APPEAL from the Circuit Court of St. Clair County; the Hon.
D.W. COSTELLO, Judge, presiding.
MR. PRESIDING JUSTICE EBERSPACHER DELIVERED THE OPINION OF THE COURT:
This is an appeal by plaintiffs Ollie J. McAteer and Catherine E. McAteer from an order of the Circuit Court of St. Clair County dismissing Count II of their amended complaint as to the individual defendants Harry Menzel and George B. Douros. The count sought damages by reason of those defendants having been officers of a Missouri corporation which had no certificate of authority to do business in Illinois, when on behalf of the Missouri corporation, they entered into a contract with plaintiffs in Illinois, for the sale of Illinois real estate.
On or about July 6, 1970, the plaintiffs Ollie J. McAteer and Catherine E. McAteer entered into a contract whereby they were to purchase six parcels of land in Clinton County, Illinois. The agreement was signed in East Saint Louis, and a copy attached to the complaint shows the seller to be "Menzel Building Company, Inc. by George B. Douros, Sec., Harry J. Menzel, Pres." The contract was never performed, and the plaintiffs brought an action for specific performance and damages. It was stipulated by the parties that the count asking for specific performance be stricken.
After a hearing on a motion to strike the count asking for damages, the court dismissed the complaint as to the individual defendants. Plaintiffs appeal from that ruling. It was shown upon the hearing that the Menzel Building Company, Inc. is a corporation organized under the laws of the State of Missouri which had never secured a certificate of authority to transact business in Illinois.
The issue presented for review is, whether the directors and officers of a foreign corporation which has failed to secure a certificate of authority to transact business in Illinois are personally liable for any debts or liabilities of the corporation arising out of such unauthorized transaction of business in Illinois?
The exact question presented on this appeal has not been presented to a Reviewing Court in Illinois during the past thirty years. There are no decisions to be found upon the issue which have been decided under the present Business Corporation Act, (ch. 32, par. 157.1 et seq.) adopted in 1933. Thus this is a case of first impression under the present statute. In order to correctly decide the issue, a careful analysis of the legislative history of the present Act must be made, with particular attention being given to court decisions interpreting corresponding sections of prior Acts.
Since the appeal arises from the dismissal of the complaint against the individual defendants, we have only a limited amount of evidence with which to work in the present instance. For the purposes of this opinion we must make several assumptions which we feel are warranted by the record: that the Menzel Building Company, Inc. is a valid corporation lawfully organized under the laws of the State of Missouri; that the power to enter into such a transaction was within the scope of its corporate charter; that the contract was valid within the laws of both states (sec. 351.385 Mo. Rev. St.; Ill. Rev. Stat., ch. 32, pars. 157.103, 157.125); and that the corporation was actually transacting business in Illinois without having obtained the required certificate of authority. (See Pennsylvania Company for Insurance on Lives, v. Bauerle (1892), 143 Ill. 459, 33 N.E. 166; Calumet Council Building Corp. v. Standard Oil of Indiana (7th Cir. 1948), 167 F.2d 539.) With these assumptions in mind we can proceed to the disposition of the case.
Plaintiffs ground their claim for damages for breach of contract against the individual defendants upon either Ill. Rev. Stat., ch. 32, par. 157.150 dealing with unauthorized assumption of corporate powers, or Ill. Rev. Stat., ch. 32, par. 157.125, covering the transacting of business without a certificate of authority. Their reasoning is based upon the decisions rendered in Joseph T. Ryerson and Son v. Shaw (1917), 277 Ill. 524, 115 N.E. 650 and McGuire v. Outdoor Life Publishing Co. (1941), 311 Ill. App. 267, 35 N.E.2d 817 wherein the directors and officers of a foreign corporation doing business in Illinois without having procured the required certificate of authority were held to be personally liable for the debts of the corporation arising out of this illegal activity. An examination must be made of the statutes in effect at the time of these decisions and any subsequent changes in order to determine the present validity of these decisions under the current statute.
In 1917 when the Ryerson case was decided by the Illinois Supreme Court, the present Business Corporation Act was not in effect, it having been passed originally in 1933. The predecessor to paragraph 157.150 in effect at this time, was Laws of 1871-72, sec. 18, p. 296, wherein was included personal liability for those who assumed to exercise corporate powers without authority to do so "before all stock named in the articles of incorporation shall be subscribed in good faith * * *". This qualifying language would seem to indicate a legislative intent to limit the application of this section to de facto corporations which have not completed incorporation under the domestic incorporation laws of the State while excluding from its purview de jure foreign corporations which need not subscribe stock within the State in order to qualify to do business there.
This in fact was the very reasoning used by the court in Plew v. Board (1916), 197 Ill. App. 408 (aff'd 274 Ill. 232, 113 N.E. 603), where the court said at 410:
"It is the corporation itself and not its officers or agents that is subject to the penalties prescribed by our act regulating foreign corporation for failure of the corporation to comply with its provisions (Hurd's Rev. St. 1911, Ch. 32, Sec. 67g, J&A Sec. 2531); and it is too obvious for discussion that section 18 of the General Incorporation Act (J&A Sec. 2435) which makes persons assuming to exercise corporate powers of a corporation liable under specific circumstances for debts contracted by them in its name, has no application to the failure of a foreign corporation to take out a license to do business in this State."
Thus section 18 was considered at that time to be limited to defective domestic corporations which had not fully complied with the General Incorporation Act.
• 1 We note also that the court stated that the penalties of sec. 67g of ch. 32, Hurd's Rev. St. 1911 were applicable to the corporation and not to its officers or directors. This was the section which was the predecessor of the present paragraph 157.125 in effect at this time. There are two aspects of this paragraph which must be noted: (1) as previously shown there is no personal liability imposed by the statute for failure of a foreign corporation to secure the needed certificate; and (2) the statute holds that a non-complying foreign corporation may not maintain any action at law or in equity on any claim either in contract or tort arising during the period of noncompliance. The effect of this latter aspect may be gleaned from the case of United Lead Co. v. S.W. Reedy Elevator Manufacturing Co. (1906), 222 Ill. 199, 78 N.E. 567. Quoting with approval Cincinnati Mutual Health Assurance Co. v. Rosenthal (1870), 55 Ill. 85, our supreme court said at 222 Ill. 202:
"When the Legislature prohibits an act or declares that it shall be unlawful to perform it, every rule of interpretation must say that the Legislature intended to interpose its power to prevent the act, and, as one of the means of its prevention, that the courts shall hold it void. ...