Chapter 3


Page 6

An order was made by the Court, directing an alternative writ to issue, returnable on the second Monday of January, 1869.

The other facts are stated in the opinion of the Court.

Haymond & Stratton, for the Petitioner, in support of the motion.

The legal effect of the motion is, that petitioner admits all facts well pleaded in the answer.
(Commonwealth v. Casey, 32 Penn. 218.) The first paragraph of the answer denies the legal existence of the corporation. This is not good. That question cannot be tried collaterally. (Corporation Act, Sec. 6, Stats. 1862, p. 110.) The second paragraph of the answer is a denial of the demand alleged in the petition. This raises an immaterial issue. No demand was necessary. (Commonwealth v. Allegheny  County, 37 Penn.; Commonwealth v. Middleton, 37 Penn. 237; Hamilton v. The Councils, 34 Penn. 512-523; Maddox v. Graham, 2 Met., Ky., 70.) No principle is better established than that the "irregular or non-performance of acts relating to the organization of a corporation can only be investigated in a direct proceeding instituted by the State for that purpose, and not in a collateral action." (Spring Valley Water Co. v. San Francisco, 22 Cal. 441; McFarland v. Triton Insurance Co., 4 Denio, 392; Eaton v. Aspinwall, 19 N. Y. 119;--v. McElrath, 3 Sand., S. C., 176; Searsburgh T. Co. v. Cotter, 6 Vt. 323; Dunning v. New Albany and Salem Railroad Co., 2 Ind. 437; Judah v. American Live Stock Insurance Co., 4 Ind. 338.) The fifth paragraph seeks to avoid the Act by an allegation that it was passed by fraud. The precedents are numerous and conclusive that the validity of a public Act cannot be put in issue by a plea. ( Sherman v. Story, 30 Cal. 266; State v. Young, N. J., 5 Am. Law Register, N. S., 679.)

Van Clief & Gear, for Defendant.

The first paragraph consists of a direct and positive denial of the legal existence of the petitioner. The motion admits the truth of this denial. But if petitioner is not a corporation, the petition must fail, for two reasons that are obvious: First--The Act of the Legislature is inoperative for want of a grantee capable of taking under its provisions. Second--The petitioner has no standing in Court, for, having no legal existence, it has no capacity to sue. And it fails on the issue presented by itself.

Counsel for the petitioner have cited several authorities holding that causes of forfeiture of a corporate charter cannot be taken advantage of collaterally. These authorities have no application, for, by confession, petitioner never had any corporate charter. It is time enough to consider the extent to which our objections in this case may go when petitioner has properly established a bona fide and de facto corporate existence.

In Dannebroge Mining Company v. Allment, 26 Cal. 286, where this Court applied the protection of this statute, the complaint averred "that plaintiff had claimed and still claimed in good faith to be a corporation under the laws of this State, and had done and still did business as such corporation." The answer denied these allegations. This Court reversed the judgment because plaintiff was not permitted to prove them. The allegations were then material and issuable.

Petitioner very strenuously objects to our plea of the quo warranto pending. Counsel have cited numerous authorities to establish the elementary principle that another action pending cannot be pleaded in abatement unless it is between the same parties and for the same cause. But this principle is inapplicable, for we do not plead the quo warranto in abatement. We have simply addressed it as an application to the discretion of the Court for a stay of proceedings in this case, and "that the hearing of the same be postponed until said action of quo warranto shall be finally determined."

It is argued that petitioner would not be bound by a final judgment in favor of the People in the quo warranto suit, for the reason that said suit is not against the corporation by name, but against certain persons claiming to compose it. Such was the only mode in which the quo warranto could have been brought. (People v. Saratoga and Rensselaer Railroad Company, 15 Wend, 113.) The motion here admits that the individuals sued in the quo warranto action are the ones who constitute the petitioner. The petitioner must therefore stand or fall by the result of that action. 

By the Court, Rhodes, J.:
The petitioner moves that the answer be stricken out, on the ground that it is irrelevant and immaterial, and does not show a legal answer to the writ; and he also moves that the several paragraphs of the answer be stricken out as irrelevant and immaterial.

The first paragraph denies that the Oroville and Virginia City Railroad Company now is or ever was a corporation organized or existing under the laws of the State of California, or otherwise. The third paragraph avers that the petitioner is not entitled to the benefit of a bona fide corporation, for that the persons claiming to compose the same do not claim in good faith to be a corporation, and have not in good faith attempted to comply with the provisions of the law providing for the incorporation of railroad companies, and are not actually doing business as a railroad corporation. The fourth paragraph alleges, both generally and particularly, the failure on the part of the persons who claim to compose the corporation to comply with the law in organizing the corporation.

It is contended on the part of the petitioner that the proviso to the sixth section of the general Incorporation Act, as amended in 1862, (Stats. 1862, p. 110,) renders these allegations immaterial. The proviso is as follows: "Provided, that the question of the due incorporation of any company claiming in good faith to be a corporation under the laws of this State, and doing business as such corporation, or of its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such de facto corporation may be a party, but such inquiry may be had at the suit of the State or [on] information of the Attorney General." This provision does not go to the extent of precluding a private person from denying the existence de jure or de facto of an alleged corporation. It cannot be true that the mere allegation that a party is a corporation puts the question, whether it is such a corporation, beyond the reach of inquiry in a suit with a private person. It must be a corporation either de jure or de facto, or it has no legal capacity to sue or be sued, nor any capacity of any kind. It is an indispensable allegation in an action brought by a corporation, that the plaintiff is a corporation; and it results from the logic of pleading that the opposite party may deny the allegation. Were this not so, any number of different bodies of men, each body styling itself the Directors of a given railroad company, might bring separate actions against the county, and it is impossible to see why each would not succeed in the action, upon showing that it was the duty of the Board of Supervisors to subscribe to the capital stock of the given corporation and issue the county bonds. It is not contemplated that the allegation that the company was duly organized should put the fact beyond dispute and dispense with all evidence. The statute furnishes a rule of evidence. It is declared that the due incorporation of any company shall not be inquired into collaterally in any private suit, etc., in a certain case; that is, when the company claims in good faith to be a corporation under the laws of this State, and is doing business as such corporation. The alleged corporation must both claim in good faith that it is such corporation, and must be doing business as such corporation; and then its due incorporation cannot be inquired into collaterally. To say that the "due incorporation" cannot be inquired into collaterally, does not mean that no inquiry can be made as to whether it is a corporation. Many of the acts required to be performed in order to make a complete organization of the corporation may have been irregularly performed, or some of them may have been entirely omitted, and the rule of the statute is, that such irregular or defective performance shall not defeat the incorporation when drawn into question collaterally. The omission of the names and number of the first trustees from the articles of association, the failure to file a duplicate of the articles of association with the Secretary of State, an incorrect statement of the length of the road, an omission of the statement of the principal place of business, and many other irregularities of the kind mentioned in Spring Valley Water Works v. San Francisco, 22 Cal. 440, the insufficient acknowledgment of the articles of incorporation, ( Dannebroge Mining Company v. Allment, 26 Cal. 286,) are irregularities that will not defeat the corporation, when its organization is collaterally called in question. A substantial compliance with the requirements of the statute will be sufficient to show a corporation de jure in an action between the corporation and a private person. But suppose a body of men meet and declare that they constitute the corporation, but neither subscribe to the capital stock, nor adopt articles of association, nor appoint any officers, nor perform any act in the organization of the corporation, nor transact any business as a corporation, except in demanding that the Board of Supervisors subscribe to the stock and deliver the county bonds, they cannot claim the benefit of the proviso, for they do not claim in good faith to be a corporation, and are not doing business as a corporation.

There are no cases of which we are aware holding that no proof of the corporate existence of the plaintiff is required, except in those States in which it is held that the general issue, without any objection to the capacity of the plaintiff, dispenses with all proof on that point. This is on the familiar rule that by pleading to the merits the defendant admits the capacity of the plaintiff to sue. But when the objection is taken by plea in abatement, the plaintiff must prove its corporate existence. If evidence is required on that point, it must be because that is a point in issue, and it cannot be in issue unless it be affirmed in the pleading on one side and denied on the other. (See Ang. & Ames on Corp., Sec. 631, and cases cited.)

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