Bankers' Holding Corp. v. Maybury

• Decision Date: 06 April 1931
• Docket Number: 22698.
• Citation: 161 Wash. 681,297 P. 740
• Court: Washington Supreme Court
• Parties: BANKERS' HOLDING CORPORATION v. MAYBURY, Director of Licenses, et al.

297 P. 740

161 Wash. 681

BANKERS' HOLDING CORPORATION v. MAYBURY, Director of Licenses, et al.

No. 22698.

Supreme Court of Washington

April 6, 1931

Department 2.

Appeal from Superior Court, Thurston County; D. F. Wright, Judge.

Action by Bankers' Holding Corporation against Charles R Maybury, as Director of Licenses of the State of Washington and others. From a judgment of dismissal, plaintiff appeals.

Affirmed.

L. B Donley, of Aberdeen, for appellant.

John H Dunbar and Lester T. Parker, both of Olympia, for respondents.

BEELER J.

The plaintiff brought this action to enjoin the defendants in their official capacity from proceeding to enforce the collection of a penalty prescribed by section 3855, Rem. Comp. Stat., which a foreign corporation doing business in this state incurs if it neglects to file a certified copy of its charter or articles of incorporation, or fails to appoint a resident agent on whom legal process may be served as required by sections 3853, 3854, Rem. Comp. Stats. A demurrer was interposed to the complaint and was by the court sustained. Plaintiff refusing to plead further, a judgment of dismissal was entered, from which the plaintiff has appealed.

The substantive allegations of the complaint are: The plaintiff is a foreign corporation organized under the laws of the state of Nevada; that it owns no property in the state of Washington, except that it is the owner of more than 51 per cent. of the capital stock of two state banks and two national banks domiciled within the state of Washington; that it maintains no office or place of business within this state, and has filed no certified copy of its articles of incorporation with the secretary of state, nor has it paid the fees required by law to be paid by foreign corporations undertaking to do business within this state. The complaint further alleged:

'That one of the objects for which the said plaintiff is formed is the purchase, ownership, holding and voting of the capital stock of banking and other corporations, and thereby controlling the same by the purchase, ownership and voting of the majority of the stock thereof, and to do any and all things for the protection, improvement and enhancement of the value of such securities or any thereof; that the plaintiff, Bankers Holding Corporation, intends in the immediate future and from time to time in the future to purchase and acquire within the State of Washington the controlling interest in various banking institutions by the purchase of a majority of the stock of such various banking institutions.'

The precise question raised by this appeal has not heretofore been presented to this court. The single question is whether a foreign corporation organized for the purpose or object of purchasing, owning, holding, and voting a majority of the capital stock of banking corporations, so as to control them, is doing business within this state when it acquires by purchase, a majority of the stock of banking corporations domiciled and doing business in this state. If a foreign corporation under these circumstances or conditions is doing business in this state, then the demurrer should be sustained, otherwise not.

Prior to 1905 a domestic corporation could not lawfully subscribe for, or deal in, the stock of another domestic corporation. Denny Hotel Co. v. Schram, 6 Wash. 134, 32 P. 1002, 36 Am. St. Rep. 130; Parsons v. Tacoma Smelting & Refining Co., 25 Wash. 492, 65 P. 765. This same rule applied to foreign corporations as well. In Coler v. Tacoma Railway & Power Co., 65 N. J. Eq. 347, 54 A. 413, 414, 103 Am. St. Rep. 786, a New Jersey corporation operated the Tacoma street railway system, and it was proposed to transfer to the Seattle-Tacoma Interurban Railway, a Washington corporation, all of the assets of the New Jersey corporation. The Supreme Court of New Jersey held that this could not be done, stating:

'The courts of Washington have decided that one corporation cannot subscribe for, purchase, hold, or vote upon the shares of stock of another corporation without legislative sanction and that the Legislature of the state has never sanctioned such acts. Denny Hotel Co. v. Schram, 6 Wash. 134, 32 P. 1002, 36 Am. St. Rep. 130; Parsons v. Tacoma Smelting & Refining Co., 25 Wash. 492, 65 P. 765. This doctrine rests altogether on considerations of public policy. But it is said that the policy as declared extends only to domestic corporations, and whether it should embrace foreign corporations is a matter to be decided by the courts of that state alone. I do not understand that the policy is so restricted. One of its objects is to prevent one corporation from interfering with the control of another. This was the purpose to be subserved by the decision in Parsons v. Tacoma S. & R. Co., just cited, where, although though the title of the stockholding company was not assailed, its right to vote upon the stock was denied. It is true that the stockholding company was a domestic corporation, but the denial of its right to vote could not be based on that circumstance. The doctrine that it was impolitic to allow a corporation whose chartered powers were subject to modification at the will of the state to exercise control over a domestic corporation, would seem necessarily to imply that it was deemed equally impolitic to permit such control by a corporation whose chartered powers were generally independent of the state. The application of the restriction to a foreign corporation is a mere interpretation, not an extension of the doctrine. But if it be an extension, the extension is made by the Constitution of Washington, which provides (article 12, § 7) that 'no corporation organized outside the limits of this state shall be allowed to transact business within the state on more favorable conditions than are prescribed by law to similar corporations organized under the laws of this state.'

Thus it was determined by this court, which ruling was followed by the Supreme Court of New Jersey, that neither a foreign nor a domestic corporation could acquire, own, hold, or vote the corporate stock of another domestic corporation. Following thses decisions, the Legislature of this state in 1905 enacted a statute granting to both foreign and domestic corporations the power and right to deal in the corporate stocks of domestic corporations.

The statute provides:

'That any corporation heretofore or hereafter organized under the laws of this state or of any other state or territory of the United States and doing business in this state shall have power and authority to subscribe for, acquire by purchase or otherwise and to own, hold, sell, assign and transfer shares of the capital stock of any other corporation and by its duly authorized officer or proxy to vote such shares at any and all stockholders' meetings of the corporation whose shares are so held, and to have and exercise all the rights, powers and privileges of any other stockholder, except that such corporate owner cannot be a member of the board of trustees. All existing holdings by such corporation in the shares of the capital stock of any other corporation are hereby validated.' Section 3810, Rem. Comp. Stat.

This statute is unambiguous and obviates construction. It is permissive in its terms. It permits a foreign corporation to do that which prior to 1905 it could not do, namely, acquire, own, hold, vote, etc., the corporate stock of a domestic corporation, provided, however, that such foreign corporation be engaged in 'doing business' in this state. In other words, the Legislature granted to domestic and foreign corporations, alike, the right to acquire stock in domestic corporations, provided foreign corporations were 'doing business' within this state. Therefore, it follows that if a foreign corporation is not doing business in this state it cannot acquire, own, hold, etc., the corporate stock of domestic corporations. Plaintiff, however, contends that since it merely owns and holds stock in domestic corporations it is not 'doing business' within this state. We cannot so construe the complaint. What were the purposes and objects for which the plaintiff was organized and created? Was it for gain and profit and to be in the actual control of other banking institutions, or was it organized to remain passive and inactive? Clearly the former. And how did it propose to accomplish its purpose? By acquiring a majority of the capital stock in various financial institutions in this as well as other...