When a corporation is formed in one state, and by the express
terms of its charter it is created for doing business in another
state, and business is done in that state, it must be assumed that
the charter contract was made with reference to its laws, and the
liability which those laws impose will attend the transaction of
such business.
This was an action to enforce a personal liability of
stockholders. It was commenced in a justice's court of Los Angeles
city, Los Angeles County, California, on September 30, 1898, by the
defendant in error against the plaintiffs in error. It was
subsequently transferred to the superior court of the county, where
a trial was had on January 17, 1900, before the court without a
jury. A stipulation was signed as to the truth of various averments
in the complaint and answer, which concluded as follows:
"And it is stipulated that the only question in this case is as
to whether section 322 of the Civil Code of California is in
violation of the provisions of the Constitution of the United
States, and if it is in violation of such provisions defendants are
entitled to judgment; but if said section is not in violation of
said provisions, then plaintiff is entitled to judgment as prayed
for in his complaint."
Findings of fact were also made, among which were the
following:
Page 183 U. S. 145
"II. That the Los Angeles Iron & Steel Company was a
corporation organized on the 8th day of March, 1893, and
incorporated under the laws of the State of Colorado; that the
seventh provision of its articles of incorporation is as follows,
to-wit: the said company is created for the purpose of carrying on
part of its business beyond the limits of the State of Colorado,
and the principal office of said company in the state shall be kept
at the City of Denver, Arapahoe County, and the principal plant and
principal operations of said company, beyond the limits of the
state, shall be in Los Angeles County, State of California, and
such other places in the State of California as may be decided upon
by the board of directors. The principal business of said company
in the State of Colorado shall be carried on in Arapahoe
County."
"III. That the defendants are and were at all times herein
mentioned residents and citizens of the State of California."
"IV. That all the indebtedness of said Los Angeles Iron and
Steel Company to plaintiff and to plaintiff's assignors was created
by contracts made, executed, and to be performed in the State of
California."
"VI. That at the time the said indebtedness was created and
incurred by the said company there were issued of the capital stock
thereof the number of 1,311 shares, and that the defendants were at
said times the owners respectively of the number of said shares as
set opposite their respective names, as follows, to-wit: H.L.
Pinney, 50 shares; C. L. Pinney, 42 shares; W. C. Patterson, 35
shares; C. W. Damerel, 91 shares; F. E. Little, 22 shares; Thomas
Brooks, 38 shares."
Upon the stipulation and findings a judgment was rendered in
favor of the plaintiff. A writ of error was subsequently sued out
from this to that court, it being the highest court in the state to
which the action could be taken.
Article 12, section 15, of the Constitution of California,
adopted in 1879, reads:
"No corporation organized outside the limits of this state shall
be allowed to transact business within this state on more favorable
conditions than are prescribed by law to similar corporations
organized under the laws of this state. "
Page 183 U. S. 146
Section 322 of the Civil Code of California, as amended March
15, 1876, provides as follows:
"Each stockholder of a corporation is individually and
personally liable for such proportion of its debts and liabilities
as the amount of stock or shares owned by him bears to the whole of
the subscribed capital stock or shares of the corporation, and for
a like proportion only of each debt or claim against the
corporation. Any creditor of the corporation may institute joint or
several actions against any of its stockholders, for the proportion
of his claim payable by each, and in such action the court must
ascertain the proportion of the claim or debt for which each
defendant is liable, and a several judgment must be rendered
against each, in conformity therewith. . . ."
"The liability of each stockholder of a corporation formed under
the laws of any other state or territory of the United States, or
of any foreign country, and doing business within this state, shall
be the same as the liability of a stockholder of a corporation
created under the Constitution and laws of this state."
By the stipulation above referred to, the truthfulness of the
following averment in the answer was admitted:
"Defendants allege that there is no statute of the State of
Colorado providing that stockholders shall be liable for any
portion of the indebtedness of a corporation, and allege that,
under the laws of the State of Colorado, a stockholder in a
corporation is not liable for any portion of the indebtedness of
said corporation."
MR. JUSTICE BREWER delivered the opinion of the Court.
The plaintiffs in error rely upon the proposition that the
liability of a stockholder is determined by the charter of the
corporation
Page 183 U. S. 147
and the laws of the state in which the incorporation is had.
"If the constitution to which a corporator has agreed does
not provide for individual liability to creditors, he
cannot be charged with individual liability anywhere. (Morawetz on
Corporations, 2d ed. sec. 874)."
They invoke the
lex loci contractus, and say that the
stockholders' contract was made in Colorado, that being the state
in which the Los Angeles Iron & Steel Company was incorporated;
that, by the laws of that state, there is no personal liability of
stockholders; that it is not within the power of California to
change the terms of that contract, the federal Constitution (Art.
I, Section 10) forbidding a state to pass a law impairing the
obligation of contracts; that, while California, which prescribes
an individual liability of stockholders, may if it sees fit exclude
every corporation of another state whose stockholders do not assent
to such liability, yet if it fails to do so, and such Colorado
corporation actually comes into California to transact business,
such coming into the state and the transaction of business therein
do not change the terms of the stockholders' contracts or impose a
personal liability, and also that in such a case an attempt to
enforce the statutory provisions of California so far as to change
the personal liability of corporators in the foreign corporation is
in conflict with the due process and equal protection clauses of
the first section of the Fourteenth Amendment.
With reference to the contention that the law of California
impairs the obligation of the contract of the stockholders, it is
enough to say that that law, both constitutional and statutory, was
enacted long before the incorporation of the Los Angeles Iron &
Steel Company, and that therefore Section 10 of Article I of the
federal Constitution has no application.
"It is equally clear that the law of the state to which the
Constitution refers in that clause must be one enacted after the
making of the contract, the obligation of which is claimed to be
impaired."
Lehigh Water Co. v. Easton, 121 U.
S. 388,
121 U. S. 391.
See also Central Land Co. v. Laidley, 159 U.
S. 103,
159 U. S. 111;
McCullough v. Virginia, 172 U. S. 102,
172 U. S.
116.
Passing to a consideration of the stockholders' contract in the
light of the other contention, it may be said that ordinarily
Page 183 U. S. 148
it is controlled by the law of the state in which the
incorporation is had. That is the place of contract, and,
generally, the law of the place where a contract is made governs
its nature, interpretation, and obligation. While this is so, it is
also true that parties in making a contract may have in view some
other law than that of the place, and when that is so that other
law will control. That the parties have some other law in view and
contract with reference to it is shown by an express declaration to
that effect. In the absence of such declaration, it may be
disclosed by the terms of the contract and the purpose with which
it is entered into. In
Pritchard v. Norton, 106 U.
S. 124, many cases were cited by Mr. Justice Matthews,
delivering the opinion of the court, in which these propositions
were illustrated and enforced, and on page
106 U. S. 136,
it was said:
"The law we are in search of, which is to decide upon the
nature, interpretation, and validity of the engagement in question,
is that which the parties have, either expressly or presumptively,
incorporated into their contract as constituting its obligation. It
has never been better described than it was incidentally by Mr.
Chief Justice Marshall, in
Wayman v. Southard, 10 Wheat.
1,
23 U. S. 48, where he defined it
as a principle of universal law -- 'the principle that in every
forum a contract is governed by the law with a view to which it was
made.' The same idea had been expressed by Lord Mansfield in
Robinson v. Bland, 2 Burr. 1077, 1078: 'The law of the
place,' he said, 'can never be the rule where the transaction is
entered into with an express view to the law of another country as
the rule by which it is to be governed.' And in
Lloyd v.
Guibert, L.R. 1 Q.B. 115, 120, in the Court of Exchequer
chamber, it was said that"
"it is necessary to consider by what general law the parties
intended that the transaction should be governed, or, rather, by
what general law it is just to presume that they have submitted
themselves in the matter."
Le Breton v. Miles, 8 Paige 261.
The subject was also discussed at length by MR. JUSTICE GRAY in
Liverpool Steam Company v. Phenix Insurance Company,
129 U. S. 397. In
Coghlan v. South Carolina Railroad Company, 142 U.
S. 101,
142 U. S. 110,
MR. JUSTICE HARLAN, referring to these two opinions, observed:
"The elaborate and careful review
Page 183 U. S. 149
of the adjudged cases, American and English, in the two cases
last cited, leaves nothing to be said upon the general
subject."
In
Bank of Augusta v.
Earle, 13 Pet. 519,
38 U. S. 588,
Chief Justice Taney said:
"It is very true that a corporation can have no legal existence
out of the boundaries of the sovereignty by which it is created. .
. . But although it must live and have its being in that state
only, yet it does not by any means follow that its existence there
will not be recognized in other places, and its residence in one
state creates no insuperable objection to its power of contracting
in another. It is indeed a mere artificial being, invisible and
intangible, yet it is a person for certain purposes in
contemplation of law, and has been recognized as such by the
decisions of this Court. It was so held in the case of
United States v. Amedy,
11 Wheat. 412, and in
Beaston v. Farmers'
Bank, 12 Pet. 135. Now, natural persons, through
the intervention of agents, are continually making contracts in
countries in which they do not reside and where they are not
personally present when the contract is made, and nobody has ever
doubted the validity of these agreements. And what greater
objection can there be to the capacity of an artificial person, by
its agents, to make a contract within the scope of its limited
powers, in a sovereignty in which it does not reside, provided such
contracts are permitted to be made by them by the laws of the
place?"
And then, after discussing the question of comity, added (p.
38 U. S.
589):
"Adopting, as we do, the principle here stated, we proceed to
inquire whether, by the comity of nations, foreign corporations are
permitted to make contracts within their jurisdiction, and we can
perceive no sufficient reason for excluding them when they are not
contrary to the known policy of the state, or injurious to its
interests."
"It is nothing more than the admission of the existence of an
artificial person created by the law of another state, and clothed
with the power of making certain contracts. It is but the usual
comity of recognizing the law of another state. "
Page 183 U. S. 150
As, then, a corporation can have no legal existence outside of
the state in which it is incorporated, the contract of the
stockholders with one another, by which the corporation is created,
is presumed to have been made with reference to the laws of that
state, nothing being said in the charter to the contrary. But as
comity permits a corporation to enter another state and do business
therein, it is competent for the stockholders, in making their
charter, to contract with reference to the laws of a state in which
they propose the corporation shall do business. And in this case,
the stockholders in their charter specified that the purpose of the
incorporation was partly business beyond the limits of Colorado,
and that the principal part of such outside business should be
carried on in California. Not content to rely upon the general
authority which by the rules of comity the Colorado corporation
would have to enter California and transact business therein, they
in terms set forth that a part of the purpose of the incorporation
was the transaction of business by the corporation in California.
Now, when they in terms specified that they were framing a
corporation for the purpose of having that corporation do business
in California, is it not clear that they were contracting with
reference to the laws of that state? Contracting with reference to
the laws of that state they must be assumed to know the provisions
of those laws; that, by them a personal liability was cast upon the
stockholders in corporations formed under the laws of the state,
and that that same liability was also imposed upon the stockholders
of corporations formed under the laws of other states and doing
business within California. How can it be said that those laws do
not enter into the contract and control as to all business done in
pursuance of that contract within the limits of California? Suppose
these same stockholders in Colorado had formed a partnership with
the expressed intent of carrying on business in California, would
not that expressed intent be a clear reference to the laws of
California and an incorporation of those laws into the liabilities
created by the partnership business in California? And if this rule
obtains as to contracts of partners between themselves, why not
also as to contracts of stockholders between themselves in forming
a corporation?
Page 183 U. S. 151
In this case, it appears that the business transactions out of
which these liabilities arose were carried on in California. They
resulted from business done in California by virtue of an express
contract made by the stockholders with reference to such business.
It is unnecessary to express an opinion upon the question whether
any personal liability would be assumed by the stockholders in
reference to business transacted in Colorado. Parties may contract
with special reference to carrying on business in separate states,
and when they make an express contract therefor the business
transacted in each of the states will be affected by the laws of
those states, and may result in a difference of liability. Neither
is it necessary to express any opinion upon the question whether
the defendants could have been held liable under the California
statutes, independently of the provisions of the Colorado charter.
All that we here hold is that, when a corporation is formed in one
state, and by the express terms of its charter it is created for
doing business in another state, and business is done in that
state, it must be assumed that the charter contract was made with
reference to its laws, and the liabilities which those laws impose
will attend the transaction of such business.
The judgment of the Superior Court is
Affirmed.
