Case ID: ohio-st_35/html/0158-01.html
Source: Caselaw Access Project
Author: {"author": "Boynton, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Second National Bank of Cincinnati v. Hall et al.
    The Southern Ohio Canal Company, by L., its president, executed its promissory note, payable to the order of B., its secretary and treasurer, who loaned to the company the sum for the payment of which the note was given. B. was one of several persons in whose name the company was incorporated by a special act of the legislature of Kentucky, with power to carry on the business of mining coal without as well as within that state. The charter authorized the company to borrow money in the prosecution of its business, and declared its capital stock should consist of $300,000, divided into shares of $100 each, to be subscribed and paid for in such manner as the by-laws of the company might prescribe. Only $120,000 of the capital stock was taken. The corporation engaged in mining coal in this state. ■ B. indorsed the note to the plaintiff, informing its cashier that the company was a corporation. In an-action by the plaintiff on the note against the stockholders of the company as partners: Held, that they were not liable.
    Error to the Superior Court of Cincinnati.
    
      The original action was brought by the plaintiff against’ Joseph L. Hall, R. C. M. Lovell, J. H. French, Miles Greenwood, B. Homans, Jr., J. Smith Homans, Jr., Francis Howland, and Nathan T. Johnson, as copartners on a promissory note, of which the following is a copy:
    “ 557,500. Cincinnati, June 10, 1869.
    “ Hinety days after date, we promise to pay to the order of R. C. M. Lovell seven thousand five hundred dollars, payable at the office of Homans & Co. Value received. Southern Ohio Coal Co.,
    f TJ. S. Stamp, -i By R. C. M. Lovell,
    \ $3.75 canceled. J President.
    
    “ Indorsed: R. C. M. Lovell. [H. S. Stamp, 5c. canceled, September 11, 1869.] Demand, notice, and protest waived. R. C. M. Lovell.”
    Only three of the defendants, namely, Hall, Greenwood,' and French, were served with process. In their answer, they severally denied that the Southern Ohio Coal Company was a copartnership, or that the defendants were co-partners, or that they or either of them ever made or authorized the making of said note.
    The case was tried at the special term of the superior court, where judgment was rendered for the defendants. A motion for a new trial was denied; a bill of exceptions was taken, setting out all the testimony; the cause was carried to the general term, by petition in error, where the judgment of the special term was affirmed. It is now sought to reverse both judgments.
    .' It appears from the bill of exceptions that, on .February 25, 1869, the Southern Ohio Coal Company was incorporated by a special act of the legislature of -Kentucky, as follows (Charter, chapter 591):
    “An act to incorporate the Southern Ohio Coal Company.
    
      “Be it enacted by the General Assembly of the Commonwealth of Kentucky:
    
    “ Section 1. That R. C. M. Lovell, J. H. French, and B. Homans, Jr., and -their associate members and assigns, be, and they are hereby, created a body politic and corporate, under th§ name and style of ‘ The Southern Ohio Coal Company/ and under and by that name they and their as-' sociates and successor shall have succession, contract and bo contracted with, sue and be sued, in all courts and places, shall have power to organize said company by the appointment of a president and such other officers as they may deem necessary, at such time and place as they may designate by notice previously given by them, and when thus organized, they and their successors may have a common seal, and alter the same at pleasure, and shall have power to make such by-laws and regulations as they may deem necessary, from time to time, for the government, management, and prosecution of the business of áaid company, not inconsistent with the laws of this state or the United States.
    “ Sec. 2. The principal office of said company shall be located in the city of Covington, but offices and agencies may be established at such other point or points as said company may deem necessary to the convenient prosecution of the business of the company. And the company may appoint such agents as may be required by them, and may define the powers and prescribe the duties of such agents.
    
      “ Sec. 3. The capital stock of said company shall be three hundred thousand dollars ($300,000), to be divided into shares of one hundred dollars ($100) each, which may be subscribed and paid for in such manner as the by-laws of said company may prescribe, and said shares may be transferred in such manner as said company, by its by-laws, may direct.
    “ Sec. 4. The said company may receive, buy, and hold or lease such real estate, within or without this state, not exceeding ten thousand acres, and mining rights, either of coal or other minerals, rights of way, barges, engines, cars, depots, store-houses, stocks of merchandise, and other personal property and estate, that may be deemed necessary by the company to the successful prosecution of their business, and to the execution of the powers herein granted.
    “ Sec. 5. Said company may borrow money on such terms, and receive the same in such way, as may be prescribed by the by-laws, or as may be determined on by the stockholders, but no banking privileges are granted the-company.
    “ Sec. 6. This act shall take effect from and after its passage.
    “Approved February 25, 1868.”
    The company was organized by Francis Howland, JT. Smith Homans, Jr., and Nathan T. Johnson, of New Jersey, and B. Homans, Jr., and E. C. M. Lovell?) of Kentucky. It was first intended to incorporate the company under the laws of Ohio, but the statute requiring the officers and a majority of the directors to reside in the state, the project was abandoned, and a charter obtained in Kentucky, where Lovell and B. Homans, Jr., resided.
    Howland, J. Smith Homans, Jr., and Johnson subscribed $85,000 to the capital stock, and paid the same in coal lands situated in Athens county, Ohio, and Lovell and B. Homans, Jr., each subscribed and paid $10,000 in cash, and Miles Greenwood and Joseph Hall, of Cincinnati, and J. H. French, of Kentucky, subscribed and paid $5,000 each. These sums comprised the total amount subscribed. The company was at once organized, and went into operation, at Covington, the directors being Lovell, French, Johnson, and B. Homans, Jr.; Lovell was elected president, and Homans secretary and treasurer. Hall and Greenwood had nothing to do with the formation of the company.
    In June, 1869, B. Homans, Jr., who owned a bank callpd “ Homans & Co.,” and who was also the owner of the note sued on, having discounted the same for the company, deposited it, with other paper, amounting in the aggregate to-$32,000, with the plaintiff as collateral security for a loan then made to him, of $20,000, informing the plaintiff that the Southern Ohio Coal Company was a corporation. In August next following, Homans became insolvent, and was-afterward declared a bankrupt. The Southern Ohio Coal Company also became insolvent. Neither of the three de~ fendants, Hall,' Greenwood, and French, had any connection with, or knowledge of the making the note sued on.
    The money borrowed, for which the note was given, was used in carrying on the legitimate business of the company; and, at the time the company was organized and went into operation, the stockholders severally believed, and upon good grounds, that the business engaged in, namely, supplying coal for the Cincinnati market from the Athens county lands, would be profitable, aud pay reasonable dividends on the amount invested.
    
      George Iloadly and E. S. Thorp, for plaintiff in error:
    1. The conditions precedent of the charter were never complied with by the defendants. The charter of the company provided that the capital stock should be $300,000. It is the imperative condition of the charter that the full amount of the stock should be subscribed before commencing business. The defendants could not claim the immunities, and protection of the charter till they had complied with its conditions. 1 Redfield on Railways, §§ 18-51; Salem Mill Dam Co. v. Ropes, 6 Pick. 23; s. c., 9 Pick. 195; King v. Elliott, 5 Sm. & M. 428; Wood v. Bank, 9 Cowen, 203; Shurtz v. Railway Co., 9 Mich. 269; Railway Co. v. Dummer, 40 Me. 172; Railroad Co. v. Johnson, 10 N. H. 890; Railroad Co. v. Gould, 2 Gray, 277; 4 Eng. L. & E. 455; Angell & Ames on Corp., § 591 et seq.; Lyons v. Railroad, 32 Md. 18.
    The use of a corporate name does not make a corporation. Williams v. Bank, 7 Wend. 542; Fuller v. Rowe, 57 N. Y. 23.
    Not having complied with the conditions of the charter, the defendants were not legally incorporated, but were only a partnership or unincorporated joint-stock company.
    2. Even if this so-called “ Southern Ohio Coal Company” was a legal corporation in Kentucky, and gave its ■stockholders the protection of its charter, it had no legal •existence as a corporation in Ohio. It was a mere association of individuals under a corporate name.
    
      Its charter had no valid force or effect outside of the State of Kentucky. If it existed at all in Ohio it was by sufferance. When the court considers the history of this company — that it was organized in Kentucky because the laws of Ohio forbid its organization here, when all the property .and business were in Ohio, it will be apparent that this company was a fraud upon the laws of the State of Ohio, and that these defendants are not entitled to the protection of their pretended charter by any rule of comity of the State of Ohio, such as is extended to corporations lawfully established and doing business in their parent states and .extending their operations into Ohio. See Bank v. Earle, 13 Peters, 519; Runyan v. Coster, 14 Peters, 122; Farnum v. Blackstone Canal, 1 Sumner, 46; Day v. Newark Manufacturing Co., 1 Blatchford C. C. 628; Angell & Ames, §§ 104, 161 — 166; Wheeler v. O. & M. R. R. Co., 1 Black, 286; Hill v. Beach, 1 Beasley (N. J.), 31; Paul v. Virginia, 8 Wallace, 168; Miller v. Ewer, 27 Me. 509; Aspinwall v. O. & M. R. R. Co., 20 Ind. 492; County of Allegheny v. Railroad Co., 21 Penn. St. 228; Land Grant Railroad v. Commissioners, 6 Kansas, 245.
    
      Lincoln, Smith & Stephens, for defendants in error:
    It is clear, from the evidence, that none of these defendants ever intended to become partners.
    This was a valid corporation in the State of Kentucky. The act of the legislature created it and prescribed its powers, and the act itself is conclusive as to its validity. Railroad Co. v. Clayes, 21 Vt. 36; Patterson v. Arnold, 45 Penn. St. 410; 10 Wend. 266. It is to be recognized as valid here by the comity of states. Story on Conflict of Laws, § 38; Bank of Augusta v. Earle, 13 Peters, 588; Merrick v. Van Santvoord, 34 N. Y. 208; American Bible Society v. Marshall, 15 Ohio St. 541; Cochran v. Arnold, 58 Penn. St. 399; Bank of Ashland v. Jones, 16 Ohio St. 157; Lathrop v. Commercial Bank of Scioto, 1 Dana, 116; Pickaway County Bank v. Prather, 12 Ohio St. 502; Kanawha 
      
      Coal Co. v. Kanawha and Ohio Coal Co., 1 Blatchf. 391; 23 Ohio St. 625; 25 Ohio St. 282; 27 Ohio St. 251.
    Therefore, under the comity of states, this corporation, will be recognized in our courts, unless “ repugnant to its policy or prejudicial to its interests.”
    
    The legislature has declared the policy of our state, and expressly authorizes the formation of mining companies where all the business may be done, and aU the property held, out of the state'. See the act of 1865, 1 S. & S. 166. This act was modified in 1871 (see Acts of 1871, p. 97), but all the essential features are retained. This is the settled policy of our state from 1865 up to 1871, as manifested by two general acts of the legislature.
    The defendants were not liable as partners. Lawler v. Bush, 7 Ohio St. 340; Railroad Co. v. Clayes, 21 Vt. 36; Bigelow v. Gregory, 73 Ill. 201; Patterson v. Arnold, 45 Penn. St. 415; 10 Wend. 269; 5 H. of L. 267; Faye v. Noble, 7 Cush. 194; 58 Penn. St. 406.
    The plaintiffs contracted with the coal company as a corporation ; and it is a well-settled rule, “ that where a person has contracted with an organization as a corporation, he is estopped to deny its legal corporate existence at the date of his contract, where there is no fraud.” Judah v. American Live Stock Ins. Co., 4 Ind. 339, and cases there cited ; Faye v. Noble, 7 Cush. 188; Trumbull County Ins. Co. v. Howe, 17 Ohio, 407; Circleville Bank v. Renick, 15 Ohio, 322; McBrown v. Corporation of Lebanon, 31 Ind. 268 ; Meadow Dam Co. v. Gray, 30 Maine, 547; Dutchess Manuf. Co. v. Dow, 14 Johns. 239.
    A corporate name implies a corporate existence. Grant on Corporations, 51; Jones v. Cincinnati Type Foundry, 14 Ind. 89; Hubbard v. Chappel, 14 Ind. 601; Worcester v. Harding, 11 Cush. 285.
   Boynton, J.

The liability of the defendants in error,, as partners, on the promissory note sued on, is asserted by the plaintiff on two grounds. The first is, that the Southern Ohio Coal Company was not legally organized, because of the non-performance of certain conditions which it is alleged were to precede the vesting of corporate power under the charter of the company, the claim being that there was no power to engage in the business for which the company was formed, until the whole capital stock was subscribed, and, hence, that those owning stock at the time the debt was contracted, to recover which suit is brought, whether original members of the company or not, became liable as partners for its payment, although no partnership relation was contemplated by them. To this position there are several decisive answers. In the first place, the subscription of the whole amount of capital stock was not a condition precedent to the vesting of corporate power under the charter, nor a condition precedent to the right to borrow money and engage in the business for which the association was formed. The language of the ■charter is, that “ R. M. C. Lovell, J. II. French, and B. Homans, Jr., and their associate members and assigns, be, and they are hereby, created a body politic and corporate under the name and style of the Southern Ohio Coal Company,” with “ power to organize said company by the ■appointment of a president and such other officers as they may deem necessary, at such time and place as they may designate by notice previously given.” Its capital stock ■consists of $300,000, divided into shares of $100 each, “which may be subscribed and paid for in such manner as the by-laws of said company may prescribe.”

Express power is conferred to purchase or lease real estate within or without the State of Kentucky, and to borrow money on such terms, and receive the same in such way, as-may be prescribed by the by-laws, oras may be determined on by the stockholders; and this is authorized to be done as soon as the corporation is organized. The charter nowhere makes, either in express terms or by implication, a subscription of the entire amount of capital a .,oek a condition to the right to borrow money and engage in the business for which the corporation was organized. In the second place, it by no means follows that the subscribers to tbe capital stock of an association supposed) to be a corporation, or the persons who organize it,, become individually liable for its debts, by reason of a failure upon the part of the corporation to comply with the requirements of the charter in its organization. That personal liability does not attach to stockholders as partners,, or otherwise, from the circumstance that the powers of the-association have.been exceeded without their authorization, is a principle well established. Medill v. Collier, 16 Ohio St. 599. Those only who engage in or sanction the business, not within the purposes for which the association was organized, are liable for the debts contracted in carrying-such unlawful business forward. Rianhard v. Hovey, 13 Ohio, 300.

It not only is not claimed, in the present case, that the-defendants in error, or either of them, contracted the debt for which the note in suit was given, but it clearly appears that neither of them had any knowledge that the note was given or outstanding. Therefore, to hold them liable upon it as makers, in the face of these facts, would be to create-a promise where none existed, and a consequent liability where none was contemplated by any party to the transaction in which the note originated.

Again, the evidence discloses the fact that the note sued on was, in the first instance, discounted byB. Homans, Jr.,, the treasurer of the company, and one of the original corporators; that he had full knowledge that the company was exercising the powers that the charter professed to grant, and that in discounting the note for the company kedealt with and treated it as a corporation, are undisputed facts. It further appears that the plaintiff, through its cashier, was informed that the company was a corporation before it received the note as collateral to the loan to Ho-mans. It accepted and received it as corporate paper and as carrying with it only a corporate obligation, and therefore is estopped from denying the corporate existence of the-company executing it.

The second ground upon which the liability of the de~ fendants, as partners, is claimed to arise is, that the company, although it may have a legal existence in Kentucky, has, and can have, no such existence in Ohio; that its incorporation in the former state to conduct a business beyond its limits, and within Ohio, is a fraud upon our laws, because the stockholders are not, by the laws of Kentucky, individually liable to any extent for the debts of the corporation. How this fact, if true, in the absence of a statutory regulation, operates to make the defendants liable on a promise they never made, either expressly or impliedly, it is difficult to understand. It is not doubted, that a state-may forbid a foreign corporation from exercising corporate-powers within its limits, or may lay such restrictions upon their exercise as will prevent it, except on condition that-the stockholders become bound for the debts of the corporation. But the mere circumstance, that, by the laws of the-state by which the corporation is created, the stockholders may not be individually liable, to any extent, for the debts of the corporation, has never been deemed a sufficient ground for the exclusion of the company from exercising' its corporate powers within this state. The right of such foreign corporation to acquire and hold property in the state, and to sue and be sued in her courts, has been repeatedly recognized. In Hanna v. International Petroleum Co., 23 Ohio St. 622, it was said, “ that a foreign corporation, under the present laws of Ohio, can hold property in this state and sue and be sued in her courts, is well settled.” And to the argument that the company which was organized in Pennsylvania was not a corporation because it was empowered by its charter to do business outside the state of its creation as well as within, it was said “ that the company was a legal corporation in Pennsylvania as soon as organized there, and without commencing business there. Being such, it surely had the right to sue for and recover its property wherever found, provided the laws of the place did not deny it the right.” In The Newburg Petroleum Co. v. Weare, 27 Ohio St. 343, it Avas held by the Commission that “ to permit a corporation, lawfully organized in' another state, to do business in Ohio, was not against public policy, nor contrary to her laws.” There is nothing in the facts of the present case to withdraw it from the operation of the principle applied in the above cases.

The claim that the charter was sought and obtained in Kentucky, in order that the' stockholders might avoid individual liability for the debts of the corporation, is not established by the evidence. What effect, if any, such fact would have, we have not considered. There is little doubt that the company would have organized under the laws of Ohio had not the statute required the officers and a majority of the directors to reside within the state.

Judgment affirmed.