D. Kunkel dba Kunkel’s, Inc.” Unknown to Fairfield or Beach, Kunkel took over the station and commenced doing business. Fairfield and Beach put some $11,000 into the venture. However, neither knew Kunkel failed to incorporate. The appellant discovered that by mistake some equipment had been delivered to Kunkel without receipt of payment. Appellant obtained from Kunkel a chattel mortgage naming Kunkel individually as mortgagor. The mortgage disclosed on its face that it was not executed in the name or on behalf of a corporation. Subsequently Fairfield obtained possession of the equipment and claimed ownership. In a companion case, Appellant recovered possession of the property after the court ruled that the mortgage was valid and entered judgment in favor of Appellant.

Issue:

Were the defendants liable as partners to Kunkel, Inc.?

Answer:

No.

Conclusion:

The court was entitled to infer that Kunkel was the sole source of the information given to Frontier concerning a proposed corporation under the name of Kunkel’s, Inc. Neither Fairfield nor Beach authorized Kunkel to make such representations or enter into any contracts with Appellant in the name of Kunkel’s, Inc. Thus, neither also held themselves out as a corporation. Appellant knew fully well that a corporation had not yet been formed yet chose to transact its business with Kunkel as an individual, therefore shall be held to its bargain. Further, Appellant in its companion case accepts the fruits of a judgment that carries with it an inherent finding by the trial court that Kunkel, as an individual, was Appellant’s debtor.