Case Name: COAL HARBOR STOCK FARM, INC., et al., Plaintiffs and Respondents, v. Ben MEIER, as the Secretary of State of the State of North Dakota and his successors in office, Defendant and Appellant
Court: North Dakota Supreme Court
Jurisdiction: North Dakota
Decision Date: 1971-09-01
Citations: 191 N.W.2d 583
Docket Number: Civ. No. 8719
Parties: COAL HARBOR STOCK FARM, INC., et al., Plaintiffs and Respondents, v. Ben MEIER, as the Secretary of State of the State of North Dakota and his successors in office, Defendant and Appellant.
Judges: STRUTZ, C. J., and ERICKSTAD, PAULSON and KNUDSON, JJ., concur.
Reporter: North Western Reporter 2d
Volume: 191
Pages: 583–593

Head Matter:
COAL HARBOR STOCK FARM, INC., et al., Plaintiffs and Respondents, v. Ben MEIER, as the Secretary of State of the State of North Dakota and his successors in office, Defendant and Appellant.
Civ. No. 8719.
Supreme Court of North Dakota.
Sept. 1, 1971.
Rehearing Denied Nov. 16, 1971.
Helgi Johanneson, Atty. Gen., and John E. Adams, Asst. Atty. Gen., Bismarck, for defendant and appellant.
Nilles, Oehlert, Hansen, Seibo & Magill, Fargo, for plaintiffs and respondents.

Opinion:
TEIGEN, Justice.
The Secretary of State has appealed from a summary judgment adjudging that he erred in refusing to approve the proposed articles of incorporation and to issue a certificate of incorporation for a proposed corporation to be named Coal Harbor Stock Farm, Inc. This summary judgment directs the Secretary of State to approve the proposed articles and to forthwith issue a certificate of incorporation to effectuate the corporate existence of the proposed corporation.
The Secretary of State refused to approve the proposed articles on the ground that the proposed corporation was being formed for a purpose prohibited by law. The facts were stipulated. The incor-porators, G. C. Robinson, Dave M. Robinson, Majel M. Robinson and Sheila C. Robinson, residents of North Dakota, sought to incorporate, pursuant to the North Dakota Business Corporation Act (Chapters 10-19 through 10-23, N.D.C.C.), a business corporation to be known as Coal Harbor Stock Farm, Inc., for the purpose of engaging in the "business of farming or agriculture solely in North Dakota" with powers "to acquire rural real estate used or usable for farming or agriculture solely in North Dakota, reasonably necessary in the conduct of the business of farming or agriculture."
The Secretary of State, in rejecting the articles, gave notice that he is of the opinion that the purpose of the proposed corporation, as set forth in its proposed articles "to engage in the business of farming or agriculture, solely in North Dakota," is contrary to the prohibition contained in Section 10-06-01, N.D.C.C., which provides :
"All corporations, both domestic and foreign, except as otherwise provided in this chapter, are hereby prohibited from engaging in the business of farming or agriculture."
Based on this statute the Secretary of State found that the proposed articles were not in conformity with the requirements of Section 10-19-54, N.D.C.C., which requires that matters set forth in articles of incorporation shall be in conformity with the law, and determined that the corporation was being formed for an unlawful corporate purpose, contrary to Section 10-19-03, N.D.C.C., which authorizes that corporations be formed for lawful purposes.
It is the duty of the secretary of state to issue a certificate of incorporation if he finds that the articles of incorporation conform to law. Section 10-19-54, N.D.C.C.
If the secretary of state fails to approve articles of incorporation, the persons who filed them may appeal to the district court of the county in which the registered office of such corporation is proposed to be located, whereupon the matter shall be tried de novo by the district court. The district court shall either sustain the action of the secretary of state or direct him to take such action as the court may deem proper. An appeal to this court is authorized from the order or judgment of the district court. Section 10-23-12, N.D.C.C.
The proceedings in the instant case were treated by the parties and the trial court as an appeal to the district court under the above cited section of the Century Code, and an issue which had been initially raised objecting to the form of the proceedings instituted has been dropped.
The matter was submitted in summary judgment proceedings on a stipulation of facts to the district court. The district court notes that Section 10-06-01, N.D. C.C., which we have quoted above, standing alone, purports to prohibit corporations from engaging in the business of farming or agriculture. However, the district court held that this prohibition is completely rebutted by the following emphasized parts of other sections to the Corporate Farming Law:
"All corporations, both domestic and foreign, which now own or hold rural real estate which was acquired prior to July 29, 1932 and which is used or usable for farming or agriculture, except such as is reasonably necessary in the conduct of their businesses, shall dispose of the same on or before July 29, 1942, and said corporations may farm and use said real estate for agricultural purposes until such date. The ownership limitation provided by this section shall be deemed a covenant running with the title to the land against any grantee, successor, or assignee of a corporation, which is also a corporation." Section 10-06-02, N.D.C.C. [Emphasis added.]
"Any corporation, either domestic or foreign, which, on or since July 29, 1932, has acquired or hereafter shall acquire any rural real estate, used or usable for farming or agriculture, by judicial process or operation of law or pursuant to section 10-06-05, shall dispose of such real estate, except such as is reasonably necessary in the conduct of its business, within ten years from the date that it was so acquired. During said ten year period, the corporation may farm and use such lands for agricultural purposes. The ten year limitation provided by this section shall be deemed a covenant running with the title to the land against any grantee, successor, or assignee of such corporation, which also is a corporation." Section 10-06-03, N.D.C.C. [Emphasis added.]
"In case any corporation, either domestic or foreign, violates any provision of this chapter or fails, within the time fixed by this chapter, to dispose of any real estate to which it has acquired title and which is not reasonably necessary for the conduct of its business, then title to such real estate shall escheat to the county in which such real estate is situated upon an action instituted by the state's attorney of such county, and such county shall dispose of the land within one year at public auction to the highest bidder, and the proceeds of such sale, after all expenses of such proceedings shall have been paid, shall be paid to the corporation which formerly owned the land." Section 10-06-06, N.D.C.C. [Emphasis added.]
It was stipulated and agreed: "That in the Articles of Incorporation, under Section 2(a), the power is proposed to 'acquire rural real estate used or usable for farming or agriculture solely in North Dakota, reasonably necessary in the conduct of the business of farming or agriculture;' that an indispensable prerequisite to engaging in the business of farming or agriculture is the acquisition of some rural real estate; that farms or ranches cannot be operated without rural real estate." It was also stipulated that the individuals forming the corporation are farmers and that if the corporation is formed the future business of the corporation will also be farming.
The trial court found that the purpose and intent of the Corporate Farming Law (Chapter 10-06, N.D.C.C.) is to prohibit farming by corporations whose main purpose is other than farming or ranching, and that the Coal Harbor Stock Farm, Inc., was being formed for the specific purpose of engaging in farming which is not prohibited by the law. The trial court also notes that Section 10-06-05, N.D.C.C., which was construed in Loy, for Use and Benefit of Union Securities Co. v. Kessler, 76 N.D. 738, 759, 39 N.W.2d 260, 270, does not prohibit corporations from acquiring title to farm lands.
In its conclusions of law, the trial court holds as follows:
"V.
"That the purpose of the proposed incorporation of the Coal Harbor Stock Farm, Inc., as contained in the Articles of Incorporation is a valid and legal purpose, within the express exception contained in the Corporate Farming Act, Chapter 10-06 of the North Dakota Century Code.
"VI.
"That by its terms, Chapter 10-06 prohibits a corporation from holding and farming rural real estate only when such real estate is not reasonably necessary for the conduct of its business. The law, therefore, specifically provides that a corporation may farm and hold rural real estate when such rural real estate is reasonably necessary for the conduct of its business.
"VII.
"That the holding and farming of rural real estate is not only reasonably necessary to the conduct of the business of the plaintiff, Coal Harbor Stock Farm, Inc., but is also an indispensable pre requisite to the accomplishment of the stated purpose of the corporation to 'engage in the business of farming or agriculture solely in North Dakota.' "
We do not agree with the trial court's construction of the Act.
This court, in three previous opinions, construed and applied the .Corporate Farm Law. The opinions are: Asbury Hospital v. Cass County (two cases), 72 N.D. 359, 7 N.W.2d 438 (1943), and 73 N.D. 469, 16 N.W.2d 523 (1944) [both were affirmed by the United States Supreme Court in 326 U.S. 207, 66 S.Ct. 61, 90 L.Ed. 6]; Loy v. Kessler, supra. Although the precise question before us in this case was not at issue in those cases, we find the key to the solution of this case lies in the first Asbury case. Judge Christianson, the author of that opinion, wrote:
"Corporations are organized for the ptir-pose of carrying on and conducting certain specified business or activity. They are granted certain powers to be used to perform the functions for which they are organized. There is an obvious distinction between the objects or business which a corporation is organized to accomplish or conduct and the powers with which it is vested for the purpose of conducting the business or attaining its objects. When the statute provides that there shall be excepted from its operation such real estate 'as is reasonably necessary in the conduct of' the business of a corporation, it means such real estate as is reasonably necessary for carrying on the business or activity which the corporation was created to carry on. [Citations omitted.]
"In order for a foreign corporation to be 'doing business' or 'transacting business' in a state — (within the purview of laws imposing conditions on its right to do business in such State) — 'there must be a doing of some of the works, or an exercise of some of the functions, for which the corporation was created and not merely what the corporation might have authority to do. A distinction, in other words, is to be observed in this connection between the purposes of a corporation and its powers. So the doing of an act which, though within the power of the corporation, is not a part of the business which it ivas authorized to conduct, is not doing business' [Citation omitted.]" [Emphasis added.]
The prohibition "from engaging in the business of farming or agriculture" contained in Section 10-06-01, N.D.C.C., embraces "all corporations except as otherwise provided in this chapter." The only corporations which are excepted from the provisions of the chapter are qualified co-operative corporations as provided in Section 10-06-04, N.D.C.C. This section provides:
"Nothing in this chapter shall be construed to prohibit co-operative corporations, seventy-five per cent of whose members or stockholders are actual farmers residing on farms or depending principally on farming for their livelihood, from acquiring real estate and engaging in co-operative farming or agriculture."
The prohibition contained in Section 10-06-01, N.D.C.C., enjoins "the business of farming or agriculture" by corporations. Thus, construing these sections together, all corporations, both domestic and foreign, except co-operative corporations seventy-five per cent of whose members or stockholders are actual farmers residing on farms, or depending principally on farming for their livelihood, are prohibited from engaging in the business of farming or agriculture. So construed, the Coal Harbor Stock Farm, Inc., which is not being formed as a co-operative corporation, is prohibited from engaging in the business of farming or agriculture.
Sections 10-06-02 and 10-06-03, N.D. C.C., create a limitation on the power of corporations to own or hold rural real estate. These sections require that farm lands owned by corporations on the ef fective date of the law, or subsequently acquired, must be disposed of within ten years unless it is "reasonably necessary in the conduct of" its corporate owner's business. During the ten year period, permission is granted to the corporate owner to farm the land. If non-excepted land is not disposed of within the period provided, it becomes subject to escheat to the county upon an action instituted by the state's attorney, as provided by Section 10-06-06, N.D.C.C. The business of the corporation to qualify the land for the exception must be a business authorized by law and not a business which is prohibited by law. The business of engaging in farming or agriculture by a corporation was prohibited by the enactment of Section 10-06-01, N.D.C.C.
Thus rural real estate which is owned by a corporation organized for the purpose of engaging in farming or agriculture does not qualify for the exception.
In other words, Section 10-06-01, N.D. C.C., prohibits all corporations, except the qualified co-operative corporations, from engaging in the business of farming or agriculture. Sections 10-06-02 and 10-06-03, N.D.C.C., limit the power of corporations to own, hold and use rural real estate and do not conflict with the prohibition from engaging in the business of farming or agriculture as contained in Section 10-06-01, N.D.C.C. There is no conflict; the Act is clear and unambiguous.
Section 10-19-03, N.D.C.C., provides that corporations may be organized under the Business Corporation Act for any lawful purpose.
"Where the statutes authorize the formation of corporations for 'any lawful purpose,' the word 'unlawful,' as applied in this connection, is not used exclusively in the sense of malum in se or malum prohibitum; it is also used to designate powers which corporations are not authorized to exercise, or contracts which they are not authorized to make, or acts which they are not authorized to do — in other words, such acts, powers, and contracts as are ultra vires." 18 Am.Jur.2d Corporations, Section 33.
Section 10-19-54, N.D.C.C., places the duty upon the secretary of state to issue certificates of incorporation only on condition that he finds that the articles of incorporation conform to law. Section 10-19-03, N.D.C.C., authorizes the formation of a corporation for lawful purposes.
We are agreed that Section 10-06-01, N.D.C.C., clearly prohibits a corporation from engaging in the business of farming or agriculture and that the proposed articles of incorporation of Coal Harbor Stock Farm, Inc., describes a business which is prohibited and, therefore, unlawful. The Secretary of State did not err in refusing to issue the certificate of incorporation.
The summary judgment of the district court is reversed and it is directed to enter a summary judgment in conformity with this opinion.
STRUTZ, C. J., and ERICKSTAD, PAULSON and KNUDSON, JJ., concur.