## Facts

- Paper Products Company extended credit to Forrest City Wood Products, Inc., an Arkansas corporation, and received a 30-day corporate note that later went unpaid after insolvency.
- Forrest City Wood Products, Inc. was organized by three stockholders: Frank E. Doggrell, Jr. and W. G. Konz (Tennessee residents) and Van E. Whitaker, Jr. (Arkansas resident).
- Arkansas incorporation law required filing articles with the Arkansas Secretary of State and thereafter filing in the county where the principal office was located.
- Whitaker filed with the Secretary of State but inadvertently did not file with the county clerk until after the debt at issue was incurred.
- Paper Products dealt with the entity as a corporation and did not show reliance on the stockholders’ personal responsibility.
- In prior Arkansas litigation involving the same filing defect, Whitaker was held personally liable; Doggrell and Konz were not adjudicated there due to lack of service.
- Paper Products sued Doggrell and Konz in Tennessee seeking to impose personal liability under Arkansas law treating stockholders as partners when the county filing is missing.

## Issues

1. Whether Tennessee should apply Arkansas law governing stockholder liability for debts of an Arkansas corporation when incorporation filing requirements were not fully completed before the debt arose.
2. Whether the Arkansas rule imposing partner-like liability for a missed county filing is penal or contrary to Tennessee public policy such that Tennessee courts may refuse enforcement.
3. Whether the Full Faith and Credit Clause requires Tennessee to enforce the Arkansas stockholder-liability rule against Tennessee residents.

## Decision

- The Tennessee Supreme Court affirmed judgment for Doggrell and Konz.
- The court recognized that stockholder liability is generally governed by the law of the state of incorporation, but Tennessee will not apply that law if it is penal in nature or contrary to Tennessee public policy.
- The court characterized the Arkansas rule as penal and inconsistent with Tennessee’s treatment of de facto corporations.
- The Full Faith and Credit Clause did not compel enforcement because a forum state is not required to enforce another state’s penal laws.

## Legal Principles

- Stockholder liability for corporate debts is determined by the law of the corporation’s domicile unless that law is penal in nature or contrary to Tennessee legislation or public policy.
- Whether a foreign rule is penal or contrary to Tennessee public policy is determined by the Tennessee court as the forum.
- Under Tennessee law, stockholders of a de facto corporation—formed through a bona fide effort to comply with incorporation statutes with an inadvertent defect—are not personally liable for corporate debts.
- A foreign law is “penal” for conflicts and full-faith-and-credit purposes when its primary purpose is to punish an offense against public justice or compel compliance with regulatory requirements, rather than to provide a private remedial right.

## Conclusion

Tennessee declined to impose Arkansas’s partner-like liability on Tennessee stockholders for an Arkansas corporation’s debt incurred before a missed county filing was corrected, holding the Arkansas rule penal and inconsistent with Tennessee’s de facto corporation policy, and concluding full faith and credit did not require enforcement.


Paper Products Co. v. Doggrell, 195 Tenn. 581, 261 S.W.2d 127 (Tenn. 1953)