Soc'y Perun v. City of Cleveland

• Decision Date: 03 November 1885
• Citation: 43 Ohio St. 481,3 N.E. 357
• Parties: SOCIETY PERUN v. CITY OF CLEVELAND. SAME v. HAY.
• Court: Ohio Supreme Court

43 Ohio St. 481

3 N.E. 357

SOCIETY PERUN

v.CITY OF CLEVELAND.

SAME

v.HAY.

Supreme Court of Ohio.

Filed November 3, 1885.

Error to district court, Cuyahoga county.

On January 28, 1874, the city of Cleveland conveyed to Perun (an incorporated school and literary society) certain real estate situated in that city, and, to secure the unpaid purchase money therefor, Perun, on the same date, executed and delivered to the city its four promissory notes and a mortgage upon the premises conveyed. The city neglected to file this mortgage for record until October 21, 1879. In February, 1874, certain persons attempted to organize a mutual benefit association, under an act supplementary to an act to provide for the creation and regulation of incorporated companies passed May 1, 1852, (Swan & C. St. 271,) passed April 20, 1872, (69 Ohio L. 82,) under the corporate name of ‘Society Perun.’ Thereafter, in May, 1874, Perun delivered to Society Perun its deed purporting to convey to the latter the premises theretofore mortgaged to the city. From that time forward, and prior to the filing of the city's mortgage for record, Society Perun, acting in its supposed corporate capacity, from time to time executed and delivered deeds, mortgages, and executory contracts of sale, purporting to convey, incumber, and sell parcels of these mortgaged premises to various parties, who were made defendants in the action below, and some of whom (including Amasa Stone, a mortgagee, and who had paid taxes upon the premises mortgaged to him) are cross-petitioners in error. Thereafter, in June, 1880, in a proceeding in quo warranto in this court, instituted by the attorney general, Society Perun was adjudged not to have become incorporated in conformity to the laws of this state, but that its pretended incorporation was in violation thereof; and it was accordingly ousted of all rights and franchises to be a corporation. These proceedings in quo warranto were had pending, and prior to the final judgment in, the action below; which was brought by the city to foreclose her mortgage, and also to foreclose her supposed vendor's lien on the mortgaged premises, as against these subsequent grantees, mortgagees, and purchasers. The cause was appealed from the court of common pleas to the district court, wherein it was tried upon the issues; the court finding, among other things, that, as to the city of Cleveland, Society Perun was not a corporation either in law or in fact, and that the conveyance to it by Perun was void as against the city; and that the mortgages and other liens and claims of all the defendants (except the lien of Amasa Stone for taxes, and the claims of certain defendants for improvements on the premises) were subsequent and inferior to the lien of the city, in whose favor the court adjudged the second lien, and subsequent only to the lien of Amasa Stone for taxes paid by him, but of equal rank and merit with the holders of liens for expenditures on account of improvements above mentioned.

By the judgment in the quo warranto proceeding it was by this court in form adjudged that the defendants, (the pretended incorporators), ever since their pretended incorporation, had unlawfully and without authority exercised the franchise of, and usurped the right to be, a body corporate; that the pretended organization of these defendants as a corporation was wholly void and of no effect, and vested in them no corporate rights, powers, privileges, or franchises of any description whatever. It was further in form adjudged that the defendants never had, nor had any of them, the authority or lawful right to be a body corporate, or to exercise or hold any of the powers, rights, and liberties, privileges, functions, or franchises, of a body corporate; but that they and each of them, in the use and exercise of the same, were and had ever been usurpers thereof. The sole ground upon which this judgment of ouster was rendered, was that while the statute required that they should set forth in their certificate of incorporation (among other things) the manner of carrying on the business of the association, the attempted compliance with this requirement was in these words:

‘ Third. That the manner of carrying on the business of said association shall be such as may be from time to time prescribed by the by-laws of such association: provided, that the same shall not be inconsistent with the laws of the state of Ohio.’

Upon the trial below the plaintiff gave in evidence, against the objection of defendants, the record of the quo warranto proceedings. The defendants offered in evidence the writing which was filed with the secretary of state as the certificate of incorporation of Society Perun. They also offered to prove that the pretended incorporators proceeded to comply strictly with requirements of the statutes; that they elected trustees, prepared a certificate of incorporation stating explicitly the manner of carrying on the business; that this was forwarded to the secretary of state, who submitted it to the attorney general for examination and approval; that the secretary of state returned this paper with another form of certificate, which had been approved by the attorney general and secretary of state, and which was the identical certificate actually filed with the secretary of state, and under the supposed authority of which an organization was in good faith attempted, and that they proceeded in good faith to act and transact its business under the supposed authority of such incorporation. All this was excluded, and the defendants excepted. To reverse this judgment the present proceeding is prosecuted.

The alleged errors chiefly relied upon are the exclusion of the evidence offered to prove an attempt, in good faith, to incorporate Society Perun; the finding and holding of the court that Society Perun had never been, in law or fact, a corporation; that as against the city the deed from Perun was void; and adjudging the city's lien to be prior to the rights and liens of Society Perun and its mortgagees, grantees, and purchasers.

[Ohio St. 485]

Wilson & Sykora, for plaintiff in error.

[Ohio St. 487]A. T. Brinsmade, W. E. Sherwood, and [Ohio St. 486]B. R. Beavis, for defendants in error.

[Ohio St. 489]OWEN, J.

The defendants below, conceding that Society Perun had never been a corporation de jure, maintain that the court below should have permitted them to prove that such society was a de facto corporation; that it attempted in good faith to become a body corporate; proceeded to act and transact business in good faith under the supposed authority of incorporation; and that its acts ought not to have been declared to be wholly void as against the city of Cleveland. The judgment of ouster was an adjudication between the state and the society upon the right of the latter to exercise corporate franchises. For the purposes of such adjudication, it was competent for this court to consider and determine what had been its status from its first attempt to incorporate. But it had no power to pass upon or determine the rights of parties not before it. It was not competent for this court to determine in that proceeding that Society Perun had never been a corporation de facto, or that its acts and business transactions, under[Ohio St. 490]the color of its supposed charter powers, were void. The authority of the court in that behalf was derived from section 6774, Rev. St., which provides:

‘When a defendant is found guilty of usurping, intruding into, or unlawfully holding or exercising an office, franchise, or privilege, judgment shall be rendered that such defendant be ousted and altogether excluded therefrom, and that the relator recover his costs.’

When the court had excluded the society from its franchises to be a corporation, it exhausted its jurisdiction over the subject-matter. It had no power to speak concerning whatever rights may have been acquired by the society as a corporation de facto, or by third parties in their transactions with it as an acting corporation. It is conceded by the city that parties who had recognized the existence of the society by their transactions with it as a supposed corporation are estopped to deny its corporate existence. But it is maintained that the city, having engaged in no transactions with it, is free to challenge its existence as a corporation, de facto as well as de jure. The argument is that ‘no case can be found where it is held that there is a corporation de facto against persons who have in no way recognized its existence as a corporation;’ and that ‘the notion of a de facto corporation is based on the doctrine of estoppel; when estoppel cannot be invoked, there can be no de facto corporation.’ The theory that a de facto corporation has no real existence, that it is a mere phantom, to be invoked only by that rule of estoppel which forbids a party who has dealt with a pretended corporation to deny its corporate existence, has no foundation, either in reason or authority. A de facto corporation is a reality. It has an actual and substantial legal existence. It is, as the term implies, a corporation.

‘It is a self-evident proposition that a contract cannot be made with a corporation unless the corporation be in existence at the time. A real contract with an imaginary corporation is as impossible, in the nature of things, as a real contract with an imaginary person. It is essential, therefore, in order to establish the existence of a contract [Ohio St. 491]with a corporation, to show that the corporation was in existence, at least de facto, at the time the contract was made.’ Mor. Priv. Corp. § 137.

It is bound by all such acts as it might rightfully perform as a corporation de jure. Where it has attempted, in good faith, to assume corporate powers; where its proceedings in that behalf are colorable, and are approved by those officers of the state who are authorized to act in that regard; where it has...