## Facts

- Albion C. Cranson, Jr. invested in and became president of Real Estate Service Bureau, an enterprise intended and operated as a corporation.
- Cranson paid for shares, received a stock certificate, and was advised by counsel that the corporation was legally formed.
- The certificate of incorporation was signed and acknowledged before May 1, 1961, but was not filed until November 24, 1961 due to counsel’s oversight.
- Between May 17, 1961 and November 8, 1961, Cranson, acting as president, negotiated and purchased electric typewriters from IBM on the Bureau’s credit.
- IBM dealt with the Bureau as a corporation and extended credit on that basis; the Bureau made partial payments but left an unpaid balance of about $4,333.40.
- After failing to collect from the Bureau, IBM sued Cranson personally, asserting that because the Bureau was not incorporated at the time of contracting, those involved were personally liable.
- The record indicated Cranson acted only in a representative capacity and did not intend to assume personal liability.

## Issues

1. Whether a creditor that treated and credited an association as a corporation may later deny its corporate existence to impose personal liability on an officer who acted only representatively when incorporation was defectively completed.
2. Whether the doctrine of corporation by estoppel can apply even when there was neither a de jure nor a de facto corporation at the time of the transaction.

## Decision

- The Court of Appeals of Maryland reversed the trial court’s summary judgment for IBM.
- The court held IBM was estopped from denying the Bureau’s corporate existence because IBM dealt with and credited the Bureau as a corporation.
- The court concluded Cranson was not personally liable for the Bureau’s debt arising from the IBM transaction.
- The court rejected contrary implications in prior Maryland cases to the extent they conflicted with applying estoppel in the absence of a de facto corporation.

## Legal Principles

- Corporation by estoppel is distinct from the de facto corporation doctrine and does not require proof of a de facto corporation.
- When parties have recognized and dealt with an organization on a corporate basis, a party may be barred from later asserting nonexistence of the corporation to change liability consequences for that transaction.
- A creditor that extended credit in reliance on an association’s purported corporate status may be prevented from recharacterizing the association as a partnership to reach individuals who did not assume personal liability.

## Conclusion

Maryland held that a creditor who knowingly dealt with an enterprise as a corporation and relied on its corporate credit may be estopped from denying corporate existence to impose personal liability on an officer who acted only in a representative capacity, even though incorporation was not properly completed when the contract was made.


Cranson v. Int'l Bus. Machs. Corp., 234 Md. 477, 200 A.2d 33 (Md. 1964)