Law School Resources

Cranson v. International Business Machines Corp., (1964)

1. Cranson v. International Business Machines Corp., (1964); pg. 197, briefed 2/19/97

2. Facts: Cranson hired an attorney to incorporate a business.  Cranson acted as president of the corporation, and exercised corporate business observing all formalities.  Cranson contracted with IBM, on behalf of the corporation, to purchase 8 typewriters.  It was later discovered that the corporation was not formally incorporated at the time of the making of the typewriter purchase contracts due to an oversight on the part of the incorporating attorney.

3. Procedural Posture: IBM sued Cranson personally for the balance due on the typewriters.  The lower court granted summary judgment against Cranson holding that the constituents of a business that fails to file articles of incorporation are personally liable, as a matter of law, for the debts of the business.

4.  Issue: Whether an officer of a defectively incorporated association may be subjected to personal liability for the debts of the association under these facts.

5. Holding: No.

6. Reasoning: A de-facto corporation may be formed if there is a good faith effort to incorporate, and actual exercise of corporate powers.  Furthermore, under the doctrine of estoppel, a person seeking to hold a corporate officer personally liable may not do so if he has dealt with the association as if it were a legally-existing corporation.  IBM dealt with the business as if it were a legitimate corporation, and relied on its credit rather than that of Cranson.  Thus, it is estopped to assert that the business was not incorporated.