Empire Mills v. Alston Grocery Co.

• Decision Date: 25 February 1891
• Citation: 15 S.W. 505
• Parties: EMPIRE MILLS v. ALSTON GROCERY CO.
• Court: Texas Court of Appeals

15 S.W. 505

EMPIRE MILLS v. ALSTON GROCERY CO.

Court of Appeals of Texas.

February 25, 1891.

On motion for rehearing. For former opinion, see ante, 200.

DAVIDSON, J.

Appellant sued appellees to recover an alleged indebtedness. Appellees were sued as a copartnership firm, composed of several parties, whose names are set out in the petition. The partnership was denied under oath by all the defendants. By first supplemental petition appellant alleged that appellees had obtained an act of incorporation from the state of Iowa for the purpose of carrying on a general mercantile business in this state; that appellees conducted a mercantile business in Dallas, Tex., and nowhere else; that said business began in March, 1886, and continued until August 16, 1887, when the company dissolved, and Alston continued to conduct said business until November, 1887. Appellant further alleged appellees filed their act of incorporation in Iowa, "purposely to evade and to practice a fraud upon the laws of Texas; that the laws of Texas prohibited, and did not permit or allow, the formation of such corporations, at the time specified, for the purposes or objects intended by defendant company, and for the business conducted by the defendant company; that the same was contrary to the public policy, and in violation of the laws of the state of Texas; and that said act of incorporation was a fraud upon Texas, and was procured fraudulently as to both states, Iowa and Texas." Appellees filed a general demurrer thereto, which was sustained. They also filed denials of partnership under oath. The court directed verdict to be returned against appellant, which was done, and judgment was entered accordingly. Appellant prosecuted his appeal to this court, and during this term of this court the judgment was reversed, and the cause remanded; and in due time appellees filed their motion for rehearing, in which it is urged that the court erred in remanding the case, and suggested that the rehearing be granted, and the judgment be affirmed. In the opinion heretofore rendered this court held that "in so far as it [the act of incorporation of appellee company] was intended to operate in this state it is absolutely void, and that in conducting said business appellees were in fact and in law copartners, and not a corporation, and that the court erred in rendering judgment for appellees." In this motion for rehearing appellees contend that, by a rule of comity, a corporation organized in one state is permitted to transact business in other states, "unless such rule of comity is expressly repealed;" and that "this repeal will not be implied from the fact that, in the state where such corporation seeks to do business, a corporation for like purposes could not be organized;" and virtually that the power of a state to "repeal this general rule of comity does not extend to foreign corporations," etc. If appellee be correct, then the rule of comity would be superior to the statutory provisions of the state where the corporation was seeking to do business. Appellee states his proposition in advance of and beyond what we understand the law to be. "A corporation is the creature of a statute immediately creating it, or authorizing proceedings for its organization." "The powers of a corporation, under statutes, are such, and such only, as the statutes confer." Suth. St. Const. § 382; Mor. Corp. § 4, and notes; 4 Amer. & Eng. Enc. Law, p. 206, and notes, and collated authorities on pages 206-209. All the authorities on the subject agree that such is the law. Again, it may be said in this connection that "it is a fundamental principle that the laws of a state can have no binding force, proprio vigore, outside of the territorial limits and jurisdiction of the state enacting them." Mor. Corp. (1st Ed.) § 500; Story, Confl. Laws, § 7: Sedg. St. & Const. Law, 69. "Hence it follows that a state cannot grant to any person the right to exercise a franchise in a foreign state or country; for a franchise is the result of a law authorizing particular individuals to do acts or enjoy immunities which are not allowed to the community at large." Same authority. See, also, Mor. Corp. § 535. "A grant of corporate existence is a grant of special privileges to the corporators, enabling them to act for certain designated purposes as a single individual, and exempting them (unless otherwise provided) from individual liability. The corporation, being the mere creation of local law, can have no legal existence beyond the limits of the sovereignty where created. It must dwell in the place of its creation, and cannot migrate to another sovereignty. The recognition of its existence, even by other states, and the enforcement of its contracts made therein, depend purely upon the comity of those states." Mor. Corp. (1st Ed.) § 500; Bank v. Earle, 13 Pet. 588; Runyan v. Coster, 14 Pet. 129, 130; Railway, etc., Co. v. Coffey Co., 6 Kan. 252; Thompson v. Waters, 25 Mich. 221; Railroad Co. v. Glenn, 28 Md. 287; Land Co. v. Laigle, 59 Tex. 339; Wright v. Bundy, 11 Ind. 398; Miller v. Ewer, 27 Me. 509; Merrick v. Van Santvoord, 34 N. Y. 208, 220; McCall v. Manufacturing Co., 6 Conn. 428, 435, note a; Paul v. Virginia, 8 Wall. 181; Smith v. Alvord, 63 Barb. 423. The rule of comity is entirely in subjection to the sovereign will of the state, and can only exist by permission of the state in which it is sought to employ it. A corporation has no implied authority to do any act in a foreign state which is not permitted by the laws of the latter to individuals generally. Mor. Corp. (1st. Ed.) § 505, and note 1. Speaking of the limit of the rule of comity, the same author says: "By the common law, the right of acting in a corporate capacity is not accorded freely and without conditions to every one, but must be derived from an act of the legislature. It is evident that there are reasons of public policy underlying this restriction, and it cannot be assumed that its effect may be nullified by the comity extended towards foreign states. To obtain a charter for the purpose of evading the laws of a foreign state, under cover of the rule of comity, would be a fraud upon the state granting the charter; and to attempt to act under such charter in the foreign state would be a fraud upon the latter." Mor. Corp. (1st. Ed.) § 508. Comity was never accorded for the purpose of giving any state an unlimited power to dispose of the franchise of acting in a corporate capacity in other states, or to "spawn corporations" for that purpose. Railway, etc., Co. v. Coffey Co., 6 Kan. 254. No rule of comity will allow one state to charter corporations to operate in another state, unless there is willingness on the part of the foreign state that it should be so. To hold otherwise would be to say that the right of one state, aided by comity, is superior to the sovereign will of the other. This involves the surrender of sovereignty to a rule of comity, and to a matter of international etiquette, which no independent nationality should for a moment think of doing. It is not necessary that a state should by express enactment exclude foreign corporations in order to indicate that they shall not be allowed to act within its jurisdiction; the will of the state may be implied from its general policy and legislation. "Whenever a state sufficiently indicates that contracts which derive their validity from its comity are repugnant to its policy, or are considered as injurious to its interests, the presumption in favor of its adoption can no longer be made." Bank v. Earle, 13 Pet. 592; Myers v. Bank, 20 Ohio, 301, 302; Starkweather v. Society, 72 Ill. 50; Trust Co. v. Lee, 73 Ill. 144; Christian Union v. Yount, 101 U. S. 356. In this last-cited case Mr. Justice HARLAN, speaking of the rule of comity, said: "In harmony with the general law of comity obtaining among the states composing the Union, the presumption should be indulged that a corporation of one state, not forbidden by the law of its being, may exercise, within any other state, the general powers conferred by its own charter, unless it is prohibited from so doing, either in the direct enactments of the latter state, or by its public policy to be deduced from the general course of legislation, or from the settled adjudications of its highest court." Page 356 of said case. See Tayl. Corp. "Having Capital Stock," § 384. (In accordance with these principles, see authorities collated in note to above-cited section. They are too numerous to cite here.) Therefore an act of incorporation, procured for the purpose from one state to evade the laws of another state, and to carry on its business in the latter state, would constitute it a fraud upon the state granting the corporate powers, as well as upon the state in which it is sought to organize and operate the corporation. It is equally well settled that the corporation cannot exercise its corporate powers in the foreign state when it is prohibited from doing so by direct enactment of the legislature of that state; it is also as well settled that the act of incorporation cannot be put into operation there if the will of the state can be implied from its general policy and legislation, nor can it exercise its powers therein if the settled adjudications of the higher court of the state are adverse thereto.

Applying these rules to the action of the court sustaining the general demurrer, we are of opinion that said ruling was erroneous. The first supplemental petition presented issues and facts which clearly avoided appellees' denial of partnership. The act of incorporation, if in accord with the laws of Iowa, but procured for the purpose of evading the laws and public policy of Texas, or the general policy of her legislation, or the adjudications of her courts of last resort, would be void and of no effect; and because the appellees may have carried on business in Dallas, Tex., holding themselves out as a corporate body, that fact would...