CLARK v. AMERICAN CANNEL COAL CO.

1905. 165 Ind. 213, 73 N. E. 1083.

SUIT by the American Cannel Coal Co. against Emma L. Clark. From a decree for plaintiff, defendant appeals.

MONKS, J.-This suit was brought by appellee to enjoin appellant from mining and removing fire-clay from certain real estate in Perry Hill (1892) 22 Ore. 218, 29 Pac. 546 (see note in 17 L. R. A. 549); American Salt Co. v. Heidenheimer (1891) 80 Tex. 344, 15 S. W. 1038, accord. Cf. Garnett v. Richardson (1879) 35 Ark. 144; Kaiser v. Lawrence Sav. Bank (1881) 56 Iowa 104, 8 N. W. 772, 41 Am. Rep. 85; Williams v. Hewitt (1895) 47 La. Ann. 1076, 17 So. 496; Abbott v. Omaha Smelting & Refining Co. (1876) 4. Nebr. 416, in which cases the shareholders were held liable at Common Law, and Loverin v. McLaughlin (1896) 161 I11. 417, 44 N. E. 99, where the members were held liable under the terms of a statute.

The members of a de facto corporation are liable, if the plaintiff dealt with them and was justified in dealing with them as partners. Whether they are also liable, unless the plaintiff dealt with them as a corporation, see, in addition to the principle case, the following: Christian & Craft Grocery Co. v. Fruitdale Lumber Co. (1892) 121 Ala. 340, 25 So. 566; Doty v. Patterson (1900) 155 Ind. 60, 56 N. E. 668; Guckert v. Hacke (1893) 159 Pa. St. 303, 28 Atl. 249; Slocum v. Head (1900) 105 Wis. 431, 81 N. W. 673, 50 L. R. A. 324; Clausen v. Head (1901) 110 Wis. 405, 85 N. W. 1028, 84 Am. St. 933.

In Doty v. Patterson, 155 Ind. p. 64, which was an action by a member of an association for dissolution and accounting on the ground that it was a partnership, the court said: "Under the settled law of this State, the Fortville Butter and Cheese Factory was a de facto corporation and its corporate existence can not be questioned by appellees in this proceeding. This rule is not limited to cases where one by contract admits corporate existence, but is a rule of general application."

In Guckert v. Hacke, 159 Pa. St. at page 307, which was an action against the members by a non-member of the association, the court said: "But it is not pretended that he had any knowledge of the existence of the charter * * * in these circumstances he was amply justified in dealing with them as partners. It is therefore their default, not his, that they were so treated, and it would be manifest injustice that he should lose his admittedly honest claim."

It is well settled that a corporation de facto may be sued in tort as in contract. Pinkerton v. Pennsylvania Traction Co. (1899) 193 Pa. St. 229, 44 Atl. 284; Miller v. Newburg Orrel Coal Co. (1888) 31 W. Va. 836, 8 S. E. 600, 13 Am. St. 903. But whether the stockholders of a de facto corporation are also liable in tort, see Lamming v. Galusha (1894) 81 Hun (N. Y.) 247, 30 N. Y. S. 767, affd. 151 N. Y. 648, 45 N. E. 1132 and see 20 Harv. Law Rev., p. 474, Article by E. H. Warren, "Collateral Attack on Incorporations." The decision in Lamming v. Galusha, supra, was affirmed by the Court of Appeals on the opinion of the Justice at Special Term who held that the stockholders were exempt from liability. This decision has been generally referred to with approval; Card v. Moore, 68 App. Div. (N. Y.) 327 at p. 337, 74 N. Y. S. 18; Tulare Irrigation District v. Shepard (1902) 185 U. S. 1 at p. 13, 46 L. ed. 773, 22 Sup. Ct. 531; Stevens v. Episcopal Church History Co. (1910) 140 App. Div. (N. Y.) 570 at p. 579, 125 N. Y. S. 573; Opinions N. Y. Atty. General (1917) 472, but these were not tort cases.

According to prevalent American doctrine the stockholders of a company which is neither a de jure nor a de facto corporation are personally liable; see article by F. M. Burdick, "Are Defectively Incorporated Associations Partnerships?" 6 Col. Law Rev. 1-14.-Eds.

county, and to quiet appellee's title to said fire-clay. Appellee sold and conveyed said real estate by deed to a remote grantor of appellant on September 20, 1866, and claims to own said fire-clay by virtue of the reservation contained in said deed. A trial of said cause resulted in a final decree quieting appellee's title to said fireclay and enjoining appellant from removing the same.

*

The first question to be determined is: was appellee, when it commenced this suit, an existing corporation having the power to sue? If this question be answered in the negative this case must be reversed. It appears from the record that appellee-a corporationwas created by special act (Local Laws 1838, p. 216), to continue for a period of fifty years from December 23, 1837. The powers granted were to mine for coal, "purchase, receive, hold and enjoy lands, coal, iron and other mines, * * and the same to sell, convey and demise." In 1885 the legislature passed an act (Acts 1885, p. 121, §§ 5124-5128, Burns 1901), which purported to extend the corporate existence of every private corporation, created or organized by special act for the purposes of mining stone, coal, iron ore, etc., thirty years after the passage of said act, whose board of directors, within sixty days after the passage of said act of 1885, 'shall avail itself of the provisions of said act by adopting resolutions to that effect, and filing the same with a statement giving the title and date of the act creating said corporation and of each act amendatory or supplemental to said creative act. The board of directors of appellee complied with the requirements of said act of 1885 on May 30, 1885, and appellee claims that thereby its corporate existence was extended thirty years from that time. Since 1837 until the commencement of this action appellee has exercised corporate powers under said special act of 1837 and the act of 1885. Appellant's position is that, as the special act of December 23, 1837, creating appellee a corporation, fixed the life of said corporation at fifty years, it ceased to exist when that period was ended, in 1887; that said act of 1885 was unconstitutional, and the attempt to continue the corporate existence of appellee by complying with its provisions was without effect; that appellee having ceased to exist as a corporation, cannot maintain this action. The act of April 2, 1885, supra, which appellee claims continued its corporate existence for thirty years from the date of its passage, is clearly unconstitutional under the rule declared in In re Bank of Commerce (1889), 153 Ind. 460, 47 L. R. A. 489.

Appellee insists, however, that appellant cannot raise any question in regard to the constitutionality of said act of 1885 in this case, because (1) it is at least a de facto corporation, and therefore impervious to collateral attack; (2) that appellant is estopped from denying its corporate existence. It is true, as claimed by appellee, that the corporate existence of a de facto corporation can only be questioned in a direct proceeding brought for that purpose. Doty v. Patterson (1900), 155 Ind. 60, 64, and authorities cited. It is essential to the existence of a de facto corporation, however, that

there be (1) a valid law under which a corporation with the powers assumed might be incorporated; (2) a bona fide attempt to organize a corporation under such law; (3) and an actual exercise of corporate powers. Doty v. Patterson, supra; 10 Cyc. Law & Proc., 252. 256; 1 Clark & Marshall, Priv. Corp., §§ 82a, 82b. It follows, therefore, that there cannot be a corporation de facto when there cannot be one de jure. If there is no law under which a corporation de jure might exist, its nonexistence may be set up even in a collateral proceeding. 10 Cyc. Law & Proc., 255, 256; 1 Clark & Marshall, Priv. Corp., § 82c; Heaston v. Cincinnati, etc., R. Co. (1861), 16 Ind. 275, 279, 79 Am. Dec. 430; Harriman v. Southam (1861), 16 Ind. 190; Snyder v. Studebaker (1862), 19 Ind. 462, 81 Am. Dec. 415; Eaton v. Walker (1889), 76 Mich. 579, 43 N. W. 638, 6 L. R. A. 102; Georgia, etc., R. Co. v. Mercantile Trust, etc., Co. (1894), 94 Ga. 306, 21 S. E. 701, 32 L. R. A. 208, 47 Am. St. 153. "To be a corporation de facto it must be possible to be a corporation de jure, and acts done in the former case must be legally authorized to be done in the latter, or they are not protected or sanctioned by the law. Such acts must have an apparent right." Evenson v. Ellingson (1887), 67 Wis. 634, 646, 31 N. W. 342. It necessarily follows that there cannot be a corporation de facto under an unconstitutional statute, for such a statute is void, and a void law is no law. 1 Clark & Marshall, Priv. Corp., p. 246; Black, Const. Law, p. 64; Snyder v. Studebaker, supra; Harriman v. Southam, supra; Heaston v. Cincinnati, &c., R. Co.. supra: Eaton v. Walker, supra; Norton v. Shelby County (1886), 118 U. S. 425, 6 Sup. Ct. 1121, 3 L. ed. 178.

If the law under which a corporation is organized, or the special act creating the corporation, fixes a definite time when its corporate life must end, it is evident that when that date is reached, said corporation is ipso facto dissolved without any direct action on the part of the state or its members. And no corporate powers can thereafter be exercised by it except such as are given it by statute for the purpose of winding up its affairs, which in this state is limited to three years after the dissolution. § 3429 Burns 1901, § 3006 R. S. 1881, and Horner 1901; 10 Cyc. Law & Proc., 1271; 2 Clark & Marshall, Priv, Corp., § 305; 2 Morawetz, Priv. Corp. (2d ed.), § 1031; 2 Beach, Priv. Corp., § 780; People, ex rel., v. Anderson, etc., R. Co. (1888), 76 Cal. 190; Scanlan v. Cranshaw (1878), 5 Mo. App. 337: La Grange, etc., R. Co. v. Rainey (1870), 47 Tenn. 420, 432; Grand Rapids Bridge Co. v. Prange (1887), 35 Mich. 400, 24 Am. Rep. 585; Bradley v. Reppell (1896), 133 Mo. 545, 32 S. W. 645, 34 S. W. 841, 54 Am. St. 685: May v. State Bank (1843), 2 Rob. (Va.) 56, 40 Am. Dec. 726; Rider v. Nelson, etc., Factory (1836), 7 Leigh (Va.) 156, 30 Am. Dec. 495.

Appellee in 1866 at the time its deed for the land in controversy was executed to appellant's remote grantor, was a corporation de jure by virtue of the special law of December 23, 1837 (Local Laws 1838, p. 216). Even if appellant who claims the real estate in controversy and the right to mine said fire-clay and remove the same

under appellee's deed of September 20, 1866, is estopped to deny its corporate existence, such estoppel only operates to prevent a denial. of its corporate existence at the time the deed was executed in 1866, and in no way prevents appellant from alleging facts showing that the period fixed for its existence as a corporation expired in 1887, and that there was no such corporation in existence when this action was commenced. This is true because after a corporation is dissolved by a judicial decree or by the expiration of the period fixed for its existence in the law under which it is organized, it is not even a de facto corporation, and its existence as a corporation may be questioned collaterally. 1 Clark & Marshall, Priv. Corp., 247: 2 Clark & Marshall, Priv. Corp., § 305; Guaga Iron Co. v. Dawson (1836), 4 Black f. 202; Morgan v. Lawrenceburgh Ins. Co. (1852). 3 Ind. 285; Brookville, etc., Turnpike Co. v. McCarty (1856), 8 Ind. 392, 65 Am. Dec. 768; Bradley v. Reppell, supra; Krutz v. Paola Town Co. (1878), 20 Kan. 397; Marysville Investment Co. v. Munson (1890), 44 Kan. 491, 24 Pac. 977; Supreme Lodge Knights of Pythias v. Weller (1896), 93 Va. 605, 25 S. E. 891; Dobson v. Simonton (1882), 86 N. C. 492; Asheville Division, etc., v. Aston (1885), 92 N. C. 578; Sturges v. Vanderbilt (1878), 73 N. Y. 384; White v. Campbell (1844), 5 Humph. (Tenn.) 37.

As the corporate existence of appellee fixed by the special act of 1837 ended in 1887, and the three years given by § 3429, Burns 1901, § 3006 R. S. 1881 and Horner 1901, for the purpose of winding up its affairs ended in 1890, and the act of 1885 (Acts 1885, p. 121), under which appellee claims its corporate existence was extended thirty years, is unconstitutional, it follows that appellee had no power to sue when this action was commenced.

Judgment reversed, with instructions to sustain appellant's motion for a new trial of the issues joined on the answers in abatement, and for further proceedings in accordance with this opinion.15

15 "But for the purpose of enforcing a contract, made with a supposed corporation as such, or of protecting the property of such a corporation from tort-feasors, it is enough to show a corporation de facto." Phelps, J., in Searsburgh Turnpike Co. v. Cutler (1834) 6 Vt. 315, at page 323. And so, Stockton &c. Road Co. v. Stockton &c. Railroad Co. (1873) 45 Cal. 680; Elizabeth City Academy v. Lindsey (1846), 6 Ired. Law (28 N. C.) 476, 45 Am. Dec. 500; Remington Paper Co. v. O'Dougherty (1875), 65 N. Y. 570; Baltimore &c. R. Co. v. Fifth Baptist Church (1890) 137 U. S. 568, 34 L. ed. 784, 11 Sup. Ct. 185.

"So far as defendant's claim that plaintiff is not legally incorporated is concerned, assuming such to be the fact, it may be observed that the general rule is that persons sued by a corporation in an action ex contractu, as well as persons sued by a corporation in an action ex delicto, are equally debarred from setting up the defense that the corporation was not legally organized, which is a question for the State." National Society v. American Surety Co. (1907) 56 Misc. (N. Y.) 627, 107 N. Y. S. 820.

As to the right of a defectively incorporated association, which is not a de facto corporation, to sue either in contract or in tort, see articles by E. H. Warren, "Collateral Attack on Incorporation," in 21 Harv. L. Rev. 305, 329330; Machen on Corporations, sec. 282.

See Brandenstein v. Hoke (1894) 101 Cal. 131, 35 Pac. 562, (no de facto corporation under unconstitutional law, “It is said in Norton v. Shelby County,

118 U. S. 425, at p. 442, an unconstitutional act is not a law. It confers no rights. It imposes no duties. It affords no protection. It creates no office. It is, in legal contemplation, as nonoperative as though it had never been passed"); Planters' & Miners' Bank v. Padgett (1892) 69 Ga. 159 (stockholders not liable on notes given by a corporation chartered by a court which under the constitution had no power to incorporate); Georgia S. & F. R. Co. v. Mercantile Trust & Dep. Co. (1894) 94 Ga. 306, 21 S. E. 701, 32 L. R. A. 208 (a corporation de facto may exist under a special act claimed to be unconstitutional, if it might have been incorporated under a general law. Cf. Jennings v. Dark (1910) 175 Ind. 332, 92 N. E. 778; McCarthy v. Lavasche (1878) 89 I11. 270, 31 Am. Rep. 83 (stockholders of a corporation organized under an unconstitutional law subject to a statutory liability to creditors; accord. Eaton v. Aspinwall (1859) 19 N. Y. 119, semble; Dows v. Naper (1878) 91 Ill. 44); Winget v. Quincy Building & Homestead Assn. (1889) 128 Ill. 67, 21 N. E. 12 (a member of a building association for purpose of escaping his obligations to the association can not question collaterally the corporate existence, although corporation organized under unconstitutional law; accord, Gardner v. Minn. & St. Louis Ry. Co. (1898) 73 Minn. 517, 76 N. W. 282; Building & Loan Assn. of Dakota v. Chamberlain (1893) 4 S. Dak. 271, 56 N. W. 897; Freeland v. Pennsylvania Central Ins. Co. (1880) 94 Pa. 504; Foster v. Moulton (1886) 35 Minn. 458, 29 N. W. 155, semble); American Loan & Trust Co. v. Minnesota & N. W. R. Co. (1895) 157 Ill. 641, 42 N. E. 153 (plaintiff not entitled, as against a consolidated corporation, there being no law providing for consolidation, to a decree enforcing a trust deed and declaring a lien on lands covered by right of way contracts); Richards v. Minn. Savings Bank (1899) 75 Minn. 196, 77 N. M. 822 (stockholders of a corporation organized under an unconstitutional law not liable as partners); City of St. Louis v. Shields (1876) 62 Mo. 247 (corporation organized under an unconstitutional law may sue; accord, Catholic Church v. Tobbein (1884) 82 Mo. 418; Coxe v. State (1895) 144 N. Y. 396, 39 N. E. 420, semble); La Platte Valley Bank v. Harding (1871) 1 Nebr. 461 (corporation organized under act of Territorial Legislature conflicting with Act of Congress can sue the maker of a promissory note); Davis v. Stevens (1900) 104 Fed. 235 (corporation de facto could not exist for banking purposes, there being no law of South Dakota permitting incorporation for banking purposes).

Held v. Crosthwaite (1919) 260 Fed. 613 (officers of a corporation dissolved by proclamation of a Governor not liable on contracts made by them on behalf of the corporation, See 19 Col. Law Rev. 391); In re application of Bank of Commerce (1899) 153 Ind. 460, 52 N. E. 950, 55 N. E. 224 (special law extending life of corporation whose term of existence has expired is unconstitutional, if legislature prohibited from creating corporations by special act); Bradley v. Reppell (1895) 133 Mo. 545, 33 S. W. 645, 34 S. W. 841 (after the expiration of the term of its corporate existence, a corporation can not convey property. The decision is based partly on statute. It contains a full discussion and citation of authorities); Brady v. Delaware Ins. Co. (1899) 2 Penn. (Del.) 237, 45 Atl. 345 and note 13, Harv. Law Rev. 690 (corporation whose term has expired can be sued as a corporation); Miller v. Newburg Orrel Coal Co. (1888) 31 W. Va. 836, 8 S. E. 600 (a corporation may be sued for a tort committed by it after the term of its existence has expired, but this decision was based upon the terms of a statute held to be applicable); Black River Improvement Co. v. Holway (1893) 85 Wis. 344, 55 N. W. 418 (a corporation after the expiration of the time limited by its charter can sue defendant who prior to the suit had been a stockholder and received dividends).