Court Opinion

ID: 5170476
Source: CourtListenerOpinion
Date Created: 2022-01-02 04:54:12.500087+00
Date Added: 2024-06-11T08:26:04.015933
License: Public Domain

(SULLIVAN, J.,
Dissenting. — I dissent. The majority of the court in two opinions hold that the Shenon Land Co., a corporation organized under the laws of the state of Idaho, could commence and maintain an action against the Shenon Banch Co., a corporation organized under the laws of Montana, which had forfeited all of its rights to do business in this state because of its failure to comply with the laws of Idaho in regard to paying its license tax as provided by an *258aet of the legislature requiring corporations to pay a license tax, passed at the special session of the legislature held in January, 1912, which act was approved January 30, 1912, and is found in said special session acts at p. 10.
The facts are quite fully stated in Mr. Justice Stewart’s opinion, which show that under the provisions of said aet said Montana corporation had forfeited all rights to do business in this state. Sec. 10 of said act makes it unlawful for any corporation, domestic or foreign, which becomes delinquent in the payment of its license tax, under the provisions of said aet, to exercise the powers of such corporation or to transact 'any business in the state after the 30th day of November next following the delinquency, and if such delinquent corporation transacts any business after the forfeiture of the rights of such corporation, it is made guilty of a misdemeanor and upon conviction may be punished by fine of not less than $100 and not exceeding $1,000, or by imprisonment in the county jail not less than 50 days and not more than 500 days, or by both such fine and imprisonment.
Under the facts appearing from the record, it was made a crime for said Montana corporation to do any business in the state after the hour of 4 o ’clock P. M. on November 30, 1912. Said corporation has not been reinstated under the provisions of said act and has no authority whatever to do any business or to defend any suits in this state subsequent to the last-mentioned date. Its corporate rights were all forfeited, and so far as this state was concerned it was a dead corporation. Had it been a domestic corporation, it would have forfeited its charter.
, Thereafter, on March 17, 1913, the Idaho corporation attempted to bring an action in the district court of Lemhi county against the Montana corporation, to foreclose a certain mortgage against said Montana corporation, by filing a complaint in the district court of Lemhi county. Service of summons in said action was made upon the person who had theretofore been designated' as the agent of the Montana corporation, but whose agency terminated when the Montana corporation forfeited all its rights to do business in this state.
*259However, the officers of the said Montana corporation employed attorneys to defend said corporation in said action, and caused an answer and cross-complaint to be filed in said action. Said officers and directors did not appear in said action any .further than to employ counsel to defend on behalf of the corporation.
Thereafter, on April 24, 1913, the action came on for trial in the said court and a jury was impaneled and the trial continued from the 23d to the 28th of April, when the attorneys for the Montana corporation discovered said act of the legislature under which all its rights to transact business in this state had been forfeited, and by which act it was made a misdemeanor for said Montana corporation to transact any business whatever in this state, and suggested to the court the discovery of said law and that under it said corporation had no right to defend said action. Thereupon said court discharged the jury and the trial was terminated without any judgment of any kind being entered in said matter.
Oh the following day, April 29th, the plaintiffs in this proceeding, who are the duly qualified and acting directors of said Montana corporation, brought an action against the Idaho corporation in said court and had summons issued in such action and said directors as plaintiffs sought to have said mortgage canceled and annulled. Thereafter (the exact date not appearing in the record) counsel for the Idaho corporation made application to said court for the appointment of a “trustee” for the Montana corporation, its stockholders and members, with power to settle the affairs of said Montana corporation in the state of Idaho and with full power to maintain and defend any action or proceeding then pending against it, and to take such legal proceedings as might be necessary to fully settle the affairs of said corporation in this state “and to do all acts provided to be done in section 11, chapter 6, of the General Laws of Idaho passed by the Extraordinary Session of the 11th session of the legislature, 1912” (Sess. L. 1912, p. 18), thus recognizing that the plaintiff was proceeding in said application for the appointment of a trustee and not under the general laws for the appoint*260ment of a receiver of an insolvent corporation. The following also appears in said application; “Also that such trustee may be made a party defendant with the defendant corporation in the above-entitled action and that plaintiff may be permitted to file an amended complaint and to have summons issue thereon to said trustee.”
On September 3, 1913, more than four months after the discharge of said jury, the court granted said motion and appointed one C. G. Matthewson as trustee of the Montana corporation, its stockholders and members, with full power to settle the affairs of said corporation in the state of Idaho.
The question directly presented is whether the court had jurisdiction to appoint said trustee under the provisions of said act.
The 11th section of said act provides, among other things, as follows:
“In all eases of forfeiture under the provisions of this act, the directors or managers in office of the affairs of any. domestic corporation whose charter may be so forfeited, or of any foreign corporation whose right to do business in this state may be so forfeited, or any other person or persons who may be appointed 'by any court of competent jurisdiction to perform that duty, are deemed to be trustees of the corporation and stockholders or members of the corporation whose power or right to do business is forfeited, and have full power to settle the affairs of the corporation, and to maintain or defend any action or proceeding then pending in behalf of or against any of said corporations, or to take such legal proceedings as may be necessary to fully settle the affairs of said corporation, and such directors or managers, as such trustees, may be sued in any of the courts of this state after such forfeiture by any person having a claim against any of said corporations; provided, always, that no action pending against any corporation, at the time of such forfeiture, shall abate thereby, but may be prosecuted to final judgment, and the same may be enforced by execution with the same force and effect, and in like manner as though no forfeiture had occurred.”
*261It will be observed from the provisions of said section that the directors or managers in office of the affairs of any domestic corporation whose charter may be forfeited under said act, or of any foreign corporation whose right to do business in this state may be forfeited, are deemed to be trustees of the corporation or stockholders or members of the corporation, and have full power to settle the affairs of the corporation and to maintain or defend any action or proceeding then pending in behalf of or against any of said corporations, or to “take such legal proceedings as may be necessary to settle the affairs of such corporation.” Said section provides that said managers, directors or trustees may be sued in any of the courts of this state after such forfeiture by any person having any claim against any of such corporations. It also specifically provides that no action pending against any corporation at the time of such forfeiture shall abate thereby, and does not provide that any action can be maintained against such corporation which is commenced after the forfeiture of its corporate rights. Under the provisions of said section, a domestic corporation forfeits its .charter and all its rights on failure to comply with the provisions of said act, and it is then left to the directors or managers to settle up the affairs of the corporation. If they fail or neglect to do so, the court on proper application may appoint a trustee to wind up the corporation’s affairs under the direction of the court. No showing whatever has been made to the effect that the officers and directors of said corporation have failed and refused to proceed to wind up the affairs of said corporation in this state; but the record shows exactly the contrary. It shows that as soon as they ascertained that the Montana corporation could not defend in said action and that it was a crime for it to defend, they brought an action in the name of the directors in which they subjected themselves to the jurisdiction of the trial court and sought to bring to issue the right of the Idaho corporation to foreclose said mortgage. The record shows that such directors subjected themselves to the jurisdiction of the court and sought to take charge of the property and affairs of said corporation and wind up *262its affairs for the benefit of its creditors and stockholders, as clearly contemplated by said act.
Under the provisions of said act, the court ought to appoint a trustee to displace the directors in winding up the affairs of such corporation only in case of neglect of duty or abuse of power by the directors, and only when required for the protection of the rights of creditors or stockholders. No neglect of duty or abuse of power whatever has been shown in this case, as the directors, immediately upon discovering that said corporation had forfeited its rights to do business, submitted themselves to the jurisdiction of said court.
This action was brought about four months after the Montana corporation had forfeited its rights to do any business whatever in this state. The summons was served upon the person who had been designated as the statutory agent of the Montana corporation and was its statutory agent until it forfeited its right to do business in this state. After that he was not its statutory agent for any purpose whatever, and there was no authority whatever for service of summons upon him for said corporation. Would it be contended for a moment that a corporation which had no authority whatever to do business in the state could have a statutory agent upon whom process might be served? I think not. Then, no service of summons has been made in this case and the only appearance made was for the corporation, which appearance was unlawful under said act. It is not quite fair to say that the directors appeared in said action. Their only appearance' was on behalf of the corporation and not as directors and , officers of said corporation. The only thing they did was to ' file an answer for the corporation. No answer was filed by them as directors and trustees. Then there has been no service of summons in this case, and upon the theory of the majority, the court, or judge, may appoint a trustee upon whom service may be made or who may appear in the case without any service of summons, and bind the corporation by his appearance. It seems to me that the statement of this proposition is sufficient to show its fallacy. The service of *263summons has not been made upon the corporation in this case and no one has appeared for it who had any authority whatever to appear.
The chief justice names the person appointed by the court a “receiver” and in his opinion says that said “receiver” was appointed to defend in this action and to represent the stockholders of said corporation. The court, however, in his order calls him a “trustee.” The application for the appointment calls him a “trustee” and asks that a “trustee” be appointed and that plaintiff may be permitted to file an amended complaint “and to have summons issued thereon to said trustee.” Counsel for plaintiff thus concedes that the service of summons upon the Montana corporation was not sufficient, but had the court appoint a trustee upon whom the summons might be served.
It must be conceded that there was no agent or any other person in this state at the time of the commencement of this suit upon whom summons could be legally served, and the court had no authority to appoint a trustee for that purpose. This is an action to foreclose a mortgage, and the statute provides how service of summons may be made upon a nonresident defendant. Service of summons by publication could have been made under the law of this state, but no such service has been made.
The chief justice holds that “abate,” as used in sec. 11 of-said act, means “suspended animation,” from which the suit may be revived, but Bouvier in his Law Dictionary states that the word “abate” as applied to an action is to cease; terminate, or come to an end prematurely, and says that the suit may be revived when the reason for the abatement ceases. (See. 848, Equity Pl. & Pr. by Fletcher, as to procedure to revive an action.) The word “abate” as used in said section 11 of said act refers to actions pending at the time of the forfeiture and to none other. If this action had been pending at the time of the forfeiture, it would have come under that provision of said statute which includes the word “abate” and is as follows: “Provided, that no action pending against any corporation at the time of the forfeiture shall abate *264thereby but may be prosecuted to final judgment.” The action to foreclose said mortgage was brought four months after the forfeiture and had no existence at the time of the forfeiture. It had no animation to suspend. After a forfeiture, suit may be brought by any person having a cause against the corporation against the directors as trustees, and if they fail or refuse to appear and defend, the court may appoint a trustee to do so. Said action was brought against the Montana corporation and the complaint in no manner makes the directors defendants therein.
The chief justice states in his opinion that the directors of said Montana corporation caused an. appearance of that corporation to be entered in said action. I would ask: How could the directors cause a legal appearance to be entered for the Montana corporation when under the law that corporation was prohibited from appearing or defending in any action or doing any business whatever in this state, and especially when it was made a crime for them to appear and defend in said case? Said directors could not appear for the Montana corporation under the provisions of said act.
The chief justice states that the directors responded to the service of process, appeared and answered and entered upon the trial of the case, and then in the midst of the trial, withdrew. The record, as I understand it, shows that the only appearance that was made was for and on behalf of the Montana corporation. The directors as directors, or trustees for creditors and stockholders, made no appearance whatever.
The chief justice says in his opinion that the order of the trial court appointing the trustee recites that the directors of this, noneomplying corporation are nonresidents of the state and beyond the jurisdiction of the court “and that fact is not denied.” The record shows that that statement in the order of the district court is not true; the judge was there mistaken. The record shows that the directors had all appeared and submitted themselves to. the jurisdiction of the court by bringing an action in said court to test the validity of the mortgage sought to be foreclosed in the original case *265and that action Was pending in that court from the 29th day of April, 1913, and was pending at the time said order was made and a resident attorney of this state was one of the attorneys who appeared for said directors.
However, if the commencement of said action by the directors involving the question of the validity of the mortgage that was sought to be foreclosed did not give the court jurisdiction of the directors in the foreclosure suit, if the court holds that that action was still pending and that service of summons had been properly made on the noncomplying corporation and that attorneys had appeared for it, the law would require the service of all motions and papers in that action to be made upon the attorneys appearing therein. It is contended that said action is still pending, and if so, the attorneys who appeared therein for the defendant ought to have been served with a notice of said motion to appoint the trustee. Counsel for the plaintiffs ought not to be permitted to “play fast and loose” in this matter, and contend that the action is pending and that service of summons and appearance has been made by counsel for the defendant corporation, and then refuse or decline to serve all papers in such action upon the attorneys.
The chief justice would indicate by his opinion that he was a little doubtful whether the trial court or judge had power to appoint a “receiver” and clothe him with full power and authority to settle the business and affairs of the Montana corporation in general, but holds that the court had jurisdiction to appoint him to defend in said action, and in support of that proposition refers to two cases decided by this court under the provisions of see. 4329. It is sufficient to say that the application for the appointment of said receiver was not made under the provisions of sec. 4329, but was made under the provisions of the act of 1912, and that law was not intended to be supplemented by the provisions of sec. 4329 in regard to the appointment of receivers for corporations.
The act of 1912 was passed for the purpose of winding up the affairs of a corporation in this state that had forfeited *266its right to do business therein. Under the provisions of said aet, domestic and foreign corporations are placed on the same footing; neither has any right to do business in the state after the forfeiture. The chief justice says that a domestic corporation is “dead” after the forfeiture, and I undertake to say that a foreign corporation is just as dead in this state as a domestic corporation, after the forfeiture, so far as its doing business in this state is concerned.
The chief justice states in his opinion that it is left in the discretion and within the power of the court to appoint some competent person or persons to act as trustee or trustees where the directors fail to act or for any lawful reason the court may deem them improper persons so to act. The facts of this case show that the directors have not failed to aet and it is not shown that they were disqualified from acting.
As before stated, the very next day after it was ascertained that the rights of the Montana corporation had been forfeited, the directors submitted themselves to the jurisdiction of the court and employed a resident attorney to represent them. The mere fact that the directors of a noncomplying corporation are residents of another state does not deprive them of the right to represent the stockholders and creditors and authorize the court to appoint a trustee in their stead. The record clearly shows that the directors were desirous of representing the creditors and stockholders and no fact or facts appear in the record that would indicate that they were in any manner disqualified from' so doing, or that would justify the court in appointing a trustee to take their place.
In Havemeyer v. Superior Court, 84 Cal. 327, 18 Am. St. 192, 24 Pac. 121, 10 L. R. A. 627, the court held that upon the involuntary, as well as voluntary, dissolution of a corporation, the administration and distribution of its assets is left, as a rule, to the directors in office at the date of dissolution, even though the dissolution be upon judgment of forfeiture, and that the appointment of a receiver is an exception to be made only in cases of neglect of duty or abuse of power by the directors, when required for the protection of the rights of a creditor or stockholder. That is a very *267instructive case and construes sec. 400 of the Civil Code of California, which is identical with sec. 2787, Rev. Codes of Idaho, and is as follows: “Unless other persons are appointed by the court, the directors or managers of the affairs of such corporation at the time of its dissolution are trustees of the creditors and stockholders or members of the corporation dissolved, and have power to settle the affairs of the corporation.” Sec. 11 of the Idaho act contains, among other things, substantially the same provisions as does said sec. 400 of the- Cal. Code. In commenting on that section, the supreme court in the Havemeyer case said: “By its own unaided force, without the intervention or any -necessity for the intervention of a court, it makes the directors managers of the affairs of the corporation and trustees for the creditors and stockholders, with full power of settlement.” The court held that said directors are amenable to the jurisdiction of a court of equity and may be called to account if they neglect their duty or abuse their power; but it holds that until they are so called to an account in an independent action or proceeding by a party in interest, no court has any excuse for interference. Commenting on the decision of the superior court in that case, the court said: “Because a corporation has violated its duty to the public, it does not follow that its members cannot be trusted to look out for their own interests,” and suggests that creditors will be more quickly and certainly paid without a receiver than with one, as the expenses of a receivership may greatly reduce the assets of such corporation.
When a corporation is thus dissolved, its property vests in its stockholders, under our law, subject only to the claims of the creditors, and after the dissolution of such corporation, the property of the corporation is held upon the same tenure, subject to the same conditions,'as similar property owned by natural persons, and whatever others may do with their property they may do after paying the debts of the dissolved corporation.
The Montana corporation has not forfeited its property rights by its failure to pay said license tax and comply with *268said law; it has simply forfeited its rights to do business in the state, but said act preserved to the directors the right to become the trustees of the creditors and stockholders of such corporation. Had the Idaho corporation, after the Montana corporation had forfeited its rights to do business in this state, brought its action against the directors of said corporation for the foreclosure of said mortgage, the action could have been maintained, and although the directors were residents of Montana, plaintiff could have procured service on them by publication of summons. There would have been no difficulty whatever in that regard. There was no Montand corporation in existence in this state at the time said action was brought, and no action can be maintained against a nonexistent corporation any more than one can be maintained against a dead man. That corporation was dead so far as this state was concerned and all the rights of the Idaho corporation could have been fully protected by complying with the provisions of said act of our legislature in bringing its action, as said sec. 11 of said act provides that actions may be brought against such directors and that they may maintain actions in the settlement of the property rights of such nonexistent corporations.
In Crossman v. Vivienda Water Co., 150 Cal. 575, 89 Pac. 335, it was held as follows:
“It is settled 'beyond question that, except as otherwise provided by statute, the effect of the dissolution of a corporation is to terminate its existence as a legal entity, and render it incapable of suing or being sued as a corporate body or in its corporate name. It is dead, and can no more be proceeded against as an existing corporation than could a natural person after his death.....As to this, all the text-writers agree, and their statement is supported by an overwhelming weight of authority.”
Many authorities hold that all actions abate upon the dissolution of a corporation, voluntary or involuntary. However, said act of our legislature provides that no action pending against any corporation at the time of such forfeiture shall abate thereby but may be prosecuted to final judgment. *269This provision clearly indicates that the legislature did not intend that any action could be brought and maintained against a corporation after its rights had been forfeited under the provisions of said act. The forfeiture of the rights of the Montana corporation in this state put an end to its existence, so far as this state is concerned, for all purposes whatsoever as a corporate entity and destroyed all of its powers as such. In other words, the forfeiture of all its rights under the laws of this state meant its legal death and there remained thereafter nothing but the settlement of its estate and said act of the legislature provides how that must be done.
It is stated in 5 Thompson on Corporations, 2d edition, sec. 6550, as follows: “And while, as will further appear, statutes may provide that the directors and trustees at the time of dissolution shall be trustees of the creditors and stockholders, with power to settle the affairs of the corporation, yet even such a statute does not have the effect of continuing the corporate existence so as to enable it to prosecute or defend an action in its corporate name.” And in sec. 6555, the author quotes from Nelson v. Hubbard, 96 Ala. 238, 11 So. 428, 17 L. R. A. 375, as follows: “The dissolution of a corporation implies its utter extinction and obliteration as a body capable of suing or being sued.”
It may be contended that the Montana corporation is not dissolved. As I view it, there is nothing left of that corporation as a corporation; it is dissolved and dead, so far as this state is concerned, and had it been a domestic corporation, under the provisions of said act of our legislature, it would have forfeited its charter and then would have been dead indeed, but no more dead than the Montana corporation now is, so far as this state is concerned.
It was held in Combes v. Keyes, 89 Wis. 297, 46 Am. St. 839, 62 N. W. 89, 27 L. R. A. 369, that after the dissolution of a corporation, the power to proceed judicially against it is wholly divested except as specially authorized by statute. The act of our legislature referred to especially reserves the right to creditors and others to sue the directors and managers of the dead corporation in order to enforce any p.laims *270or rights that they may have against it after its rights are forfeited.
In Mr. Justice Stewart’s opinion, he quotes frpm sec. 4329, Rev. Codes, as supporting the doctrine that the court had jurisdiction to appoint a receiver in the ease at bar. That section, as I view it, has nothing to do with the appointment of a trustee under the provisions of said act of 1912. There was no showing made by the Idaho corporation for the appointment of a trustee such as is required under the provisions of said see. 4329 for the appointment of a receiver. The law of 1912 was enacted for cases where corporations had forfeited their right to do business in the state by reason of their having failed to pay their license fee and not for the appointment of a receiver on the grounds provided in said sec. 4329. The provisions of that section have no application whatever to this case and none of the grounds authorizing the appointment of a receiver under sec. 4329 were attempted to be shown in the application to appoint said trustee.
I therefore conclude (1), that under the provisions of said section the action of the Idaho corporation could not be maintained against the Montana corporation, it having been commenced subsequent to the forfeiture of the Montana corporation of its right to do business, in this state; (2), that the trial court had no jurisdiction whatever to appoint a trustee to defend the Montana corporation in said action, as said action could not be maintained under the law.
No creditor or stockholder of said corporation can lose •any rights whatever by following the provisions of said act of 1912 in winding up the affairs of said corporation in this state. A right of action of any creditor would in no manner be destroyed or jeopardized by following its plain provisions.
A peremptory writ of prohibition ought to issue.