State ex rel. Chamberlain v. Public Drug Co.

170 N.W. 161, 41 S.D. 287, 1918 S.D. LEXIS 207

• Court: South Dakota Supreme Court
• Decided: December 31, 1918
• Docket: File No. 4037
• Status: Published

Opinions

SMITH, J.

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 the action. From an order overruling the demurrer, defendant appeals.

[1] In the title of the action it purports to have been brought upon the relation of A. A. Chamberlain, as state’s- attorney within and for Beadle county, and Frederick B. Krerner. The allegation of the complaint, however, is that the action is brought upon the relation of A. A. Chamberlain, as state’s attorney of Beadle county; leave of court to begin the action first having been granted. So far as the question of jurisdiction is concerned, tlhe allegations as to Kremier’s interest as relator are wholly immaterial. He is alleged to have been a stockholder of the corporation whose rights and franchises are claimed to have been usurped by the defendant corporation. We cannot consider or determine in this action his individual legal rights or his alleged wrongs.

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.

[2] The third ground of demurrer is without merit. It is not necessary that the officers and directors of a -corporation'be made parties to an action for forfeiture of its franchise on the ground that it 'has failed to comply with express provisions of statutory law.

[3] The action .was begun, in Beadle county, by the state’s attorney of that county, upon leave granted by the circuit court, and service of process had upon the resident agent of the corporation in Hughes county; the latter county being in a different circuit. Upon motion of appellant the venue of the action was ■changed to Hughes county. Appellant’s counsel strenuously urge that the circuit court of Beadle county was without jurisdiction of the subject-matter of the action, for the reason that the circuit court of Hughes county, being the county in which the domiciliary office of the company is established by the company’s charter, and in which its resident agent resides, is given exclusive jurisdiction in this class of actions, and that the action could be begun only by the state’s attorney of Hughes county, upon leave granted by the,circuit court of the circuit in which that county is situated, and for these reasons that the circuit court of Hughes county did not acquire jurisdiction of the subject matter of the action by reason of the change of venue.

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. resident at its principal place of business, in a county 'other than that of the residence of its agent or officers of the corporation or its domiciliary place of residence, confers the legal right tó a change of venue under our practice statute, we are not called upon to decide, for the reason that the change of venue in this case was granted upon, appellant’s own motion, and it cannot now question the regularity of the order or the jurisdiction of the court over it as a party to the action.

[4] We deem it unnecessary to review the ingenious and elaborate argument and the citations of authorities to sustain appellant’s contention that the state’s attorney of Beadle county was without authority to apply for leave to begin the action, and that the state’s attorney of the county in which the domicile, or principal place of business, of the corporation defendant is situated, is given such exclusive authority. An action to forfeit a corporate charter can only be brought by or on behalf of the state, and under the provisions of section 928 of the Political -C'od'e defining the duties of a state’s attorney he is authorized to prosecute such action, in 'any county to which it may be removed by change of venue. These views' are entirely consistent with the decision in Mullen v. Northern Accident Insurance Co., 26 S. D. 402, 128 N. W. 483, in which we held that:

“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.

[5] The real.question, presented1 is whether the failure of 'the defendant corporation to' comply with the. requirements of'the statutes relating to domestic corporations, transacting business within the state may be a ground for forfeiture of the chapter of a domesitc corporation transacting business wholly- in a foreign jurisdiction. Appellant’s counsel, we think, in. effect concede that the failure of a .strictly domestic corporation to comply with the state statutes in the matter of making annual reports required by statute, and which requires it to have its main office for the transaction of its business in the state, might be a sufficient ground for forfeiture of the charter of such domestic corporation. -Their contention is that corporations which are authorized under sec-r tion 3 of the act of 1907, to establish offices for the transaction of business within and-which carry on their business wholly within, a foreign jurisdiction, need not comply with the requirements ex^acted of strictly domestic corporations. As stated in appellant’s brief, the- contention is that—

“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 process upon any such- resident officer or agent shall foe .and constitute legal service upon such corporation.”

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.

[6] The neglect or refusal of a corporation to perform the duties enjoined !by the charter need not proceed from, a bad or corrupt motive even. It is enough if they be designedly omitted. People v. Kingston Road Co., 23 Wend. (N. Y.) 193, 35 Am. Dec. 551, note.

“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 dispensed with, or enforced by indictment or pecuniary penalty. Where shall we draw the line? The statute makes no such distinction; if corporations offend against ‘any of the provisions of the act or acts creating’ them', the information may be filed, and judgment of ouster rendered. * * * If the condition is onerous, and unessential to the purpose of the charter, relief is plain, and at hand; the Legislature will repeal it. While it remains on the statute book we are to presume it was deemed material by those who had a right to judge of the matter, and should be enforced. I speak nowi of express conditions; where they are implied, and of course, undefined, except by construction of law, a more indulgent consideration may well be given; we are not then tied down to the letter of the statute. Their materiality to the great end of the institution may be regarded, and enter into the judgment of the court.”

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.