CASES ON

PRIVATE CORPORATIONS

CHAPTER I.

THE LEGAL CONCEPTION OF A CORPORATION.

Section 1.-Considered in its Relation to Non-Members.

Co. Lit. 250 a. "Bodies politike, &c. This is a body to take in succession, fram d (as to that capacity) by policie, and thereupon it is called here by Littleton a body politike; and it is also called a corporation, or a body incorporate, because the persons are made into a body, and are of capacity to take and grant, &c. * * * Every body politike, or corporate is either ecclesiasticall or lay. And again it is either sole, or aggregate of many. And this body politike, or corporate, aggregate of many, is by the civilians called collegium or universitas."

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I Bl. Com., 467-8. "But as all personal rights die with the person; and, as the necessary forms of investing a series of individuals, one after another, with the same identical rights, would be very inconvenient, if not impracticable; it has been found necessary, when it is for the advantage of the public to have any particular rights kept on foot and continued, to constitute artificial persons, who may maintain a perpetual succession, and enjoy a kind of legal immortality.

These artificial persons are called bodies politic, bodies corporate, (corpora corporata), or corporations: of which there is a great variety subsisting, for the advancement of religion, of learning, and of commerce; in order to preserve entire and forever those rights. and immunities, which, if they were granted only to those individuals of which the body corporate is composed, would upon their death be utterly lost and extinct. When they are consolidated and united into a corporation, they and their successors are then considered as one person in law: as one person, they have one will, which is collected from the sense of the majority of individuals:

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The privileges and immunities, the estates and possession, of the corporation, when once vested in them, will be forever vested, without any new conveyance to new succession; for all the individual members that have existed from the foundation to the present time, or that shall ever hereafter exist, are but one person in law, a

1-PRIVATE CORP.

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person that never dies: in like manner as the river Thames is still the same river, though the parts which compose it are changing every instant."

ERICKSON v. REVERE ELEVATOR CO.

1910. 110 Minn. 443, 126 N. W. 130.

ACTION in the district court for Redwood county to recover $3,161.45, which plaintiff had been compelled to pay upon a promissory note which he had signed as surety for defendant. The substance of the complaint and of the defense is given in the opinion. From an order, Olsen, J., sustaining plaintiff's demurrer to the defense set up in the answer on the ground it did not state facts sufficient to constitute a defense, and sustaining plaintiff's demurrer to the counterclaim on the ground it did not state facts sufficient to constitute a counterclaim, defendant appealed. Affirmed.

O'BRIEN, J.-According to the complaint, on September 14, 1903, defendant delivered to Minnesota Grain Company its promissory note for $6,000, payable on or before one year from date. Plaintiff signed the note as a surety, and on March 11, 1909, was compelled to pay a balance of $3,161.45, remaining unpaid, and brought this action to recover that amount. Defendant served an answer containing general and special denials, and alleging as a separate defense that on May 21, 1907, N. H. Dahl, A. O. Anderson, C. O. Nichols, E. L. Nelson, and the plaintiff were owners of the entire capital stock of defendant, and on said date, through N. H. Dahl, their duly constituted agent, sold their entire holdings to Charles Gamble, Martha Anderson, A. G. Anderson, F. J. Sheffield, and K. E. Mo for $7,500, upon a statement representing and warranting "that the said corporation was free from debts and every and all obligations," and "that there were no liens, encumbrances, or indebtedness of any kind against said corporation or any of its said property." In reliance upon the representations those named purchased and still own all the stock. Therefore it is claimed the plaintiff is estopped. The same allegations are reasserted for damages as a counterclaim or setoff. Plaintiff demurred to the allegations of affirmative defense. This appeal is from an order sustaining the demurrer.

There can be no doubt that, if the allegations of the answer are true, there must be some procedure by which the stockholders, who are the beneficial owners of the defendant corporation and its property, can be protected. But we do not think this demurrer can be overruled without violating the fundamental principles underlying the creation and legal status of corporations. It is true that where the corporate form is used by individuals for the purpose of evading the law, or for the perpetration of fraud, the court will not permit the legal entity to be interposed so as to defeat justice. The necessity for this rule is becoming more apparent each day, not only in the maintenance of private rights, but for the preservation of public

rights in the regulation and necessary control of large corporations. State v. Creamery Package Mnfg. Co., supra, page 415, 126 N. W. 126, and cases cited. But in ordinary business transactions, and for the purpose of determining the respective rights, responsibilities, and powers of corporations, its officers, stockholders, and those dealing with them, it is necessary that the distinction between the corporation, as a legal entity, and its members, be strictly maintained.

The note sued upon was not a debt of the original stockholders, but of the corporation. The sale of the stock was not a corporate act, but that of the individual stockholders. A stockholder in his individual capacity, or any number of stockholders, cannot bind the corporation in its corporate capacity, except under the extraordinary circumstances already referred to. The sale of the stock, therefore, in no manner affected the liability of the corporation upon the note, and the corporation itself, considered as a distinct entity, cannot avail itself of the rights of its present stockholders possessed by them as individuals. Gallagher v. Germania Brewing Co., 53 Minn. 214, 54 N. W. 1115. Notwithstanding this, a stockholder has a direct and real interest in the property of the corporation, and may, when the corporation will not or cannot fully protect its property, be recognized as a proper party to prosecute or defend an action involving primarily the corporation's rights. Baldwin v. Canfield, 26 Minn. 43, I N. W. 261, 276.

The difficulty here is that the corporation is attempting to assert a defense which is personal to the individual stockholders, who are not parties to the action, and who are at liberty at any time to dispose of their stock holdings, a transaction which would not transfer to the purchaser the rights relied upon in the answer. If we had before us a demand upon the part of the individual stockholders to be allowed to intervene and protect their interests in this action, it would be a different question, and one upon which we express no opinion. Becker v. Northway, 44 Minn. 61, 46 N. W. 210, 20 Am.

St. 543

Order affirmed.1

PEOPLE'S PLEASURE PARK CO. ET AL. V. ROHLEDER.

1908. 109 Va. 439, 61 S. E. 794, 63 S. E. 981.

APPEAL from a decree of the Circuit Court of Henrico county. Decree for complainant. Defendants appeal.

"Whenever a corporation makes a contract, it is the contract of the legal entity: of the artificial being created by the charter; and not the contract of the individual members." Taney, C. J., in Bank of Augusta v. Earle (1839) 13 Pet. (U. S.) 519, 587, 10 L. ed. 274.

See also Moore &c. Hardware Co. v. Towers Hardware Co. (1888) 87 Ala. 206; Sellers v. Greer (1898) 172 II. 549, 50 N. E. 246; Gallagher v. Germania Brewing Co. (1893) 53 Minn. 214, 54 N. W. 1115.-Eds.

The opinion states the case:

CARDWELL, J., delivered the opinion of the court.

Appellee filed her bill against appellants, the purposes thereof being to annul a conveyance of certain lands located in Henrico county, and known as Fulton Park, to appellant, People's Pleasure Park Company, Inc., from its co-appellants, Ida M. Butts and D. G. Fulton, and perpetually to enjoin and restrain the People's Pleasure Park Company, Inc., from selling or otherwise disposing of the said property, or any part thereof, to colored persons for any purpose whatsoever, or to any person for the purpose of using the same as a public park or place of amusement for colored persons.

It is averred that in the year 1900, Bliss Black and wife acquired from the heirs of one Samuel Mosby, deceased, title to a tract of about 125 acres of land in Henrico county, near Fair Oaks Station, at the junction of the Southern Railway with the electric railway running from Richmond City to Seven Pines, and platted the same, under the name of Fulton Park, into 1,330 lots, recording a small part of the plat-105 lots-in Henrico county clerk's office; that between the date of said purchase and the beginning of the controversy out of which this litigation arises, there were a number of conveyances of said tract of land (except the small number of lots. that had been sold therefrom), but these conveyances were to parties who either represented the Blacks, or were identical in interest with them; that it was the original intention of the Blacks to establish a settlement of white persons at Fulton Park, and representations were made to that effect by them, both in oral statement when trying to sell lots and in published advertisements of the lots for sale in newspapers, in printed handbills posted, etc.; that about thirty, only, of the lots were sold by the Blacks or their associates, of three of which, with a small dwelling thereon, appellee, on October 5, 1904, became the owner, having purchased the same for a home from Harriet J. Powers, who took from Ida M. Butts during the time. that the latter held title to all the lots in Fulton Park, except such of them as had been previously sold and conveyed by her or the Blacks; that in the deed to Harriet J. Powers, appellee's grantor, there was the covenant, condition, or stipulation in these words: "The title to this land never to vest in a person or persons of African descent" and the deed to appellee was made subject to the limitations and restrictions contained in the deed to Harriet J. Powers.

It is further averred that, after the title to the remaining land (Fulton Park) had again. been acquired by Black and wife, they conveyed it as a whole to the Revere Beach County Fair and Musical Railway Company, excepting the lots previously sold, and in this conveyance is the covenant, condition and stipulation: "The title to this land never to vest in a colored person or persons"-that afterward the Revere Beach County Fair and Musical Company transferred the property to one Jessie M. Smith, providing in the deed that the same should be subject to the covenant, condition, or

stipulation imposed thereon by Black in his deed to the company; that, after Jessie M. Smith had held the property a few months, she transferred the title thereto by a conveyance from herself as an individual to herself as trustee without specifying the nature of the trust or naming the beneficiary or beneficiaries thereof, and omitting mention of the "covenant, condition, or stipulation" under which she had held the property, as an individual; that Jessie M. Smith, as trustee, but without disclosing the nature of the trust or the beneficiary or beneficiaries thereof, conveyed the property again to Ida M. Butts, trustee, making no mention of a restriction upon the latter's power to alienate the property, or as to whom she might convey it; and that on or about May 3, 1906, a deed was recorded in the clerk's office of Henrico county, by which all the unsold portion of Fulton Park was conveyed by Ida M. Butts to one D. G. Fulton, who by deed recorded in the same office, on the same day, conveyed the property to appellant, People's Pleasure Park Co., Inc. The bill then charges that the People's Pleasure Park Co. is a corporation composed exclusively of negroes, and that this corporation purchased Fulton Park for the express purpose of converting the same into a park or place of amusement for colored people; that the corporation, before it purchased the property, was fully apprised of the "condition, covenant, or stipulation" theretofore in the bill mentioned as having been incorporated in the deed conveying the property to the Revere Beach County Fair and Musical Co., and also aware of the pendency of injunction proceedings to prevent said appellant from acquiring title to Fulton Park.

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Aside from the question whether or not appellee could obtain the relief she asks against appellants-that is, an annulment of the conveyance to appellant, People's Pleasure Park Co., Inc.,-on the ground that the restriction on the right of alienation of any of the Fulton Park land to "a person or persons of African descent" or "colored person" had been violated by a sale of a part of the land to said appellant, the bill fails to allege facts showing a violation of the restriction, and should have been dismissed upon the demurrers thereto. Such a conveyance, by no rule of construction, vests the title to the property conveyed in "a person or persons of African descent." Although a copy of the charter of the grantee is filed as an exhibit with the bill and made a part thereof, and which sets out that the object for which the corporation is formed is "to establish and develop a pleasure park for the amusement of colored people," a contemplated sale of the property to "a person or persons of African descent" is not even alleged, but only a contemplated use of the property as a place of amusement for colored persons, which the restriction relied on neither expressly, nor by implication, prohibits.

"A corporation is an artificial person, like the state. It has a distinct existence-an existence separate from that of its stockholders and directors." I Cook on Corp. (4th ed.), sec. I.