Shipman v. Portland Const. Co.

128 P. 989, 64 Or. 1, 1913 Ore. LEXIS 5

• Court: Oregon Supreme Court
• Decided: January 7, 1913
• Status: Published

Opinion

Mr. Justice Burnett

delivered the opinion of the court.

1. The defendant Portland Construction Company alone attempts to challenge the right of the plaintiff to appear in the courts to enforce the contract sued upon. Reduced to its lowest terms, its answer in that respect in so many words states that the plaintiff, a foreign corporation, has not complied with the laws of the State of Oregon permitting a foreign corporation to do business within the State of Oregon. That pleading as quoted above states no issuable fact, but only conclusions of law. It is not there stated whether or not the plaintiff had paid the fee or tax required, or had filed its articles of incorporation, or appointed an attorney, or done any of the things required by statute in such cases. The answer should have set out the facts relied upon so that the court could have drawn the conclusion of whether or not the plaintiff had complied with the laws of the State on that subject. The only available form in which the question is .presented is upon the traverse by the defendants of the allegations of the supplemental complaint already quoted. By documentary evidence in the record emanating from the office of the Secretary of State and of the State Treasurer, this allegation is amply proven. How, then, is the case affected by the fact that the power of attorney and certified copy of the articles of incorporation were filed after the execution of the contract relied upon by the plaintiff, and that the filing fees, license fees, and other taxes and fees were paid after the commencement of this suit?

2. Section 6726, L. O. L., requires, in substance, that every foreign corporation, before transacting business within this State, shall file a declaration and pay certain entrance fees, and shall execute and acknowledge a power of attorney appointing some citizen of the State its attorney’ in fact, authorized to receive service of writs, process, and summons necessary to give complete jurisdiction of the corporation. Under Section 6728, L. 0. L., a certificate is required to be issued to a corporation complying with the requirements of the law, and such certificate shall be prima facie evidence of the legal existence of the corporation and of its right to engage in the transaction of business within this State. It is provided, however, that this certificate shall not be admissible in evidence, unless accompanied by a receipt of the State Treasurer showing the payment in full of the last annual license fee which shall have become due and payable against the corporation, or a certificate of the officer that there are no such fees due. It is said in Section 6729, L. 0. L., that, in default of payment of the fee required by the section already noted, the offending corporation shall not be permitted to maintain any suit, action, or proceeding in any court of justice in this State until such declaration shall have been filed and the fees paid. It is also declared in Section 6708 that:

“No domestic corporation, no foreign corporation, joint stock company or association which shall have failed to pay the last annual license fee or any other tax or fee which shall have become due and payable against it as provided in this act or any other law of this State shall be permitted to maintain any suit, action or proceeding in a court of justice in this State while such delinquency shall continue. * * While such delinquency shall continue the right of such delinquent corporation, company or association to transact business shall be deemed to be in abeyance and such corporation, joint stock company or association shall not be permitted to maintain any suit, action or proceeding in any court of justice in this State. * * The certificate of the Secretary of State under the seal of the State that any corporation is in default in the payment of the tax or license fee shall be conclusive evidence of such delinquency in any court of justice * * subject to be overcome, however, by a like certificate that such delinquent tax or license fee with interest and penalty has been paid since the issuing of the certificate of delinquency.”

It is provided in Section 6709, L. O. L., that:

“A plea that any domestic corporation or any foreign corporation, joint stock company or association has not paid any tax or fee required by any law of this State and which is then due and payable may be interposed at any time before trial upon the merits of any action, suit or proceeding and if issue be joined upon such plea the same shall be first tried.”

It is easy to conceive a case where a foreign corporation which has fully complied with all the provisions of the statutes on that subject has commenced a suit in the courts of this State pending which another annual tax or license fee has become due. While the suit is waiting trial the plaintiff is amenable to the plea mentioned in Section 6709, which could be interposed at any time before the final submission of the case. The certificate of the Secretary of State would go in proof of the corporate delinquency, and this certificate may, in turn, itself be overcome by subsequent certificate of that officer that the license fee or tax previously unliquidated has been paid, with interest. This would certainly defeat the plea in abatement entered pendente lite, and allow the action to proceed to trial on its merits. The statute under consideration is penal in its nature. Indeed, under Section 6707, a corporation failing to comply with the terms of the statute is liable to a fine of $100 to be recovered with any license fee due by an action in the name of the State. Such statutes are to be construed strictly, and are not to be extended beyond their express terms. The statute does not say that the contracts of the corporation made under such circumstances are void. It only says that, while the delinquency shall continue, the corporation shall not be permitted to enforce its contract by any suit or action in the State courts. Section 6708 expressly says that the delinquency of such corporation shall not operate to impair or .delay the rights of any other person, firm, or corporation. This practically amounts to a declaration that the contract is not void because if void as against one person it would be void against all. The plain object of the provisions of the statute in thus denying delinquent corporations admission to the courts is to aid in the collection of the fees and taxes claimed by the statute. If the reason for the suspension of litigation is removed, the injunction of the statute is also removed, and the litigation should be allowed to proceed to its ordinary conclusion. As indicated in Hirschfield v. McCullach, 127 Pac. 541, the courts of this State, under the statutes already quoted, will merely refuse their aid to enforce a contract which is a part of buisness transacted here by foreign corporations in' violation of these enactments. The present laws do not declare such contracts void, and no decision of this court based on existing statutory conditions has done more than sustain the plea in abatement mentioned- when properly tendered. We hold, therefore, that it was competent for the plaintiff to file its supplemental complaint showing its compliance with the statute and the payment of its fees and taxes after the suit had been commenced, and thus anticipate any objection of that nature which might be urged against the prosecution of its litigation. As against any provisions of the revenue laws of the State, the corporation plaintiff was properly in the court in the present case.

3. The defendants complain that the court erred in allowing the plaintiff to file an amended complaint after the cause had been argued and submitted on its merits. This error, however, is rendered harmless by the fact that the decree of the court as finally rendered was not in excess of the relief demanded by the original complaint.

4. The defendants also urge that the plaintiff has no right to maintain this suit in equity to reach stockholders until it shall first have established its claim by a judgment at law against the Construction Company upon which an execution shall have been returned unsatisfied. The rule, however, has been settled the other way in this State in cases like the one at bar, and, where it appears by allegation and proof that the corporation in question is utterly insolvent, the vain thing of wasteful litigation in obtaining a judgment known in advance to be fruitless will not be required. Under such conditions, which abundantly appear in this case, equity will in one suit dispose of the whole controversy, not only as to the amount due the plaintiff from the debtor corporation, but also how much each delinquent stockholder shall contribute to the liquidation of the plaintiff’s claim. Hodges v. Silver Hill Mining Co., 9 Or. 200.

It remains to determine whether or not the defendant stockholders were liable for the debts of the principal corporation defendant, the Portland Construction Company. As between the plaintiffs and the individual stockholders defendants, the liability of the latter depends upon two conditions: First, whether or not the individual defendants had fully paid for their stock as subscribed by them; and, second, if the stock was issued to them in whole or in part as a gratuity, whether or not the plaintiff at the time of or before entering into this contract sued upon knew of this condition.' In passing, we hold that the suit must be dismissed as to the defendant Carpenter because there is no testimony whatever that he ever subscribed for any of the stock of the defendant corporation.

5. Section 3, Article XI, of the Constitution of this State, declares that:

“The stockholders of all corporations and joint stock companies shall be liable for the indebtedness of said corporation to the amount of their stock subscribed and unpaid and no more.”

The records of the corporation, defendant, show that the defendants Bowles, Keeney, Gill, and Martin subscribed to the following agreement:

“We, the undersigned, hereby subscribe and agree to pay for in advance as called upon by the board of directors of the Portland Construction Company, a corporation, the number of shares of stock of the corporation as are set opposite our names.”

Each of them subscribed for 50 shares, amounting to $5,000. As to the defendants Keeney, Gill, and Martin, it appears that at the first meeing of the board of directors of which they were members a resolution was adopted by that body to the effect that $5,000 be paid to each director qualifying as such after the organization in payment of the price of 50 shares of the capital stock of the corporation heretofore subscribed for by each of the said directors, and that the president and secretary be authorized and directed to issue 50 shares of said capital stock of the par value of $5,000 fully paid up and non-assessable in full of $5,000 to be paid for their services to each of the following named directors, naming, among others, the defendants Keeney, Gill, and Martin. At a subsequent meeting of the directors they resolved that the sum of $5,000 be paid J. R. Bowles as his salary for one year in advance for services to be rendered as president. In addition to the allegation of the answer that the defendants fully paid for all the shares of stock held by them, the pleading contained the statement that “plaintiff was advised that the defendants herein had received or were to receive stock subscribed for by them for their individual services to the Portland Construction Company, and that the defendants were to render their services to the Portland Construction Company.” It is not stated in the pleading what services or the amount or character of them were to be rendered; neither is it alleged that any services were actually performed. The evidence about that feature is equally vague and indefinite. The testimony of these answering defendants is simply to the effect that they rendered services to the corporation, not stating what they did to constitute service. It is well settled that for actual services of real value a corporation may issue in payment therefor its fully paid-up capital stock, but, in order to support such a transaction, it must clearly appear that the transaction was in good faith for actual services of real value to the corporation. Considering the fact that these defendants were acting in a fiduciary capacity with respect to the corporation and while so acting were dealing with themselves, we hold that the evidence adduced is not sufficient to show that they have paid in full for the stock subscribed. In their contract of subscription the defendants agreed to pay, not to render services as payment. To hold that the future rendition of uncertain services indefinite both as to character and quantity and likewise as to value amounts to payment would be to invite watering of stock and promote preferences in a business where all should have equal opportunity and equal consideration. Sound public policy requires that corporations engaged in the promotion of a public enterprise should be what they actually appear to be, and not a mere hollow seeming. We conclude under the pleading and testimony that as to the 50 shares subscribed for by each of the defendants Bowles, Keeney, Gill, and Martin there was $5,000 unpaid by each of those defendants within the meaning of the constitutional provision already noted. Torrey v. Toledo Portland Cement Co., 158 Mich. 348 (122 N. W. 614); Clevenger v. Moore, 71 N. J. Law, 148 (58 Atl. 88).

As to the indebtedness of the construction company to the plaintiff, but little question is made in the testimony. Some criticisms were made as to the practicability of the .grades and curves of the lines surveyed by the plaintiff, but these were manifestly afterthoughts. No restrictions were placed upon the discretion of plaintiff as engineers by the terms of the contract entered into as stated in the pleadings. After the plaintiff had performed its work and delivered to the defendant corporation the plans, specifications, details, and estimates of the proposed railway, many letters passed between the contracting parties about making payment of the $8,000 due on the partial fee of the plaintiff. In all that voluminous correspondence no claim is made by the defendant corporation that the work was not properly performed. On the contrary, its records made by these very individual defendants disclose that the work was accepted as presented by the plaintiff. A strong circumstance indicating that they admitted their liability for the $8,000 is shown by the fact that they made strenuous efforts among themselves and raised the sum of $4,050 which was applied on the $8,000 already mentioned.

6. The defendants charge, however, that the pláintiff failed to carry out its part of the contract whereby it agreed to form a pool which would subscribe $35,000 cash for stock of the Construction Company, and that, not having fully performed its dependent covenant in that respect, the plaintiff cannot claim payment for its services stipulated as part of that contract. This provision of the contract, based upon the construction of the whole road designed by the defendant, was not, however, absolute in its terms or to be performed in any and every event. The contract, as already noted, further provided that, in case the plaintiff could not raise the $35,000 cash, the contract should terminate, except that the plaintiff should agree to subscribe $7,000 to the stock of the company, and that their services should apply only to the first section of the road, entailing a fee of $15,000 of which the $7,000 stock should be considered payment to that amount, leaving a balance of $8,000 due to the plaintiffs on .the delivery of plans for the construction of the first section. The testimony shows true efforts on the part of the plaintiffs to procure subscriptions to the capital stock of the defendant company in the full sum of $85,000, but for various reasons not necessary to notice here their efforts failed.

7. As between the parties here the execution of .the contract itself amounted to a subscription to the stock by the plaintiff in the sum of $7,000. As stated by Mr. Justice Eakin in McAllister v. American Hospital Association, 62 Or. 530 (125 Pac. 286): “Subscription to the stock is presumed by any agreement or action by which the stock is acquired from the company.” So far then as the mere subscription for $7,000 worth of the stock of the defendant corporation is concerned, we hold that portion of the contract for subscribing to the stock as modified by the subsequent clause of the contract has. been fully performed by the plaintiff, and the defendants can claim nothing here on account of the alleged nonperformance of the plaintiff’s agreement to raise a pool of $35,000 to be subscribed for the defendant corporation’s capital stock.

8. The indebtedness, of the corporation and the delinquency of the individual stockholders’ payment of their subscription to the capital stock having been established, it remains to be seen whether or not at the time of making the contract the plaintiff knew of the actual condition of affairs, and that the stock had been issued to the individual defendants as fully paid up, for, as stated in McAllister v. American Hospital Association, 62 Or. 530 (125 Pac. 286), “a creditor cannot complain unless the transaction was a fraud upon him; that is, unless he dealt with the corporation without knowledge that the stock was issued for less than par value.” The solution of this part of the controversy depends upon a question of fact about which there is testimony on both sides. In vague and general terms the defendants testified that they informed the representative of the plaintiff of the condition • of the Construction Company at the time the contract in suit was executed. On the other hand, this testimony is explicitly denied by the witness for the plaintiff to whom was imputed the knowledge indicated. He says in concluding his testimony:

“It has been testified that' we were entirely familiar with the financial condition of the Portland Construction Company. That is not a fact. We knew it was not financed in the sense that the stock was all subscribed and fully paid up. We knew that pretty well, but as to the individual holdings they had or money we knew nothing about them. The way they talked about going along with the work led us to believe that they had enough to pay us for our services, and it was specifically specified in the contract that, if the thing was a failure, our certain, definite, limitéd amount would have to be paid; that is, for the actual cost of the work in the field. That was thoroughly understood.”

In addition to this, in all the mass of correspondence in evidence attending the efforts of plaintiff to get the payment of its claim, no hint is found on the part of the individual defendants that they would not be ultimately liable under the constitutional provision quoted above. On the other hand, the testimony discloses, as already indicated, that among them in some manner they raised and paid on plaintiff’s claim several amounts amounting to $4,050-. It is not likely that they would have done this unless they were liable for the debt of the corporation by reason of their delinquency -in the payment of their subscriptions to its capital stock. Indeed, they do not base their defense squarely upon plaintiff’s knowledge that the stock of the defendant Construction Company was inflated as they now would have us believe. On the contrary, they pleaded a i express agreement on the part of the plaintiff that they were not to be held for any liability on the contract in suit. The contract itself upon which plaintiff sues contains no such stipulations, and there is no evidence of anything of .that kind reported in the record. Without going further into detail, suffice it to say that a careful perusal of the testimony impresses us with the conviction that on the issue of previous notice of conditions the plaintiff makes decidedly the better case. We are fortified in this conclusion by the finding of the trial judge who personally heard the witnesses and observed their demeanor while speaking under oath. These are invaluable factors in determining the weight of testimony of which we are deprived. In his long experience as an advocate and afterwards on the bench, the judge who presided at the hearing became a keen observer of witnesses, and his estimate of the weight to be given to their statements has great influence with us on a question of fact.

9. The court, however, was in error when it rendered a decree against the individual defendants jointly. Although they joined in an answer to the plaintiff’s complaint, it does not necessarily follow that a joint decree must be rendered against them. The liability of a stockholder is individual, and not joint, and it is limited by the amount of his stock subscribed and unpaid and no more as the language of the constitution states it. A subscriber to stock engages to put so much capital into a venture but no more and to extend his liability beyond the limit he has thus established would be to violate his constitutional right. The individual defendants might have answered separately and against their admitted liability if any they might have offset what payments they had made on the stock, but in no event can they be held jointly for the indebtedness of the defendant company or severally beyond the amount of the unpaid subscription of each. This is the doctrine set forth in Ladd and Bush v. Cartwright, 7 Or. 333; Hodges v. Silver Hill Mining Co., 9 Or. 204; Brundage v. Monumental Gold & Silver Mining Co., 12 Or. 324 (7 Pac. 314); Hawkins v. Donnerberg, 40 Or. 103 (66 Pac. 693, 908).

The amount due to the plaintiff on the decree will rtmain as' computed by the court below, but a decree will be here entered modifying the determination' of the circuit court so that each individual defendant, Bowles, Keeney, Gill, and Martin, will be required to pay one-fourth of the amount thus ascertained. The defendant Carpenter will recover from the plaintiff his costs and disbursements, but the plaintiff will recover from the other defendants its costs and disbursements.

Modified and Affirmed.