Summary
In Lancaster v. A.I. Co. (140 N.Y. 576, 591) it is said to be the policy of the State to encourage foreign corporations to enter its boundaries for the transaction of lawful business, and it is manifestly for the interest of the State that foreign capital should be actively employed within its borders.
Summary of this case from DUNBARTON FLAX SPINNING CO. v. G. J.R. COOpinion
Argued December 18, 1893
Decided January 16, 1894
Thomas P. Bassford for plaintiff. Louis Marshall and Hugo S. Mack for defendant.
Before approaching the discussion of the principal question in this case, certain questions of subordinate importance may be disposed of, which have been raised upon the argument. One of them relates to the right of this corporation to recognition in our courts, as affected by the fact that the incorporators are, with one exception, citizens and residents of this state. Whatever inferences can be drawn as to the motives which took them into a foreign jurisdiction to organize a corporation under its laws, I agree with the General Term that any such question has been once and for all settled by our recent decision in the case of Demarest v. Flack ( 128 N.Y. 205). It appeared in that case that citizens of this state incorporated under the laws of West Virginia to carry on a certain business; with the principal office of the company in New York city, where only it had been conducting its operations. It was claimed that these facts invalidated the corporation, and that there was a manifest evasion of, and fraud upon, the laws of the state. But it was held that they constituted no reason for refusing recognition to the corporation; that there was no essential difference between a corporation formed under the laws of a foreign state, the members of which were its own citizens, and one so formed, the members of which were citizens of our own state. If our citizens are attracted to other jurisdictions for purposes of incorporation, because of more favorable corporation or taxation laws, I cannot see in that fact, however, and in whatever sense, to be deplored, any reason that they should be prevented from employing here the corporate capital in the various channels of trade or manufacture. That, as it seems to me, would be a rather hurtful policy and one not to be attributed to the state.
Another question relates to the regularity of the proceedings for the incorporation of the defendant company under the laws of the state of New Jersey. I am unable to perceive any defect therein. I should say there had been a compliance with its statutes. But if there could be pointed out some irregularity, it could not be made the subject of an objection to the defendant's title. It was a corporation de facto. Its incorporators had filed their certificate of incorporation, as required by the laws of New Jersey, and a certificate had been filed in the office of the secretary of state of this state, as required by our laws of a foreign corporation. It was exercising a franchise attempted to be conferred upon it by the laws of New Jersey, and any question affecting its right to transact business, because of alleged irregularities in organization, is a matter for the government of that state to inquire into. It was said in Methodist Epis. Church v. Pickett ( 19 N.Y. 482), with respect to the capacity of corporations to act, that "the rule established by law, as well as by reason, is that parties, recognizing the existence of corporations by dealing with them, have no right to object to any irregularity in their organization, or any subsequent abuse of their powers, not connected with such dealing. As long as they are overlooked, or tolerated by the state, it is not for individuals to call them in question." That this principle is equally applicable to foreign corporations de facto was held in Bank of Toledo v. International Bank ( 21 N.Y. 542). With respect to the question of whether the laws of the state of New Jersey authorize the kind of business which this company was organized and proposes to transact, I think that the provisions of the statute for the formation of corporations, to which our attention is directed, are broad enough in their scope to comprehend the objects of this incorporation. They authorize incorporations for the purpose of the improvement and sale of lands. With such an authorization and, as a corporation, being vested under those laws with the authority to hold, purchase and convey such real and personal estate, as the purposes of the corporation shall require, there is ample support for a construction that this company may deal in the purchase and sale of real estate. But, if any doubt might be entertained upon the correctness of our construction of this foreign statute, I do not think the doubt affects the question here. If to engage in the business of buying and of selling real property is to act in excess of the powers conferred upon the corporation by the statute of New Jersey, it is for that government to inquire into the exercise by its creature of corporate powers. It is not a question which the party dealing with it can raise. As a corporation de facto, possessing some capacity to acquire and convey real property, its conveyance is unimpeachable upon any ground of an excess or of an abuse of powers conferred, and unless in the laws of this state we are able to find a prohibition, expressed herein, or to be implied therefrom, which disabled this corporation from acquiring the land and from conveying it, the plaintiff would obtain a valid title to the premises conveyed.
The principal question for our consideration is one of great importance; for upon its decision not only depend large interests, but a judicial definition of state policy. That question may be thus succinctly stated: Under our laws, can a foreign corporation, incorporated for the purpose of dealing in the purchase and sale of real property, come into this state and transact here such kind of corporate business? The General Term put the question in somewhat different form: Whether it may "purchase and hold lands within this state which are not necessary for its business and which have not been acquired in securing the payment of a debt due to it." That is hardly exact, as applied to the case of this corporation. As I have shaped it, the question is certainly made broad enough.
The opinion of the General Term was delivered by Mr. Justice FOLLETT, whose opinions are entitled to the highest respect, and he negatives the proposition embodied in the question; upon the ground, in substance, that from certain general statutes of this state, which relate to the right of foreign corporations to purchase, or acquire, and to convey real property, and from numerous special acts, passed to authorize them to acquire lands, it is to be inferred that "it is contrary to the policy of this state to permit such corporations to take, hold and convey lands in this state, without being specially authorized so to do." The general statutes to which he refers are chapter 158 of the Laws of 1877 and chapter 450 of the Laws of 1887, and he considers that to their declarations is to be referred, solely, the question of the right of foreign corporations, generally, to acquire, hold and convey lands; for they alone recognize their right in such respects. The act of 1877 authorized a foreign corporation to purchase at a sale under the foreclosure of a mortgage or under a judgment held by it; to hold the land purchased for not exceeding five years, and to convey it, etc., etc. The act of 1887 authorized a foreign corporation, doing business in this state, to acquire such real property as might be necessary for its corporate purposes in the transaction of its business here. Both provisions were re-enacted in the "General Corporation Law" of 1892 (Chapter 687, Laws 1892), as sections 17 and 18.
In order to uphold the validity of the conveyance in question here, I think we might very safely rest our conclusion upon the enactment of 1887, if other grounds were lacking. We might, without doing violence to any rule of law, say that that act was such sufficient authority, as to make the title to the land conveyed by the foreign corporation quite indefeasible in its grantee. The General Term thought it was not broad enough; but there would not be much stress in reasoning that the foreign corporation being authorized to do business here, the authorization of the act of 1887 "to acquire such real property as may be necessary for its corporate purposes in the transaction of its business in this state," even though we were disposed to define it as comprehending merely property for proposed use as an office, a warehouse or factory, etc., would, nevertheless, be sufficient to enable the corporation in possession of land by its conveyance to vest in the grantee a good title to it. It is not for the party contracting for the conveyance of its land to raise the question of how far his grantor may have exceeded the authority given by the statutes of this state, any more than he might with respect to an alleged abuse of the powers conferred by its home charter. Those are questions between the corporation and the government. The presumption militates in favor of the validity of the transaction, and the right of interference by the state does not extend to any forfeiture of the property held by the corporation. ( In re McGraw, 111 N.Y. 66, 96.)
In Cowell v. Springs Co. ( 100 U.S. 55) the objection was that the National Land Improvement Company, a Pennsylvania corporation which granted certain lands in Colorado to the springs company, was not empowered to acquire a right to the lands, for the reason that they were not necessary to enable it to carry on its business; to which extent corporations in Colorado were limited, because of restrictions upon the legislative power in the creation of corporations. It was held that "whether the particular premises in controversy are necessary for that business is not important; that is a matter between the government of the state and the corporation, and is no concern of the defendant."
But we are not confined to any such narrow ground as a construction of the particular acts referred to. Our general laws are such as to evidence a state policy, which makes no invidious distinction against foreign corporations, coming within our boundaries to extend the area of their lawful operations. The answer to the question is not to be found in the acts to which the learned General Term justices refer. If they have not overlooked they have failed, in my judgment, to give due weight and significance to other provisions upon our statute books.
The General Corporation Law, passed in 1892, contains these further provisions as to foreign corporations:
"SECTION 15. No foreign stock corporation other than a monied corporation shall do business in this state without having first procured from the secretary of state a certificate that it has complied with all the requirements of law to authorize it to do business in this state, and that the business of the corporation to be carried on in this state is such as may be lawfully carried on by a corporation incorporated under the laws of this state for such or similar purposes. * * * The secretary of state shall deliver such certificate to every such corporation so complying with the requirements of law. No such corporation now doing business in this state shall do business herein after December 31, 1892, without having procured such certificate from the secretary of state. * * * No foreign stock corporation doing business in this state without such certificate shall maintain any action in this state upon any contract made by it in this state until it shall have procured such certificate.
"SECTION 16. Before granting such certificate the secretary of state shall require every such foreign corporation to file in his office a sworn copy of its charter or certificate of incorporation, and a statement under its corporate seal, particularly setting forth the business or objects of the corporation which it is engaged in carrying on, or which it proposes to carry on, within the state, and a place within the state which is to be its principal place of business, and designating, in the manner prescribed in the Code of Civil Procedure, a person upon whom process against the corporation may be served within the state.
"The person so designated must have an office," etc.
The negative form of the legislative expression is pregnant with meaning. All foreign stock corporations are accorded the same right to transact their business here as domestic corporations have, if it be one which the latter may also lawfully transact, and provided there has been compliance with certain stated requirements. It is a recognition of the right of a foreign corporation to do business here, with the imposition of reasonable conditions. A certificate was granted by the secretary of state, in December, 1892, which certified a compliance with all the requirements of law and that the business of the corporation to be carried on here was such as may be lawfully carried on by a corporation incorporated under our laws for such or similar business. By chapter 691 of the Laws of 1892, known as "the Business Corporations Law," what restrictions may have existed upon the organization of corporations in this state, previously, were done away with. Under that law "three or more persons may become a corporation for the purpose of carrying on any lawful business," by executing and filing a certificate, which shall contain the objects for which formed, including the nature and locality of the business. The effect of all recent legislation is, most clearly, to remove all barriers to the transaction, through incorporation, of any lawful business in this state and to recognize an equal right in the foreign corporation with that of the domestic corporation.
Presumably, in the opinion of the learned General Term justices, it was not considered that sections 15 and 16 of the General Corporation Law include within their purview such a business as the acquisition of lands within this state by foreign corporations, for purposes not connected with necessities for a corporate use. But I do not think we can so limit the meaning of these sections. It is true that they are followed by sections 17 and 18, to which the opinion below attaches such weight; but their presence is no warrant for ignoring the broad and general authority contained in the preceding provisions. Section 18 may still have an office to perform, in limiting the period of time for which a foreign corporation, without a certificate here, may hold land taken for a debt, or purchased at a sale under a judgment or decree; while the necessity for retaining section 17 is not readily perceived. The foreign corporation, which desires to acquire real property, solely for use connected with the transaction of its business here, must, under section 15, procure the certificate of the secretary of state as a condition of being permitted to carry on business and, having the certificate, its right to do business as freely as a domestic corporation, necessarily, carries with it the recognition of the right to acquire and hold what real property may be necessary for that purpose. Both sections, possibly, were retained in the revision of corporation laws out of abundant caution. Neither section is a new enactment; but merely the continuation of an existing law. Whatever the reason to be assigned for retaining sections 17 and 18, the provisions of sections 15 and 16 contain an authoritative declaration by the legislature, and we neither can, nor should, attempt to refine away their comprehensive meaning. Nor am I able to perceive that it is, or that it ever was, the policy of this state to prevent foreign corporations from acquiring and holding real property here, if desired for the transaction of any lawful business. To discover the public policy of a state we are limited, as it was observed by Mr. Justice STORY, in the Girard Will Case (2 How. [U.S.] 127), to what "its constitution and laws and judicial decisions make known to us." I am aware of nothing in the Constitution upon the subject. There were no statutes passed upon the subject prior to the act of 1877, referred to, and in their silence the principle of a general right in legally constituted corporations, with sufficient chartered powers, and the principle of assent implied by the general law of comity between states, had a scope for operation in favor of the right of a foreign corporation to acquire and hold real property here. If special enabling acts have been procured, in particular cases, they do not, necessarily, disprove the general right. Prudence and cautious counsels may have dictated their procurement. While the enactment of the statute of 1877 contained a limitation upon the right of the foreign corporation to hold real property, with respect to time, the subsequent act of 1887 was in the direction of removing such, or any, limitation. Then came the general statutes of 1892, which allowed all foreign corporations to do business here, upon compliance with conditions named, and which placed them upon a similar footing with domestic corporations, as to transaction of a corporate business. If we turn, only, to decisions of this court, in our investigation of what has been the public policy of this state towards foreign corporations, we find them interpreting and applying the principle of state comity in the broadest spirit. In People v. Fire Association ( 92 N.Y. 311) it was observed that "Where a state does not forbid, or its public policy, as evidenced by its laws, is not infringed, a foreign corporation may transact business within its boundaries and be entitled to the protection of its laws." In Hollis v. Drew Seminary ( 95 N.Y. 166) it was held that "unless the legislature forbids, they" (foreign corporations) "can come here as freely as natural persons and exercise here all the powers conferred upon them by their charter, subject to the limitation imposed upon natural persons, that is, they can do no acts in violation of our laws, or of our public policy. But, unless prohibited by law, they can do here, within the limits of their chartered powers, precisely what domestic corporations can do." This decision was in line with the early case in this court of Bard v. Poole ( 12 N.Y. 495), in which the discussion turned upon the question of the right of a corporation of the state of Maryland to make loans, secured by mortgages upon real estate within this state. Judge DENIO said, in the opinion in that case, that "Any of the states of the Union may, as this and several of the other states have done, interdict foreign corporations from performing certain single acts, or conducting a particular description of business within its jurisdiction. But, in the absence of laws of that character, or in regard to transactions not within the purview of any prohibitory law and not inconsistent with the policy of the state as indicated by the general scope of its laws or Constitution, corporations are permitted by the comity of nations to make contracts and transact business in other states than those by virtue of whose laws they were created, and to enforce those contracts, if need be, in the courts of such other states. It is, of course, implied that the contract must be one which the foreign corporation is permitted by its charter to make, and it must also be one which would be valid if made at the same place by a natural person, not a resident of that state."
It seems to me to be very clear, upon examination of our laws and by reference to such judicial opinions, that there never was a time in the history of the state when a foreign corporation was prevented from entering its boundaries to transact any lawful business, which a non-resident natural person might have transacted here. What public policy is invaded, and what public interests are prejudiced, by extending to the foreign corporation, for the transaction of its business, the privileges and protection of the laws of our own state, even when that business involves the acquisition of and dealing in real property? If we were to consider the question simply in the light of a sound or a good policy, there are abundant reasons for holding that it is to the public advantage that our borders should be as much open, for all lawful purposes, to foreign corporations as to natural persons. Their advent and lawful operation cannot but tend to some advancement of our commercial interests and must advantage the commonwealth. It is the policy of the state to encourage the employment of capital here by liberal laws; upon what reasonable ground shall we recognize the natural person who comes here and refuse recognition to the foreign corporation? And how is the matter affected if the capital is employed in dealing in the acquisition and barter of lands, and not in commerce, manufacturing, or such like ways? What legal difference is there, which the state can recognize, if all the corporators happen to be residents of this state? The corporation is, nevertheless, a legal entity, endowed by a sister state with capacities and powers, and seeks our state as the field of its activity in the conduct of its business enterprise. Incorporations are, as a rule, advantageous to private and to public interests. As the business capacities of the general mass of mankind are constantly improving, associations of individuals, voluntarily combining their contributions, are able to perform works of various characters, which no one person is able to accomplish. I believe that to be a well-recognized principle in political economy. But we are not to consider the question as one simply of sound or of good policy, but whether there is any known public policy which is affected. What reason is there that the courts shall condemn the business proposed to be carried on by the defendant? What vice inheres in it? The case does not fall within those which the courts have decided to be against public policy. The business is not immoral in itself. That it is not prohibited by legislation, I think I have been able to show.
In the opinion below, it is suggested that if the defendant may legally acquire and convey land in this state at pleasure, there is no limitation upon the amount which a foreign corporation may hold, except in its ability to purchase and pay. As applied to the case of this corporation, it might be a sufficient answer to say that the chartered purpose of dealing in the purchase and sale of real property rather negatives the idea of an intended accumulation of real estate holdings to any extraordinary extent. But a better answer would be that it is always within the power of the legislature to interfere and to regulate, if, by the magnitude of the business, the public interests are affected and seem unduly threatened. Decisions of this court might be referred to, to show how far the legislative power has been deemed capable of extending in the direction of controlling a private business, on the ground that its magnitude affected the public and justified such interference.
Without prolonging the discussion, I think the General Term erred in their conclusions, and that the judgment should be reversed, and that judgment should be ordered for the defendant upon the submission, with costs.
All concur, except BARTLETT, J., not sitting.
Judgment accordingly.