Marshall v. Keach
81 N.E. 29
Ill.
1907
Check Treatment
Mr. Justice Carter

delivered the opinion of the court:

The main question in this case is whether, under the terms of the contract, appellant, directly or by implication, warranted that the Marshall Warehouse Company was a corporation de jure. Appellant contends that under the contract in question he gave no direct or implied warranty that the capital stock that he was selling was that of a corporation de jure; ' that the seller of negotiable securities of this •kind only warrants that they belong to him and that they are not forgeries. He also contends that the Marshall Warehouse Company was a de facto corporation, and that the appellee is not in any way injured by the failure to have the certificate of incorporation recorded.

This court has held that to create a de facto corporation there must be a law under which said corporation may be created, together with user under the law. (American Trust Co. v. Minnesota and Northwestern Railroad Co. 157 Ill. 641.) We have also held that where there was an honest attempt of the corporators to organize a corporation under the laws of the State, and all the necessary steps had been taken except that the final certificate had not been recorded by the recorder of deeds, and that thereafter the necessary officers had been elected, who had proceeded to the transaction of business as a corporate body, these facts would establish a corporation de facto. (Bushnell v. Consolidated Ice Machine Co. 138 Ill. 67.) A corporation is a de facto one where the law authorizes such corporation and where the company has made an effort to organize under that law and is transacting business in the corporate, name. (1 Cook on Stock and Stockholders and Corporation Law,-—3d ed. —sec. 234; 8 Am. & Eng. Ency. of Law,—2d ed.—p. 747.) The Marshall Warehouse Company had obtained a certificate from the Secretary of State, in due form, on May 8, 1900. From that time it had done business as an incorporated company, carrying on a general storage business, mostly as to broom corn. It issued warehouse certificates signed by the president and secretary, and procured and used a seal. Its officers received from the Secretary of State the customary notice as to the affidavit concerning trusts, in September, and the customary notice as to the annual report to be filed, in February, each year after the certificate was issued, which documents were apparently filled out and returned in due course, with the required fee. Its officers also made out, and sent in the name of the company, a statement, as required by law, to the State Board of Equalization. So far as the record discloses, everything had been done by the company that the law required from the time the certificate had been received by the Secretary of State except the recording of the certificate, as required by section 4 of chapter 32. (Hurd’s Stat. 1905, p. 497.) Manifestly, from this record the Marshall Warehouse Company rvas a de facto corporation.

Did the letters “inc.,” placed in parenthesis in the contract in question, warrant that the stock was that of a corporation de jure, or was such warranty implied from the rest of the contract ? The exact question here raised has never been decided by this court, although'the powers and responsibilities of a de facto corporation, as well as the liabilities of the officers of such corporation, have frequently been discussed. A de facto corporation, as long as it exists, is a reality. It has a substantial legal existence. (Society v. Cleveland, 43 Ohio St. 481; 8 Am. & Eng. Ency. of Law,—2d ed.—p. 748, and cases there cited.) This court has stated that it is the settled law that neither the eligibility of the directors of a de facto corporation nor the rightfulness of its existence could be inquired into collaterally. (Cincinnati, Lafayette and Chicago Railroad Co. v. Danville and Vincennes Railway Co. 75 Ill. 113, and cases there cited; see, also, Chicago Telephone Co. v. Northwestern Telephone Co. 199 Ill. 324; People v. Pederson, 220 id. 554.) It has been held by this court that proof of the existence of a corporation de facto is sufficient on a plea of mil tiel corporation. (Cozzens v. Chicago Brick Co. 166 Ill. 213 ; Mitchell v. Deeds, 49 id. 416.) The introduction of the charter of a corporation, with the proof of the exercise under it of the franchises and powers thereby granted, is sufficient to establish the existence of a corporation de facto. (St. Louis, Alton and Terre Haute Railroad Co. v. Belleville City Railway Co. 158 Ill. 390.) The directors and officers of the de fado corporation are not relieved from the liability imposed by section 18 of said chapter 32, on corporations. “There must be a corporation de jure in order to escape that liability.” (Butler Paper Co. v. Cleveland, 220 Ill. 128; Loverin v. McLaughlin, 161 id. 417.) It was held in Gade v. Forest Glen Brick and Tile Co. 165 Ill. 367, that the capital stock of a corporation might be reduced before recording the final certificate in the recorder’s office, and that creditors, after notice of the reduction of such capital stock, would be confined to the reduced capital, as they did not become creditors until after the certificate was recorded and the notice of the reduction published as required by law. This court has discussed various phases and duties of de facto corporations in Curtis v. Tracy, 169 Ill. 233; McCormick v. Market Nat. Bank, 162 id. 100; Edwards v. Armour Packing Co. 190 id. 467; Gunderson v. Illinois Trust and Savings Bank, 199 id. 422; Gay v. Kohlsaat, 223 id. 260; Hudson v. Green Hill Seminary, 113 id. 618.

The Supreme Court of Indiana, in the case of Herter v. Eltzroth, 111 Ind. 159, had before it the identical question here under discussion, and there said that there was no implied warranty on the part of the vendor of certificates of stock that the corporation issuing them was a corporation dc jure; that if the corporation was a de facto one that was sufficient to relieve the vendor from liability as to any implied warranty as to the existence of the corporation. To the same effect is 26 Am. & Eng. Ency. of Law,—2d ed.— p. 258. The Indiana court cited in support of its holding, Otis v. Cullum, 92 U. S. 447, where, in a case involving the sale of municipal bonds issued without statutory authority, in passing on the question of implied warranty the United States Supreme Court held: “The seller is liable ex delicto for bad faith, and ex contractu there is an implied warranty on his part that they belong to him and that they are not forgeries. Where there is no express stipulation there is no liability beyond this.” The Supreme Court of Indiana, after this quotation from the Otis case, supra, said: “A less liberal rule, clearly, cannot be applied to the sale and transfer of certificates of stock.” This court in Hinkley v. Champaign Nat. Bank, 216 Ill. 559, held that the assignment of a judgment carries an implied warranty that the judgment is genuine, that it was entered in due form of law, but that there is no implied warranty that the judgment was impregnable to attack, and we there quoted with approval from the Otis case, supra, the following: “If the buyer desires special protection he must take a guaranty. He can dictate its terms and refuse to buy unless it is given. If not taken he cannot occupy the vantage ground upon which it would have placed him.” In Higgins v. Illinois Trust and Savings Bank, 193 Ill. 394, we held that the vendor of stock in a corporation impliedly warranted that the same was genuine and that he was then the owner thereof and authorized to transfer title, and that if the assignee desires further protection he must exact a special guaranty.

Appellee insists that under the decision of Loverin v. McLaughlin, supra, and the cases there cited, the members or stockholders of a corporation which has not filed its certificate of incorporation,' as required by section 4 of said chapter 32, are liable, as partners, for its acts or contracts, and the directors, officers and agents acting in its name render themselves personally liable, and that therefore the appellee ought not to be compelled to specifically perform this contract, as he himself would thereby become personally liable for the debts of the Marshall Warehouse Company; that the right to a specific performance is not an absolute. one, but the contract must be perfectly fair, equal and just, and such as will commend itself to a court of equity; that this contract does not come within this doctrine. While the application for specific performance is addressed to the sound legal discretion of the court and will not be decreed as a matter of course, yet the discretion of the court in such cases must be exercised according to settled principles of equity, and not arbitrarily. “A court of equity will, as a matter of course, grant the specific performance of a contract for the conveyance of land where it is valid at law, fairly entered into and unobjectionable in any of its features which address themselves to the judicial discretion of the chancellor. In such case a court of equity is equally bound with a court of law to grant the appropriate relief when properly applied to for that purpose.” (Fowler v. Fowler, 204 Ill. 82.) The sound judicial discretion,—not arbitrary or capricious but controlled by established principles of equity,— must be exercised upon a consideration of all the circumstances of each case. Where the contract is in writing, certain in its terms and for a valuable consideration, fair and just in all its provisions, capable of being enforced without hardship to either party, it is as much a matter of course for a court of equity to decree its specific performance as for a court of law to award damages for its breach. (3 Pomeroy’s Eq. Jur. sec. 1404.)

The stipulation in the contract that time should be of the essence was waived by the parties, and cannot be urged, under the facts presented in the record, as to the enforcement of this contract. (Watson v. White, 152 Ill. 364; Kissack v. Bourke, 224 id. 352.) Under the authority of this last case we think that the provisions of the contract as to the oil lease did not render it such an optional contract that it cannot be enforced. The lack of mutuality which is urged now by appellee was clearly waived by his conduct during the negotiations. (Gibson v. Brown, 214 Ill. 330.) There is nothing in the contract or pleadings that would raise the question as to the leasehold interest on the railroad right of way, and it therefore cannot be considered. There is no claim that there was fraud or deception of any kind on the part of appellant in the making of the contract in question or that the property of the Marshall Warehouse Company was not worth the consideration placed upon it in the contract. No judgments or debts existed against the corporation or Marshall himself. Under the'holdings of this court as to de facto corporations, it is clear that the failure to file for record a copy of the certificate of organization within two years from the date of the license, when the corporation had proceeded, under the certificate, to transact business, as shown by this record, would not be deemed a forfeiture of the license. Under such a state of facts a copy of the certificate could still be filed for record with the recorder of the county and the corporation would then be fully organized de jure.

We are of the opinion, under the authorities, that by this contract appellant did not warrant that the certificates of stock were issued by a de jure corporation. It is apparent from the record in this case that the transaction was fair and open in all particulars, and that appellee has no valid objection, on the merits, to the carrying out of the contract. As has been repeatedly said by this and other courts, if he desired the warranty he is now contending for he should have inserted it in the contract before it was executed. Appellant’s offer to carry out the contract was in accordance with its terms as modified and sanctioned by both parties.

The decree of the circuit court will therefore be reversed and the cause remanded for further proceedings in accordance with this opinion.

Reverscd and remanded.