State ex rel. Chamberlain v. Public Drug Co.
State ex rel. Chamberlain v. Public Drug Co.
Opinion of the Court
This action is prosecuted on behalf of the state for the purpose of vacating articles of incorporation and to annul and forfeit the franchise of the defendant, a South Dakota corporation. The complaint sets out four grounds upon which such relief is -demanded: First, that one Nelson, then assistant secretary of state, conspired with the other incorporators of said -defendant company to usurp the name of a then existing -corporation bearing the same name as the -defendant corporation, which usurpation was wrongful and- fraudulent,' and against the public welfare, and a fraud upon the state; second, that for tire-purpose of -defrauding the state, and of placing- tire papers and documents of said’ -corporation beyond the reach of the process of the courts of this state, and preventing the state from' exercising its authority to examine the -officers and1 stockholders of the1 corporation under oath, the said Nelson, immediately after the organization of said corporation, resigned as a director thereof, and that, since said resignation,, there has -been no resident or citizen of this state upon said board of directors, thereby depriving this state of the right to exercise vis-itorial power and supervision over it; third, that defendant has failed' to -make annual reports required by the laws of this state; fourth,' that the -defendant has never maintained any office or other place for the transaction of -business, or transacted1 any business', within this state.
Defendant demurred to the complaint upon the grounds, first, that it does not state facts sufficient to constitute a -cause o'f action; second, that there is a defect of parties plaintiff, in that no cause of action is stated in favor of the plaintiff Frederick B. Kremer; and, third, that there is a defect -of parties defendant, in that the officers .'and directors of the defendant are not made parties to
Section 574, -Code Civ. P'roc., provides that, when an action for the forfeiture of the charter of a domestic corporation shall be brought on- the relation of a person having an interest in the question, the name of such person shall be joined with the state as plaintiff, and the state’s attorney may require a bond for costs. The interest of the relator, under this statute, is one peculiar to this class of actions. The only “question” involved in the action is whether or not the corporation has done, or has failed to do, any act which in-law constitutes a ground for the annulment of its charter or articles of incorporation. Section 571, Code Civ. Proc. prescribes five distinct grounds upon which such action may b-e founded, and these grounds are not enlarged or otherwise affected by the fact that a private person is joined as relator w-i-th- the state, w-hioh is the real plaintiff in the action and the particular interest which the relator may have in the question is immaterial, as the only judgment which can be entered in the action is a judgment for forfeiture or annulment of the corporate charter.
Section 571, Code 'Civ. Proc., provides:
“An action may be brought by any state’s attorney, in the name of the state, oh leave granted 'by the circuit court, or judge thereof, for the purpose of vacating the charter or the articles of incorporation, or for annulling the existence of a corporation other than municipal, .whenever such corporation shall,” etc.
Section 572:
“Leave to bring the action may be granted upon the application of any state’s attorney; and the court or judge may, at discretion, direct notice of such application to be given to the corporation or its officers, previous to granting such leave, and may hear the corporation in opposition thereto.”
■We think it entirely clear that under these statutes such an action may be begun by the state’s attorney of and in any county in the state upon leave of the circuit court or the judge of that court, and that when so brought such court has jurisdiction of the subject-matter of the action. It follows that the court to which a change of venue in such an action was properly taken acquired like jurisdiction of both the parties and the subject-matter. We do not believe the Legislature of this state intended to limit the right to bring or the jurisdiction of such an action to the state’s attorney or circuit court or judge of a single county in which a corporation may elect to locate its principal place of business or its agent for the service of process. Whether the service of process upon the appointed agent of the corporation, or an officer.
“Unless otherwise prescribed by statute, a domestic corporation, for the purpose of being sued, is a resident of the county where its principal place of 'business is located, and suits' against it should be brought in such county.”
That action was brought on a policy. of accident insurance, and it was held that subdivision 5, § 99, of the 'Code .of Civil Procedure, providing that an action brought on a policy of insurance to recover for loss or damage to property insured shall be begun in the county or judicial subdivision where such property is situated at the time of such loss or damage, did not apply to suits on accident policies insuring against accidents to human beings, for the reason that there was nothing in the statutes of this state expressly requiring actions of this character to be brought in the county where the cause of action arose.
Appellant’s most serious contention1 appears to be • that the complaint does not allege facts upon which a forfeiture should be adjudged in the'exercise of the court’s discretion or otherwise.
“This resident agent law-creates'a new class of'domestic corporations — a quasi nonresident domestic corporation.”
The defendant was incorporated pursuant to the provisions of section 780, Civil Code, as amended by section 6, c. 104, Laws of 1907, which reads: .
“Corporations for mining, manufacturing and any other business pursuit, may be formed as provided in tiffs - Code, and such corporations have all tire rights, and are subject to all the duties, restrictions and liabilities therein mentioned, so far as the same apply or relate to such corporations. * * *”
Section 3 of the same act, referred to as “the resident agent law,” provides:
■ “Every corporation of this state which is not doing or carrying on business within- this state, shall appoint a resident agent, who shall reside at the place of business or domiciliary office of such corporation in this state designated in the articles of incorporation, and such resident agent may be one of the officers of the corporation, and service of legal process upon such agent shall constitute legal and valid service upon such corporation: Provided, that nothing in this section shall be construed to invalidate service of process upon any resident officer of such corporation or upon its managing agent residing within this state, and service of such
It will toe seen that section 7, c. 104, Laws 1907, amending section 786, Civil Code, enlarges the scope of the section to include “any corporation created under the general incorporation laws of this state,” tout does not change the provision of the section that — ■
“Every such corporation having a business office out of this state, must have its main office for the transaction of 'business, within this state,” etc.
This clause of the section cannot, without doing violence to its plain language, be construed to intend only incorporations transacting business in the state, as it plainly refers to “corporations having a business office <uu of this state,” and therefore includes -corporations referred to in section 3. c. 104, Laws '1007. We are of the view that the Legislature intended lo require every corporation organized in this state, to maintain its “main office” within iflie state, but with authority to establish 'branch offices, at ■which it may exercise its corporate powers, in other states. We are also of the view that section 3, supra, which requires the appointment of a resident agent by domestic corporations not doing or carrying on .business within the state, and -which requires a designation of the residence of such agent in the articles of incorporation, was intended to locate a place at which such agent can 'be found for the service of process, and that such residence may be either at the place of business of the corporation, or at its domiciliary office; the latter being the place of residence of the agent.
W-e think the policy of our statute is well expressed in the case of State v. Milwaukee, L. S. & W. R. Co., 45 Wis. 579. That court said:
“It is the duty of the * * * corporation to 'keep its principal place of business, its books an-d records, and its principal offices, within the state, to an extent necessary to the * * * jurisdiction and visitorial power of the state and its courts, and the efficient exercise thereof in all proper cases which- concern said corporation,” tooth at common law and -by implication of the state statutes, and failure to do so is ground for forfeiture of the charter.
“The state is not required to prove an actual injury to the public. It is sufficient if the act be such as in the nature of tilings is calculated to produce such injury. People v. Live. Stock Exchange, 170 Ill. 556 [48 N. E. 1062] 62 Am. St. Rep. 404, 39 L. R. A. 373; State v. Central Lumber Co., 24 S. D. 136 [123 N. W. 504] 42 L. R. A. (N. S.) 804; 7 R. C. L. 717, p. 712. If an act or omission is expressly declared to be a cause of forfeiture of a charter of a corporation a judgment of forfeiture must necessarily follow in accordance with the expressed legislative intent, whatever the act or omission may be, though it would seem that even in this case there must be wailful abuse or improper neglect, unless a contrary intention is manifested). * * * Undoubtedly the breach of .conditions expressly imposed1 upon the corporation for the benefit of the public, though there is no express provision for a forfeiture in case of default, may be ground for a forfeiture; a nonperformance of such conditions is deemed per se a misuser that, will forfeit the grant at common law. * * * So the duty imposed upon corporations to make annual reports to public .officers of their financial condition is not simply one in which particular persons are alone interested, but it is a duty which the Corporation owes to tibe public generally for the protection of all persons who may have occasion to deal with it, and to subserve a plainly expressed public policy; and for the omission to perform the duty it incurs the liability of forfeiture of its charter.” 7 R. C. L. § 721, p. 714; People v. Buffalo Stone Co., 131 N. Y. 140 [29 N. E. 947] 15 L. R. A. 240.
In People v. Kingston T. R. Co., 23 Wend. (N. Y.) 193, 35 Am. Dec. 531, Chief Judge Nelson says:
“The hardship of exacting from corporations a fulfillment of all the requirements of the charter has been urged upon us; but the appeal is made to the wrong forum. That is a question tó be settled with the Legislature that prescribed them.; It is not for courts to say one condition is material, and must be performed on pain of forfeiture; and another is' unimportant, and may be
We have examined with care every assignment of error, but deem it unnecessary to discuss any questions other than those to which we have referred.
The order of the trial court is affirmed.
Dissenting Opinion
(dissenting). I am unable to agree with the conclusion reached by the majority of the court in this case. While I do not approve of the law, nor of the principle involved in the law, under which the defendant acquired its corporate existence, I do think the defendant has kept strictly within the purview of that law, and that the wrong that exists should be righted, so far as possible, by repeal of the law, to the end that this state -may no longer be the resort for a cloak of authority to those who wish to prosecute their enterprises in other states. It is a matter of public record that hundreds, if not thousands, of corporations are doing business in other states under authority of franchises issued by this state. Prior to the enactment of chapter 104, Laws of 1907, the law contemplated that corporations chartered in this state were to carry on their business operations in this state. They were authorized to do business outside the state and 'corporations for mining, manufacturing, and other industrial pursuits were allowed to establish branch offices outside the state, where certain business might be transacted; but they were all required to have their main office for the transaction of business within the state. Section 786, Civ. Code. One-third of the incorporators and one-
“Sec. 3. Resident Agent. — Every corporation of this state which is not doing or carrying on business within this state shall appoint a resident agent, who shall reside at the place of business or domiciliary office of such corporation in this state designated in the articles of incorporation, and such resident agent may be one of the officers of the corporation, and service of legal process upon such agent shall constitute legal and valid service upon such corporation. Provided, that nothing in this section shall be construed to invalidate service of process upon any resident officer of such corporation or upon its managing agent residing within this state, and service of such process upon any such resident officer or agent shall be andi constitute legal service upon such corporation. Such appointment of a resident agent shall be made in writing, signed by the president or secretary of the corporation, and duly acknowledged, and shall be filed in the office of the secretary of state, but such resident agent may be appointed in the articles of incorporation of such corporation. A fee of five dollars ($5.00) shall be paid by such corporation to the secretary of state for filing such appointment of resident agent, in all cases where such agent is not appointed in the articles of incorporation of the corporation.”
This section contemplates the creation of a corporation that, to all intents and purposes, is a foreign corporation. As a requisite to the right to engage in business in this state, a foreign corporation is required to appoint a resident agent upon whom service of a process may be made. Said section 3 requires domestic corporations that do not intend to do buisness within this state to appoint a resident agent upon whom service may be made, and the whole purport of said section is that it shall not be necessary to keep any other officer or agent within the state. By the provisions -of section 786, Civil Code, a domestic .corporation is re
In their brief, counsel for respondents say-:
“Corporations are either domestic' and resident, or they are foreign and nonresident. There is, and can be, no ‘twilight zone’’ in which a corporation- can, at one and the same time, claim and enjoy al-1 the protection, and all the immunities, accorded by our statutes to resident and domestic corporations, and escape all control, supervision and accountability, as completely as foreign corporations. * * *”
Yet this is exactly what the Legislature did, and what it intended to do by the -enactment of this legislation. -Of course it was not -intended that such corporations should -escape -control, supervision, or accountability. The purpose of maintaining the resident agent in- the state w-as to keep such: corporations within the jurisdiction and under the control and supervision of the courts of the state. S-aid act was intended as an invitation to people from other states to take advantage of the very -liberal incorporation laws of this state and to come to this state to secure their corporate charters to engage in various enterprises in other states. It is a matter of public record and general information that this invitation was acted upon, and the result has been that this state, for the past 10 years, has fairly spawned corporations • ’ ■
If this be a correct interpretation of our incorporation •statutes, then the defendant has violated no law of this state and is guilty of no offense; and certainly is guilty of no offense that •warrants its destruction by a decree of court. Tihie incorporators accepted the invitation that was sent broadcast by the state and came here to secure a charter. It is not claimed that such corporation has not at all times maintained a domiciliary office and a resident agent in the state, nor that it has ever violated or refused to obey the order or decree of any court of this state.
It is alleged, as a ground for dissolution, that defendant has not published the annual reports required by the provisions of section 784, Civil Code; but it is not contended that any demand for such report has ever been made, or that the rights of any interested party -have been imposed upon by the failure of defendant to publish such reports. It is also alleged that none of the books, papers, or documents of defendant are, or have been, kept in this state, or within the reach of summary process issued by the courts of this state, and that, because of that fact, this state is deprived of its rights to exercise visitorial supervision or control over it. This contention is -well answered by -what is said by the Supreme Court of Illinois, in North & South R. S. Co. v. People, 147 Ill. 234, 35 N. E 608, 24 L. R. A. 462. In that case all the officers and directors of an Illinois corporation resided in and> kept all the -books and records of such corporation in the state of Missouri, and upon that point the court said:
“It is true that keeping its books for most of the time in 'St. Louis -may not be a strict compliance with the statute in that behalf, but it does not appear that any interest, either public or private, has been or is likely to be imperiled or incommoded thereby.”
And, along this same line, the court further said:
“The thirteenth- section of the statute under which the defendant was incorporated provides that -it shall be the duty of the directors or trustees of every stock corporation to cause to be kept at its principal office or place of 'business in this state correct books of account of all its business, and every stockholder in such
“It is not every failure to comply with the exact letter of the statute which will expose a corporation to the loss of its franchises. In determining whether such departure from the provisions of the act of incorporation has occurred as will work a forfeiture, the same general principles of construction are applicable which govern valuable grants to individuals upon conditions subsequent or precedent. In all such cases, a substantial performance of the conditions, according to the intent of tthe charter, is all that is required, and slight departures are overlooked. High, on Extra. Leg. ■Rem. § 651.”
And in State v. Thresher Mfg. Co., 40 Minn. 213, 41 N. W. 1020, 3 L. R. A. 510, the Minnesota court said:
“To constitute a m-isuser of the corporate franchise, such as to warrant its forfeiture, the ultra vires acts must be so substantial and continued as to amount to a clear violation of the condition upon which the franchise was granted, and so derange or destroy the business of the corporation that it no longer fulfills the end for which it was created. But, in case of excess of powers, it is only where some public mischief is done or threatened that the state, by the Attorney General, should interfere. If, as between the company and its stockholders, there is a wrongful application of the capital, or an illegal incurring of liabilities, it is for the stockholders to complain. If the company is entering into contracts ultra vires, to the prejudice of persons outside the cor
It is not claimed! that the public has been, or is likely to be, ■injured in any manner by any act, or threatened act, of defendant. It is not claimed, that the plaintiff Kremer has any grievance ■against the defendant, and, if he had such grievance his counsel ■frankly admit that a court of equity could afford him adequate •relief. But, if his own statement of the case correctly represents 'the facts, he 'has no standing in a court of equity. According to -his showing, he, with other residents of Minnesota, came to this ■state to secure a corporate franchise for tire purpose of doing business in that state, but with no intention of complying with the laws of this state. So long as the management of the affairs of the corporation accorded with his views, he was satisfied to accept ■his share of the benefits of the unlawful venture; but, when the time came that he was not able to agree with the majority of ■those in control of the affairs of the corporation, he proceeded to wreck the enterprise and invoked the aid of a court of equity for that purpose. He should have been given no consideration what■ever.
It is not shown that anything done by defendant in the past has been or is likely to -be detrimental to any interest, either public or private, and no useful purpose would be served by a dissolution .of the corporation.
Defendant’s demurrer to the complaint should have been sustained.
Reference
- Full Case Name
- STATE ex rel. CHAMBERLAIN v. PUBLIC DRUG COMPANY
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- Published