Langer v. Fargo Mercantile Co.

• Decision Date: 05 December 1921
• Docket Number: 358
• Citation: 186 N.W. 104,48 N.D. 545
• Court: North Dakota Supreme Court

186 N.W. 104

48 N.D. 545

FRANK J. LANGER and WILLIAM LANGER, Plaintiffs v. FARGO MERCANTILE CO., a corporation dissolved, T. A. Quirk, C. O. Follett, and Croil Hunter, directors and trustees of Fargo Mercantile Company, a corporation dissolved; Fargo Mercantile Co., a corporation, T. A. Quirk, C. O. Follett and Croil Hunter, directors of said Fargo Mercantile Co., a corporation, Defendants

No. 358

Supreme Court of North Dakota

December 5, 1921

Appeal of both parties from the District Court of Cass County, Cole J.

Judgment affirmed.

Judgment affirmed, without costs.

Young Conmy & Young, for defendants-appellants.

"Before there can be a de facto corporation, there must be a valid law under which a corporation may be formed, a bona fide attempt to incorporate under it, and an actual exercise of corporate powers." Jennings v. Dark, 92 N.E 778, 782, 175 Ind. 332; Gillette v. Aurora Ry. Co. 81 N.E. 1005, 1009, 228 Ill. 261; Marshall v. Keach, 81 N.E. 29, 227 Ill. 35; 118 Am. St. Rep. 247; 10 Ann. Cas. 164, citing American Trust Co. v. Minnesota & N. E. R. Co., 42 N.E. 153, 157, Ill. 641; Bushnell v. Consolidated Ice Mach. Co. 27 N.E. 596, 138 Ill. 67; 1 Cook, Stock. Stockh. & Corp. (3d ed. § 234).

"The requisites to constitute a 'corporation de facto' are three: (1) A charter or general law under which such a corporation as it purports to be might lawfully be organized; (2) an attempt to organize thereunder; and (3) actual user of the corporate franchise." Whipple v. Tusworth, 99 S.W. 86, 89, 81 Ark. 391, citing Tulare Irrigation Dist. v. Shepard, 22 Supp. Ct. 531, 185 U.S. 1, 46 L. ed. 773; Clark Corp. 90; Finnegan v. Noerenberg, 53 N.W. 1150, 52 Minn. 239, 18 L.R.A. 778, 38 Am. St. Rep. 552; Stout v. Zulick, 7 A. 362, 48 N. J. Law 599; Eaton v. Walker, 43 N.W. 638, 76 Mich. 579, 6 L.R.A. 102; Swartwout v. Michigan Air Line R. Co. 24 Mich. 393; McFarlan v. Triton Ins. Co. (N. Y.) 4 Denio 392; Spring Valley Waterworks v. City of San Francisco, 22 Cal. 434; Mackall v. Cheaspeake & O. Canal Co. 94 U.S. 308, 24 L. ed. 161; 3 Cook Corp. (4th ed.) § 637.

"A corporation, after the expiration of the period fixed for its existence in the law under which it is organized, is not even a de facto corporation, and its existence as a corporation may be attacked collaterally." Clark v. American Canal Co. (Ind.) N. E. 1083; 1 Clark and Marshall on Corporations, § 82c (4) p. 247, Vol. 2 § 305; Guaga Iron Co. v. Dawson, 4 Blackf 202; Morgan v. Lawrenceburg Ins. Co. 3 Ind. 392, 65 Am. Dec. 768; Broadley v. Rappell, 113 Mo. 545, 32 S.W. 645, 34 S.W. 841, 54 Am. St. Rep. 685; Krutz, v. Paola Town Co. 20 Kan. 491, 24 P. 977; Supreme Lodge of Knights of Pythias v. Weller, 93 Va. 605, 25 S.E. 891; Dobson v. Simonson, 86 N.C. 492; No. 15, Sons of Temperance v. Ashton, 92 N.C. 578; Sturges v. Vanderbilt, 73 N.Y. 384; White v. Campbell, 5 Humph. (Tenn.) 38.

"If a corporation is dissolved it ceases to be a going concern and thereafter its good will is of no value. "The act of liquidation destroys the value of such good will as a value separate and apart from the value of the tangible assets.'" Fletcher's Cyclopedia Corporations, Vol. 8, p. 9177, § 5571; Watkins v. National Bank (Kan.) 32 P. 914; Rossing v. State Bank (Ia.) 165 N.W. 254.

W. S. Lauder, for plaintiffs-appellants.

A trustee may not lawfully deal with the trust property for his own advantage, or for the advantage of the company or corporation in which he has a personal interest. Clendenning v. Hawk, (N.D.) 86 N.W. 114, see pp. 116-117, 10 N.D. 90; Anderson v. First Nat'l. Bank, (N.D.) 64 N.W. 114; McKay v. Williams, (Mich.) 35 N.W. 159; Kimball v. Ranney (Mich.) 80 N.W. 992; King v. Remington et al (Minn.) 29 N.W. 352; Stettnische v. Lamb (Neb.) 26 N.W. 374; Veeder v. McKinley, Lansing Loan & Trust Co. et al (Neb.) 86 N.W. 982; Frazier v. Jenkins, (Kan.) 57 L.R.A. 575; Ferguson v. Gooch Trustee, (Va.) 40 L.R.A. 234; Kindman et al v. O'Connor (Ark.) 13 L.R.A. 490; Moore v. Mandlebaum, (Mich. ) 8 Mich. 432; Wormley v. Wormley (U. S.) 5 L. ed. 651; Harding v. Handy, (N. S.) 6 L. ed. 420 (Chief Justice Marshall); Michaud v. Girod (U. S.) 11 L. ed. 1076, see particularly column 2, p. 1098. One of the three leading cases of this country, Richardson v. Jones, (Md.) 22 Am. Dec. 293; Cumberland Coal & Iron Co. v. Sherman, (N. Y.) 30 Barb. 553; Gardner v. Ogden (N. Y.) 78 Am. Dec. 192- 22 N.Y. 327; Barnes et al v. Lynch et al (Okla.) P. 995; Brunner v. Finley et al (Pa.) 41 A. 334; Sage et al v. Culver et al (N. Y.) 41 A. 513; Wayne Pike Co. et al v. Hammons et al (Ind.) 27 N.E. 487.

"The State alone can complain of the exercise by a corporation of its franchise beyond the period for which it was organized." Miller v. Newburg etc. Co. 31 W.Va. 836--12 A. S. R. 903; Brady v. Deleware Mut. Ins. Co. 45 A. 345 (Del.); Arlington Hotel Co. v. Rector, 124 Ark. 90-- 186 S.W. 662; Wilson v. Brown, 175, N.Y.S. 688.

The defendants are estopped to deny the corporate character of the old company down to Aug. 13, 1918. It is the settled law of the land tat a corporation transacting business and holding itself out as such, to the public, is estopped to deny its corporate character. It is also settled law that, in the absence of fraud, a person who has contracted or otherwise dealt with an association in such a way as to recognize and, in effect admit its legal existence as a corporation is thereby estopped to deny its corporate existence in any action arising out of or involving such contract or dealing. Wilder Mfg. Co. v. Corn Products Refining Co. 236 U.S. 165; Andes v. Ely, 158 U.S. 312; Wallace v. Loomis, 97 U.S. 146; Rannels v. Rowe, 145 F. 296--74 C. C. A. 376; Decatur First Nat'l Bank v. Henry, 49 So. 97 (Ala.); Kansas City So. R. Co. v. McClintock 107 Ark. 48 Ann. Cas. 1914 C 1247; Cal. Fruit Exc. v. Buck, 163 Cal. 223-- 124 P. 824; Kelleher v. Denver Music Co. 48 Colo. 212, 109 P. 860; Fish v. Smith, 73 Ky. 379, 84 A. S. R. 161; Henry Gold Min. Co. v. Henry, 25 Idaho 333, 137 P. 523; Lincoln Park Chapter R. A. M. v. Swatek, 204 Ill. 228, 68 N.E. 429; Jennings v. Dark, 175 Ind. 332, 92 N.E. 778; Faulkner v. Farmers Produce etc. Co. 170 Ky. 22, 185 S.W. 151; Quincy Canal v. Newcomb, 7 Metc. (Mass.) 276.

The doctrine of estoppel to deny corporate existence, by reason of having contracted with the corporation, is not limited to contracts between the corporation and strangers but applies also in the case of contracts, between a corporation and its stockholders or members. Fish v. Smith, 73 Ky. 379, 84 Am. St. Rep. 161; Gilman v. Drusem, 111 Wis. 400, 87 N.W. 557.

And the foregoing is particularly true where the party, so contracting, has also recognized the existence of the corporation by taking an active part therein as promoter, stockholder, member or officer. Henry Gold Min. Co. v. Henry, 25 Idaho 333, 137 P. 523, 14 C. J. § 253.

A trustee may not use or deal with the trust property for his own profit. Also no trustee, so long as he remains in the trust, may undertake another trust adverse in its nature to the interest of his beneficiary in the subject of the trust without the consent of the latter. A trusee may not use the influence which his position gives to obtain any advantage over his beneficiary. In so far as pertains to the assets and business of the new corporation the defendants are involuntary trustees, at least to the extent of plaintiff's property that was taken over by the new company. The following authorities fully sustain our contention. U. S. v. Debell, 142 C. C. A. 284; Nestor v. Gross, 66 Minn. 371, 69 N.W. 39; Rollins v. Mitchell, 52 Minn. 41, 53 N.W. 1020; Henderson v. Murray, 121 N.W. 214; 39 Cyc. 172 and note 32; 1 Perry on Trusts (5 ed.) chap. 5, 166 et seq; Hammond v. Pennock, 61 N.Y. 145.

"The good will of a business is an asset and cannot be appropriated by majority stockholders." Mapes v. Metcalf, 10 N.D. 601; Cook on Corps. Vol. 2, § 641, p. 1835; Trentman v. Wahrenburg, 65 N.E. 1057, 1060 (Ind.); Merchants Ad. Sign Co. v. Sterling, 57 P. 468, 71 Am. St. Rep. 94.

BIRDZELL, J. CHRISTIANSON, J., concurs, GRACE, C. J. (specially concurring). BRONSON, J., not participating. ROBINSON, J. (dissenting in part.)

OPINION

BIRDZELL, J.

This is an action by two stockholders against a dissolved corporation and the directors as trustees thereof. The relief sought is a judgment that the individual defendants, the directors, be charged as trustees of the property and assets of the old corporation; that they be required to account for the same; that a sale of the property and assets of the dissolved corporation to a new corporation of similar name be adjudged to be null and void; that the affairs of the old corporation be liquidated according to law; that a receiver trustee, or trustees, be appointed to conserve the property; that the plaintiffs be permitted to follow their interests in the old corporation by requiring the purchasing corporation to issue to them stock in proportion to their property interests in the old corporation; and for general relief. Upon a motion for the appointment of a receiver the district court denied the application, and from the order an appeal was taken to this court, where the order was affirmed. Langer v. Fargo Mercantile Co. et al., 174 N.W. 90. After the conclusion of the trial on the merits, findings and conclusions were made by the district judge to the effect that the individual defendants became trustees; that no valid sale of the property and assets had been made by them; that the affairs of the dissolved corporation had never been lawfully liquidated; that the plaintiffs might elect, on or before May 20, 1921, whether they would take stock in the new corporation with an accounting for dividends earned after the formation of the new corporation, or...