Opinion
No. 19320
Decided February 16, 1926.
Foreign corporations — Officer or agent not personally liable for debts of corporation — Failure to comply with Section 178 et seq., General Code.
An officer or agent of a foreign corporation, duly organized and existing under the laws of a sister state, doing business in Ohio without compliance with the provisions of Section 178, and succeeding sections, General Code, is not, for that reason, rendered liable personally for the debts of such corporation.
CERTIFIED by the Court of Appeals of Hamilton county.
The American Soap Company filed its petition in the trial court, alleging that the defendant, Charles B. Bogue, is president, manager, and director of the Ferndell Co-Operative Cafeteria Company, a corporation organized under the laws of the state of Illinois; that defendant opened a restaurant in the city of Cincinnati under the name of "La Palma Cafeteria," and operated such restaurant for a period of years; and that, in the course of business, and representing himself to be the president and general manager of the company, he became indebted to the plaintiff for certain goods and merchandise sold to the company.
The petition further alleges that the corporation, the Ferndell Co-Operative Cafeteria Company, never qualified in Ohio as a foreign corporation, and was never authorized to transact business in the state of Ohio; that by reason thereof the defendant is personally liable for all obligations incurred in the name of the company while operating in this state, and that all other officers and directors are also liable for the debts incurred while operating in this state, but were not joined, because their names and addresses are unknown to the plaintiff; that the corporation was adjudicated a bankrupt in December, 1923; that at that time there was due the plaintiff, on account for goods and merchandise sold and delivered to the "La Palma Cafeteria," $902.50; that since that time plaintiff has received a dividend of 10 per cent., leaving a balance of $811.80 due on account at the time of filing the petition.
To this petition a demurrer was filed on the ground that the petition did not state facts sufficient to show a cause of action against the defendant. The trial court sustained the demurrer, and, the plaintiff not desiring to plead further, judgment was rendered in favor of the defendant. From that judgment plaintiff prosecuted error to the Court of Appeals, which reached the same conclusion as the trial court, but, finding its conclusion in direct conflict with the decision of the Court of Appeals of the Fourth District, in the case of Cronin v. Green, decided in June, 1924, certified the cause to this court for final decision.
Mr. H.J. Siebenthaler, for plaintiff in error.
Mr. Lawrence R. Lytle, for defendant in error.
The sole question here is: Is the president, manager, and director of a foreign corporation, doing business in this state, without compliance with the laws thereof pertaining to the right of foreign corporations to transact business in this state, liable individually in this state for the debts of the corporation contracted and incurred by him as its agent?
A corporation is an entity, having an existence only in contemplation of, and by force of, law, being wholly artificial and dependent for its existence upon the power conferred by a sovereign. It necessarily follows that its power cannot exceed that of the sovereign that gave it. The power of the sovereign being limited to a given territory, the extent of the power it is able to confer must be likewise limited. However, in the absence of legislation to the contrary, it is the general rule that by comity between states a corporate franchise issued by one sovereign state is recognized extraterritorially. That such was the policy of Ohio prior to the present legislation upon the subject appears by the declaration of this court in the case of Newburg Petroleum Co. v. Weare, 27 Ohio St. 343, wherein it was held:
"It is not contrary to the laws of Ohio, nor against public policy, in the present condition of her laws, for a foreign corporation, lawfully organized in a sister state, to do business in Ohio."
It having been lawful, by the comity of states, prior to the present legislation upon that subject, for foreign corporations to transact business in the state of Ohio, the status of a foreign corporation doing business in Ohio must now be determined by ascertaining to what extent legislation has modified that policy.
Section 178, General Code, specifically provides that, before a foreign corporation transacts business in Ohio, it must comply with certain requirements therein provided, and succeeding sections provide for punishment of persons transacting business for a foreign corporation and for punishment of the corporation, and, were there no other provisions than above mentioned, it would be clear that it is no longer the policy of Ohio to in any way recognize the corporate existence of a foreign corporation, or any of its acts, prior to its compliance with the requirements of those sections. But, to determine the present policy of Ohio, it is necessary to examine the other provisions of those and other sections. In addition to the provision prohibiting the transaction of business in this state by a foreign corporation without complying with certain requirements, Section 178 contains this provision:
"No such foreign corporation doing business in this state without such certificate shall maintain an action in this state upon a contract made by it in this state until it has procured such certificate."
The significant thing in this paragraph, in so far as it indicates a policy, being the use of the word "until" instead of "before," thus withholding the right of recourse to the courts until compliance, rather than permanently denying it for all business done before compliance, and evincing a purpose to secure compliance with the statutory provisions rather than a purpose to prevent such corporation from coming into and doing business in this state.
That it is not the policy of this state to treat foreign corporations doing business in this state without compliance with our statutes as nonexistent or legally incompetent is clearly indicated by Section 5508, General Code, where it is specifically provided that its contracts made in this state without compliance "shall be enforceable against it," but not by it.
A foreign corporation, doing business in Ohio without compliance with the Ohio statutes, having been made liable by Section 5508, General Code, upon its contracts so made, it is clear that it is not the purpose of the existing legislation to withdraw or withhold the comity permitting foreign corporations to do business in this state, but only to impose such penalties as will the more nearly insure compliance with the Ohio requirements.
The Legislature having clearly indicated its policy in that respect, this court cannot do otherwise than follow that policy.
Plaintiff in error relies very largely upon the cases of Ryerson Son v. Shaw, 277 Ill. 524, 115 N.E. 650, and Critchfield Co. v. Armour, 228 Ill. App. 28, and to a lesser degree upon the cases of Raff v. Isman, 235 Pa. 347, 84 A. 352; Rowden v. Daniel, 151 Mo. App., 15, 132 S.W. 23; Cunnyngham v. Shelby, 136 Tenn. 176, 188 S W., 1147, L.R.A., 1917B, 572; Lasher v. Stimson, 145 Pa. 30, 23 A. 552, and Taylor v. Branham, 35 Fla. 297, 17 So. 552, 39 L.R.A., 362, 48 Am. St. Rep., 249. Those cases are based upon the doctrine that a person who assumes to act as an agent for a nonexistent or legally incompetent principal renders himself personally liable to the persons with whom he deals, and upon the conclusion that in the respective jurisdictions of those courts a foreign corporation has neither qualification nor existence prior to compliance with their respective state statutes.
Our conclusion is that as foreign corporations doing business in Ohio have always been recognized as having, by the comity of states, both qualification and existence in Ohio, and as the imposition of penalties upon and the withdrawal of rights of such corporations for noncompliance with our statute are not for the purpose of withdrawing that comity, but for the purpose of more effectually securing such compliance, the doctrine of nonexistence and incompetence has no application in Ohio to foreign corporations.
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
MARSHALL, C.J., JONES, MATTHIAS, DAY, ALLEN and KINKADE, JJ., concur.