Ohio & Mississippi Railroad v. McPherson

Corporation — Directors. — The directors are the agents of the corporation, not the corporation itself; although they meet -without the limits of the State creating the corporation, yet their proceedings -will be valid and binding upon the company. Where a charter granted by the State of Illinois declared certain persons to he a corporation, and named the directors thereof, such directors could meet and act in the State of Missouri. Corporation — Stock Subscription — Estoppel.—Where the directors named in the act of incorporation met and organized the company without the limits of the State granting the charter, one who has subscribed for the stock of the corporation by its corporate name, and paid instalments called for by the directors, is precluded by his own acts from denying the lawful existence of the corporation. Corporation — Election—Directors—Estoppel.—Where the corporators met without the limits of the State granting the charter, and elected a board of directors, and such board made a call for payment upon the subscription to the stock of the corporation, a subscriber to the stock cannot, when sued for the call thus made, object to the legality of such election. The parties thus elected are directors de facto, and the legality of their election cannot he inquired into collaterally, without showing a judgment of ouster against them in a direct proceeding for that purpose, by the government creating the corporation. (Bates, C. J., dissenting.)

Appeal from St, Louis Circuit Court. I. A corporation authorized to be constituted under an act of the Legislature cannot accept any agreement payable to it, or for its benefit, until the prerequisites have been performed to give it a corporate existence. (Wilm. & M. HR. v. Wright, 5 Jones, Law, 304.) II. All votes and proceedings of persons professing to act in the capacity of corporators, when assembled beyond the bounds of the State granting the charter of incorporation, are wholly void. (Ang. & Ames on Corp., § 498; Runyan v. Oostar’s Lesses, 14 Pet. 128; Miller v. Ewer, 27 Me. 509; Freeman v. Machias W. & M. Oq., 38 Me. 243; Oh. & Miss. RR. Co. v. Wheeler, 1 Black, U. S., 286; Bank v. Adams, 1 Pars. Sel. Cas. 548; Bk. of Augusta v. Earle, 13 Pet. 519.) 1. There can be no valid acceptance of the charter out of its territorial limits. The idea that the act proprio vigore erects the persons named into a corporation is simply absurd; otherwise, any body of men applying for one kind of charter, and obtaining a different one, would find themselves erected into a corporation against their will and without the possibility of avoiding it. 2. The meetings of the persons named as directors in the charter, even if the charter were accepted, are invalid. 3. There can be no valid election of directors out of the limits of the State creating it, even if it had corporate existence. If anything can be said to be conclusively decided both upon principle and authority, it would seem to be that a meeting of a corporation out of its territorial limits for the purpose of electing the officers vested with the supreme control, and who are clothed pro hac vice with all the corporate powers, is, and in the nature of things must be, a nullity. III. The act of the General Assembly of the State of Missouri in relation to the plaintiff, in no way gives any greater powers or affects the validity of the acts in question. (0. & M. RR. v. Wheeler, 1 Black, Ü. 8., 286.) 1. It only gives power to the corporation which may have been organized under the law of Illinois to hold lands, &c., and without it they would have no such power. (Runyan v. Coster’s Lesses, 14 Pet. 129.) 2. As it attempts not to create a corporation, the preamble that there is one existing chartered by the laws of Illinois, cannot possibly have the power to create that which legally had no existence prior to the passage of the act of the State of Missouri. IY. If a corporation has no legal existence, or if any acts of a corporation are void, no act of a corporator or stockholder can give vitality to the one, or legalize and make valid the other. 1. As to the existence of the corporation. This will not be denied; but its effect will be sought to be avoided by contending that a stockholder, or subscriber-to stock, is in no position to dispute it, and authorities will be quoted sustaining such a view. But whether this be so or not, and admitting it for the sake of the argument to be so, yet it does not save this case unless these acts are an admission that the calls were legally made. 2. As to the legality of calls. As to this, no act of a subscriber to stock can bind him to the validity of an illegal call, unless, perhaps, in the case of a part payment of the particular call in question; though it is not perceived upon what principle this can be sustained. Y. If the calls, or any of them, made upon the defendant, were made without competent authority, they are void, and no action for any amounts payable under such calls can be maintained. VI. The meeting of the stockholders held at Bloody Island, in Illinois, had no other effect than to give vitality to the company from that date. 1. It could not by its acts create a corporation from March, 1851. a. The meeting was not called for any such purpose, professing to be for the election of directors only; and without such call its acts in that behalf are invalid. (Atlantic De-laine Co. v. Mason, 5 R. I. 471.) b. It could not by its acts give vitality to what could be done by the board of directors alone. The call was as if none had ever have been attempted to be made. Certainly, no meeting of the stockholders could of itself make a valid call. By the terms of subscription, the call was to be made by the board of directors,,and it was not competent for the corporation to say that one had been made when in fact one had not been made. For the purpose of the argument it may be conceded, that the action of the meeting in 1857 was a ratification of any conveyance or mortgage of the company’s property, and yet not be at all operative to make that a call when none in fact had been made. The subscribers could only be bound by the way and in the manner provided in the terms of their subscription, and no action of that meeting could deprive each subscriber of his right to have the calls made upon him in the manner provided by the terms of his subscription. 2. The whole proceedings are an admission that all previous action was illegal and void. VII. There have never been any .legal and valid calls upon the defendant for bis subscription, or at any rate for that portion which still remains unpaid, even conceding that the board in the charter named were in existence ; for, 1. All the calls were made at meetings of the board held in the city of St. Louis. 2. The third call was not made by a majority of the directors named iii the charter. A majority of the board must be present to do any act. (Aug. & Ames on Corp. sec. 501.) 3. The fourth call was made when not a single member of the board of directors.named in the charter was present, and only six members present. As the defendant has paid thirty per cent, of his subscription, it is entirely unimportant whether the first two calls, together only amounting to ten per cent., were legal or not. That has been paid, and an amount more than the twenty-five per cent, mentioned in the charter has been paid ; so that, as to the calls, the question is narrowed down to the legality of the third and fourth calls, and about these it does not seem that there can be any serious question as to their invalidity. VIII. These calls cannot be supported under the idea that they were made by de facto directors, and are therefore good; for, 1. Whenever it is found that an official act cannot be supported in any way, but is obviously illegal, this theory is uniformly adopted as all-sufficient to cover up any amount of illegality; as claimed here, there is no illegality it would not cover and no rascality it would not protect. Why should any corporation have legal directors when illegal would do just as well ? It would render those corporations totally irresponsible to the power which created them. 2. In all the cases cited there is and must be some show of legality ; but here is an instance of the violation of the first principles of its being. It might just as well be contended, that if the company had elected directors in Africa, and they had made their calls from Timbuctoo, the fact that they “wrote themselves down” as directors made them so, and the calls there made were valid. No case will be found where the vital laws of its being are violated, that any act of an alleged de facto officer can be supported. 3. The principle contended for here would have protected all the acts of directors .which in the casos cited by us have been decided to be illegal, inoperative, and void. 4. The cases that may be cited will be found to be mainly those where it is held, that as against the corporation the act of the persons whom the corporation held out to the world as its officers ought to bind the corporation. I. The statute of Illinois (Sess. Acts of Ill., p. 89, 1851) created a corporation per se. Section 1 of this statute declares that certain persons “ are thereby constituted a body corporate and politic by the name and style of the Ohio and' Mississippi Kailroad Company.” Sec. 6 of the same statute (p. 92) appoints a board of directors, and vests in them “all the corporate powers of the company.” Such a charter gave being to the corporation in perfect form the moment the persons named proceeded to use the granted franchises. In 10 Wend. 269, the court say “ that the plaintiffs are a corporation was proved by the production of the statute, declaring them to be so”; the case is different from corporations which are to become entitled to corporate powers by something to be done by them in futuro. In these last cases “proof of user under the charter must be produced.” When the persons to whom a charter is granted execute the powers granted, that is an acceptance of the charter from which they cannot discharge themselves. (Ang. & Ames on Corp. 69.) In this case the railroad from Uliuoistown to Vincennes was built and put in operation. The corporate franchises, then, were not only created, but were accepted. (3 N. H. 367, 371; 2 Fairf. 227; 7 Pick. 334; 7 Mass. 187; 4 Shepley, 224; 3 Mete. 133; 2 G-ibbs, Mich., 397; lWend. 555 ; 3 Wend. 296 ; 7 Wend. 539 ; 4 Denio, 392.) II. When a corporation has once been put into existence in this way, its existence can no longer be questioned or disputed by mere private individuals. Whether the sovereign authority of the State will take away the charter is a question of public policy. The State may waive its right to seize and annul the charter, or it may exercise the right when cause exists ; but if the State do not object, no nonuser nor misuser will affect the corporate existence. (6 Cow. 23 ; 4 Rawle, 9; 16 Mass. 94 ; 2 Blaekf. 367; 24 Barb. Sup. Ct. 395; 16 S. & R. 145.) The question whether the corporation exists, or shall exist, is one between the plaintiff and the State, and not one with the plaintiff and defendant. III. The directors who were appointed by the charter being legal directors, and the corporation having attained perfect existence, and being put fully into operation by their doing the work contemplated by the charter, it is immaterial whether subsequent directors were regularly and legally chosen or not. Any directors coming in by consent or acquiescence, and acting colore officii, would be defacto directors, and their acts would be valid. (4 Rawle, 9 ; 12 Wheaton, 70 ; Aug. & Ames on Corp., t. p. 104-5, and the cases there cited.) IV. But there was nothing in the objection that the directors or corporators held their meetings in Missouri. ( 6 Conn. 429; 3 Duer, 648 ; 14 Peters, 122.) No good reason can be given for prohibiting such action. (13 Peters, 519) 27 Maine, 509, is in point for defendant as to proceedings by a board out of the State being void. This case was ruled on a mistaken view of 13 Pet. 588. No reason has ever been advanced why a board cannot sit out of the State, while every other act can be done there. V. The defendant, by contracting with the company, and by participating in the proceedings of the corporation, voting his stock, <&c., is estopped to deny the corporate existence.' (5 Ala., N. S., 807-8 ; 16 Mass. 87 ; 16 S. & R. 145.) “ If defendant accepted the charter and acted on it, * * * *' it does not lie in 1ns mouth to object.” (2 Mo. 137.) VI. Irregularities and defects in organization, whether material or immaterial, cannot be drawn into view by a debtor as a defence to calls.' (16 B. Mon. 7, 471; Redf. on RR. 85 ; id. 9 ; 1 Sandford, 168; Ang. & Ames, 85, 636; 16 Ala. 374; 16 S. & R. 145 ; 9 Wend. 351; 4 Denio, 392 ; 27 Penn. 387; Grant on Corp. 292.) I. a. The Ohio and Mississippi Railroad Company is a corporation by the laws of the State of Illinois, created and declared to be a corporation in express terms, without condtions precedent; a creation ready for action, organized by the,sovereign power creating it by the appointment of the board of directors. The corporation came into perfect being, full fledged, and ready for action, the very instant the act creating it was passed and approved. (Laws of Ill., Sess. 1851, p. 89, §16.) b. The existence of the corporation was afterwards recognized by the sovereignty creating it, its franchises confirmed, the corporate rights declared to be in full force, and all causes of forfeiture waived. (Laws of Ill., Sess. of June, 1852, p. 122; id. Feb., 1858, p. 92 ; id. 1854, p. 78.) c. The Legislature of Missouri recognized the existence of the corporation at the Session of 1858, and conferred certain privileges upon it. (Laws of Mo. 1853, p. 365.) II. When the act of incorporation not only gives in terms all the requisites to constitute a corporation, but technically designates it as a corporation, and declares that - it is such, its existence cannot be questioned. Organization has nothing to do with it. (Falconer & Higgins v. Campbell, 2 McLean, 199; Aug. & Ames, 69; Fire Department v. Kip, 10 Wend. 269.) III. The actual valid existence of the corporation may be proved in other ways than by the production of the charter. When there have been corporate acts done, meetings held, the enterprise commenced and prosecuted for which the charter was conferred, this is proof of the legal existence <of the corporation and its acts, and courts will not question ■it in a proceeding of this kind. (McFarlan v. Triton Ins. 'Co. 4 Denio, 392; Sampson v. Bowdoinlunn Mill Co., 36 Me. ■81; Jones v. Dana, 24 Barb. 398; Trott v. Warren, 2 Fairf. 227; Grant on Oorp. 23 ; Ang. & Ames, 69, 85, 635 ; Red-field, 11; id. 18, n. 3.) IV. a. There may bo irregularities in the organization of the company ; there may be an omission of certain acts enjoined by the charter and deviations from the requirements of the Legislature, and these may be of greater or less moment, and yet the existence or rights of the corporation be unaffected thereby. Those powers do not necessarily abate by defect of organization. (16 S. & R. 145 ; 1 Sandf. Sup. Ct. 168 ; 16 Ill. 358; 4 Denio, 392 ; Grant on Corp. 292; Redfield, 8.) b. And such irregularities or defects cannot be drawn into view by a debtor as a defence to calls. (16 B. Mon. 7 ; 9 id. 471; Redfield, 85 ; id. 9 ; 1 Sandford, 168 ; Ang. & Ames, 85, 636 ; 16 Ala. 374 ; 16 S. & R. 145 ; 9 Wend. 351.) c. And any such objection, to be raised by a debtor or other party, must be done in reason, in limine. If he intends to hold the company to an observance of all forms, he must do it at the earliest; a brief acquiescence will conclude him. If shareholders allow parties to act as directors, deal with them, recognize their acts, comply with their demands, vote the stock, and do business with the corporation, they are precluded from denying their liability in an action of this kind ; it is too late to object to the validity of the organization, or the existence of the corporation. (9 Wend. 351; 2 Mo. 137 ; 5 Ala. 807-8; 1 Sandf. Sup. Ot/168.) V. a. The continued existence of a corporation which for any cause may have forfeited its charter, or incapacitated itself for legal action, may be recognized by subsequent acts of the Legislature; and this cures defects and waives forfeiture. (16 III. 358 ; 9 Wend. 351.) b. The corporation itself in a legal manner may ratify past proceedings legal or illegal, or informal, or otherwise, and so cure defeets. (3 Fairfield, 312; 14 Shepley, 509, 520, 521.) VI. A corporation is a creature of the sovereign power of the State, receives its life from it, and can be declared dead only by the State. The State, only, can inquire into the validity of acts done. It cannot be done in any collateral proceeding ; it must be done in a direct proceeding instituted by the State ; third parties cannot raise the question. If the State sees fit to decline the inquiry, it cannot bo demanded by others, and least of all by debtors when the corporation seeks to enforce claims. fl Snndford, 168 ; 16 B. Mon. 7 ; 24 Barb. 898; Redfield, 9,18, 498, 608; 16 Ala. 374 ; Grant, 292; 9 Wend. 351, 382; Ang. & Ames, 85, 686; 16 S. &R. 145 ; 27 Penn. 387 ; 4Douio, 392 ; 9 B. Mon. 471.) VII. A corporation is not limited to any one place in exercising corporate functions when it is not inhibited by the charter, or by the laws or general policy of the State where the corporation assumes to-act, or of the State bringing it into being. (3 Fairf. 312; 3 Duer, 648; 2 Kent, 585, n. ; 6 Conn. 428, 436 ; 13 Peters ; 14 id.)