Thompson & Green Mach. Co. v. Music City Lumber Co. - 683 S.W.2d 340 (Tenn. Ct. App. 1984)

Rule:

Tenn. Code Ann. § 48-1-1405 mandates that all persons who assume to act as a corporation without authority so to do shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.

Facts:

On January 27, 1982, Joseph E. Walker, president of Music City Sawmill Co., Inc. and Music City Lumber Company, Inc., both Tennessee corporations, on behalf of Sawmill, purchased a wheel loader from plaintiff, Thompson & Green Machinery Co., Inc. However, on January 27, 1982, Sawmill was not a corporation, a fact unknown to either plaintiff or defendant Walker on January 27th. Pursuant to the sale, Walker signed a promissory note in the amount of $37,886.30 on behalf of Sawmill to plaintiff. A purchase money security interest was also taken in the equipment. After default, plaintiff brought suit against Sawmill to recover the balance due on the note. Subsequently, plaintiff amended its complaint to include Walker as a defendant after the plaintiff learned that the corporation was not a corporation on the date of sale. Walker contended that the plaintiff was estopped to deny the corporate existence. On the other hand, the plaintiff contended that, pursuant to Tenn. Code Ann. § 48-1-1405, Walker was liable for all debts and liabilities incurred because he assumed to act as a corporation without authority. The trial court ruled in favor of Walker.

Issue:

Under the circumstances, was the plaintiff estopped from denying the corporate existence of Sawmill, and thus, would be barred from making Sawmill’s president liable for Sawmill’s debts and obligations? 

Answer:

No.

Conclusion:

The court reversed the judgment in favor of the president and remanded the action with instructions to grant judgment to the plaintiff. The court held that the doctrines of de facto corporation and corporation by estoppel met their demise by the enactment of the Tennessee General Corporations Act of 1968. The court noted that under Tenn. Code Ann. § 48-1-1405, all persons who assume to act as a corporation without authority so to do shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.