Court Opinion

ID: 6966797
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:55:15.893316+00
Date Added: 2024-06-11T16:08:38.877213
License: Public Domain

Mr. Justice Magruder delivered the opinion of the court: The main question in this case is, whether the directors and officers of a corporation are liable, under section 18 of the general Incorporation act of the State, for debts and liabilities contracted by them in the name of the corporation before a certificate from the Secretary of State of the complete organization of the corporation has been recorded in the office of the recorder of deeds of the county, where the principal office of such company is located, as required by section 4 of said act. First—In order to answer this question, it is desirable at the outset to ascertain, if possible, the true meaning of section 4. That section, which is set out in full in the statement preceding this opinion, after directing that the Secretary of State shall issue a certificate of the complete organization of the corporation, making a part thereof a copy of all papers filed in his office in and about the organization of the corporation, and duly authenticated under his hand and the seal of the State, and that “the same shall be recorded in a book for that purpose in the office of the recorder of deeds of the county where the principal office of such company is located,” then makes use of the following language: “Upon the recording of said copy, the corporation shall be deemed fully organized, and may proceed to business. ” Although the literal language here used would seem to demand only a recording of the “copy of all papers filed” in the office of the Secretary of State, yet it is the evident intention to require the recording, not of the copy only, but also of the certificate of the Secretary of which such copy is a part. That such was the legislative intent appears from two considerations: First, the preceding part of the section requires that “the same shall be recorded;” the words, “the same,” refer back to the certificate and the copy which is a part of the certificate, so that the certificate and the copy accompanying it are both required to be recorded; and it would be a violent presumption to suppose, that the legislature intended to make the recording of the copy only a condition precedent to corporate organization and to the transaction of corporate business, when it gave directions for the recording of both the certificate and the copy at the same time; second, as “a copy of all papers,” etc., is made a part of the certificate and the latter is “duly authenticated under his hand and seal,” the certificate and the copy attached to it constitute one document, and are recorded as one document, so that the separate use of the copy without the certificate could not have been within the contemplation of the section. The words, “upon the recording of said copy,” are, therefore, to be understood as though the words, “certificate and,” had been inserted, so as to make the clause read: “upon the recording of said certificate and copy.” This interpretation is in accordance with an established rule of statutory construction, which has been thus expressed: “If in any law we find the omission of something essential to it, or which is a necessary result of its provisions and requisite to give the law its full effect, we may supply what is wanting, but not expressed, and extend the law to what it was manifestly intended to embrace, but in its terms does not include.” (Potter’s Dwarris, 140, 141; 23 Am. & Eng. Ency. of Law, p. 419, note 1). As illustrating the application of this rule of construction, a case arose in Massachusetts where a statute authorized an aqueduct company to take and use the waters of two ponds named and of a certain lake, and it was further provided therein, that nothing in the act should be construed to authorize the company “to raise the water of any of said ponds above high water mark, nor to drain any of them below low water mark;” and it was there held that the restriction applied to the lake as well as to the ponds. Brickett v. Haverhill Aqueduct Co. 142 Mass. 394. Recurring to the statute as thus construed, we find, that only upon the recording of the certificate can the corporation “be deemed duly organized” and authorized to “proceed to business.” In the face of this positive language of the statute, we cannot understand how a corporation assuming to be created under it can be legally organized as such, or how it can have any right to transact business, when the certificate of its complete organization has not been filed for record in the recorder’s office, as directed. A corporation formed under a general statute has no other powers than those which are granted, either expressly or impliedly, by the provisions of such statute. If its right to be deemed duly organized and its authority to proceed to business are made to depend upon the recording of a certificate of organization, such right and authority are as much limited as though there had been an express prohibition. “A provision, that certain things shall be done to constitute a license or authority, is equivalent to an express prohibition against the license or authority unless those things shall be done.” (Diversey v. Smith, 103 Ill. 378). “It is a maxim generally true, that, if an affirmative statute, which is introductive of a new law, directs a thing to be done in a certain manner, that thing shall not, even although there are no negative words, be done in any other manner.” (Potter’s Dwarris on Stat. 72). In Diversey v. Smith, supra, an act to incorporate insurance companies required certain certificates to be made and filed, and then, in its eighth section, provided, that the Auditor should “thereupon deliver to such company a certified copy of the charter and of said certificates, which, on being filed in the office of the clerk of the county where the company is to be located, shall be their authority to commence business and issue policies;” and in that case we said (p. 388): “It thus conclusively appears, that until after the Auditor of Public Accounts shall have delivered to the company the certified copy of the charter and certificates, and the company shall have filed them in the office of the proper county clerk, there is no authority whatever for the company to commence business and issue policies, and any attempt on its part to do so before, is in direct violation of the statute.” Again in Gent v. Manufacturers and Merchants' Ins. Co. 107 Ill. 652, in discussing the provisions of the same Insurance act which was under consideration in Diversey v. Smith, supra, we said (p. 658): “That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a contract or transact any business would seem to be self-evident. * * * Until organized as authorized by the charter there is not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete existence. * * * This statute only authorizes the company to transact business upon filing the certificate of the Auditor of Public Accounts with the proper county clerk. The transaction of business in the name of the corporation before that certificate shall be thus filed is unauthorized.” (See, also, Bigelow v. Gregory, 73 Ill. 197; Cresswell v. Oberly, 17 Ill. App. 281; Ricker v. Larkin, 27 id. 625; Mokelumne Hill Mining Co. v. Woodbury, 14 Cal. 424; Norfolk v. American Steam Gas Co. 113 Mass. 160; Nickerson v. Wheeler, 118 id. 295). The full and complete organization of a corporation under section 4 of the Incorporation act of this State, and its right to exercise corporate powers, depend upon the recording of the certificate of complete organization issued by the Secretary of State in the recorder’s office of the proper county, as mentioned in that section. A performance of the requirement, that such certificate be so recorded, is essential; and, until it has been performed, the corporation will have no right whatever to assume corporate franchises or exercise corporate powers. (1 Morawetz on Private Corp.—2d ed.—sec. 27). Second—One of the objects of section 18 of the Incorporation act is to secure an observance of the requirement in regard to the recording of the certificate in the proper recorder’s office as contained in section 4, as well as to secure a compliance with the other provisions of the act. Section 18 provides, that, if the officers or directors, of any stock corporation, real or pretended, shall assume to exercise corporate powers without complying with the provisions of the act, they shall be jointly and severally liable for all debts and liabilities made by them and contracted in the name of such corporation. Section 18 also provides, that the officers and directors shall be charged with the liability mentioned, if they shall assume to exercise corporate powers, or use the name of the corporation, “before all stock named in the articles of incorporation shall be subscribed in good faith.” In the grammatical construction of section 18 the two clauses: “without complying with the provisions of this act,” and “before all stock named in the articles of incorporation shall be subscribed in good faith;” both qualify the clause: “shall assume to exercise corporate powers, or use the name of any such corporation or pretended corporation.” That is to say, section 18 is a double sentence, or contains two sentences. The first sentence is as follows: “Sec. 18. If any person or persons being, or pretending to be, an officer or agent or board of directors of any stock corporation or pretended stock corporation, shall assume to exercise corporate powers, or use the name of any such corporation or pretended corporation, without complying with the provisions of this act, * * * then they shall be jointly and severally liable for all debts and liabilities made by them, and contracted in the name of such corporation or pretended corporation.” The second sentence is as follows: “Sec. 18. If any person or persons being, or pretending to be, an officer or agent or board of directors of any stock corporation or pretended stock corporation, shall assume to exercise corporate powers, or use the name of any such corporation or pretended corporation, * * * before all stock named in the articles of incorporation shall be subscribed in good faith, then they shall be jointly and severally liable for all debts and liabilities made by them, and contracted in the name of such corporation or pretended corporation.” The second of the two clauses mentioned cannot qualify the first, so as to make the section "mean, that the officers, etc., will be liable, if they shall assume to exercise corporate powers, etc., “without complying with the provisions of this act before all stock named in the articles of incorporation shall be subscribed in good faith;” because, if the officers, directors, etc., were required to comply with the provisions of the act before the stock was subscribed, they could only comply with such provisions as precede the subscriptions for stock. This would be absurd; as the most important provisions, such as those relating to the meeting of the subscribers, the report of the commissioners, the issuance of the certificate of the Secretary of State and the recording of it in the recorder’s office, all follow, and are subsequent to, the subscriptions to the capital stock. Moreover, as the act requires the license to issue, the books for subscription to be opened, the capital stock to be fully subscribed, notice to be given to the subscribers, a meeting of the subscribers to be held, and an election of directors to be had by such subscribers, the directors do not exist, or come into being, until after the stock has been subscribed. It would be ridiculous to require the directors to themselves comply with provisions, the performance of which necessarily precedes and antedates their own official existence. Nor would the section be of much utility if the word, “and” was supplied and inserted between the two clauses in question. In such case, the officers, directors, etc., would be liable, if they assumed to exercise corporate powers, etc., without complying with the provisions of this act and, before all stock, etc., shall be subscribed in good faith. If this were the meaning, then the liability would be avoided if all stock, etc., should be subscribed for in good faith, even though the other provisions of the act were not complied with, or, if there was a formal compliance with such other provisions even though all the stock was not subscribed for in good faith; in other words, the liability would not attach, unless there was failure to see to it, that the stock was subscribed for in good faith, and also failure to ^comply with the other provisions of the act. We do not think, that such construction could have been within the legislative intention. Statutes should be so construed as to give them a reasonable meaning, and should not be so interpreted as to lead to absurd consequences. “Statutes will be construed in the most beneficial way which their language will permit to prevent absurdity, hardship or injustice; to favor public convenience, and to oppose all prejudice to public interests.” (Sutherland on Stat. Const. sec. 324; Endlich on Int. of Stat. sec. 295). We think, that the proper construction of section IS requires full force and effect to be given to each of the two sentences therein contained, as the same are above set forth. That is to say, the liability therein named is imposed upon the persons therein named, if they assume to exercise corporate powers, or use the name of the corporation, without complying with the provisions of the act; such liability will also be imposed upon said persons, if they assume to exercise corporate powers, or use the name of the corporation, before all stock named in the articles of incorporation shall be subscribed in good faith. Either of two delinquencies will result in making the parties liable, namely, non-compliance with the provisions of the act, or non-subscription in good faith for all stock named in the articles of incorporation. In other words, the only construction of section 18, which will give it any reasonable effect or intelligent meaning, is that which requires the insertion of the word, “or,” between the two clauses in question; so that the reading will be: “without complying with the provisions of this act, or before all stock named in the articles of incorporation shall be subscribed in good faith.” To thus give effect to a statute by supplying a missing word is justified by the rule of construction already announced. In construing a statute the cardinal' rule is to ascertain the intention of it. The ascertainment of the intention is the aim and object of all construction. Where the real design of the legislature in passing a statute or a particular section thereof, can be perceived with reasonable certainty notwithstanding the want of precision in the language used, such language must be so construed as to carry that design into effect, even though the interpolation of other words may be necessary. (Endlich on Int. of Stat. secs. 295, 298). “When the intention can be collected from the statute, words may be modified, altered or supplied, so as to obviate any repugnancy or inconsistency with such intention.” (Sutherland on Stat. Const. sec. 218; 23 Am. & Eng. Ency. of Law, p. 419; Philadelphia v. Ridge Avenue Pass. Railway Co. 102 Pa. St. 196). What, then, was the intention of the legislature in adopting section 18, which will be made manifest by the insertion of the word, “or,” between the clauses in question? The intention was to secure the public, dealing with corporations, against the evils of illegal or incomplete organization, and fictitious or bogus subscriptions, by placing upon the managing officers or directors the responsibility of seeing to it, that the provisions of the Incorporation act shall be fully complied with, and that the subscriptions to the capital stock shall be made in good faith. Under the provisions of the statute, the directors are elected by the stockholders or subscribers to the capital stock. The board of directors are authorized to exercise the corporate powers, to adopt by-laws for the government of the officers and affairs of the corporation, to require bonds with security from its officers and agents, to remove such officers when the corporate interests require it, to determine in what installments and at what times the subscriptions to the capital stock shall be payable, etc. As their powers are thus great, and they stand forth as the representatives of the corporation in its dealings with third persons, it is right and proper, that they should be required to have behind them a legally organized corporation and a bond fide subscription list. The subscriptions to the capital stock constitute the main assurance, which the public have, that the corporation is pecuniarily responsible. The act provides, that commissioners shall open books for subscriptions to the capital stock, and that, as soon as may be after such stock is fully subscribed, the subscribers shall meet and elect directors who shall exercise the corporate powers. The act does not contemplate, that there shall be one kind of subscriptions to the capital stock before the directors are elected, and another kind after they are elected. But it is nevertheless true, that the provisions of the act, which precede section 18, furnish very inadequate guarantees as to the responsibility of the stockholders. The capital stock is not required to be paid in cash, but only to be subscribed. What is to prevent the making of subscriptions by impecunious and irresponsible parties? No provision is made for examination as to the financial ability of the subscribers. But there is provision made in section 18 for careful investigation by the managing officers and directors. They are required to see to it, that all stock named in the articles of incorporation shall be subscribed in good faith. This special duty is not embraced in the previously specified general duty of compliance with the provisions of the act, because the rule is, that “the special mention of one thing indicates that it was not intended to be covered by a general provision which would otherwise include it.” (Endlich on Int. of Stat. sec. 299). “Where, therefore, there is, in the same statute a particular enactment, and also a general one, which, in its most comprehensive sense, would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.” (Ibid.) The articles of association, while they are prima facie evidence that all the stock has been subscribed, (Jewell v. Rock River Paper Co. 101 Ill. 57), are not conclusive evidence that all the subscriptions are made in good faith. The articles of incorporation consist of the statement, the license, the report of the commissioners, the certificate of organization, (People v. Chicago Gas Tnust Co. 130 Ill. 268), and include a list of the subscribers. The directors should be certain, that the list is a list of bond fide subscribers before they begin to exercise the corporate powers. It is also right and proper that, before they assume corporate powers, they should comply with the requirement that the certificate, containing a copy of the list of subscribers, shall be recorded in the proper office, so that third persons may know who the subscribers are. It is not necessary to consider the question, whether, in case they discover that all the stock was not subscribed .in good faith, they can accomplish a revocation of the license or an amendment of the certificate. It is sufficient that, in such case, they can refuse to exercise corporate powers, or, if they exercise such powers, can assume the liability imposed by section 18. The provision, requiring a compliance “with the provisions of this act” as a condition precedent to the assumption of corporate powers, is violated by a neglect to comply with any one of the provisions of the act not mentioned in the special clause, such as recording the certificate. It is not necessary, that there should be a non-compliance with all the provisions in order to incur the liability. Such a requirement would be unreasonable. In arriving at the true construction of a doubtful statute, the intention which appears to be most agreeable to convenience, reason and justice, will be presumed to be the true one. (Endlich on Int. of Stat. sec. 245; 23 Am. & Eng. Ency. of Law, p. 358). And, so, it has been held, that a statutory provision forbidding the granting of new trials for “any of the following reasons,” means, for “any one of the following reasons.” (Thurston v. State, 3 Coldw. (Tenn.) 115; Endlich on Int. of Stat. secs. 249, 299). The case of Tarbell v. Page, 24 Ill. 46, is distinguishable from the case at bar upon grounds which are clearly stated in Bigelow v. Gregory, 73 Ill. 197, and need not be here repeated. The case of Bushnell v. Consolidated Ice Machine Co. 138 Ill. 67, is also distinguishable from the present case. In the Bushnell case, the material point decided was, that one, who took part in the organization of a corporation, and was elected and acted as its secretary and general agent, could not treat it as a partnership, and compel his fellow corporators to account to him on that basis; and it was there said (p. 75): “It is wholly unnecessary, however, in this case to determine when and under what circumstances third parties may proceed against incorporators acting under a defective or imperfect organization, as individuals or co-partners.” Third—It is claimed, that the defendant in error is estopped from seeking to enforce the liability mentioned in section 18, because he dealt or contracted with the “Q. W. Loverin Company” as a corporation de facto, and because he filed his claim with the assignee, to whom the company had made an assignment for the benefit of its creditors under the Voluntary Assignment act. The language of section 18 precludes the idea, that an estoppel can be created against a creditor by reason of his dealing or contracting with the corporation. That section provides, that the officers or directors “shall be jointly and severally liable for all debts and liabilities made by them and contracted in the name of such corporation or pretended corporation.” This language presupposes a contract between the creditor and the directors or officers in the name of the corporation. A contract must be between two parties. If the debt or liability was made in the name of the corporation, it must have been made with the creditor, in whose favor the debt or liability was incurred. To say that the creditor is estopped from suing the officers and directors because he contracted with the corporation or pretended corporation is to make the provision in his favor entirely nugatory. Section 18 imposes the liability upon the officers and directors, because, being prohibited from proceeding to business, they permit business to be commenced and liabilities to be incurred in violation of their duty. The creditor’s right of recovery is totally unaffected by any actual loss or injury he may have sustained by the failure or neglect of the officers or directors. (Diversey v. Smith, supra; Nickerson v. Wheeler, supra). He is entitled to recover, if he shows that he is a creditor—that the defendants are such officers, agents or directors as are mentioned in section 18, and that one of the provisions of the act, such as the requirement to record the certificate, has not been complied with, or that all stock named in the articles of incorporation has not been subscribed in good faith. There was no estoppel by reason of contract with the pretended or incomplete corporation. Nor was there any estoppel by reason of filing the claim with the assignee, especially as, according to the averment in the replication, an order of discontinuance was entered in the assignment proceeding, and thereby all parties were remitted, by force of the Voluntary Assignment law, to the same rights as existed at the date of the assignment. (1 Starr & Cur. p. 1307). It is to be observed, that there is a marked distinction between the case, where the suit is between the corporation and a stockholder, and the case of a suit by creditors against individuals assuming to act as agents or officers or directors of a corporation. In the latter case, it is the duty of such persons to prove, that their principal had a legal existence and was capable in law of contracting the debt for which they are sought to be held liable. (Bigelow v. Gregory, supra; Diversey v. Smith, supra; Hurt v. Salisbury, 55 Mo. 310; Richardson v. Fitts, 71 id. 128; Martin v. Fewell, 79 id. 410; East Pascagoula Hotel Co. v. West, 13 La. Ann. 545). Fourth—The present action is properly brought as an action at law, as the remedy under section 18 is at law and not in equity. The object of the statute is to inflict a punishment for its violation. It is, therefore, penal in its character. (Diversey v. Smith, supra). Hence, the suit cannot be in equity, as equity does not enforce penalties. “When the statute creates a liability, the remedy is invariably at law, unless the statute provides for proceedings in equity.” (Lane v. Nickerson, 99 Ill. 284; Wincock v. Turpin, 96 id. 135; Eames v. Doris, 102 id. 350; Grund v. Tickler, 5 Kan. 49; Hill v. Frazier, 22 Pa. St. 320; Jones v. Barlow, 62 N. Y. 204. Fifth—Independently of section 18, it is the law, that a company, which is not a corporate body, is “a partnership, composed not merely of the directors, but of all the subscribers to the articles of association who had not withdrawn.” (Coleman v. Coleman, 78 Ind. 344; Bigelow v. Gregory, 73 Ill. 197; Hurt v. Salisbury, 55 Mo. 310). “If a corporation be illegally formed, its members or stockholders are liable as partners for its acts or contracts; and directors, officers and agents, acting and contracting in its name, render themselves personally liable.” (1 Beach on Private Corp. sec. 16). The judgments of the Appellate and circuit courts are affirmed. Judgment affirmed.