Portland C. L. Co. v. Hansen L. F. Co. , 43 Idaho 343 ( 1926 )

On May 29, 1919, the Hansen Livestock Feeding Company, a Utah corporation, executed a mortgage upon real property situated in Caribou county, Idaho, and delivered the mortgage to respondent, Portland Cattle Loan Company. The mortgage was given for the purpose of securing an indebtedness of $315,000, evidenced by thirty-one promissory notes, dated May 29, 1919, at Ogden, Utah, and made payable to respondent at North Portland, Oregon. This action was subsequently instituted by respondent, in Caribou county, for the purpose of foreclosing the mortgage. Before the commencement of the action the Hansen Company had been adjudicated a bankrupt and become a defunct corporation by reason of failure to pay the Utah corporation license fee, and the trustees in bankruptcy were made defendants, as were the directors of the defunct corporation as trustees, together with the Mutual Livestock Corporation, which claimed some interest in the property. With the exception of the trustees in bankruptcy and the Mutual Livestock Corporation, all other defendants defaulted. An answer filed on behalf of the trustees in bankruptcy to the complaint of respondent denied the execution by the Hansen Company of the notes and mortgage and alleged affirmatively that if said notes and mortgage were executed, they were taken by respondent while it was doing business in Utah in violation of the laws of said state in regard to foreign corporations doing business therein.

The cause proceeded to trial and the lower court found in favor of respondent. This appeal is by the trustees in bankruptcy of the Hansen Company, who present two principal contentions in seeking a reversal of the judgment, viz.:

1. That the notes and mortgage are void because of lack of authority on the part of the officers of the Hansen Company who executed the same; and

2. Assuming the notes and mortgage were executed by authority of the Hansen Company, respondent cannot recover thereon for the reason that it was doing business in Utah without compliance with the laws of that state in regard to foreign corporations doing business therein.

Under the first point urged appellants contend that, by reason of the fact that no resolution was adopted by the board of directors of the Hansen Company authorizing its president and secretary to execute and deliver to respondent the notes and mortgage, the same were void. When respondent placed in evidence the notes and mortgage proved to have been signed by the proper officers, the mortgage also having affixed thereto the corporate seal of the corporation, the presumption followed that the officers did not exceed their authority, and the burden rested upon appellants to show to the contrary. (Schallard v. Eel River Steam Nav. Co., 70 Cal. 144, 11 P. 590; Underhill v. SantaBarbara Land, Bldg. Imp. Co., 93 Cal. 300, 28 P. 1049;Burnett v. Lyford, 93 Cal. 114, 28 P. 855; Mills v. BoyleMining Co., 132 Cal. 95, 64 P. 122; Quackenboss v. Globe Rutgers Fire Ins. Co., 177 N.Y. 71, 69 N.E. 223.)

No resolution authorizing the execution of the notes and mortgage appears in the record, but there is ample proof of ratification of the act of the president and secretary in executing and delivering the same so as to bind the corporation. It received and retained the full benefits of the transaction and has never repudiated the same, but the question of the validity of the notes and mortgage is sought to be raised by the trustees in bankruptcy of said corporation. (Valley Lumber Co. v. McGilvery, 16 Idaho 338, 101 P. 94;Rowley v. Stack-Gibbs Lumber Co., 19 Idaho 107, 112 P. 1041.)

Whether the mortgage given was to secure a loan made at the time of its execution, or to secure a pre-existent indebtedness due from the Hansen Company to respondent, would not be material under the facts of this case, since the fact remains that the Hansen Company received the money represented by the notes and has never repaid the same.

"Where a private corporation receives and retains the benefits of an unauthorized or illegal transaction, on the part of its board of directors, such conduct amounts to a ratification.

"The extension of time by a creditor within which to pay an old obligation is as much a consideration and as much an extension of credit as the granting of a new loan." (Pettingill v. Blackman, 30 Idaho 241, 164 P. 358.)

In the case of Commercial Trust Co. v. Idaho Brick Co.,25 Idaho 755, 139 P. 1004, this court held that where the president of a corporation executed a mortgage to secure money previously loaned to the company, the corporation would not be heard to disaffirm the mortgage on the ground that it had not been executed pursuant to a resolution of its board of directors and not according to one of its by-laws.

It must be conceded that the board of directors of the Hansen Company had the power to execute the notes and mortgage in question. Having such power, the corporation undoubtedly had the right to ratify the acts of its officers, although improperly done, and such ratification would relate back to the original act and make it valid from the beginning.

Neither is there any merit in appellants' contention that the giving of the notes and mortgage operated as a general assignment of the corporate property, for the reason that it clearly appears that the property covered by the mortgage included but a small portion of the corporate property, and it likewise appears that the corporation functioned as such for approximately one year after the mortgage was executed.

We are of the opinion, therefore, that the trial court's finding to the effect that the Hansen Company, while in good standing and possessed of all its corporate powers, ratified and confirmed the acts of its corporate officers in making and delivering the notes and mortgage in question and in shaping its corporate actions thereafter in conformance therewith and by receiving and using the money advanced by respondent and in recognizing said obligation and paying a part thereof, was bound thereunder, is fully supported by the evidence.

We come now to the second contention of appellants, that respondent cannot recover on the notes and mortgage for the reason that it was doing business in Utah in violation of Compiled Laws of Utah 1917, c. 4, secs. 945, 947, requiring foreign corporations, before doing business in that state, to file with the Secretary of State and with the county clerk of the county wherein their principal office in the state is situated, a copy of their articles of incorporation, etc., and upon failure so to do shall not be entitled to the benefits of the laws of that state relating to corporations, and shall not sue, prosecute or maintain any action, suit, counter-claim, cross-complaint or proceeding in any of the courts of that state on any claim, interest or demand, arising or growing out of, or founded on any contract, agreement or transaction made or entered into in that state by any such corporation or by its assignor or by any person from, through or under whom it derives its interest or title or any part thereof, etc., and declaring all transactions, contracts or agreements made or entered into by or on behalf of any such corporation to be wholly void on behalf of such corporation.

The trial court found that respondent was not, on May 29, 1919, the date on which the notes and mortgage in question were executed and delivered, engaged in business within the state of Utah; that it solicited no loans within said state; that whenever applications for loans were made they were forwarded to respondent's home office in North Portland, Oregon, and there consummated, and that such activities as respondent may have conducted within the state of Utah during and prior to the time that the transaction here involved was carried on, were merely for the purpose of protecting, watching and caring for securities taken by it on loans validly made and negotiated in North Portland, Oregon, and were not intrastate transactions within the state of Utah.

From the record it appears that the Hansen Company was transacting a general banking business with the Livestock State Bank of Portland Oregon; that it had a large overdraft with that bank, of approximately $400,000. In order to enable the Hansen Company to take care of this overdraft and to furnish it with additional funds, respondent made a loan to the Hansen Company represented in part by the notes and mortgage in question. The land covered by the mortgage was located in Idaho; the notes were executed and delivered in Ogden, Utah, and made payable to respondent at its office in North Portland, Oregon. Approval of the loan was necessary, in order to complete the transaction, by the officers of respondent company in Portland, and before the loan in question was made and the transaction completed it was necessary that it be approved by the officials of respondent company at North Portland, Oregon, Which the facts show was done.

It is contended by appellants that prior to the time of the transaction involved, respondent company had been and was soliciting loans, loaning money, taking securities and otherwise doing business in Utah within the terms of the statutes above referred to. No useful purpose could be served by setting out the several transactions sought to be proven by appellants to sustain their contention in this respect. An analysis of these transactions clearly convinces us that they were not such as come within the inhibition of the statutes. The mere taking of applications for loans by an agent of a foreign corporation and forwarding the same to the home office of such foreign corporation, there to be approved or disapproved, would not constitute doing business so as to be offensive to the statutes above referred to. (12 Rawle C. L., p. 76, sec. 52; Ann. Cas. 1913E, 1156, note; 14a C. J., p. 1283, sec. 3991; Pembleton v. Illinois Commercial Men's Assn.,289 Ill. 99, 124 N.E. 355; Ichenhauser Co. v. Landrum's Assignee,153 Ky. 316, 155 S.W. 738; Louisville Trust Co. v. Bayer SteamSoot Blower Co., 166 Ky. 744, 179 S.W. 1034; AmericanContractor Pub. Co. v. Michael Nocenti Co., 139 N.Y. Supp. 853;Neal v. New Orleans etc. Assn., 100 Tenn. 607, 46 S.W. 755;Caesar v. Capell, 83 Fed. 403.) Neither would the fact that respondent had theretofore loaned money at its place of business in Portland to the Hansen Company, the loans being approved and the notes made payable at North Portland, Oregon, constitute doing business in Utah within the meaning of the restrictive statutes, supra. Nor would the further fact that the foreign corporation took securities on lands situated in a state other than that in which the creditor or debtor was domiciled and the money loaned constitute a transaction that would bring it within the statutes cited above. To so hold would give to the statutes a far greater and wider scope than was ever intended by the legislature. (Largilliere Co. v.McConkie, 36 Idaho 229, 210 P. 207; Foore v. Simon Piano Co.,18 Idaho 167, 108 P. 1038.)

This was a loan made to a resident of a foreign state, but not a loan made within that state. The rule is stated in 9 Fletcher, Cyc. Corporations, p. 9987, sec. 5929, as follows:

"A foreign corporation does not do business within a state within the meaning of statutes prohibiting foreign corporations from doing business within the state, until they shall comply with certain statutory conditions, by making a loan to a resident of the state, where the agreement for the loan is made and the securities are delivered in another state, although the application may be made and negotiations carried on through a broker within the state. And where a foreign corporation, which has not complied with prohibitory and penal statutory regulations, makes an agreement with a citizen of a state to lend him money, which the citizen agrees to repay to the foreign corporation at its own domicile and to secure that payment gives a mortgage upon lands situated in the state, there is no 'carrying on of its business' or 'doing' or 'attempting to do any business' within the state."

This rule would seem to be applicable to the facts in the instant case and to uphold the findings of the trial court that respondent was not doing business in the state of Utah when, through its president, and with the approval of its officers in Portland, it made the loan in question and took security for the same.

At most there is a conflict in the evidence as to whether the particular transaction here involved was consummated in Utah or in Oregon. The contracts show on their face that they were not to be performed within the state of Utah. The evidence clearly establishes the fact that the loans were made in Oregon. The preponderance of the evidence is against appellants' contention that the transaction was made and consummated in Utah. In such circumstances and where there is a conflict in the evidence the findings or judgment will not be disturbed.

From our investigation of the authorities upon the question of when a foreign corporation is doing business within a state it is apparent that each case must be decided upon the particular facts and circumstances entering into the transaction. The authorities upon the question are irreconcilable. Courts of great respectability invoke a liberal construction in the interpretation of such restrictive statutes, while other courts of like eminence apply a rule of strict construction.

From what has been said it follows that the judgment of the trial court is affirmed. Costs awarded to respondent.

Wm. E. Lee, C.J., and Givens, Taylor and T. Bailey Lee, JJ., concur.