The A. R. Young Construction Company v. Dunne

• Decision Date: 12 March 1927
• Docket Number: 27,234
• Citation: 123 Kan. 176,254 P. 323
• Court: Kansas Supreme Court
• Parties: THE A. R. YOUNG CONSTRUCTION COMPANY et al., Appellants, v. D. E. DUNNE et al., as D. E. DUNNE & CO., Appellees

254 P. 323

123 Kan. 176

THE A. R. YOUNG CONSTRUCTION COMPANY et al., Appellants, v. D. E. DUNNE et al., as D. E. DUNNE & CO., Appellees

No. 27,234

Supreme Court of Kansas

March 12, 1927

Decided January, 1927.

Appeal from Sedgwick district court, division No. 1; J. EVERETT ALEXANDER, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. CORPORATIONS--Forfeiture of Charter--Failure to Pay Fee and File Report. Where a corporation fails to pay a prescribed fee and to file an annual report as required by R. S. 17-701 within the time fixed by the legislature, the omission operates as a forfeiture of its charter and ends its existence when the forfeiture is declared by the state charter board.

2. SAME--Forfeiture of Charter--Notice. The order declaring a forfeiture for noncompliance of the requirements in the statute named, is legislative and administrative in character and the notice necessary to a judicial proceeding is not essential to the validity of the order of forfeiture.

3. SAME--Forfeiture of Charter--Abatement of Action. Upon the forfeiture of the charter of a corporation actions by or against it are abated, and no valid proceedings can be taken therein until a revivor is had in the manner provided by law.

4. SAME--Forfeiture of Charter--Substitution of Receiver After Termination. Where no revivor of a defunct corporation has been granted, a receiver appointed by another court in an action brought against the corporation is not entitled to be substituted as plaintiff upon his application made after the existence of the corporation has terminated.

5. SAME--Generally. Other questions raised are held to be without merit.

C. H. Brooks, Willard Brooks, Howard T. Fleeson, all of Wichita, and Charles M. Miller, of Kansas City, Mo., for the appellants.

Chester I. Long, Austin M. Cowan, Claude I. Depew, James G. Norton, W. E. Stanley, Thomas E. Elcock and James G. Martin, all of Wichita, for the appellees.

OPINION

JOHNSTON, C. J.:

This action was brought by the A. R. Young Construction Company against D. E. Dunne & Co., a partnership, to recover for a breach of a contract by the defendants to purchase improvement bonds of the city of Miami, Okla., which were to be issued and delivered in installments as the improvements on certain streets were completed. It was alleged that as each of the streets was completed and the officers of Miami issued bonds to plaintiff, they were to be purchased and paid for by the defendant; that the total amount of bonds so issued amounted to $ 610,480.68, and that the defendants had agreed to buy all of them at the stipulated price of ninety per cent of their face value. It appears that defendants did buy and pay for $ 318,251.71 worth of the bonds, when they refused to take more of them upon the ground that it had been discovered that there was a lack of authority in the city under the laws of Oklahoma to issue such bonds as had been contracted for. It was alleged by plaintiff that defendant refused to accept and pay for $ 292,228.97; that plaintiff had found a market and disposed of $ 76,206 at eighty-five cents on the dollar, and therefore had sustained a loss on that amount of $ 3,810.33. For the remainder of the bonds, plaintiff alleged that their market value was eighty cents on the dollar, and that the default of defendant had caused a loss thereon of $ 21,602.33. In a separate cause of action plaintiff alleged that it was compelled to borrow money in order to carry on the improvements and earn the bonds, and that the loans so made cost them in interest the sum of $ 9,054.63, and also the sum of $ 1,900 as commission: For all of these separate amounts judgment was asked. The defendants, after setting up a general denial and specially denying that D. E. Dunne was a member of the partnership firm, alleged that the bonds refused were illegal, were issued in violation of the laws of Oklahoma, and that the bonds taken and paid for were purchased before the discovery of the illegality in them. They further alleged that a settlement was made between the parties about December 1, 1920, of the controversies in respect to the bonds, which was based on a valuable consideration and which discharged defendants from any liability on the contract. They also alleged that they own and hold an unsatisfied judgment against the plaintiff in the sum of $ 25,000 rendered by the circuit court of Jackson county, Arkansas, and that the plaintiff is entitled to a credit for that amount with interest at six per cent from October 17, 1923.

After the introduction of evidence as to the issuance and character of the bonds and also as to market value of such bonds, at different times, a question arose as to the right of plaintiff to bring the action because its charter had previously been declared forfeited and it was no longer a live corporation. Application was made to amend and substitute Cecil L. Newbold, receiver, as plaintiff, which was at first allowed over the objection of defendants. It appears that Warren Brothers had brought an action in the nature of a creditor's bill in the federal court during the pendency and progress of this action and that a receiver was appointed therein, and by an ex parte order the receiver was directed to intervene in and prosecute this action. Evidence was taken relating to the forfeiture, and it was shown that on December 22, 1922, the charter of the corporatio n was declared to be forfeited for failure to file annual statements and pay the annual license fee for the year ending December 31, 1921. Plaintiff offered testimony tending to show that specific notice of the proposed action of the charter board was not given to the corporation, and also of a letter of the attorney-general on August 11, 1922, to the effect that he would sue for penalties within ten days unless payment was made. The court then sustained the objection of defendants, denied the amendment and substitution, stating that when it was first allowed the court was not informed as to the true state of affairs. It held that all orders made during the trial of the case were absolutely void, that the action had abated on December 22, 1922, upon the forfeiture of the charter of plaintiff and that the only authority it had in the premises was to dismiss the case without prejudice, and that was the judgment.

Instead of bringing a new suit in the name of the receiver, plaintiff concluded to submit on appeal the question as to the validity of the action of the trial court in the dismissal of the case.

The first question argued upon plaintiffs' appeal is as to the effect of the declaration of forfeiture by the state charter board. The pertinent part of the statute relating to forfeiture of the charter of such a corporation is:

"The failure of any domestic corporation to file the annual statement and to pay the annual fee herein provided for within ninety days of the time for filing and paying the same shall, in addition to other penalties, work the forfeiture of the charter of such corporation organized under the laws of this state, and the charter board may at any time thereafter declare the charter of such corporation forfeited." (R. S. 17-706.)

The plaintiff failed to file the annual statement required by the statute for the year 1921, and failed to pay the required fee for that year. Its default is not open to controversy. On the last day of 1922 the state charter board formally declared the forfeiture of plaintiff's charter. It is contended that the action taken was ineffective because no notice was given the corporation of the proposed action. It is said that the forfeiture is quasi-judicial in its nature and that reasonable notice is a requisite under the due process clause of the federal constitution. Was notice to the officers of the corporation, other than that given by statute, essential to ending the corporate existence of the plaintiff? The corporation owed its existence to the state. The powers and privileges of the corporation were conferred upon conditions imposed by the legislature. Among these conditions were the payment of an annual fee and the filing of an annual statement showing its present officers, its capital stock authorized and issued, the value of the stock a list of its stockholders, the business in which it was engaged, and a complete detailed statement of its assets and liabilities. (R. S. 17-701.) These were important conditions, and when the corporation accepted the charter it consented to be bound by all the conditions prescribed by the legislature, and the statute itself became a part of the corporate contract. It is competent for the legislature to provide that a corporation shall lose its existence by acts or omissions, the forfeiture to be declared by administrative officers without the intervention of the courts. If the corporation violates the statutory conditions by acts or omissions which the legislature has in plain terms declared shall operate as a forfeiture upon a declaration of a board or of ministerial officers, the forfeiture is complete when the declaration is made. Since the legislature in unmistakable language provided that the conceded omissions of the plaintiff shall work a forfeiture of the charter, to be declared by the state charter board, the forfeiture...