Court Opinion

ID: 3682205
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:27:40.696049+00
Date Added: 2024-06-11T15:29:36.084287
License: Public Domain

The respondents have filed a petition for rehearing in which it is asserted that while Brookings admits that the corporation *Page 817 
was existing in the year 1917 when his dealings were had with it, the defendants question the existence of the corporation at the time when the mortgage to the plaintiff was executed. Thus, it is apparent that the claim of both the plaintiff and the defendants to the property in question is from the same source; namely, the corporation. But the contention is made that it was nevertheless incumbent upon the plaintiff to prove the existence of the corporation at the time the mortgage was executed. The original existence of the corporation not being disputed, we think the burden of proving the non-existence of the corporation upon any subsequent date was properly placed, in the original opinion, upon the party alleging it.
The further contention is advanced that the holding in the opinion to the effect that an insolvent corporation may prefer creditors is against the weight of precedent and authority. This question was directly involved in the case of John Miller Co. v. Harvey Mercantile Co. 38 N.D. 531, 165 N.W. 558, cited in the original opinion herein, and decided contrary to the contentions of the respondents. We adhere to that decision.
It was also contended that in any event the cause should be remanded for a new trial instead of being remanded for judgment. This contention is based upon the procedural proposition that, since this is an action at law and the court, upon motions for directed verdict, has found in favor of the defendants, this court should not, on appeal, direct judgment for the opposite party, unless there is no reasonable probability that upon another trial the defects in the defendant's proof could be supplied. It is pointed out that the disposition in the original opinion is in effect the entry of a judgment notwithstanding the verdict. Upon this record it seems that the defendants have had an adequate opportunity to present all the facts having a bearing upon their claim to the property under the execution, and it further appears that the only defect which there is any reasonable probability of their supplying upon another trial is proof that, at the time the mortgage was executed, the corporation had defaulted in its obligation to pay the annual license or filing fee to the state and that it had incurred the penalty of having its charter canceled upon the records of the Secretary of State. We are of the opinion that this proof would not aid the defendants. The general rule is that the legality of the *Page 818 
existence of a corporation or its right to exercise corporate powers can not be questioned collaterally (14 C.J. 223), and this rule finds proper application in suits where one party grounds his claim or defense upon the proposition that the corporate franchise has been forfeited for breach of condition subsequent, consisting in the failure to pay an annual license tax. See 14 C.J. 225; Greenbrier Lumber Co. v. Ward, 30 W. Va. 43, 3 S.E. 227.
An examination of the statutes of this state and of the authorities with reference to the requirement of an annual license or filing fee and the effect of the non-payment of the same convinces us that under these statutes the general rule is applicable, and where the state has not forfeited the charter for non-user or breach of condition through action brought in the courts, the corporate existence of a defaulting corporation can not be collaterally questioned.
Section 4518 of the Compiled Laws of 1913 provides for an annual report by corporations to the secretary of state between July 1st and August 1st, which will show the names of the officers with residence and post office address, the expiration of the terms of office, whether the corporation is pursuing an active business under its charter and the kind of business, which report is required to be accompanied by a filing fee of $2.50. The statute then provides:
"The secretary of state shall in no case receive or file said report until said fee is paid and a failure to make said report and pay said fee shall be prima facie evidence that saidcorporation is out of business. And it is made the duty of the secretary of the state to notify such corporation by registered letter of its default, and unless such corporation shall within sixty days thereafter file such report and pay such fee, he shall enter upon the records of his office the cancellation of such charter or certificate to do business of the corporation failing to make report at the time and in the manner herein provided." (Italics are ours.)
Section 4521 reads:
"Any corporation which is pursuing an active business under its charter or certificate of authority to do business in the state of North Dakota failing to make said report at the time provided by law, may at any time within six months from such default be reinstated upon the record of the office of the secretary of state upon the payment of *Page 819 
a fee in the sum of five dollars for such reinstatement and filing in said office an affidavit stating all the facts required in § 4518, and in addition thereto the fact that it was at the time of such default and still is in active business in the state of North Dakota."
Section 4522 requires the secretary of state to keep a record in his office showing all forfeiture and to publish a list annually.
At various times the legislature has made provision for reinstatement of corporations in default under § 4518. Laws 1907, chapter 54; Laws 1911, chapter 103; Comp. Laws 1913, § 4519; Laws 1915, chap. 98; Laws 1917, chap. 99; Laws of the Special Session of 1918, chap. 4. These acts generally provide for reinstatement upon the filing of the reports and the payment of the filing fees in default, together with a fee for reinstatement. Some provide for the payment of a penalty, and some require, in addition, an affidavit showing that the corporation is in active business.
Section 4518 of the Compiled Laws of 1913, as well as § 4521, were first enacted in this state as §§ 2 and 3 of chapter 65 of the Session Laws of 1905. In all substantial particulars these sections are identical with the similar sections of a law enacted in Illinois in 1901. See Session Laws of Illinois 1901, page 124. In February, 1914, a year prior to enactment here, the Supreme Court of Illinois had occasion to construe the act with reference to the effect of the failure of a corporation to file the required report and pay the fee. People ex rel. Hillel Lodge v. Rose, 207 Ill. 352, 69 N.E. 762. Section 2 of the Illinois act contained the exact language quoted from § 4518 of the Compiled Laws of North Dakota for 1913, except that in stating the effect of the failure to make the report and pay the fee the Illinois legislature had said that it should "be prima facie evidence that said corporation is out of business, and shall work a forfeitureof the charter of such corporation." The italicized clause is omitted from the North Dakota enactment.
In construing the Illinois statute, the court said, in People ex rel. Hillel Lodge v. Rose, supra, at page 358 [207 Ill.]:
"The constitutionality of the act is attacked upon the ground that the legislature has no power to dissolve a corporation or to declare a forfeiture of its franchise, nor has the legislature the power to prescribe a state of facts under which this may be done through an administrative *Page 820 
officer, because such an act is the exercise of judicial power, which, under the constitutions of the State and of the United States, is vested in the judicial and denied, by implication, to the legislative department, and as petitioner was organized prior to the passage of the act of 1901, we are cited to the DartmouthCollege Case [4 Wheat. 518, 4 L. ed. 629] and to other cases of like character, holding that a franchise of a corporation is property in the law, and is protected by the constitutions of the State and of the United States as a contract, which cannot be impaired by the legislature. The accuracy of petitioner's propositions, as abstract statements of the law, is beyond question, but we think them inapplicable here because based upon a misconstruction of the statute now before us. One of the purposes of the present statute evidently was to facilitate the taxation of corporations and to provide information for the taxing officers in reference to the existence and location of corporations organized under the laws of the State and owning property in the State. The purpose of this statute further is to require evidence once each year that the corporation is exercising the powers granted, and its failure to make such proof is made prima facie evidence of non-user. The thing that works a forfeiture of the corporation is the fact of non-user, which can be finally determined only by a court of competent jurisdiction (Bruffett v. Great Western R. Co. 25 Ill. 353; Baker v. Backus,32 Ill. 79; Board of Education v. Bakewell, 122 Ill. 339, 10 N.E. 378); and the cancellation which the Secretary of State is required to enter upon the records of his office would, in such proceeding, make a prima facie case for the People. If the corporation is, in fact, engaged in active business and fails to make the report, it is not, by reason of that failure, deprived of its charter, but may, in a suit brought against it, show the fact and thereby defeat the proceeding. It is no doubt true, as suggested by petitioner, that if with the records in the office of the Secretary of State in their present condition, petitioner desired a certified copy of the documents filed by its incorporators as a basis for its charter, such copy would show the cancellation contemplated by section 2 of the statute. This condition of affairs, and the fact that such entry on the record is a perpetual and continuing notice that its corporate powers are ended, misleading though such notice may be in some instances, are incentives of the most potent character *Page 821 
for a compliance with § 2 of the act. The effect of the act is simply to make a failure to report, as required, prima facieevidence, and the clause providing that the failure to report and pay the fee therefor `shall be prima facie evidence that said corporation is out of business, and shall work a forfeiture of the charter of such corporation,' was merely intended to be a statement of the effect of a condition, namely, non-user, of which condition the failure is made prima facie evidence." (See also Gilmer Creamery Asso. v. Quentin, 142 Ill. App. 448; State ex rel. Long v. Brownstone  River Valley Gravel Road Co.120 Ind. 337, 22 N.E. 316).
One of the justices dissented, not on the ground of disagreement with this construction, but on the ground that the forfeiture of a corporate charter for non-user could not be effected by a ministerial officer such as the secretary of state, without a judicial determination that the corporation had been guilty of some act authorizing a forfeiture. See State ex rel. Standard Oil Co. v. Blaisdell, 22 N.D. 86, 132 N.W. 769, Ann. Cas. 1913E, 1089. Similar views are expressed in the West Virginia Case, supra. Hence, the act in question comes before us with a construction by the highest court of the state rendered approximately a year before its adoption here. Under this construction, the failure to pay the annual license fee does not, ipso facto, work a forfeiture of the corporate charter. At most, it affords prima facie evidence of the non-user of the charter and might amount to a violation of provisions of law by which it has incurred a forfeiture of its corporate rights, privileges and franchises; but such a result would not follow until there had been a legal determination of the fact of violation. The grounds for forfeiture of corporate franchises by action brought on behalf of the state or by private persons in the name of the state on leave granted are stated in § 8004, Compiled Laws of 1913, and include the ground here asserted, if the statute, § 4518, be construed as prescribing a condition of forfeiture.
We are clearly of the opinion that proof of the failure to file an annual report and pay the filing fees, would not establish the non-existence of the corporation in the instant case, its charter never having been forfeited in a direct proceeding for that purpose; and that the attempt of the defendants in that direction would be an inadmissible collateral attack. It follows that such evidence would not establish *Page 822 
the invalidity of the plaintiff's mortgage. The petition for rehearing is denied.
CHRISTIANSON, Ch. J., and BURKE, JOHNSON, and NUESSLE, JJ., concur.