Weber v. Pend D'Oreille Mining & Reduction Co., Ltd.

• Decision Date: 31 December 1921
• Citation: 35 Idaho 1,203 P. 891
• Parties: FRED A. WEBER, Respondent, v. PEND D'OREILLE MINING & REDUCTION COMPANY, LTD., a Corporation; STANDARD DEVELOPMENT COMPANY, a Corporation; J. WARD ARNEY, as Administrator of the Estate of SIMON P. DONNELLY, and WILLIAM E. CLOYES, Appellants
• Court: Idaho Supreme Court

203 P. 891

35 Idaho 1

FRED A. WEBER, Respondent, v. PEND D'OREILLE MINING & REDUCTION COMPANY, LTD., a Corporation; STANDARD DEVELOPMENT COMPANY, a Corporation; J. WARD ARNEY, as Administrator of the Estate of SIMON P. DONNELLY, and WILLIAM E. CLOYES, Appellants

Supreme Court of Idaho

December 31, 1921

FOREIGN CORPORATIONS - CONTRACTS OF - RESCISSION OF CONTRACT - CANCELATION-ENJOINING SALE OF CORPORATE STOCK.

1. Contracts of foreign corporations, doing business within the state, which have failed to comply with the laws thereof with relation to foreign corporations doing business therein, are not void, but such corporations are deprived of remedy in the courts of the state to enforce them.

2. In an action brought to rescind a contract which has been executed, in whole or in part, it is essential that the parties be placed in statu quo. Plaintiff in such an action must allege that he is ready, able and willing to place the defendant or defendants in statu quo, and offer so to do, or allege sufficient equitable reasons for not doing so.

3. A party seeking rescission of a contract against another party lacking capacity to enforce the same in the courts of the state is not excused from offering to do equity on account of the incapacity of the other party to sue.

4. An assignment of error in a brief of appellant to the effect that the court erred in making a certain finding is not sufficiently definite to point out the ground on which the court erred. It does not call in question the sufficiency of the evidence to support the finding.

APPEAL from the District Court of the Eighth Judicial District, for Bonner County. Hon. R. N. Dunn, Judge.

Action to enjoin sale of stock. Judgment for plaintiff. Modified and reversed.

Judgment affirmed in part and reversed in part. No costs awarded.

Potts &amp Wernette and J. Ward Arney, for Appellants.

Where there is a failure of a part of the lawful consideration, the part which fails is simply a nullity and imparts no taint to the residue. If there is a substantial consideration left, it will still be sufficient to sustain the contract. (9 Cyc 370; 11 Cent. Dig., "Contracts and Equity," 398-402, authorities therein cited; Desha's Exrs. v Robinson, 17 Ark. 228; Case v. Grimm, 77 Ind. 565; Wilson v. Webster, Morris (Iowa), 312, 41 Am. Dec. 230; Hodgdon v. Golder, 75 Me. 293; Gilmore v. Aiken, 118 Mass. 94; Wesleyan Seminary v. Fisher, 4 Mich. 515; Washburn etc. Mfg. Co. v. Wilson, 48 N.Y.S.Ct. 159; Martin v. Hirst, 6 Phila. (Pa.) 230.)

A contract can only be rescinded where it is possible to put the parties back in their original position and with their original rights. If it cannot be rescinded in toto, it cannot be rescinded at all, and the party complaining must be left to an action in damages. (9 Cyc. 437; Seeby v. Hutchinson, 9 Ill. 319, 332; Bloomington Electric Light Co. v. Radbourn, 56 Ill.App. 165; Desha's Exrs. v. Robinson, supra; Gathin v. Wilcox, 26 Ark. 309; Burge v. Cedar Rapids etc. R. Co., 32 Iowa 101; Stoddart v. Smith, 5 Binn. (Pa.) 355; Keenan v. Brown, 21 Vt. 86.)

Unless the illegal part of the contract is malum in se, equity will not aid a party to recover something which has moved from him under the terms of the contract when those terms have been executed. One seeking relief from an illegal contract where the illegality is malum pro se even then cannot have relief unless he is willing and able to do equity on his part. (Pomeroy's Equity Jur., par. 937, p. 1985, and authorities cited.)

H. H. Taylor and E. W. Wheelan, for Respondent.

Every contract made for or about any matter or thing which is prohibited and made unlawful by any statute is a void contract, though the statute itself does not mention that it shall be so but only inflicts a penalty on the offender, because a penalty implies a prohibition thereof though there are no prohibitory words in the statute. (9 Cyc. 475, 580; Aetna Ins. Co. v. Harvey, 11 Wis. 394; Chattanooga Nat. Bldg. etc. Assn. v. Denson, 189 U.S. 408, 23 S.Ct. 630, 47 L.Ed. 870; 3 Words and Phrases, "Enforced," and Webster's Dictionary; Katz v. Herrick, 12 Idaho 1, 86 P. 873; 12 R. C. L. 81; Tarr v. Western Loan & Savings Assn., 15 Idaho 741, 99 P. 1049, 21 L. R. A., N. S., 707; Valley Lumber & Mfg. Co. v. Driessel, 13 Idaho 662, 13 Ann. Cas. 63, 93 P. 765, 15 L. R. A., N. S., 299.)

This is not an action for rescission of a contract, and the defendant Standard Development Company is not entitled to be placed in statu quo. (Clark v. American Dev. & Min. Co., 28 Mont. 468, 72 P. 978; Reddish v. Smith, 10 Wash. 178, 45 Am. St. 781, 38 P. 1003; Lawrence v. Miller, 86 N.Y. 131; Suburban Homes Co. v. North, 50 Mont. 108, Ann. Cas. 1917C, 81, 145 P. 2; Cook-Reynolds Co. v. Chipman, 47 Mont. 289, 133 P. 694; Fratt v. Daniels-Jones Co., 47 Mont. 487, 133 P. 700; Anvil Mining Co. v. Humble, 153 U.S. 540, 14 S.Ct. 876, 38 L.Ed. 814.)

RICE, C. J. Budge, McCarthy and Lee, JJ., and McNaughton, District Judge, concur.

OPINION

RICE, C. J.

The Pend d'Oreille Mining & Reduction Company, Ltd., is an Idaho corporation. It was organized in 1902, and on February 7, 1906, held title to certain mining claims, and mill sites and water rights in connection therewith, located in Kootenai county, Idaho. Practically all of the shares of capital stock of this corporation were at that time owned in equal amounts by respondent Weber and appellant Donnelly. On the last-mentioned date, at Chicago, Ill., respondent entered into a contract with appellant Standard Development Company, an Arizona corporation, wherein he agreed to cause to be conveyed to the Standard Development Company all the property of the Pend d'Oreille Mining & Reduction Company, Ltd., and at least 95% of the shares of capital stock thereof, for which he was to receive the sum of $ 50,000 and 1,500,000 shares of capital stock of the Standard Development Company, and in addition thereto the further sum of $ 200,000 out of the first net earnings accruing only out of the property contracted to be conveyed. It was also agreed by the parties to the contract that respondent should have the management of the property until the sum of $ 200,000 was paid, with no power in the board of directors of the Standard Development Company to remove him except for cause, and providing a method of arbitration in case it was claimed that cause existed for his removal. Respondent assigned to appellant Donnelly an undivided interest in the contract and the proceeds thereof.

Appellant Standard Development Company paid to respondent the $ 50,000 provided for in said contract, and delivered to him shares of its capital stock of the par value of $ 1,450,000, claiming the right to retain the 50,000 shares, under the terms of the contract, on account of the failure of respondent to deliver all of the capital stock of the Pend d'Oreille Mining & Reduction Company, Ltd. Respondent delivered, or caused to be delivered, to the Standard Development Company, 982,000 of the total of 1,000,000 shares of the capital stock of the Pend d'Oreille Mining & Reduction Company, Ltd., and caused that company to execute a deed in form conveying the property described in the contract to the Standard Development Company. The Standard Development Company has never complied with the laws of Idaho relating to foreign corporations doing business within this state. After delivery of the deed the Standard Development Company, for a period of about two years, caused certain development work to be done upon the mining claims. In December, 1911, the Standard Development Company distributed to its shareholders, including respondent, the stock of the Pend d'Oreille Mining & Reduction Company, in proportion to the amount of stock held by each in the Standard Development Company, with a view of causing the Pend d'Oreille Mining & Reduction Company to levy an assessment upon its shares and proceed with the development of its mining property. The respondent refused to accept the shares so distributed to him. Shortly thereafter, the board of directors of the Pend d'Oreille Mining & Reduction Company levied an assessment upon its shares of stock. A sale of the delinquent stock was advertised.

This action was instituted to enjoin the sale; to obtain a decree canceling the contract and declaring it null and void, and declaring that respondent is the owner of 490,000 shares of the capital stock of the Pend d'Oreille Mining & Reduction Company delivered to the Standard Development Company. The complaint also prayed for general relief.

Since the appeal was perfected in this case, appellant Donnelly has died, and the action has been continued in the name of J. Ward Arney, administrator of his estate.

The lower court held that all of the acts and agreements above set out were wholly void and of no force or effect, for the reason that the Standard Development Company had wholly failed, neglected and refused to comply with the laws of the state of Idaho with relation to foreign corporations doing business in this state. In so holding the court was in error. The contract was not for that reason void. C. S., sec. 4775, relating to the effect of noncompliance with the laws by a foreign corporation doing business within the state, is as follows: "No contract or agreement made in the name of, or for the use or benefit of, such corporation prior to the making of such filings as provided in sections 4772 and 4773 can be sued upon or enforced in any court of this state by such corporation."

Under this section, even if the contract had been made within the state, it would not have been void, but the corporation would be without remedy in the courts of this state to enforce it. (Katz v. Herrick, 12 Idaho 1 86 P. 873. And see Colby v. Cleaver, 169 F. 206; ...