Frontier Refining Company v. Kunkel

Brief Fact Summary. Frontier Refining Company, (Appellant), brought suit against Kunkel’s Inc., and George Fairfield, Clifford D. Kunkel, and Harlan Beach, (Appellees), as partners of Kunkel’s Inc. Appellant alleges that Appellees were indebted to Appellant for the sale of gasoline to the partnership. Appellant appeals the trial court ruling in favor of Appellees holding that no partnership existed.

Synopsis of Rule of Law. 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. Kunkel approached B. L. Warren, zone manager of Appellant, to discuss taking over a filling station and truck stop owned by Appellant. Kunkel stated he would approach Fairfield to see about raising the money to fund the venture. Kunkel approached Fairfield and Beach to discuss obtaining a loan. Fairfield declined. There was a discussion about Kunkel incorporating and Beach and Fairfield taking stock as an investment. Warren claims and Fairfield denies that he met Fairfield when Fairfield came to look over the station and Fairfield told him the business would be a corporation. Warren advised Appellant by memo that the business would be incorporated under the name of “Kunkel’s, Inc.” financed by Beach and Fairfield. Appellant then executed several agreements signed either “C.D. Kunkel” or “Clifford D. Kunkel dba Kunkel’s, Inc.”
Unbeknownst 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 had failed to incorporate. 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. Whether Defendants are liable as partners operating a business under the name Kunkel’s Inc.

Held. No. Defendants are not liable because they were creditor of Kunkel’s Inc. not partners.

Discussion. The court was entitled to infer that Kunkel was the sole source of the information given to Appellant concerning a proposed corporation under the name of Kunkel’s, Inc. and that neither Fairfield nor Beach authorized Kunkel to make such representations or enter into any contracts with Appellant in the name of Kunkel’s, Inc. This supports the conclusion that neither Fairfield nor Beach held themselves out as a corporation. Appellant with full knowledge that a corporation had not yet been formed chose to transact its business with Kunkel as an individual and 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.