Johnson v. Mason Lodge No. 33, I. O. O. F.

51 S.W. 620, 106 Ky. 838, 1899 Ky. LEXIS 110

• Court: Court of Appeals of Kentucky
• Decided: June 13, 1899
• Status: Published

Opinion

JUDGE BURNAM

delivered the opinion of the court.

Appellee alleges that it is duly incorporated under the laws of this Commonwealth, with power to contract and be contracted with; that the appellant, Johnson, borrowed from them the sum of $750, for which he on the same day executed and delivered to them his promissory note, by which he agreed to pay them the sum loaned, with interest, on demand; that he paid thereon $52.50 August 17, 1897, and that demand had been made for the balance of the debt, and payment refused.

Appellant, in his answer, admits the execution of the note sued on, and that it was for borrowed money, but seeks to evade the payment thereof on two grounds: First, he denies the corjiorate existence of appellee; and, second, he states that at the time the note sued on was executed, and for several years prior thereto, appellee had been engaged in the business of lending money and trafficking in property for profit in this State; that its residence is and had been in Mason county; and that at the time of the execution of the note sued on and of the commencement of this suit appellee had not filed with the Secretary of State a statement giving the location of its office, and the name of its agents upon whom process could be served, as required by section 194 of the Constitution and section 571 of the Kentucky Statutes, and for this reason the obligation sued on was illegal and unenforceable.

A general demurrer was sustained to this answer, and, appellant declining to amend, judgment was rendered in favor of appellee for the amount sued for, from which this appeal is prosecuted.

Section 194 of the Constitution reads as follows:

“All corporations formed under the laws of this State, or carrying on business in this State, shall, at all times, have one or more known places of business in this State, and an authorized agent or agents there, upon whom process may be executed, and the General Assembly shall enact laws to carry into effect the provisions of this section.”

And the section of the statute relied on provides that:

“All corporations except foreign insurance companies formed under the laws of this . . . State, and carrying on any business in this State, shall at all times have one or more known places of business in this State, and an authorized agent or agents thereat, upon whom process can be served; and it shall not be lawful for any corporation to carry on any business in this State, until it shall have filed in the office of the Secretary of State, a statement, signed by its president or secretary, giving the location of its office or offices in this State, and the name or names of its agent or agents thereat upon whom process can be served; . . . and if any corporation fails to comply with the requirements- of this section, such corporation, and any agent or employe of such corporation, who shall transact, carry on or conduct any business in this State, for it, shall be severally guilty of a misdemeanor, and fined not less than one hundred nor more than one thousand dollars for each offense.” It is claimed by appellee that as it is a purely charitable institution, without capital stock, or organized for pecuniary profit, it is not subject to any of the laws relating to corporations organized for the purpose of gain, and rely to support this claim upon section 883 of the Kentucky Statutes, which reads as follows:

“Corporations, associations or societies organized under this act shall not be subject to any of the laws relating to corporations having a capital stock or organized for pecuniary profit, except that requiring an agent on whom process may be executed.”

It is evident that the Legislature has made a marked difference in its requirements of charitable, educational and religious corporations and those organized for private gain and having a fixed capital stock, and intended to exempt them from all the laws relating to corporations of the latter class, except that requiring an agent upon whom process may be executed. Whilst the language of section 883 limits its exemptions to corpora-, tions organized under that act, we think it was intended to apply to all corporations of this character, whether they were organized previous to the passage of that law or subsequently thereto; and this opinion is confirmed by the provisions of section 882, which immediately precedes the one in question. But it seems to us that, giving a fair and reasonable construction to section 194 of the Constitution, and the two provisions of the statute referred to, it was not intended to exempt any corporation organized under the laws of this State from the duty of filing in the office of the Secretary of State a statement, signed by its president or secretary, giving the location of its office, and the name of its agent thereat upon whom process could be served. If we are wrong in this construction of the statute, it seems to us that there can be no doubt that the demurrer was properly sustained on the grounds that appellant having contracted with appellee, and received from it $750, which he retains, is in an action on the note executed for that money, estopped to deny the existence of appellee as a corporation, or its power to contract for failure to comply with the statute.

Section 506 of the Kentucky Statutes provides that:

“No corporation organized under this chapter shall be permitted to set up or rely upon the want of legal organization as a defense to any action against it, nor shall ánv person, transacting business with such corporation, or sued for injury done to its property be permitted to rely upon such want of legal organization as a defense.”

And this provision of the statute only announces the common-law principle which has been repeatedly recognized by former adjudications of this court.

In the case of Henderson & Nash. Railroad Co. v. Leavell, 16 B. Mon., 363, the court said: “In general, where a defendant deals with a corporation, and recognizes its existence, he is not permitted to raise the question whether it has been legally organized or not.”

In the case of Wright v. Shelby Railroad Co., 16 B. Mon., 4 [63 Am. Dec., 522], the court said:

“Whether an incorporated company has been regularly organized, so as to give it power to act, can not be inquired into in a collateral, but must be asserted in a direct proceeding against the incorporation.”

The same doctrine was announced in 5 Litt., 635. And it has been repeatedly held by this court that by executing a note payable to a corporation the payor is estopped to deny its existence or authority to do business at that time. See 1 J. J. Marsh, 380; 6 B. Mon., 001; 8 B. Mon., 123, [46 Am. Dec., 540].

Under these cases we think the appellant is clearly estopped from denying the corporate existance of appellee, or of pleading any disability to contract existing at the time the note was given; and they are in harmony with the decisions of other courts and the doctrine of the leading text writers. See Andes v. Ely, 158 U. S., 312, [15 Sup. Ct., 267;] Close v. Glenwood Cemetery, 107 U. S., 466, [2 Sup. Ct., 267]; Andrews v. Pipe Works, 23 C. C. A., 454, [77 Fed., 774]; Sniders’ Sons’ Co. v. Troy, 91 Ala., 224, [24 Am. St. R., 887, 8 South, 658], citing 4 Am. & Eng. Enc. Law, (1st Ed.), 198; Shasta Bank v. Boyd, 99 Cal., 604, [34 Pac., 337]; Plummer v. Struby-Esterbrook Mercantile Co., 23 Colo., 190, [47 Pac., 294]; Hickox & Read Pub. Co. v. Dawes Mfg. Co., 64 Ill. App., 630; Hause v. Mannheimer (Minn., 1897), [69 N. W., 810]; Bradley v. Reppell, 133 Mo., 545, [54 Am. St. R., 685, 32 S. W., 645, and 34 S. W., 841], citing 4 Am. & Eng. Enc. Law, (1st Ed.), 198.

Mr. Cook, in his work on Corporations, says:

“A person who borrows money from a corporation can not defeat an action for the money by alleging that the corporation had no power to make the loan. He must pay back the money.”

Bigelow on Estoppel, section 464, says:

“In ordinary cases it is not allowed an individual to escape his obligation by showing the incapacity of the other party to the contract to act as he had assumed to act. We have elsewhere seen that this is a broad rule of law, and it is quite as true of persons liable in a contract to corporations as in other cases.”

Thompson’s Commentaries on Private Corporations, section 5274, says:

“The modern doctrine is coming to this: That one who enters into a contract with a corporation is, when sued by the corporation upon such contract, estopped to deny that the corporation had power to make the contract. The obvious reason of the rule is that a person ought not to be allowed to oppose such a dishonest defense to a bargain which is fair so far as he is concerned. The rule of public policy, which aims to keep corporations within the limits of their chartered powers, yields to the justice of the particular case, and the wrong which the corporation has done to the public by transcending its powers is left to be redressed in a public prosecution against the corporation. Hence, if a national bank lends money on the security of a mortgage or of a non-negofiable note, the obligor in the contract, when proceeded against to enforce it, can not escape the payment of the debt which he has thus contracted by pleading that the bank had no power to make the contract.” And in section 6021, the same author says:

“Where the corporation is plaintiff in the action, and is seeking to enforce a contract into which it had no power to enter, if the defendant has received the benefit of the contract he will not be allowed to defend on the ground that it was_ ultra vires, until he restores the benefits which he received. The simplest illustration of this is where a corporation has exceeded its power in lending its money on a promissory note, but nevertheless seeks to get its money back by bringing an action on the note. Here the maker of the note will not be heard to defend on the ground that the corporation had no power to lend him the money.”

And in section 5712, the same author said:

“Those decisions which upheld the rascally borrower in keeping . the money which he had borrowed from the corporation, on the ground that the corporation had no power to lend it, — the very reason why he ought to be compelled to restore it,— form strange blots upon the pages of American jurisprudence. If a collection of individuals, having no corporate powers at all, lend their money, and take a promissory note as evidence of the debt, in which they describe themselves as a corporation, then, when they sue the borrower upon the note, he is estopped, under theories prevailing in all American jurisdictions, from setting up the defense that they are not a corporation. Yet, according to these decisions, while he can not plead that they are not a corporation he can plead that they do not possess the power to lend their money, and he can plead this as a justification for his keeping it.”.

But it is insisted for appellant that this doc-* trine has no application to the questions involved here, for the reason that the contract sued on is not simply ultra vires, but is actually forbidden by the statute, and is contrary to public policy; that the cases of Vanmeter v. Spurrier, 94 Ky., 22, [21 S. W., 337], and Vannoy v. Patton, 5 B. Mon., 248, support this doctrine.

In ‘the case of Vanmeter v. Spurrier the statute under consideration was one to protect the public against worthless fertilizers, and the case of Vannoy v. Patton from the sale of liquor without license; and the case of Franklin Ins. Co. v. Lou. & Ark. Packet Co., is, we think, in line with these; the vice was in the contract itself, and they are therefore distinguished in this respect from this case, which only involves the idea of disability to sue; and it appears to us that the defenses relied on in this case are inconsistent, and neither of them tenable.

For reasons indicated, the judgment is affirmed.