Court Opinion

ID: 7141210
Source: CourtListenerOpinion
Date Created: 2022-07-24 15:29:27.138683+00
Date Added: 2024-06-11T16:14:48.889835
License: Public Domain

Dissenting Opinion by
Chief Justice Hobson.
Two questions arise in this case:
1. Did the court err in its conclusion as to the construction of section 566, Ky. Stats., in Johnson v. Ma*646son Lodge, 106 Ky., 838; Altman & Co. v. Mead, 109 Ky., 583, and Hallam v. Ashford, 24 R., 870?
2. Can the court now under its own rulings properly depart from the construction of the statute it then adopted, the Legislature having acquiesced in that construction?
1. In Johnson v. Masonic Lodge, the corporation had not complied with section 571 Ky. Stats. Johnson had borrowed money from it and when sued for the money relied on the violation of section 571 by the corporation in bar of a recovery. The circuit court sustained a demurrer to his answer which was practically the same as the answer in this case. In the opinion delivered by this court, after stating the facts the court quotes section 194 of the Constitution and sections 571 and 566, Ky. Stats. It then proceeds in a lengthy opinion to show that under section 566, a person by executing a note to a corporation “is estopped to deny its existence or authority to do business at that time.” The other two cases follow and reaffirm this decision; and in the last case it is stated that the question has been repeatedly before the court and had been decided the same way; though it would seem that it was not noticed in the opinions being deemed settled by the previous adjudications. These cases being based upon section 566, Ky. Stats., in no manner conflict with Lindsey v. Rutherford, 17 B. Mon., 245; Franklin Ins. Co. v. Packet Co., 9 Bush, 590; Van Meter v. Spurrier, 94 Ky., 22, or Smith v. Robertson, 106 Ky., 472, or other like cases for the reason that the statute under which those cases were decided contained no such provision as is set out in section 566. The opinion proceeds on the ground that the equitable doctrine of estoppel does not apply. This may be conceded, but the question turns on section 566 and not on equitable estoppel. So the question recurs was the court .right in the construction it then gave section 566. That section and section 571 are parts of the same act, the work of the same Legislature and the two must of course be read together. Section 566 is as follows:
“No corporation organized under this chapter shall be permitted to set up or rely upon the want of legal organization as a defense to any action against it; nor shall any person transacting business with such corporation, or sued for injury done to its property, be per*647mitted to rely upon such want of legal organization as a defense.”
It is now insisted that the words “want of legal organization” refer only to the filing of the articles of incorporation, the election of officers and the like. Is this the natural meaning of the words in the connection in which they are used in this section? In Words & Phrases, Yol. 5, defining the words “organize” and “organization” in reference to corporations it is said: “ ‘Organize’ and ‘organization,' as used in reference to corporations, has a well understood meaning, which is the election of officers, providing for the subscription and payment of the capital stock, the adoption of bylaws, and such other steps as are necessary to endow the legal entity with the capacity to transact the legitimate business for which it was created.”
It will be observed that this is precisely the definition of the terms which this court adopted in the cases referred to, and if we insert this definition in scetion 566, it will read as follows:
“No corporation organized under this chapter shall be permitted to set up or rely upon its want of capacity to transact the legitimate business for which it was created, as a defense to any action against it, nor shall any person transacting' business with. such corporation, or sued for injury done to its property, be permitted^ to rely upon such want of capacity to transact the legitimate business for which it was created.”
In Black’s Law Dictionary, the word “organization” is not given, but among the definitions of “organize” are these:
‘ ‘ To put into working order; to arrange in order for the normal exercise of its appropriate functions.”
A corporation is not put into working order until it has capacity to do business. It is not arranged in order for the normal exercise of its appropriate functions until it is lawful for it to make contracts. It is true that appellant is a foreign corporation, but as such, it had no legal existence outside of the State creating it. The exercise of any power in another State depends upon the will of that sovereignty. (Lathrop v. Commercial Bank, 8 Dana, 114.) By section 202 of our Constitution foreign corporations coming into this State must do business on conditions not more favorable than are prescribed by law to similar corporations organized under the laws of the Commonwealth. So when foreign *648corporations come into the State, they must comply with onr laws, and have no right to do business or legal existence here, except by virtue of our laws. When they do this as has been frequently held, they stand on the same plane as similar corporations created under the laws of the State. If, as is uniformly held, appellant had no legal existence as a corporation in this State until it complied with our laws giving it a right to do business here, how can it be maintained under any meaning of the word “organization” that it is not within the provisions of section 566!
Under section 571 it was not “lawful for any corporation to carry on any business in this State” until it complied with that section; and, therefore, no corporation had capacity to do business in this State, until it complied therewith. The defense here made is simply that the corporation had not capacity to do business because it had not complied with section 571; and this defense under section 566 a person transacting business with the corporation cannot make. Section 460- Ky. Stats., which is the work of the same Legislature regulating the construction of statutes, provides as follows:
“All words and phrases shall be construed and understood according to the common and approved usage of language, but technical words and phrases, and such others as may have acquired a peculiar and appropriate meaning in the law, shall be construed and understood according to such meaning.”
The word “organization” having acquired a peculiar and appropriate meaning’ in the law, the court in the cases referred to properly gave it that meaning.'
But looking beyond the letter of the statute to its purpose and intent, what reason could the Legislature have had for making section 566 apply only to irregularities in the steps taken prior to the filing of the papers in the office of the Secretary of State, as required by section 571, and not including this step also! By section 460, Ky. Stats., it is also provided as to this revision that its “provisions are to be liberally construed with a view to promote its objects.”
In Bailey v. Commonwealth, 11 Bush, 691, this court said that “every statute ought to be expounded not according to the letter, but according to the meaning.” In Sams v. Sams, 85 Ky., 400, it is said that “the reason for the enactment must enter into its interpretation *649so as to determine what was intended to be accomplished by it. ”
Can any one believe that a body of practical men. intended by section 566 to protect a corporation that had not the necessary number of incorporators or the necessary stock subscription, or that it had not paid its organization tax, and did not intend it to protect a cor-, poration that was not qualified to do business because it had not filed a certain paper in the office of the Secret tary of State? Section 571 applies alike to domestic as well as foreign corporations and section 566 must also apply to all alike. Much of the business of the State is now done by corporations. Mistakes are sometimes made by the most careful men; papers sent by mail sometimes do not reach the Secretary of State; and sometimes one officer is under the impression that another has performed this duty or that required by the statute. So section 566 was inserted for the protection of the capital invested in these enterprises. It only validates the contract as between the parties to it. When we construe the statute liberally with a view to promote its objects how can it be thought that section 566 only refers to defects in the articles of incorporation and the like? What was its purpose? Manifestly to prevent injustice and to prevent those who had done business with the corporation from taking advantage of the corporation’s want of capacity to do business. The words employed in section 566 show the Legislature had this in mind. In the first place it provides that the corporation shall not make this defense. If we turn this case, around, and the owner of the house was here suing the contractor for not building the house properly, would there be any doubt that under section 566 the corporation could not make this defense although both parties made the contract knowing the facts? And if the first part of the section would cut off the corporation from making that defense, upon what principle can it be maintained that the last clause of the sentence is narrower in its application than the first clause? Not only so, but the second clause deals with the person who has transacted business with the corporation, and in that clause manifestly the Legislature has in mind business done by the corporation, and provides that this defense shall not be allowed in favor of the men who have done business with the corporation. There may be cases in which the word “organize” is given a narrower meaning, where only *650the life of the corporation is in issue; but this section is dealing with the transaction of business by the corporation, and manifestly uses the words “legal organization” in the sense of capacity to do business. The court entirely overlooks in section 566 the words “or sued for injury done to its property. ’ ’ Can anybody believe that the legislature intended tins protection to the property of a corporation only in cases where there was some defect in the steps taken to form the corporation? Is there any reason why the property of such a corporation should be protected from wanton injury that would not apply to a corporation that had not complied with section 571? ■ "Would anybody hold that a trespass committed upon the property of a corporation before it had complied with section 571, would be without redress when it complied with the section before bringing suit? Does anybody believe that the legislature intended that the defendant here could with impunity have appropriated to its own use the property of the plaintiff because it had not complied with section 571? The plain purpose of section 566 was not to leave corporations without remedy in the two classes of cases indicated, although they had failed to comply with some provision of the statute, and could not lawfully do business as a corporation.
The Kentucky cases above referred to are cited in Thompson on Corporations, section 6710, where he says:
“Not a few courts have applied the general doctrine of estoppel to persons dealing with foreign corporations. And the rule established by these courts is that a person who has contracted with a foreign corporation that has not complied with the statute authorizing it to transact business in the State, will be estopped in any action by it on such contract, from setting up the fact that it had not complied with the statute.”
In 19 Cyc, 1297, after showing that in some States where they had no such statute as section 566 the contracts of the corporation have been held not enforceable, it is said:
“In some States the courts have held, contrary to the doctrine hereinbefore stated, that where a person enters into a contract with a foreign corporation, and receives the benefit of such contract, he is estopped to set up the fact that the corporation had not complied with a statute of the State imposing conditions upon fits *651right to do business therein, for the purpose of avoiding liability on the contract.”
In support of this statement, decisions are cited from Arkansas, Colorado, Idaho, Iowa, Massachusetts, Missouri, Montana, New Hampshire, Ohio, Rhode Island, Washington, West Virginia, Kentucky, North Dakota, South Dakota, and in the annotations for 1914 a number of other cases to the same effect are cited.
Section 194 of the Constitution requires all corporations carrying on business in this State to have one or more known places of business in this State, and an authorized agent upon whom process may be executed. But this has no application to the case at bar, for a violation of this section is not shown. The General Assembly to carry into effect the constitutional provision enacted sections 566 and 571. What regulations should be made was a legislative question.
It is said that the construction of the statute adopted by the court makes it vain' and elusive. Other penal statutes are not vain and elusive because the penalties affixed for their violation are the means relied on for their enforcement. If experience has shown that the statute as construed by the court is vain or elusive, it must be presumed that the legislature, coming biennially from the people, would have afforded a remedy. When they have not done this and no officer of the State has complained, by what authority is it said that the statute is vain and elusive? The General Assembly met in the year 1900, a few months after the decision in the Johnson case was rendered, and when the matter was fresh in everybody’s mind. It not only took no action, but the subsequent General Assemblies, meeting biennially, have acquiesced likewise in the court’s construction of the statute. The dockets of this court show that the statute is not vain and elusive; for the officers of the State have not been remiss in prosecutions under the statute to obtain the fines it provides for. It is a highly penal • statute. Not only the corporation may be fined, but every officer or agent doing any business, and the corporation can enforce no civil right by action except as provided by section 566. The Chatterson case, where a contractor who had built a street was refused relief, illustrates the fact that the statute is not vain and elusive. Must it not strike any justice-loving man as a travesty on justice that a person may borrow of a corporation $20,000 and when asked to pay it, snap his fin*652gers in the creditor’s face, and say: “I will keep yonr money, because you did not file a statement in the .office of the Secretary of State, as required by law, before you lent me the money and took my note for it?” Must it not strike any justice-loving man as a travesty on justice when the owner of property who, as here, is sued by the contractor for $20,000 for building him a house, says: “I have the house and you can do without your money, because you had not complied with section 571, Ky. Sts.?” Is it any wonder that the representatives of a justice-lowing constituency like the people of Kentucky put such a section as 566 in the statutes to prevent such injustice as this? And is it any wonder that when the statute they made was thus construed by the court, the representatives of such a people acquiesced in the construction of the court and made no effort to qhange the statute? A change of the statute by the legislature and a change of its construction by the court are very different things. When changed by the legislature the change operates only on the future, and people have notice of it; a change by the court, as in this case, operates on the past and destroys rights contracted innocently upon the faith of the decisions of the court.
It is true that in some States where the statute expressly provided that contracts made in violation of it should be void; and in others where the contract was simply declared unlawful, the courts have enforced the statute while acknowledging its hardship, saying that it was a legislative question. Such is the rule in Pennsylvania, Alabama, Tennessee, Wisconsin, Michigan, Minnesota and Oregon. But in no case has this been done where the court did not recognize that justice had been defeated. In view of these things, how can it be maintained that the construction which is now given section 566 construes the statute liberally with a view to promote its purposes?
2. The second question comes to this: Is the construction of a statute settled by a line of decisions of this court, or is it never settled until settled right in the eyes of those who are judges of this court when the case reaches here? Does the obligation of contracts depend upon the law as officially promulgated at the time the contract was made, and may it be impaired by a subsequent change in those laws by judicial construction?
The purpose of establishing this court is primarily that justice may be administered and that the laws of *653the State may have a uniform operation. To this end the opinions of this court are published as the authoritative exposition of the laws. When the court has construed a statute and that construction has been adhered to in a line of cases, it has been the settled policy of the court not to depart from it. In South v. Thomas, 7 T. B. Mon., 62, where the court was urged to overrule previous decisions construing a statute, it said:
“It has been often said that it is not so important that the law should be rightly settled, as that it should remain stable after it is settled. This is true, for attempts to change the course of judicial decision, under the pretext of correcting error are like experiments by the quack upon the human body.”
In Trimble v. Taul, 7 T. B. Mon., 445, where members of the court differed in opinion as to the correctness of the previous decisions construing a statute, the court said:
' “If we were convinced that on this point the law was settled wrong originally, we should not feel ourselves at liberty to depart from it; aware that it is of greater importance to society that the rule should be uniform and stable, than that it should be the best .possible rulo that could be adopted. In the supreme court of a State, as this is, possessing, with but few exceptions, appellate judicial power co-extensive with the State, the influence which its decisions must have is evident. Its mandates are conclusive, and even its dicta in all the inferior courts. No sooner is a decision published than it operates as a pattern and standard in all other tribunals, and as a matter of course, all other decisions conform to it. If in this court a settled course of adjudication is overturned, then the trouble and confusion of reversing former causes succeeds in the inferior tribunals; and even the credit and respect due to this court is shaken by the phenomenon that A has lost his cause on the same ground that B gains his. And not only do these consequences follow, but evils still more serious may ensue. For perhaps no court may strike the vitals of society with a deeper wound than a capricious departure in this court from one of its established adjudications.”
In Maddox v. Graham, 2 Met., 56, where a like question was passed upon, the court said:
*654“If this court were now to overrule its former decision, it would be an inconsistency as gross in form and manifestation, as unjust in its consequences.”
In McChesney v. Hager, 31 R., 1039, the court, after pointing out that if the question was a new one, it would give the statute a different interpretation, said:
“But we do not feel disposed to overrule the opinion of this court in the case supra. Since that case was handed down there have been four regular sessions of the legislature, and if the constructions given to these statutes was not the one intended by the legislative department, it is fair to assume that the statute would have been so amended as to make effective for the purpose of the legislature in the enactment of these laws, and give to the Secretary of State the additional salary now insisted upon.”
Further on in the opinion the court said that “in construing the statutes interpreted they must be read in connection with the opinion of the court, and, in fact, the opinion becomes in effect a part of the statute binding upon all persons asserting rights under it or whose interests are affected by it.”
These rules are of universal application. In Commissioners v. Harrison, 7 H. L., 9, Lord Cairns said:
“I think.that with regard to statutes * * * it is desirable not so much that the principle of the decision should be capable at all times of justification, as that the law should be settled, and should, when once settled, be maintained without any danger of vacillation or uncertainty.”
In Sutherland on Statutory Construction, 485, it is said: •
“A judicial construction of a statute becomes a part of it, and as to rights which accrue afterwards it should be adhered to for the protection of those rights. To divest them by a change of the construction is to legislate retroactively.”
It is now nearly fifteen years since the decision of this, court in the Johnson case was rendered. In the meantime, and while that decision was acquiesced in by all three departments of the State government, a large part of the business of the State has been done by corporations. Thousands of dollars have been lent or invested in the building of railroads or other structures upon the faith of these decisions under contracts which were valid under the law as then expounded and which *655are now declared invalid under a different construction of the statute.
The Chatterson case is rested on the ground that there was no estoppel, the defendant there not being a party to the contract. The point decided is not inconsistent with the prior cases. While the court has often overruled a single case especially where it was inconsistent with subsequent decisions, it has never overruled two reported cases on the construction of a statute after they “had been followed in quite a number of subsequent decisions.” None of the cases cited go as far as the decision now made and none of them in the slightest degree sustain the action of the court in this ease.
It is submitted that nothing so unwarranted has ever been done by this court before as to overrule repeated decisions construing a penal statute and adding greatly to its penalties, when those decisions have been acquiexeeed in by the legislature. It is to the interests of all that the law should be settled. The uneertanty of the law has passed into a proverb, but how infinitely more uncertain it must be when reliance cannot be placed upon the decisions of the highest court in the State. Our docket is now overburdened with cases in which this or that precedent is sought to be overruled; and certainly it is a sound principle that the law as settled shall remain settled.
Manifestly if the legislature, after the decision of the cases referred to, had amended section 571 and provided as in a number of other States, that contracts made in violation of it should be void, this act could not have the effect to invalidate contracts made before it was passed and which were valid under the statute as it then stood. Can a court of justice consistently, if it has the power, by a retroactive decision, invalidate contracts which were valid under the law as it stood when they were made? Aside from the Federal question, it is submitted that no court in administering justice can consistently do such injustice.
In 26 Am. & Eng. Ency. of Law, 179, it is said:
“But after a statute has been settled by judicial construction, the construction becomes, as far as contract rights acquired under it are concerned, as much a part of the statute as the text itself, and a change of decision *656is, to all intents and purposes, the same in its effect on contracts as an amendment of the law by means of a legislative enactment, and contract obligations entered into or vested rights acquired while the former decision was in force cannot be .impaired.”
A number of decisions of the United States Supreme Court and the State courts are cited in support of the text, and a number of other cases are given in the brief for appellant. It is said that these cases have no application for the reason that it was unlawful for the corporation to do business, and that it cannot avail itself of the constitutional provision in an illegal act. But it will be observed that a number of cases cited were just such cases as this. If the contract was valid under the law in existence as it stood when it was made, and is invalid under the law as it is now declared, has not the obligation of the contract been impaired? In Ohio Ins. Co. v. Debrot, 16 Howard, 416, the United States Supreme Court said:
‘ ‘ The sound and true rule is that if the contract when made was valid by the laws of the State, as then expounded by all the departments of its government and administered in its courts of justice, its validity and obligation cannot be impaired by any subsequent act of the legislature of the State or decision of its courts altering the construction of the law.”
The argument that the obligation of the contract may be impaired by a change in the court’s ruling because the transaction was unlawful, assumes the point in issue. To illustrate, the court by its former decisions read section 566 into section 571; so that that section, when read with section 566, meant that contracts made in violation of it might be enforced against the party doing business with the corporation. If these words had been inserted by the legislature in section 571, and a subsequent act had stricken them out, would it be contended that the effect of the subsequent act was to invalidate contracts already made? And if the legislature could not do this, how comes it that the court has any greater power when the limitation of the Federal constitution is that the State shall not impair the obligation of a contract? Certainly it must be admitted that a contract that was valid under the law as it stood when it was made according to the construction then given *657it by this court is now held invalid. If this is not to impair the obligation of a contract, what is it?
For these reasons I dissent from the opinion of the court. Judge Nunn concurs in this dissent on the second question.