Senour Manufacturing Company v. Church Paint & Manufacturing Company
| Decision Date | 12 November 1900 |
| Docket Number | 12,228 - (88) |
| Citation | 84 N.W. 109,81 Minn. 294 |
| Parties | SENOUR MANUFACTURING COMPANY v. CHURCH PAINT & MANUFACTURING COMPANY and Others |
| Court | Minnesota Supreme Court |
Action in the district court for Ramsey county to enforce the liability of defendant stockholders in defendant corporation. The case was tried before Kelly, J., who at the close of plaintiff's testimony granted a motion to dismiss the action. From an order denying a motion for a new trial plaintiff appealed. Affirmed.
Insolvent Corporation -- Liability of Stockholders.
In this action, which is one to enforce the personal liability of stockholders for the debts of a corporation, it is held:
Manufacturing Company.
1. That the corporation in question was organized, as appears by its articles of association, solely for manufacturing purposes and the stockholders thereof are not liable for its debts.
Articles of Incorporation -- Prior Agreement to Transact Other Business.
2. The fact that the promoters and organizers of the corporation intended and contemplated that the corporation should carry on and conduct a nonmanufacturing business when completely organized, and intentionally withheld a statement of such contemplated nonmanufacturing business from its articles of association, and limited the purposes of the corporation solely to manufacturing for the purpose of avoiding the personal liability of stockholders, and the further fact that such nonmanufacturing business was subsequent to the organization of the company in fact engaged in, did not change the character of the corporation, nor subject the stockholders to personal liability for corporate debts.
Fraud.
3. If such conduct on the part of the organizers and subsequent acts of the corporation in engaging in ultra vires transactions amounted to a fraud, it was such as to the state only, of which private individuals not injuriously affected cannot complain.
Purposes of Corporation -- Articles.
4. In proceedings to enforce the personal liability of stockholders for the debts of the corporation, the articles of association are the sole criterion as to the purposes for which the corporation was formed.
James E. Trask and Edward B. Graves, for appellant.
The articles of association authorize the company to do other business than manufacturing and the business properly incident thereto. Hence the corporation is not within the constitutional exception. Oswald v. St. Paul Globe Pub. Co., 60 Minn. 82, 85; Arthur v. Willius, 44 Minn. 409, 415; First Nat. Bank v. Winona P. Co., 58 Minn. 167, 171; St. Paul Barrel Co. v. Minneapolis D. Co., 62 Minn. 448. This exception, being a limitation upon the general policy and law of the state, should be strictly construed. Arthur v. Willius, supra; Minnesota Title Ins. & T. Co. v. Regan, 72 Minn. 431.
A corporation can bring itself within the excepting clause of the constitution only by complying with G.S. 1894, §§ 2805, 2807. Defendant is not a manufacturing corporation within the meaning of the excepting clause of section 3, article 10, of the constitution, because its stockholders did not correctly, truthfully, or in good faith specify in their articles the purpose for which the company was established, and because the statement in its articles as to the general nature of its business was false and was fraudulently inserted as part of a fraudulent attempt to avoid liability and evade the law. Fraud or bad faith in the statement setting forth the pretended business of the company made the articles void in so far as they on their face attempt to fix the charter or limit the business of the company exclusively to manufacturing. Brundred v. Rice, 49 Oh. St. 640; McGrew v. City, 85 Tenn. 572; Le Warne v. Meyer, 38 F. 191; Nicollet Nat. Bank v. Frisk-Turner Co., 71 Minn. 413, 421; Cuyler v. City Power Co., 74 Minn. 22. Notwithstanding the fraudulent statement in its articles as to the nature of its business the company is in fact, if not in law, a corporation; and the members of a de facto corporation are not liable as co-partners. Finnegan v. Noerenberg, 52 Minn. 239; Johnson v. Okerstrom, 70 Minn. 303; McCarthy v. Lavasche, 89 Ill. 270; Hause v. Mannheimer, 67 Minn. 194.
The mercantile business of the company by the unanimous ratification of all its stockholders became the legal business of the company, although not authorized by its articles; and the stockholders by their own acts are estopped from asserting that the company was an exclusively manufacturing company. Life v. Mechanic, 7 Wend. 31. The plea of ultra vires should not prevail, whether interposed for or against a corporation, when it would not advance justice, but on the contrary would accomplish a legal wrong. Auerbach v. Le Sueur Mill Co., 28 Minn. 291, 297; Bradley v. Ballard, 55 Ill. 413; State v. Citizens, 47 Ind. 407; Erb v. Yoerg, 64 Minn. 463; Bissell v. Michigan, 22 N.Y. 258; Whitney v. Barlow, 63 N.Y. 62; Allegheny v. McClurkan, 14 Pa. St. 81, 83; Bulkley v. Derby, 2 Conn. 252; Holmes v. Willard, 125 N.Y. 75; Kraniger v. Peoples B. Soc., 60 Minn. 94, 98.
A. G. Briggs, for respondent Church Paint & Manufacturing Company.
This is an action to enforce the liability of defendants as stockholders of the Church Paint & Manufacturing Company, a corporation, for the debts of the corporation. The cause was dismissed in the court below at the conclusion of plaintiff's evidence, and plaintiff appeals from an order denying a new trial.
Defendants contest their liability on the ground that the corporation of which they are so sought to be charged as stockholders was organized as a manufacturing corporation, and under section 3 of article 10 of the state constitution they are not personally liable for its debts.
Plaintiff claims (1) that by the terms of the articles of incorporation the company was organized for purposes other than manufacturing, and that the constitutional exemption does not apply; (2) that at the time the corporation was organized the promoters and organizers thereof contemplated and intended the corporation to carry on and conduct a mercantile business in connection with, though not incidental to, the manufacturing business named in the articles, and fraudulently designated the objects of the corporation to be manufacturing only, for the purpose of avoiding the stockholders' personal liability; (3) that a very large volume of its business transactions was in fact of a mercantile character, not incidental to, or necessarily connected with, its manufacturing business; that all the stockholders of the corporation were cognizant of the departure from the authority conferred by the articles of incorporation, participated in and sanctioned the same, and are now estopped from asserting that it was a manufacturing corporation.
1. The contention that the articles of incorporation authorize a business other than manufacturing cannot be sustained. The purposes of the corporation are designated therein in the following language:
"The general nature of the business of this corporation shall be to manufacture painters' materials and supplies, and the owning, holding, and using of letters patent pertaining to the manufacture of such articles, and the selling of such manufactured articles, and the doing of anything that is properly incident to or necessarily connected with such manufacturing business."
Appellant contends that as no particular articles of painters' materials or supplies are mentioned or specified, and as it would be next to impossible for the corporation to engage in the manufacture of all such articles, there being a vast number, the fair construction of the language of the articles permits the company to own and hold letters patent for articles not manufactured by it. The intention of the incorporators must control in construing this language. The same rule must be applied as is applied in the construction and interpretation of contracts and other writings. Applying such rule, it is clear that the plain, definite, and specific language of the articles will admit of but one construction, and that to the effect that the incorporators intended to limit the powers of the corporation to manufacturing and owning and holding such letters patent as pertained to the articles by it manufactured. This construction is not strained, as is that contended for by appellant, but is in consonance with the plain import of the language used and the evident intent of the parties. Similar language in other articles of incorporation has received a like construction by this court. Cuyler v. City Power Co., 74 Minn. 22, 76 N.W. 948; Hastings Malting Co. v. Iron Range B. Co., 65 Minn. 28, 67 N.W. 652.
2. It follows that the corporation in question was in fact organized for manufacturing purposes only, and the second inquiry is, does the...
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