Maryland Tube & Iron Works v. West End Improvement Co.

39 A. 620, 87 Md. 207, 1898 Md. LEXIS 120

• Court: Court of Appeals of Maryland
• Decided: February 10, 1898
• Status: Published

Opinion

Pearce, J.,

delivered the opinion of the Court.

The bill was filed in this case Sept. 19th, 1892, by the appellant against the appellee for the specific performance of an agreement to convey land, made in writing between the appellee on the one part, and O. C. Knipe and others, on the other part, who subsequently assigned all their interest in said agreement to the appellant, with the consent as it alleges of the appellee.

The appellee answered the bill, admitting the execution of the agreement, but alleging various defences to the bill,, among which is a denial of the existence of the appellant as duly incorporated under the laws of Maryland, and a denial of its right to maintain this suit, by reason of its failure to comply with the provisions of chapter 536 of the Acts of' 1890. The general replication was filed and a mass of testimony was taken, and the bill was dismissed by the Court below (Judge Stake) on the ground that the appellant had no legal existence as a corporation and was therefore not entitled to maintain the suit. Under the agreed statement of facts upon which this appeal was brought into this Court, the sole question for review is the right of the appellant to maintain this suit without having first paid the tax of one-eighth of one per cent, on the capital stock of the company in the manner provided by the Act of 1890, ch. 536. The statement of facts admits that both the appellant and the appellee are incorporated in Washington County under the laws of Maryland, and that the agreement sought to be enforced is correctly set forth in the record. It also admits that at the'time the bill was filed the appellant had not paid, and had not been notified to pay, the first instalment of bonus as per ch. 536 of 1890, but that it did on the 18th of May, 1893, pay the same to the Comptroller of the State. The record does not show the date when this statement of facts was made or filed, but the reference therein to the opinion of the Court dismissing the bill, which was filed June is^ 1897, shows it was made and filed after that date. This is only important to show that the admission of appellants’ due incorporation, can only be regarded as an admission of incorporation at that date—June, 1897.

It will thus be seen the question before the Court is a narrow one. In the answer, the agreed statement of facts, and in the opinion of the Court below, as well as in the argument in this Court, the case was regarded as depending wholly upon the construction of ch. 536 of 1890, and if this were the fact, there would be less difficulty in reaching a satisfactory conclusion. But the Act of 1894, ch.. 114, deals with the same precise subject-matter, and if it can be said it does not repeal the Act of 1890, it yet materially changes the law applicable to cases arising under the Act of 1890—and we are required to consider and construe the Act of 1894. It will be seen that the titles of these Acts are in precisely the same words, except that the Act ot 1890 is “An Act to add a (one) new section to Art. 81 of the Code * * * to be designated as section Eighty-eight A,” while the Act of 1894 is “An Act to add six new sections to Art. 81 of the Code, to be designated assertions Eighty-eight F, G, H, I, J,” and that the word “corporation ” is used in the title of the latter Act where the word “ company ” is used in the title of the former. The Act of 1894 specifically provides that no corporation incorporated, prior to the date of the passage of that Act, shall in any manner, by that Act, be relieved or released from the payment of any bonus due under the Act of 1890, and this proviso, taken in connection with the repealing clause in section 2 of that Act, clearly indicates the legislative purpose to repeal the future operation of the Act of 1890, while saving all remedies and results by- reason of the non-payment of any bonus by any corporation, incorporated prior to the passage of that Act. It should be noted here that ch. 244 of 1890 adds five new sections to Art. 81 of the Code, to ■come in after section 88, and to be designated as sections 88 A, B, C, D and E. These sections deal only with taxes on the assessed value of the shares of capital stock of corporations, and not with the bonus tax. Then came ch. 536 of 1890, which added one new section to Art. 81, to come in after section 88, and to be designated 88 A, so that under these two Acts, there were two sections each designated 88 A. It is thus made evident that the draftsman of ch. 114 of 1894, with these two Acts of 1890 before him and intending to avoid the existing confusion arising from the designating of two sections as 88 A, designed to repeal the Act of 1890, ch. 536, and to substitute section 88 F of the Act of 1894 for section 88 A of the Act of ch. 536 of 1890, leaving sections 88 A, B, C, D and E of ch. 244 of 1890 to stand in their regular order of precedence. Montel v. Consolidated Coal Co., 39 Md. 171, 174. The appellant was incorporated prior to May 18th, 1893, since it paid the first instalment of bonus tax on- that date, but it appears from an examination of the Act of 1894 that the proceeding prescribed therein for the recovery of the bonus tax upon corporations, and the provisions setting forth the result of non-payment, are applicable as well to corporations created before, as after the passage of that Act, and that if there is anything to be found in that Act not contained in the Act of 1890, which would sustain the appellant’s right to maintain this suit, it is entitled to the benefit thereof. Comparing ch. 244 of 1890 with ch. 114 of 1894, it is evident that the draftsman of the Act of 1894, overlooking the true theory and design of the Act of 1890, ch. 536, or deliberately intending to alter its true theory and design, substantially provided the same remedy and procedure for the recovery of the bonus tax, as was by ch. 244 of 1890, provided for the recovery of the tax upon the assessed value of capital stock, and it is now urged by the appellant, since the oral argument, that as the Act of 1894 subjects the corporation to suit by the State for the recovery of this bonus tax, it necessarily follows that the corporation has a legal existence for all purposes and therefore full capacity to sue. But with this contention, however plausible and forcible the argument at first blush, we are not able, after full and careful consideration, to agree ; and we are of opinion that if the appellant would be held incapable of maintaining this suit under the Act of 1890, it must be so held under the Act of 1894. To hold otherwise, and to hold as the appellant urges, that this Act recognizes a corporation which has not paid the bonus tax when due, as an existing, moving, active corporation for all purposes, would be to strike with absolute nullity the plain and imperative language of section Eighty-eight F, which declares that no such corporation shall have or exercise any corporate powers until such bonus has been paid. It is settled law that charters or statutes conferring franchises on a corporation are to be construed in favor of the public rather than the corporation, and to gratify this rule where the charter, as here, is under a certificate, the general law is to be read into the certificate. Every word, phrase or sentence doubtful or ambiguous, is to be interpreted in favor of the State. Thompson in his work on Corporations, sec. 5650, says: “The rule is simple. That which the company may do by its charter, it may do. Beyond that, its acts are illegal.”

In Roland Park Co. v. The State, 80 Md. 448, the Act of 1890, ch. 536, and the Act of 1894, ch. 114, were considered on another point; and it was said: “What we have to do is to discover the legislative intention, and to give it, when ascertained in accordance with established rules, full and complete effect * * * and this intent may be gathered not merely from the language of the enactment, but also from the causes or necessity which prompted its passage. A result which may flow from one construction or another of a statute, is always a potent factor, and is sometimes in and of itself conclusive as to the correct solution of the question as to it's meaning.” One result which might follow the establishment of appellants' contention would be that corporations defaulting under this Act, might not only continue in the full exercise of the prohibited powers for two years after such default, but might before the expiration of that period, dispose of all their property and leave the State a barren judgment for this bonus. Such a result could not have been within the legislative contemplation, and ought not to be permitted if it can be avoided by any sound construction of the whole Act. It is a cardinal rule of construction that where one part of a statute is susceptible of two constructions, and the language of another part is clear and definite, and is consistent with one of such constructions and opposed to the other, that construction which will render all clauses of the statute harmonious, must be adopted. Magruder v. Carroll, 4 Md. 348-349; Alexander v. Worthington, 5 Md. 472.

Sections 88 F and H must be construed together, and by so doing section 88 F must be taken to prohibit generally the having or exercising of any corporate powers, before payment of the bonus—which would include generally suits by or against the corporation—and the office of section 88 H is merely an exception withdrawing from the general purview and operation of section 88 F the particular suit authorized for the recovery of the bonus tax by section 88 H. Every corporation is the mere creature of the State, and where neither its charter, nor any statute restricts the powers through which it maintains itself and responds to the discharge of its obligations, it may be conceded that the right to sue and the liability to respond to a suit, are correlative, but the State which creates the corporation is sovereign, and while withholding from the corporation, or suspending the right to sue before compliance with a revenue measure, as the price of the exercise by it of corporate powers, may clearly, if it see fit, subject such corporation to suit by the State for non-compliance with such condition precedent; and we think the Court below correctly and clearly stated the law when it said : “ The effect of the law is to hold in abeyance the right and remedy of the suing corporation. ” And we are of opinion that this proposition is as clear under the provisions of ch. 114 of 1894, as it is under ch. 536 of 1890.

The appellant contended that the validity of its incorporation is conceded in the agreed statement of facts, but even if this would affect the result, we do not so understand the concession. It is expressly denied in the answer, and the agreed statement of facts was .entered into after payment of the bonus, when its corporate power to sue was no longer held in abeyance, and when the right to sue was complete under the statute.

The next contention of the appellant is, that the question of corporate power cannot be raised collaterally, or in any way except by a direct proceeding by the State to forfeit the charter. There is, of course, no doubt, that mere causes of forfeiture cannot be taken advantage of collaterally, and that where the right to sue has once become vested in the corporation by compliance with all conditions precedent thereto, it can only be divested by forfeiture, in some legal mode, of the charter. But this case does not come within that rule. We have carefully examined all the cases cited by the appellant, and it will be found that all of them are i cases merely of irregularity,-and not of nullity; cases in I which the power to sue had become a vested power under the charter by a substantial compliance in good faith, with the requirements thereof, notwithstanding some irregularity in the proceedings thereunder.

The Canal Co. v. The R. R. Co., 4 G. & J. 122, was the case of non-user of corporate powers; and Chief Justice Buchanan was careful to say: “Where there is an existing corporation, capable of acting, cause of .forfeiture can only be enforced by scire facias or quo warranto, issued at the instance of the government creating the corporation, and cannot be taken advantage of incidentally or in any other way by an individual, since the government, with which alone the contract arising out of the charter is made, may waive the breach of any condition of that contract, and cannot be made to enforce the forfeiture whether it will or not.” But here, the State has by the Act of 1890, passed before the incorporation of the appellant, declared its will that until compliance with the fundamental condition, which was disregarded in this case, the appellant should have no other or greater corporate power, than it would have had after forfeiture enforced; and this legislative limitation of power is as effective for the purposes of this case as a decree of forfeiture made prior to the suit.

The Regents v. Williams, 9 G. & J. 426, was a question whether one corporation was merged in another, and the Court held that neither non-user nor misuser of corporate franchises would authorize granting the same franchises to others, before a forfeiture had been judicially declared, and Chief Justice Buchanan was again careful to say : “Scire facias is the proper process when there is a legally existing body capable of acting but who have abused their power; and quo zvarranto, which properly applies where there is a corporate body de facto only, but who take upon themselves to act, though from some defect in their constitution or organization, they cannot legally exercise their powers.”

So with the Planters' Bank v. Bank of Alexandria, 10 G. & J. 225, where it was contended that the charter of the Planters’ Bank, under one of its sections, by reason of the suspension of specie payments, became ipso facto null and void without judicial inquiry upon the subject—but the Court held proceeding by scire facias necessary.

The following cases cited by appellant: Taggart v. Western Md. R. R., 24 Md. 596; Busey v. Hooper, 35 Md. 30; Hagerstown Turnpike Co. v. Creager, 5 H. & J. 5; Hamilton v. Annapolis R. R., 1 Md. Ch. 197; Keene & Brady v. Van Reuth, 48 Md. 194; Musgrave v. Morrison, 54 Md. 166, will all be found on examination to be governed by the principles applied in Canal Co. v. R. R. Co., 4 G. &. J. 4, and are all cases of legally existing bodies capable of acting, and which had in good faith attempted to comply with all legal requirements precedent thereto. On the other hand, the decisions in Maryland have always been that the legal existence of a corporation is always open to inquiry. Agnew v. Bank of Gettysburg, 2 H. & G. 493; Lyons v. Orange and Alexandria R. R., 32 Md. 18, in which the Court speaks of “ conditions which by the express provisions of the statute are made conditions to be performed before and as a foundation of the exercise of pow'ers and privileges under the charter.” Also Hammond v. Strauss, 53 Md. 12; Smith v. Silver Valley Mining Co., 64 Md. 94; Bonaparte v. Lake Roland Co., 75 Md. 347; Lord v. Essex Building Association, 37 Md. 325, in which it is said (citing Ang. & Am. on Corp., sec. 83): “There is certainly no doubt that where a corporation is created by statute, or under a general statute as in this case, which requires certain acts to be done before it can be considered in esse, there those acts must appear to have been done in order to establish the corporate existence.”

We find nothing in Balto. & Potomac R. R. v. Baptist Church, 137 U. S. 368, in conflict with the law laid down in the Maryland cases just cited ; and in Eaton v. Aspinwall, 19 N. Y. 121, relied on by the appellant, the language of the Act was not that ten per cent, of the capital stock should be paid in “ before it should be a corporation,” but that “ where the certificate was filed, and ten per cent, of the stock paid in, it should be a body politic.” But even if it be conceded that the legal construction put by the appellant upon the language used is the correct construction, that case could not be accepted as controlling in the face of our own decisions and when compared with other cases in New York.

In Williams v. Bank of Michigan, 7 Wendell, 339, Chancellor Walworth said : “A contract made with a corporation by that name is neither an admission, nor any evidence that it is entitled to sue by that name as a corporation aggregate.” And in Welland Canal Co. v. Hathaway, 8 Wendell, 480, Judge Nelson said : “ When a corporation sues as such, if they have not the powers and privileges assumed in their dealings with one, it is their fault and not his. Whether they had these powers must have been known to them, and not to defendant, and no act of his could legally add to or detract from them. Why then should he be estopped from denying their corporate capacity, or they be excused from establishing it by legal evidence, when they are endeavoring to enforce their rights, in a manner and before a tribunal which can entertain their suit, only upon proof or assumption, that they are a corporate body duly constituted by competent authority.” In Field v. Cook, 16 La. An. 153, it was held that the recognition of defendant as a company by the plaintiffs did not preclude them from showing that defendant had no legal existence as a corporation—and that to produce an estoppel, there should be at least an admission that the company was entitled to exercise corporate powers.

Thompson in his work on Corporations, sec. 6586—while admitting a regrettable conflict of judicial opinion upon this question—says that those decisions which hold that corporations can enjoy franchises while repudiating conditions upon which they are conferred unless the State is worried into a judicial proceeding to oust them “are inexcusable." And he says in sec. 6587 “The sound doctrine is that where a statute creating a corporation declares that unless certain acts are performed within a prescribed time its corporate existence and powers shall cease, or its powers and franchises shall terminate, the statute executes itself without the necessity of forfeiture by legislative declaration or in a judicial proceeding. In such case its legal existence is a fact in pais to be ascertained in any judicial proceeding, direct or collateral." It is laid down in 2 Morawetz on Private Corporations, sec. 778, thát the doctrine of estoppel cannot be successfully invoked unless the corporation has a de facto existence, and Judge Cooley in Swartwout v. Mich. R. R., 25 Mich. 389, says: “Where there is a de facto corporation with no want of legislative power to its due and legal existence, in controversies between the de facto corporation and those who have entered into contract relations with it, where the questions suggested are only whether there has been strict compliance with the provisions of the law relating to incorporation—such questions should not be suffered to be raised.”

In Johnson v. Hines, 61 Md. 130, this Court has said, speaking of the invalidity of a mortgagee’s title derived from a trustee’s deed made without ratification of the sale, but after ratification of an audit: “There is a marked and important distinction between nullities and irregularities—an irregularity may be waived—a nullity never can be waived. ”

In recognition of this fundamental principle, the exact question raised here was decided in the recent case of Jones v. Aspen Hardware Co., 21 Colo. 263. This was an action of replevin by the company to recover a stock of goods. The statute in that case provided that every corporation incorporated under any general or special law, should pay the State a fee to be graded according to its capital stock, to be due and payable upon the filing of the certificate of incorporation, and that no such corporation should have or exercise any corporate powers until such fee should have been paid; and it was held that an association having failed to comply with the statute with respect to the payment of this fee, was neither a de jure nor a de facto corporation, and was not competent to maintain a suit as such. The Court said : “ The language of the Act is plain and unambiguous. The doctrine of estoppel cannot be successfully invoked, unless the corporation has at least a de facto existence. A de facto corporation can never be recognized in violation of a positive law. There is a broad distinction between those acts made necessary by the statute as a prerequisite to the exercise of corporate powers, and those acts required of individuals seeking incorporation but not made prerequisites to the exercise of such powers.”

(Decided February 10th, 1898).

These principles were clearly recognized and applied in Boyce v. Trustees M. E. Church, 46 Md. 373 and 374, where the Court said: “ The statute law of the State expressly requiring certain prescribed acts to be done to constitute a corporation, to permit parties indirectly, or upon the principle of estoppel, virtually to create a corporation for any purpose, or to have acts so construed, would be in manifest opposition to the statute law, clearly against its policy, and justified upon no sound principle in the administration of justice.”

Nor can we agree that the subsequent payment of this bonus is equivalent to its payment before the commencement of the suit. We think it clear that the right of action must be complete before the action is brought, and the subsequent occurrence of a material fact will not avail in maintaining it. Dean v. Metropolitan R. R., 119 N. Y. 545; Hollingsworth v. Flint, 101 U. S. 596; Baker v. Tillman, 11 S. E. Rep. 535.

If the plaintiff is not himself incapacitated to sue and yet cannot maintain the particular suit because the right of action did not accrue until after commencement of the suit, a fortiori should it be precluded from maintaining the suit, where the inability is not a special one going to the particular suit, but a general inability going to the maintenance of any suit at that particular time. We find nothing in the authorities relied on by the appellant to overthrow the doctrine upon which this decision is placed, and we must affirm the decree appealed from.

Decree affirmed.