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 [430]*430which 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 [431]*431organization, 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 [432]*432take 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.
Free access — add to your briefcase to read the full text and ask questions with AI
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 [430]*430which 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 [431]*431organization, 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 [432]*432take 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 [433]*433his 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 [434]*434for 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.'