First National Bank v. Davies

43 Iowa 424 | Iowa | 1876

Lead Opinion

Day, J.

1. coBPOBAof artSióíesnfc tary of state. The petition alleges, and the demurrer admits, that the Davenport Railway Construction Company did not file its articles of incorporation in the office of the Secretary of State, within three months after said articles were filed in the office of the recorder of deeds of Scott county, and that said articles were not so filed at the time of the commencement of this suit. The articles of incorporation in question were filed in the office of the recorder of deeds, on the 17th day of May, 1871.

The law in force at that time, Revision, section 1152, as amended by chapter 172, laws 1870, provides:

“Previous to commencing any business except that of their own organization they must adopt articles of incorporation, which must be recorded in the office of the recorder of deeds of the county where the principal place of business is to be, in a book kept therefor, and in the office of the Secretary of State, in a book kept for that purpose.” Section 1156, as amended by the same chapter, is as follows:

“ The corporation may commence business as soon as the articles are filed in the office of the recorder of deeds, and their doings shall be valid if the publication in a newspaper is made, and the copy filed in the office of the Secretary of State, within three months from such filing in the recorder’s office.”

From these sections taken together, the conclusion is inevitable that the filing of a copy of the articles of incorporation in the office of the Secretary of State is necessary to the valid creation of an incorporation. The language of section 1152 is mandatory and not simply directory. It implies a negation of the right to enter upon any business except that of organization, before doing the things directed. Previous to entering upon any business they must adopt articles of incorporation which must be recorded in the office of the recorder of deeds, and in the office of the Secretary of State. The recording in the office of the Secretary of State is as imperatively required, and is, by this section, as amended, made just as necessary, as the recording in the office of the recorder of deeds. True, this section is somewhat modified and limited by section 1156. But the limitation and the modification only show more conclusively the imperative nature of the requirements contained in section 1152. Section 1156 provides that the corporation may commence doing business as soon as the articles are filed in the office of the recorder of deeds. . If this section stopped here, it would clearly show that the filing with the Secretary of State is not necessary to the legal transaction of business, nor to the valid existence of the corporation. But this section goes further, and provides that its doings shall be valid if the copy of the articles of incorporation is filed in the office of the Secretary of State, within three months from the filing in the recorder’s office. This is equivalent to saying that the corporation may commence business, but its doings shall not be valid, unless the copy of the articles of incorporation is filed in the office of the secretary, as directed.

The use of this negative form of expression indicates the mandatory character of the statute. Cooley on Constitutional Limitations, 75, and cases cited; The District Township of the City of Dubuque v. The City of Dubuque, 7 Iowa, 262 (284); Dishon v. Smith, 10 Iowa, 212 (218). As there was a failure to observe this essential requirement in the formation of an incorporation, we need hot notice the other defects complained of.

2..-^; — : stockholders.' II. An essential requisite in che formation of the corporation having been omitted, it remains to be seen in what manner the omission affects the stockholders. Section 1166 of the Revision provides: “A failure to comply substantially with the forgoing requisitions in relation to organization and publicity renders the individual property of all the stockholders liable for the corporate debts.”

It would be difficult to determine what would be á failure to comply substantially with the requisitions in relation to organization, if the neglect to do the things upon which the validity of the act of the corporation depends is not such a failure. In McKellar v. Stout, 14 Iowa, 359, respecting the section in question it is said: “The prime object of this requirement is to make individual corporators liable for the failure to do those things which aré necessary to the transaction of business.”

In fact we understand the apjnellee to concede that, if the filing of a copy of the articles of incorporation in the office of the Secretary of State is necessary to the valid transaction of business, a failure to do so is a failure in such substantial respect as, under this section, will render the individual property of the stockholders liable for the corporate debts. From the argument of appellee we quote the following: “At common law, if there was no corporate. existence, each would be liable as a partner for all the debts. Did the legislature intend to declare anything more by this section than that a failure to comply substantially with the requisitions for giving a legal corporate existence as to third persons, would render the stockholders liable for all the debts, the same as if there was no corporation? This seems to us to be the plain meaning and intent of the statute.”

We see no real objection to this construction of the statute by appellee’s counsel. It is in harmony with the views expressed m McKellar v. Stout, supra, and does violence to hone of the language of the statute. But, accepting this as the correct construction, we feel impelled to hold that the omission complained of falls within the provisions of the statute and renders the individual property of the stockholders liable.

III. Section 1338 of the Revision provides: “That section number six hundred and eighty nine of the Code (1166 of the Revision); áhall hot be deemed and construed to be applicable to railroad corporations and corporators, and stockholders in railroad companies shall be liable only for the amount of stock held by them in said companies.” The proper construction of this section becomes important.

It is claimed by appellant, that this section doe3 not entirely take away the liability of a stockholder in a railroad corporation for the corporate debts, on account of the failure of the corporation to comply substantially with the provisions respecting organization, but,that it limits this liability to the amount of the capital stock held by him. This construction we believe to be untenable. The section declares that section 1166 shall not be deemed and construed to be applicable to railroad corporations. But if a failure to comply with the provisions as to organization renders a stockholder in a railroad corporation liable to the amount of the capital stock which he holds, then section 1166 does apply to such corporation, and the only change which section 1338 effects is a modification or limitation of its application, placing the first and the last part of the section in direct opposition to each other. This result should be avoided if it can be done reasonably. Section 1172 of the Revision provides: “Nothing herein contained exempts the stockholders of any corporation from individual liability to the amount of the unpaid installments on the stock owned by them, or transferred by them for the purpose of defrauding creditors, and an execution against the company may to that extent be levied upon such private property of any individual.” We think it is this liability which is referred to in the concluding part of section 1338, and not any liability enacted by section 1166, which the former part of section 1338 declares shall not apply to railroad corporations. This construction is rendered necessary by the language of the section. It provides that stockholders in railroad corporations shall be liable only for the amount of stock held by them. If the stock is paid for, it may be reached by process against the corporation. If it is not paid for the holder of it is liable, and execution against the company may be levied upon his private property under section 1172. In either case he is made liable for the amount of the stock which he holds. But if, as appellant insists, section 1338 admits of a liability to the extent of the amount of stock held by a stockholder because of the provisions of section 1166, such stockholder might be liable for twice the amount of stock held by him; liable once for the amount of his stock through process against the corporation, and liable again to the same extent through execution levied upon his private property. The section is not fairly susceptible of a construction which might create this double liability.

3.--: wiiat is a railway company. IT. It remains to be considered whether a stockholder in the Davenport Railway Construction Company is entitled to the benefits of the provisions of section 1338. The . , . ... , , articles ot incorporation declare that the corporation shall be known as the Davenport Railway Construction Company, and that the business to be transacted shall be furnishing materials for, and the building, making and equipment of railroads in the State of Iowa, and all proper extensions of the same in adjoining States. That there can be a railroad company which does nothing but construct the road, and a railroad company which does nothing but operate the constructed road, cannot be doubted. It is not essential to the idea of a railroad company that it should both construct and operate a railway. The words constructing and operating, constructing or operating, and constructing simply, are applied to railway corpor-' ations in the statute. See Code of 1873, sections 1273, 1288 and 1277. Section 1277 provides: “Any such corporation organized for the purpose of constructing a railway,” etc. Section 1338 was evidently intended to encourage and facilitate the construction of railroads. These improvements require the expenditure of such vast sums, that no private fortune would be adequate to the payment of the debts which are often incurred. No one would be likely to be willing to become a stockholder in such a corporation, if a failure to properly effect the corporate organization might render him individually liable for all the corporate debts. As the principal debts are contracted in the construction of railways, a company organized for such construction comes clearly within the reason and spirit of the provisions of the section above considered.

The principal objection, which occurs to us, to allowing the benefits of that section to the defendant, lies in the fact that the Davenport Railway Construction Company was organized for the purpose of constructing railroads generally, and not for the purpose of building any particular road. It cannot be doubted, we suppose, that one company may do nothing but locate the line and procure the right of way; another may do nothing but construct, and a third may do nothing but operate the constructed road. If one company has located a line and procured the right of way, another company may, we think, be organized for constructing the road. And, if so, we see no valid reason why a company may not be organized for the purpose of constructing several roads which have located their lines and procured the right of way. And, if this can be done, it would seem that a railway company may be organized for the purpose of constructing railroads generally. Of course, when this is done, particular organizations must also exist for the purpose of locating the line and procuring the right of way.

We hold, though not without hesitation and doubt, that the Davenport Railway Construction Company so far partakes of the nature of a railway corporation, and is so far within the spirit of section 1388, that a stockholder in said construction company is entitled to the benefits of the provisions of this section. It follows from this view that the judgment must be

Affirmed.'

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Concurrence Opinion

Beck, J.

I concur in the conclusion announced in the foregoing opinion, affirming the judgment of the Circuit Court, but I am not prepared to assent to the grounds upon which it is based. Upon the points discussed in Mr. Justice Day’s opinion I have very grave doubts; indeed, I may say, these doubts almost amount to conviction in my present state of mind, that the conclusion of the opinion upon the last point discussed is not correct. I cannot assent to the proposition that a corporation, organized for the purpose alone of constructing a railroad, is a railroad company as contemplated by the statutes in question.

My doubts upon the questions involving the effect of the failure to comply with the law in the organization of the company — the omission to file the articles of incorporation in the office of the Secretary of State within the time prescribed by the statute, are in my opinion so well founded that I cannot assent to the conclusion upon this point reached by the other members of the court. The fact that the views I now entertain lead to the same conclusion reached by my brothers resulting in the affirmance of the judgment, restrains me from an attempt to discuss the questions involved in the case.

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Rehearing

ON REHEARING.

Beck, J.

A rehearing was granted in this case and it has been again argued and submitted for our consideration. While Ave do not all concur in our conclusions, we all unite in holding that the judgment of the court below must be affirmed. I will proceed to state the views I entertain upon the questions' necessary to be determined, after having given them a careful reconsideration, and will indicate the concurrence, or dissent thereto, of the other members of the court.

4_. flUng Habiñtylof: stockholders, I. I believe it is conceded on all hands that the defects set out in plaintiff’s petition, relating to the organization of the Construction Company, will not render defendant Bable, unless it be the failure to file the articles of incorporation in the office of the Secretary of State. Two sections of the statute bear upon the question involving the effect of this omission, namely 1166 and 1156 of the Revision. :

The section last named' provides that a failure to comply, substantially with the foregoing requisitions, in relation to organization and publicity, renders the individual property of all the stockholders liable for the corporate debts. It is not claimed that the filing of the articles of incorporation in the office of the Secretary of State pertains to the organization of the company. It clearly appears that the same act does not pertain to the publicity to be given to the fact of organization.

It cannot be claimed that notice — publicity, of any matter is given by instruments and documents'filed in the office of the Secretary of State. I am unable to call to mind a single instance where notice, required by the laws, of property or contracts, is imparted by documents filed in that office. Praetically, the filing of articles of incorporation in the Secretary’s office, required by the statute, imparts no publicity, for no man will seek knowledge of the existence of a corporation there. I conclude, therefore, that the omission to deposit the articles of incorporation in the office of the Secretary of State is not contemplated by § 1166.

Nowhere in the statute is any other provision found for rendering a stockholder liable for the debts of the corporation. The statute provides that private property may be exempted from' liability for corporate debts, except as therein otherwise provided. § 1150, ¶ 5. Let this be kept in mind.

I come now to the consideration of section 1156. It provides that .the “doings” of a corporation shall be valid if a copy of the articles of association be “filed in the office of the Secretary of State within three months.”

It would certainly be a harsh, oppressive and unreasonable rule of law which would permit a corporation to exist legally and do lawful acts up to a certain time, and after that all their past and future acts would be void, because of failure to do certain prescribed acts. What good would come of such a law % The gross hardships and inj ustice that would be wrought are apparent to all. We ought to put no such construction upon a statute, unless compelled thereto by its plain, unmistakable language. In the construction of statutes courts must seek for a legislative intention consistent with justice and right. It would be a strange rule of law indeed,- which would hold a.corporation to exist, to be in the exercise of its franchises, and yet regard its acts void, because 'of some irregularity or illegality in the omission of an act to be done after its organization.

I will now inquire if, for the omission of the Construction Company to file-its charter with the Secretary of State, it ceased to be a corporation — was deprived of its franchises without proceedings instituted for that purpose.

Rev., § 1180, provides that, “persons acting as a corporation under the provisions of this chapter, will be presumed to be legally incorporated until the contrary is shown, and no such franchise shall.be declared actually null or forfeited, except in regular proceedings brought for that purpose.”

Now the persons composing the. Construction Company “are acting as a corporation.” Under this statute they are to all intents -a corporation in contemplation of law until their franchise is taken away; this has never been done. How can it be said that the stockholders are no longer a corporation, but are liable as partners? The position is utterly untenable.

III. The foregoing consideration, in my judgment, disposes of this point of the case; but there is another view which, in my opinion, is just as conclusive.

I have already called attention to the fact that stockholders are personally liable under the statutes in one case only, namely, where there is a failure to comply substantially with the requirements of § 1166 in regard to organization and publicity.

. Now, suppose it to be admitted that the acts of this corporation for the irregularity shown, viz., the failure to file the articles of association in the office of the Secretary of State, are invalid, where do we find authority for holding that, on account of such irregularities, the stockholders are individually liable?

It is said that their “ doings’’ — their acts of organization, are invalid and they are no longer a corporation, and are liable as co-partners. But § 1180 provides that they shall be a corporation until dissolved; the position, therefore, conflicts with this section. The word “ doings,” therefore, cannot relate to their acts of organization. If it be other acts that are void, and it must be, then the stockholders are not liable, for the corporation still exists and there is no statute that makes them liable except for failure to comply with the requirements relating to publicity of the organization and to the organization itself.

Seevebs, Cii. J., and Eothrock, J., concur in the foregoing conclusions; Day and Adams, J. J., do not.

5.-: what way. IY. I am fully persuaded that the Construction Company is not a corporation of the cliai’acter contemplated in Sec. 1338 of the Eevision, and I'base my conclusion upon these grounds:

1. The language of the statute does not admit of application to the Construction Company of which defendant is a stockholder. I never heard the term railroad company applied to organizations called construction companies. I am sure that not a man in the state would understand me if I should use the expression railroad company to designate a construction company. Railroad corporations are understood to be common carriers, corporations who build, own, and operate railroads. But it is said á railroad company may build a railroad and yet never operate it. Tes, it may go into bankruptcy before it completes its road, or for some other reason it may never accomplish the design of its organization, which was to become an owner of a railroad and a common carrier. It may lease its road, but it would accomplish one purpose of its organization in that way.

I believe that, at the date of the enactment in question, 1858, there was not a railroad construction company in this state. Surely the legislature, in using the term railroad company, did not intend to describe a coi-poration of a character wholly unknown to the people of the state.

The very name of the corporation in question indicates its true character and is descriptive of the objects and purposes of its organization.

The fact that the charter of the corporation permits it to own lands is no foundation for an argument against the view I take, but in fact rather supports it. Railroad companies necessarily need not own one foot of land; all they need is an easement upon land — -the right to occupy it as long as they continue to discharge the duties of common carriers; they may condemn land for such purpose. Rev., § 1314. The construction company could not condemn land whereon to build shops, for the construction of bridges, for rolling iron, or to erect stables for its horses or boarding-houses for its employes. They ought, therefore, to have power to purchase land, which is given in its charter.

Neither does the fact that the construction company under its articles of association may own a railroad, make it a railroad company. Many banks have authority under their char.ters to. acquire by purchase property of all kinds, and others can acquire whatever property it becomes necessary to take in order to secure debts. Under these powers they would have the right to' purchase and acquire railroads. Surely they would not be ealled, because of these powers, railroad companies.

The difference between a railroad company and the Bailroad Construction Company whose character we have been considering is this: The first is organized to build, own, and operate railroads; the second, to build railroads for the first.

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Concurrence Opinion

Adams, J.,

concurs in the conclusions reached upon this point; the other justices do not.

Day, J.,

adheres to the conclusion expi’essed in his opinion heretofore filed in this case.

The decision announced in the first opinion filed in this case is adhered to and the judgment of the court, below stands.

Affirmed.