Case ID: ohio-st_93/html/0161-01.html
Source: Caselaw Access Project
Author: {"author": "Johnson, J. Jones, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Parkside Cemetery Assn. v. The Cleveland, Bedford & Geauga Lake Traction Co.
    
      Eminent domain — Statutes strictly construed — Proof prerequisite to appropriation — Section 11046, General Code — Jurisdictional questions — Incorporation—Compliance with Section 8632 et seq., General Code, mandatory — One corporation cannot appropriate land — Por use of another company, when — Section 8759, General Code — "Dummy” corporations.
    
    1. The right of eminent domain belongs to the sovereign power, and statutes delegating authority to exercise it must be strictly construed. When it is sought to take the property of an individual under statutes granting such authority to corporations, subject to conditions specifically set forth, the protection of the constitutional guaranty of the right of private property requires that the powers granted by the legislature be strictly pursued and all of the prescribed conditions be performed.
    2. In a proceeding by a railroad company to appropriate land for its use, it is incumbent on the company to prove its incorporation according to law, including the due and legal election of directors, its right to make the appropriation, its inability to agree with the owners and the necessity for the appropriation. By the provisions of Section 11046, General Code, the determination by the court of those questions favorably to the company is made jurisdictional.
    3. The statutory requirements provided by Section 8632 et seq., General Code, for the creation of a corporation are mandatory and must be complied with before the corporation can be in existence.
    4. Section 8759, General Code, authorizes a railroad company to appropriate land deemed necessary for its railroad, including necessary sidetracks, etc. There is no authority for a railroad company to appropriate land in which it does not intend to have any real or beneficial interest or use, but which it is attempting as a “dummy” corporation to appropriate for the sole use and benefit of another company.
    (No. 14802
    Decided December 7, 1915.)
    
      Error to the Court of Appeals of Cuyahoga county.
    The defendant in error brought a proceeding in the insolvency court of Cuyahoga county to appropriate certain property owned by the plaintiff in error for interurban railroad purposes. The petition alleged that the plaintiff was a corporation organized in pursuance of the laws of Ohio and that its board of directors had determined and declared the necessity for the condemnation of the property.
    The defendant filed an answer in the case in which it .admitted that it owned the premises, alleged that the plaintiff had filed another action in the same court to appropriate the same lands and denied the other allegations.
    For a second defense it averred that it was a cemetery association, not for profit, duly organized, and that the premises held by it were not subject to appropriation.
    For a third defense it averred that the plaintiff was not the real party in interest in the action, but was seeking to appropriate the land described in the petition for the use and benefit of The Northern Ohio Traction & Light Company, an interurban street railroad company already owning, possessing and operating a parallel electric street and interurban railway.
    For a fourth defense defendant averred that the “plaintiff has sought and is seeking to appropriate other property in the said county of Cuyahoga and that its said petition does not contain a specific description of each parcel of property, interest and right within the county sought to be appropriated.”
    The plaintiff filed a reply denying all and singular the allegations of the answer, and alleged that the defendant association was not organized in good faith, but was organized to fraudulently and illegally prevent the appropriation sought in the case.
    On the trial of these issues the insolvency court found in favor of the plaintiff. A jury was. drawn and the case heard upon the question of damages. Damages were awarded and paid into court. In a proceeding in error in the common pleas and court of appeals the judgment of the insolvency court was affirmed.
    This proceeding in error is brought to reverse the judgments below.
    
      Messrs. Holding, Masten, Duncan & Leckie, for plaintiff in error.
    
      Messrs. Ford, Snyder & Tilden, for defendant in error.
   Johnson, J.

The attack upon the judgments below is based upon the contention that the plaintiff company on the hearing in the insolvency court failed to make the showing required by Section 11046, General Code, before it was entitled to the order prayed for; that it is disclosed by the record that the plaintiff was not the real party in interest, but was attempting to appropriate the property for the sole use and benefit of another corporation, contrary to law and to public policy, and that the plaintiff never had any legal existence, was never organized in compliance with the laws of Ohio and “had no right to make the appropriation.”

The defendant in error controverts these contentions and insists that the defendant landowner is not entitled to raise the questions suggested, but that such action can only be taken in a proceeding in quo warranto brought by the state. The proceeding is one to take private property in the exercise of the right of eminent domain.

The constitution guarantees that private property shall ever be held inviolate, but subservient to the public welfare. Only the sovereign power, or one to whom it has delegated the right, can take private property without the consent of the owner. When this right has been granted the terms of the grant must be strictly pursued. When the matter is in doubt it must be resolved in favor of the property owner.

As stated in Currier v. The Marietta & Cincinnati Rd. Co., 11 Ohio St., 228, 231, “There is no rule more familiar or better settled than this: that grants of corporate power, being in derogation of common right, are to be strictly construed; and this is especially the case where the power claimed is a delegation of the right of eminent domain — one of the highest powers of sovereignty pertaining to the state itself, and interfering most seriously, and often vexatiously, with the ordinary rights of property.”

This principle has been constantly adhered to by this court. Miami Coal Co. v. Wigton, 19 Ohio St., 560, 566; City of Cincinnati v. The L. & N. Rd. Co., 88 Ohio St., 283, 296, and see 1 Lewis on Eminent Domain (3 ed.), Section 387.

In referring to the subject in an early case it was said: “It is the duty of the court in such a case, to keep them strictly within their granted powers.” Moorhead et al. v. The Little Miami Rd. Co., 17 Ohio, 353.

Section 11046, General Code, defines the duty of the court, viz.: “On the day named in a summons first served, or publication first completed, the probate judge shall hear and determine the questions of the existence of the corporation, its right to make the appropriation, its inability to agree with the owner, and the necessity for the appropriation. Upon all these questions the burden of proof shall be upon the corporation, and any interested person shall be heard.”

It has been uniformly held by this court that the railroad company has not the exclusive power to determine the questions referred to in that section, but that, while the corporation has primary discretion in determining what land is necessary for the purpose for which it is authorized to make appropriations, the probate judge has, under the jurisdiction vested in him by that section, power to hear and determine the questions referred to, including the right of the corporation to make the appropriation and the necessity therefor. The Wheeling & Lake Erie Rd. Co. v. Toledo Ry. & Terminal Co., 72 Ohio St., 369; City of Cincinnati v. The L. & N. Rd. Co., 88 Ohio St., 283.

It was clearly not the intention of the legislature to confer upon the railroad corporation conclusive power to determine its right to make the appropriation and the necessity therefor. The final power has been conferred upon the court. This is an important phase of the controversy.

It is manifest from the language used by some of the courts in the cases which have been cited by the defendant in error, that the state of the law in the jurisdictions where they were decided is different from the Ohio law on the subject. It.is important that this should be borne in mind in considering those cases. Examination shows that the original statutory provisions in Ohio were subsequently changed in the light of experience. The changes were made in order to furnish a more adequate means to protect private property.

By the ninth section of the original railroad act of February 11, 1848 (2 Curwen, Revised Statutes, 1396), the company is expressly authorized to appropriate such property as may be deemed necessary for its railroad, including necessary sidetracks, etc., and the act of 1852 provided that on failure to agree with the owner a corporation desiring to appropriate land for its right of way should file notice with the probate court to that effect, and that the probate court should at once take the necessary steps for the impaneling of a jury to estimate values and the amount of compensation the owner should receive.

In Giesy v. The C., W. & Z. Rd. Co., 4 Ohio St., 308, the constitutionality of this act was upheld. Judge Ranney, however, in announcing the opinion said: “It would seem to me much more consistent with a proper regard for private rights, that the question of necessity as well as compensation should here, as in England, be determined by some impartial public tribunal.” It was after the case of Giesy v. The C., W. & Z. Rd. Co. was decided that the statute was passed, substantially in its present form, and in referring to the language of Judge Ranney, Judge Summers, in The Wheeling & Lake Erie Rd. Co. v. Toledo Ry. & Terminal Co., supra, at page 379, inquires: “Is it not probable that the submission of the question 'of the necessity of the appropriation to the determination of the probate judge was but the adoption of the suggestion of an eminent judge of this court?”

Since the adoption of the statutory provision now in force the probate court, or the insolvency court, is not concluded by the action of the corporation itself upon any questions referred to in that section.

There is a plain provision that all of the facts must be inquired into and that any interested person may bring anything before the court that will assist it in arriving at a just conclusion upon any one of the four questions referred to in the section.

In this case the first contention is that the plain-j tiff company has no legal existence as a corporations and, therefore, no right to make the appropriation. \ We think it can be truthfully said that none of the courts in this country has more firmly or more con- * sistently looked through corporate forms than has this court. It has uniformly held that in the creation of corporations there must be full compliance with the statutes and that when created they must keep within their powers. Yet it has given full recognition to the important part they have played in the development of our resources and business, and to the necessity of protecting them in the exercise of their legitimate functions.

That a corporation is a legal entity, apart from the natural persons who compose it, is a mere fiction, introduced for convenience in the transaction of its business and of those who do business with it; but like every other fiction of the law, when urged to an intent and purpose not within its reason and policy, it may be disregarded. State, ex rel., v. Standard Oil Co., 49 Ohio St., 137. And also The Cincinnati Volksblatt Co. v. Hoffmeister, 62 Ohio St., 189; First Natl. Bank of Chicago et al. v. Trebein Co. et al., 59 Ohio St., 316.

The corporation- statutes of Ohio differ from those of many states in reference to the creation of a corporation. Section 8629, General Code, provides that a certified copy of the articles of incorporation shall be prima facie evidence of- the existence of the corporation therein named, but the mere filing of the articles in due form does not create the corporation. This is the distinct holding in State, ex rel., v. Insurance Co., 49 Ohio St., 440, where it is held: “The making and filing, for the purpose of profit, of articles of incorporation in the office of the secretary of state, do not make an incorporated company; such articles are simply authority to do so. No company exists within the meaning of the statute, until the requisite stock has been subscribed and paid in, and the directors chosen.”

Sections 8633 and 8635, General Code, require that ten per cent, of the capital stock shall be subscribed and this fact certified by the incorporators to the secretary of state before an election of directors may be held; Section 8632, that at the time of making a subscription to the capital stock ten per cent, on each share subscribed for shall be payable, and Section 8636 that no person shall voté on a share of stock on which an installment is due and unpaid. It is provided by Section 8661 that all directors shall be holders of stock of the company for which they are chosen.

In The Dueber Watch Case Mfg. Co. v. Daugherty, 62 Ohio St., 589, in which a corporation issued a certificate of stock to a citizen of Ohio for the purpose of qualifying him as a director, with the agreement that he should retransfer it upon ceasing to be a director, the court in the statement say: “Unless Coburn was a stockholder, the company had no right to be a corporation and do business in the state as such.” And in the opinion it is said: “The transaction was a fraud upon the law and contravened the declared policy of the state, if Goburn was intended to be a nominal, and not the real owner in fact, of the stock placed in his name.”

The provisions of the statute to which we have referred are mandatory and they must be complied with before it can be said that the existence of the corporation, or its right to make an appropriation, has been shown.

This has been well stated by Spear, J., in The Queen City Telephone Co. v. City of Cincinnati, 73 Ohio St., 64, 77: “Sections 3243, 3244, and 3245, Revised Statutes, taken together, require that an installment of ten per cent on each share of stock shall be payable at the time of making the subscription; that as soon as ten per cent of the capital stock is subscribed notice for the election of directors may be given; that no person shall vote for directors for any share on which any installment is due and unpaid, and the votes of a majority of the number of shares shall be necessary for a choice. Tested by these requirements the record shows that there had been no legal election of directors, and that the corporation had not been organized in such manner as to entitle it to a decree under Section 3461.”

The fact that the case we are considering is a proceeding seeking to exercise the right of eminent domain makes especially forcible the application of the principles we have set forth.

In Powers v. The Hazelton & Letonia Ry. Co., 33 Ohio St., 429, it is held that it is essential to a judgment of condemnation that the company should prove its corporate existence and that it has complied with the law giving it the right to exercise the right of eminent domain.

That there must be a due and legal election of directors; that persons having no interest in .the stock, but fraudulently and collusively receiving the transfer of a share to qualify them, are not eligible; that votes cast for a person not eligible do not even make a de facto director, are propositions- well established. Bartholomew v. Bentley et al., 1 Ohio St., 38; The Queen City Telephone Co. v. City of Cincinnati, supra; 2 Cook on Corporations (7 ed.), Section 623.

In 10 Cyc., 737, it is said that in the absence of statutory provision “this is the implication of the common law, founded on grounds of public policy in the case of railway companies. This means a real and not a sham shareholder.”

In this case the formal details, such as the preparation and filing of the articles of incorporation, the signing of waivers of notice, the opening of books of subscription, the filing of a certificate of subscription with the secretary of state, the waiver of notice of stockholders’ meeting and the election of directors, are all set out in the minute book. But it is shown by the testimony of directors themselves and the secretary and treasurer that the company never kept any books of account, never had any bank account, there was no certificate book, or other books except the minute book, the shares were written on blanks, which were unnumbered and unidentified, and there was no statement on them of the authorized capital stock. One of the incorporators, who was a director, testified that after the certificate of incorporation was received, he paid in the sum of $1,000, which was ten per cent, of the' authorized capital stock of the company, but the treasurer testified that there were no books or papers which showed that the director referred to had paid the money to the company for this stock and that he had nothing to show for that. The' other directors admit that they never paid for any shares of stock, and some say that after they received them they indorsed them in blank and handed them back to the party from whom they received them. With the exception of the bare statement of Mr. Smartt that he had paid the $1,000 referred to, no payment on any stock is shown, and it is not shown what was done with the $1,000 referred to nor to whom it was paid. The only stock that was ever subscribed for was that originally made by the five incorporators, who each subscribed for two shares at $100 per share. These steps and the original resolution of necessity were taken in 1906, and no further action is shown until the filing of the petition in this case in May, 1911.

The original directors resigned, one after another, as directors and officers, and their places were filled by others, who likewise admit that the same stock was given to them without any payment being made by them.

The ease with which these small holdings were shifted without consideration indicates the lack of real and beneficial interest in the holders. One who has subscribed and paid for or who has purchased stock in a corporation has of course the right to make a bona fide gift of it, and in such case the donee’s title is perfect. And doubtless the originator of a corporation organized in good faith to carry out the purposes stated in its articles, may properly procure the requisite number of signatures to all of the preliminary instruments, including the necessary ten per cent, stock subscription, by making an executed bona fide gift to each of the amount necessary to pay the required 'portion of the subscriptions into the treasury, and this, if done, would fully qualify the recipients to be directors. But from a careful consideration of this record we are not able to find that it discloses such a situation.

We think, therefore, that it cannot be said that the company sustained the burden put upon it by the statute of showing such a legal existence as a corporation as gave it a right to make the appropriation. Where certain acts are absolutely required to be performed, before the corporation comes into existence, these are conditions precedent, and no corporation is created or can exist until those acts are performed. 9 Modern American Law, 42.

Referring to “dummy” corporations, Thompson, in volume 2 of his work on Corporations, Section 1417, says: “These corporations are usually termed ‘dummy’ corporations. Concerning them the New York court of appeals has said: ‘We have of late refused to be always and utterly trammelled by the logic derived from corporate existence where it only serves to distort or hide the truth.’ ”

In order to further sustain the issue on its part the defendant; in the insolvency court, tendered considerable evidence which tended to show that the plaintiff company was endeavoring to acquire a right of way for the sole use and benefit of The Northern Ohio Traction & Light Company, and that the latter company had furnished considerable of the money, and, as the defendants claimed, all of the money, that the plaintiff company ever had.

On objection being made by the plaintiff company all of this testimony was rejected by the court. In defense of this ruling a number of authorities are cited by the defendants in error in support of the proposition that it is no objection that the organization of a plaintiff corporation was promoted or procured by another corporation, or its stockholders, which is specially interested in the enterprise for which the plaintiff was formed and which could not condemn property in furtherance of such enterprise, and that such matters cannot be set up in answer to the plaintiff’s petition to condemn.

The • soundness of this proposition is not. questioned. It is easy to conceive of a situation in which it would contribute to the public welfare, instead of being a detriment to it, if one corporation should lend assistance, financially and otherwise, to the carrying out of the purposes of another corporation which was duly organized and actually proceeding with the performance of its corporate duties and the exercise of its corporate rights, in the accomplishment of the purposes of its organization. But it is a very different thing when one corporation causes a “dummy” corporation to be organized, even if all the forms of the law should be fully complied with, if the latter has no real and bona fide purpose of its own and no intention to attempt to actually carry out the object of its organization as set out in its articles of incorporation.

It is provided in Section 8759, General Code, that “A company or municipal corporation which owns or operates a railroad may enter upon any land for the purpose of examining and surveying its railroad line, and appropriate so much thereof as is deemed necessary for its railroad.” If, as claimed, the plaintiff had no money or resources of its own and ho real expectation of any, but was being used solely by another, it is hard to imagine the necessity of land for its railroad.

In construing this language in the original statute from which it is taken, this court, in Platt v. Pennsylvania Co., 43 Ohio St., 228, 239, approves of the following from the supreme court of Indiana: “A railroad company has no authority to appropriate land for the use of another company and there is no authority of law for several railroad companies >to agree that one of their number shall proceed to appropriate land for the purpose of afterward dividing it for the benefit of all; each company must proceed for itself.”

The defendant should have been permitted to prove, if it could have done so, and should have been permitted to offer testimony tending to prove, that the plaintiff company was not proceeding in the case to appropriate land for “its railroad,” but was proceeding to do so for another company. The rejection of the testimony tendered was a denial of a substantial right. The plaintiff was entitled to maintain the proceeding only when it appeared that it was the real party in interest. Section 11241, General Code.

After the judgment in the insolvency court a suit in quo zvarranto was brought by the attorney general in the court of appeals of Franklin against the plaintiff company for a judgment of ouster. On the hearing the court found that the defendant, the plaintiff company in this case, as it states in its opinion, is and always has been the “dummy” of The Northern Ohio Traction & Light Company; that Smartt, the promoter of the defendant company and “the only person outside of the officers of the former who had any interest in the same, was the hired servant of the Northern Ohio. * * * Its life depends upon the will of its master. It is fair, therefore, to conclude that the appropriation of the property by the defendant was for the benefit of the Northern Ohio and the sale of October 10, 1912, was for the same purpose. * * * It is no answer to say that the Northern Ohio could legally have built this new line without the use of a dummy. For the question is not what the Northern Ohio could or could not do, but what the defendant did do. * * * In appropriating land for the benefit of another company and in transferring such land to that company, the defendant has misused its corporate franchises.”

The judgment of the court ousted the defendant from the right and privilege thereafter of appropriating private property, but the order provided that it should be without prejudice to the rights of defendant to defend the appropriation suits already pending.

The power of that court to provide that the order should be without prejudice as stated, may well be doubted in view of Section 12324, General Code, which provides:

“When it is found and adjudged in such case, that a corporation has offended in a matter or manner which does not work such surrender or forfeiture, or has misused a franchise, or exercised a power not conferred by law, judgment shall be entered that it be ousted from the continuance of such offense or the exercise of such power.”

However, both parties have proceeded in the case at bar without reference to the judgment referred to.

It is clear that the trial judge in the case at bar was of the same opinion as to the “dummy” corporation. On the trial he remarked, “I have not a particle of doubt that the whole thing is a Northern Ohio Traction Company project.”

Nor do we find that the defendant landowner is without legal right to raise the questions made.

It is not questioned that a proceeding to forfeit the franchises of a corporation or to oust it from being a corporation can only be sustained by the state in quo warranto. It is useless to cite authorities in support of that well-settled proposition.

No such affirmative relief is sought in a case of this nature. It is not an attempt of an individual to oust the corporation. It is simply an assertion by the citizen that before he is compelled to yield his right of private property the steps provided by the statute itself must be complied with.

In such a case the only question determined is as to the rights of the parties to- the particular litigation.

The position of this court is well stated in Gaslight Co. v. Zanesville, 47 Ohio St., 35, at page 47:

“That a judgment of ouster cannot be pronounced in any other proceeding is true; but a judgment of ouster in a proceeding in quo warranto, commenced on behalf of the state, is one thing, and a judgment in an action between a company and a private person brought to assert some proprietary claim or alleged obligation of the one to the other, is a very different thing, although the latter judgment may rest upon a conclusion drawn by the court that, as a matter of law, some power' or franchise claimed by the company is not possessed by it. In such judgment the question is simply passed on to determine the rights and obligations of the parties involved in the particular litigation. But it is not available as an adjudication in favor of, or against, other persons ; and the question as to the disputed franchise may be made as often as it arises in litigation between the company and third persons. Not so, however, in a proceeding in quo warranto. The purpose and object of this proceeding is to determine the question once and for all; and by a judgment that shall be binding upon all. It is not a judgment based upon a wrong of the company against any particular individual, but on a wrong as against the entire public — the wrong of usurping the prerogatives of the people, and, if found guilty, the judgment is one of ouster in favor of the entire public. There are evident reasons for limiting a jurisdiction so drastic in its consequences to courts composed of more than one judge, that do not apply to suits of a private character and that can only affect the parties to them, whatever may be the judgment.

“It is neither extraordinary nor unusual to question the powers of a corporation where they are involved in litigation between it and a private person. The franchise to be a corporation, of the power of eminent domain, or any right or privilege that a corporation may claim, may be, and frequently is, questioned by a private individual, whenever involved in litigation between it and the individual. * * *.

“The capacity to sue and be sued implies power in the opposite party to question the claims of the one clothed with such capacity. If it were otherwise, a private individual would be at great disadvantage in litigation with a corporation: As a proceeding in quo warranto must be brought in the name of the state by the attorney general, or some one else authorized to represent the state, and, as it may not always be convenient, nor possible, for the individual to induce the proper officer to commence the proceeding, he might be compelled to submit to a usurpation by a corporation, however wrongful, and whatever the injury as to him might be.”

In In re Brooklyn, W. & N. Ry. Co., 76 N. Y., 245, it is held that “The legal existence of a corporation authorized to construct a railroad is at the foundation of the right to take property for its use, under the right of eminent domain; it is a fact which it is compelled to allege in proceedings to acquire title to lands, and which may be controverted.”

In N. Y. Cable Co. v. Mayor, 104 N. Y., 1, at page 43, it is said: “Where it is sought to take the property of an individual under powers granted by an act of the legislature to a corporation to be formed in a particular manner therein directed, the constitutional protection of the rights of private property requires that the powers granted by the legislature be strictly pursued, and all the prescribed conditions be performed.”

In St. Joseph & Ia. Ry. Co. v. Shambaugh, 106 Mo., 556, 566, it is said: “The corporate existence of the plaintiff is an issue which may be made in a proceeding to condemn property; for if the plaintiff has no corporate capacity it has no right to prosecute this suit. * * * Where the act of incorporation does not in and of itself confer corporate capacity, but provides for the doing of certain things, upon the doing of which the company shall become a body corporate, the performance of these things constitutes conditions precedent, and until performed the company has no corporate existence. Granby Mining Co. v. Richards, 95 Mo., 110; Hammett v. Railroad, 20 Ark., 204; Lyons v. Railroad, 32 Md., 18.”

In Lyons v. Orange, A. & M. Rd. Co., 32 Md., 18, 30, it is said: “And by conditions precedent we mean anything which, by the express provisions of the statute, is made a condition to be performed on the part of the corporators before and ás a foundation of the exercise of powers and privileges under the charter.”

In Tulare Irrigation District v. Shepard, 185 U. S., 1, 17, it is said: “The case of New York Cable Company v. Mayor, &c., 104 N. Y., 1, 43, is cited to the point that where it is sought to take the property of an individual under powers granted by the state to a corporation to be formed in a particular manner therein directed, the constitutional protection of the rights of private property requires that - the powers granted be strictly pursued and all the prescribed conditions performed, and that hence, if'' the corporation be simply a de facto and not a de jure corporation, it cannot take private property in invitum. The case simply asserts the principle that the right of eminent domain cannot be exercised by a corporation de facto, and that the question of valid organization could be raised when such a corporation sought to condemn lands. That is one of the exceptions to the general rule in regard to a corporation de facto. When a corporation seeks to divest title to private property and to take it for the purposes of its incorporation, it must then show that it is a corporation de jure, for the law has only given the right to take private property to that kind of a corporation.”

As stated by Ranney, J., in Atkinson et al. v. The Marietta & Cincinnati Rd. Co., 15 Ohio St., 21, at page 33: “Corporate existence, and the power to take private property for public uses, can only be derived from legislative enactment. A grant of both are made indispensably necessary to the employment of the process invoked in this proceeding. Before a company can demand a judgment of condemnation, it must show that both have been conferred upon it by a valid law, and that it has substantially complied with the conditions, which the law has annexed to the exercise of its powers.”

We cannot assent to the proposition that there is any sound legal doctrine, or any well-grounded principle of public policy, which would justify a court in permitting itself to be used as an instrumentality in furtherance of the unauthorized exercise of corporate privileges because the state has not acted, and thus deny to property owners rights assured to them by the fundamental law.

The methods pursued in this case may have been dictated by motives that were entirely free from intentional disregard of legal requirements, but, as said in First Natl. Bank of Chicago et al. v. Trebein Co. et al., supra, “The good faith of the parties to such a transaction must be determined by its legal effect on the rights of others.”

The judgments will be reversed and cause remanded to the insolvency court for further proceedings.

Judgments reversed. ■

Nichols, C. J., Donahue, Wanamaker and Matthias, JJ., concur.

Jones, J.,

dissenting. The question involved in this case is whether a proceeding to appropriate property instituted in an insolvency or probate court can be defeated by an attempt of the landowner to show that the corporation had no legal existence, and that the condemnation proceedings were being conducted to secure a right of way for another corporation; in short, as I take it, whether such insolvency or probate court is vested with jurisdiction in the nature of quo warranto to try either the legal existence of the corporation or its abuse of the franchise of eminent domain.

I fully agree with the majority opinion that a “dummy” corporation can have no existence under our laws, and that if a corporation abuses its franchise in the method claimed the corporation may be ousted from its franchise for its abuse. But this cannot be done in an appropriation proceeding before a court of limited jurisdiction. The only authority for that purpose lies in the statute invoking the jurisdiction of a court in quo warranto on behalf of the state.

The legality of the organization of the plaintiff corporation, its failure to agree with the owner of the land sought to be appropriated and the regularity of its organization were proven in the insolvency court. As stated in the majority opinion:

“In this case the formal details, such as the'j preparation and filing of the articles of incorpora-1 tion, the signing of waivers of notice, the opening! of books of subscription, the filing of a certificate! of subscription with the secretary of state, the) waiver of notice of stockholders’ meeting and the) election of directors, are all set out in the minute] book.”

After the original record and plaintiff in error’s brief were filed in this court, the defendant in error filed a supplemental record, consisting of more-than seventy printed pages, setting forth the organization, by-laws and minutes, together with a resolution asserting the necessity for the condemnation of the land in question. The record shows affirmatively that ten per cent, of the stock subscribed was paid in according to law. Having thus established the legality of its existence, according to the corporate acts of this state, the plaintiff in the insolvency court was entitled to the exercise of the franchise of eminent domain when it proved the corporation was legally organized -by the election of directors and the inability to agree with the owner of the property. Powers v. The Hazelton & Letonia Ry. Co., 33 Ohio St., 429; The Ashtabula & New Lisbon Rd. Co. v. Smith, 15 Ohio St., 328; State, ex rel., v. Insurance Co., 49 Ohio St., 441; The Queen City Telephone Co. v. City of Cincinnati, 73 Ohio St., 64.

Counsel for the landowner in the insolvency court attempted to prove that the company was a “dummy” corporation and never obtained a legal existence; that its ulterior motive was to use its corporate franchise for the purpose of exercising the right of eminent domain in behalf of another. In the case of State, ex rel. Attorney General, v. Taylor et al., 25 Ohio St., 279, an attack was made upon the corporate existence because of a secret, underlying motive to abuse its corporate power in not complying with the state law. On page 282 Welch, J., said:

“The question is, does the fact of such secret intention, and the subsequent carrying of that intention into execution, render the proceeding of incorporation a nullity, so that the corporation never obtained a legal existence. We answer the question in the negative. The secret intention of the parties is not by the law made an element in their organization. If their organization was in accordance with the statutory requirements, the lawfulness of their intention must be presumed. The company having organised in all respects in conformity with the laws of Ohio, with its office and place of corporate business in the state, thereby became and was a legal corporation of Ohio, and remains such until dissolved by act of the legislature, by its own voli tion, or by a-proceeding in quo warranto against the corporation itself.”

The only method in which to test the legality of the corporate existence or the abuse of a franchise is by a proceeding brought in the name of the state under Section 12304, General Code, which provides that such action may be brought against the corporation:

“1. When it has offended against a provision of an act for its creation * * * .

“4. When it has misused a franchise, privilege, or right conferred upon it by law, * * * or has exercised a franchise, privilege, or right in contravention of law.”

It must be conceded that the right of eminent domain is a franchise granted to a corporation by the state. A franchise is usually defined as a right or privilege granted by the state which is not ordinarily enjoyed in common by the citizens generally. As stated in the case of Knoup v. The Piqua Bank, 1 Ohio St., 603, 615:

“The right to construct a road over the lands of private citizens, without their consent, is á sovereign right: it is the right, so called, of eminent domain. Whenever that right is delegated to a corporation or an individual, by an act of the general assembly, the corporation or individual has a franchise of eminent domain.”

Or, as stated by Mr. Justice Bradley in the case of California v. Central Pacific Rd. Co., 127 U. S., 1, 40:

“No private person can establish a public highway, or a public ferry, or railroad, or charge tolls for the use of the same, without authority from the legislature, direct or derived. These are franchises. No private person can take another’s property, even for a public use, without such authority; which is the same as to say, that the right of eminent domain can only be exercised by virtue of legislative grant. This is a franchise.”

The attempt of counsel for plaintiff in error in the insolvency court, in their collateral attack upon the existence of the corporation and the ulterior motive alleged, was nothing less than an indirect attempt to invoke the jurisdiction of that court in disregard of the statute which provides that the only method by which that may be done is by action in quo warranto in the name of the state. The evidence tendered and refused by the insolvency court was offered as tending to prove that the corporation had no legal existente; that its stockholders and directors were mere dummies in the formation of the corporation. That contention is again met by Section 12303, General Code, which provides that an action in quo warranto may be brought in the name of the state, “3. Against an association of persons who act as a corporation within this state without being legally incorporated.”

If this proof were used for the purpose of showing that these parties were usurping corporate functions, and the corporation was not in fact legally organized, then, under that section of the code, the action should have been brought against the parties themselves who were acting under an illegal incorporation. ' Before that question could be tested the parties--in interest would have to be brought into court, but by a proper proceeding, for the reason that it has been held in this state that it is not sufficient that the corporation itself be made a party, but that the parties organizing the corporation must themselves be a party to the action, and that that action must be in quo warranto. As stated in the syllabus of State, ex rel. Attorney General, v. The Cincinnati Gas Light & Coke Co., 18 Ohio St., 262:

“Where the franchise to be a corporation is intended to be drawn in .question, the proceeding should, under our statutes, be against the individuals who usurp such franchise.”

And the learned judge, in his opinion in that case, at page 286, quoting from 4 Cowen’s R., 97, said:

“If the information be for using a franchise by a corporation, it should be against the corporation. If for usurping to be a corporation, it should be against the particular persons.”

This principle was later announced in the case of State, ex rel. Attorney General, v. Taylor et al., supra. It cannot be denied that if the corporation in question was endeavoring to condemn property for another this would be an abuse of its franchise. Indeed, this is conceded by counsel for the landowner, for in their brief they say:

“The question whether a corporation is misusing its franchise may be one for the state to raise, but, we submit, the right to make the appropriation of the land of a citizen may be raised by the citizen, and determined by.the court in a proceeding instituted by the corporation to appropriate his land,”

It is there intimated that there is a concurrent remedy in the probate court for the correction of this corporate abuse. But the constitution of Ohio has failed to confer jurisdiction in quo warranto upon the probate court. That court is a court of limited jurisdiction, with only the powers granted it by the legislature. If the position of the plaintiff in error be conceded, then the probate court has substantially jurisdiction in quo warranto, a jurisdiction which has been conferred only upon the courts of appeals and the supreme court of the state. That a probate judge in an appropriation proceeding has not this power is supported by both reason and authority. Let us assume the contingency that a corporation is endeavoring to construct its road by proceedings in appropriation from one end of the state to the other. If the contention claimed were to apply, then it would be possible for the probate court of each county, within the range of counties through which the road had to pass, to determine whether the corporation had no legal existence or was misusing its franchise in attempting to condemn property for a friendly corporation. Each local probate judge, in his own county, might have the same facts presented to determine whether or not there was a corporate abuse, and a different decree in the various counties might result from the evidence, and yet one single local judge, by a decree finding against the corporate existence or that there was an abuse of power, might destroy the franchise and make the whole route ineffective. Or, in a single county, where the land of several individuals may be separately condemned and where similar defenses are set forth as are relied on in this case, it is possible that one landowner may succeed and another fail. This situation cannot develop in an action brought by the state. Furthermore, it must be conceded that an action in quo warranto brought on the relation of a private individual is not a bar to a similar action brought by the state, because the state is not a party thereto. State, ex rel. Attorney General, v. The Cincinnati Gas Light & Coke Co., supra.

Or let us assume a- conflict of jurisdiction between the local probate court of some county and a higher court having original jurisdiction in quo warranto. Since the state is not a party to the proceeding in appropriation and is not bound thereby, let us assume that the local court decreed against the right of eminent domain and that the court of higher jurisdiction, in an action by the state, decreed in its favor upon the same facts. That is what was actually done in the present case. It Is admitted in the majority opinion that after the judgment in the insolvency court a suit in quo warranto was brought by the attorney general in the court of appeals of Franklin county against this corporation for a judgment of ouster, upon the same state of facts offered as a defense by counsel for the landowner in this case, and that court ordered a judgment of ouster, but the order provided that it should be without prejudice to the rights of the defendant (corporation) to defend the appropriation suits already pending, of which this was one. Both by principle and authority the right to test the question of legal existence and corporate abuse should of necessity remain in the state from which the franchises were obtained. A decree upon those questions in an action brought by the state in quo warranto settles the questions at issue for each individual in the state and would not require separate action upon the part of every individual whose land was sought to be condemned. It may be conceded that if the proof tendered were sufficient to show that there was a wrong committed, either by the association of persons forming the corporation as a “dummy,” or by the corporation itself in the attempt to misuse the franchise, there is a remedy. But that quo warranto is The only remedy by which such a wrong can be reached has early been decided by the courts of this state. In the case of State, ex rel. Linley, v. Bryce, 7 Ohio, part 2, 82, Lane, J., cited a large number of authorities in support of the following principle:

“It is well settled that neither a neglect to exercise corporate powers, nor even an abuse of them, ipso facto, works a forfeiture of the franchise; that the corporation subsists until the forfeiture be ascertained and declared by a-competent tribunal, in a judicial proceeding instituted for that purpose against it by government.”

That case involved a controversy over private rights, as did also the case of Webb v. Moler, 8 Ohio, 548, in which the defendant properly asked the following instruction to the jury:

“That no non-user by said corporation of its corporate franchises would operate as a forfeiture of such franchises, unless such default and forfeiture had first been judicially determined in a legal proceeding instituted for that purpose.”

And in that connection the judge delivering the opinion said:

“No proposition is more thoroughly established, than that the franchises of a corporation cannot be forfeited without a judgment either on scire facias or quo zvarranto.”

The following case was cited against the principle involved: Gas-light Co. v. Zanesville, 47 Ohio St., 35. That case followed and depended upon its associate case of Zanesville v. Gas-light Co., 47 Ohio St., 1, where it is held in the second proposition of the syllabus:

“Whenever an incorporated company, in any action, asserts, a right against another person based upon an assumed franchise or power, the person against whom the right is so asserted may, as a defense, deny the existence of such franchise or power.”

That was an action in injunction and not for appropriation. The case decided only that if a corporation attempts to exercise an assumed franchise, a defendant may set up as a defense its nonexistence. An examination of that case will readily show that the corporation attempted to act without any authority whatever; that it had no franchise, but acted, through an invalid ordinance, under an assumed franchise or power. There was no legal authority in that case to exercise the power claimed, and the relevancy of Judge Minshall’s remarks is fully explained on page 29 of the former case, wherein he says:

“It is open, at all times, to the person against whom a corporation may claim the right to exercise a power, to call the power in question, and to require the company to show the existence of the power, by deriving it either from the plain terms of its charter or the statute under which it is organized.”

There is no claim made in the instant case that the corporation has not the power of eminent domain. The Zanesville case would be apposite if some private corporation attempted to exercise the franchise of eminent domain, as if some corporation organized for manufacturing or dealing in real estate were endeavoring to assume the franchise of eminent domain. This is the only principle to which the Zanesville case applies.

On the trial before the insolvency court there was a mass of testimony relating to the character of the books kept by the plaintiff company and the nature of stock subscriptions, but there was no dispute that the statutes in relation to the formation of corporations had been fully complied with in every regard, including the election of directors and the payment of the ten per cent, subscription on stock. From all these questions it must be presumed that the lower courts found that the corporation was duly and legally organized, and on questions of fact this court does not ordinarily pass. The legal propositions stated by the .record were, viz.: That it was not organized in good faith in the first instance, and that its motive was to condemn the property for The Northern Ohio Traction Company. In the late case of Louisville & N. Ry. Co. v. Western Union Telegraph Co., reported in 110 N. E. Rep., 70, the supreme court of Indiana held in the syllabus:

“In proceedings by a telegraph company to condemn. a right of way for its poles and wires longitudinally along a railroad right of way, the road could not question the corporate existence of plaintiff by alleging it had been organized as a domestic corporation, solely to acquire the right of way to assign it to a foreign corporation, to be used by the latter in the construction and operation of its lines, a means by which the foreign corporation could evade the laws of the state not extending the right of eminent domain to foreign corporations.”

In the disposition of that case, the court in its opinion said:

“By the seventh objection appellant challenges the right of appellee company to condemn, upon the ground that it is not a good-faith corporation. It is charged that appellee is not engaged in the operation of telegraph lines, and that it is not the purpose of the appellee to engage in that business, or to use t'he right of way sought to be acquired in this proceeding for that purpose, but that appellee seeks to acquire the right of way in question solely for the purpose of assigning it and turning it over to the Western Union Telegraph Company of New York, to be used by the latter company in the construction and operation of its lines. Appellant asserts that appellee company was organized, and that this proceeding was brought for the purpose of evading by indirection the laws of this state, which do not extend the right of eminent domain to foreign corporations. It has been repeatedly held that a defendant cannot question the corporate existence of plaintiff collaterally in a proceeding such as this. This can be done only by the state in a direct proceeding for that purpose.”

The supreme court of Illinois, in the case of Thomas v. St. L., B. & S. Ry. Co., 164 Ill., 634, held in the syllabus:

“Whether a corporation retaining its franchise is improperly exercising the same, or has entered into any illegal combination which may affect its franchise, is a question between the corporation and the state, and cannot be raised by a defendant in a proceeding to condemn.”

This case also was an appropriation proceeding, in which the landowner attempted to show control over the appropriating company by another corporation, and in which it was held that any illegal arrangement entered into by the appropriating compány affecting its franchise could only be raised by the people in a proceeding instituted for that purpose.

The supreme court of Missouri, in the case of Kansas & Texas Coal Ry. Co. v. Northwestern Coal & Mining Co., 161 Mo., 288, held in the syllabus:

“The power of a regularly organized and chartered railroad company, chartered for The purpose of constructing and operating a railroad for public use in the conveyance of persons or property,’ to condemn land for a right of way for a railroad track, can not be drawn in .question in a condemnation proceeding. Nor can it be shown in such proceeding, which is a collateral one, that a company chartered for such a purpose, has the same directors and stockholders as a private business corporation, and that its proposed right of -way is to be used solely in the interest of such private business (in this case, coal mining), nor that the private company furnished the money with which the railroad is to be constructed. No evidence to show such facts is competent, except in a direct proceeding to attack its charter.”

The supreme court of North Carolina, in Holly Shelter Rd. Co. v. Newton, 133 N. C., 132, a similar case involving proceedings to condemn, held that the charter of a corporation in such a proceeding could not be collaterally attacked as being fraudulent. The contention of the landowner in that case was that the charter of the railroad was a fraud, and that its real object was not the conveyance of freight and passengers, according to its charter, but merely to operate a lumber road. The supreme court held that if such were the case it would be a fraud upon the public to obtain the right of condemnation by such evasion, that the charter could not be collaterally attacked in a condemnation proceeding, but that a direct proceeding on behalf of the state should be brought to annul its charter:

In the case of In re Brooklyn El. Rd. Co., 11 N. Y. Supp., 161, which was also a proceeding to condemn, the landowner attempted to show in defense of the proceeding that, the railroad company had failed to complete its road according to the laws of the state, thereby forfeiting its rights acquired under the terms of the act. The court held that the company could not be attacked for its default in condemnation proceedings instituted by it, but that the state must intervene. That case was affirmed by the New York court of appeals in 125 N. Y., 434.

The case of Denver Power & Irrigation Co. v. D. & R. G. Rd. Co., 30 Colo., 204, is also a case involving the appropriation of property. After the case had reached the supreme court of Colorado, the attorney general of that state attempted to intervene in the name of the people to determine whether or not the railroad company had forfeited its franchise, but the court held that it had no such right, as that would be equivalent to changing the condemnation proceeding to that of quo warranto.

The case of Tibby Bros. Glass Co. v. Pennsylvania Rd. Co., 219 Pa. St., 430, is peculiarly in point. The Pennsylvania Railroad Company brought a proceeding to condemn the property of the owner. Thereupon the owner filed a bill in equity to restrain the condemnation because of its violation of the act of its incorporation and also of the constitution of that state denying the right of parallel and competing companies to condemn. The supreme court of Pennsylvania held that this could be done only by the state itself, in an action in quo warranto, and the language of the judge delivering the opinion is pertinent, apt and buttressed by legal logic denying the right of the landowner to invoke the jurisdiction of the court in a condemnation proceeding. The authority claimed by the landowner in that case was; conferred by an act which provided that at the instance of private parties an inquiry might be made into the existence and extent of franchises conferred by corporate charters, and especially that of one railroad controlling a parallel competing line, which issue should be, upon demand, submitted to a jury; and the court said that if this were permitted to be done by individual landowners all along the line the confusion resulting therefrom would be “worse confounded,” in that separate local courts in the various actions might come to different conclusions which would result in one case protecting the land from condemnation and the other not; that all along the line of the Pennsylvania Railroad Company at certain points the contingency might arise by which a finding would result that the railroad company possessed the right of eminent domain, while in others it did not, and that the only method by which the question could be raised would be in a single proceeding by the commonwealth in order to determine once for all whether the condemning railway had the right to condemn from one end of the state to the other.

So also, in the case of Brown v. Calumet River Ry. Co., 125 Ill., 600, a condemnation proceeding, the court held in the syllabus:

“In a proceeding by a railway company to obtain a right of way, the county court has no jurisdiction to determine whether or not the petitioner is a bona fide corporation, within the meaning and spirit of the law. That can be done only on quo warranto.”

The same principle is supported by the supreme court of Illinois in the case of Western Union Telegraph Co. v. Louisville & N. Rd. Co., decided October 27, 1915, and reported in 110 N. E. Rep., 583.

These are but a few of the cases in which it has been held that questions of the character attempted to be raised by this record cannot be raised in proceedings to condemn before the local courts.

On the other hand counsel for plaintiff in error have not cited a single case where the authorities support the view that testimony of the character offered by the landowner in this case is competent in a proceeding to condemn, especially where the corporation has become one de jure, by its organization and selection of directors, under the authority of Powers v. The Hazelton & Letonia Ry. Co. and other cases cited, supra. Therefore the judgment of the lower cotirts should have been affirmed.