Summary of Opinion
Factual and Procedural Background
This matter is an information in the nature of a quo warranto seeking a judicial
declaration that the defendant is exercising corporate functions without right and an
injunction against so doing. The complaint alleges the defendant is doing business as a
corporation, has a board of directors, a president, and a corporate seal, has capital stock
upon which it has levied an assessment, is transacting business in corporate form, and
claims in good faith to be a corporation. The corporators executed, acknowledged, and filed
articles of incorporation (the articles are not set out at large in the complaint).
The articles were executed in the manner and are in substance and form as required by the
general provisions of the code for the creation of private corporations, but the plaintiff
contended the articles were defective because they included, among the purposes of the
corporation, authority "to buy, lease, sell, mortgage, and otherwise deal in ... railroads,
tramways, and rights of way; to buy, lease, sell, mortgage, operate, construct, and maintain
railroads, tramways," etc., while the incorporation was not constituted as the code
requires railroad corporations to be constituted.
The court below sustained the defendant's demurrer and refused to allow the plaintiff to
amend the complaint. On appeal, the judgment of the Superior Court of the City and County
of San Francisco was affirmed. The opinion is authored by Judge Temple, with Judges Henshaw
and McFarland concurring. Counsel of record included Attorney General W. H. H. Hart, P. O.
Chilstrom, and T. V. Cator for appellant, and James Alva Watt for respondent.
Legal Issues Presented
- Whether the inclusion in the articles of incorporation of authority relating to
railroads and tramways (when the incorporation was not constituted as a railroad
corporation under the code) rendered the articles defective and invalidated the
corporate existence.
- Whether the articles, as drafted, authorized the corporation to buy, lease, or operate
a railway for traffic.
- Whether such an incorporation (formed primarily to manufacture lumber and operate a
sawmill) could exercise the power of eminent domain to acquire rights of way.
- Whether the trial court properly sustained the demurrer to the complaint.
- Whether the trial court properly refused to allow the plaintiff to amend the complaint.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court first observed that the articles of incorporation were executed in the manner and
were in substance and form as required by the general provisions of the code for private
corporations. The plaintiff's contention was that the articles were defective because one
of the stated purposes included dealing in and operating railroads and tramways while the
incorporation had not been constituted in the manner required of railroad corporations.
The court noted that the corporation's general stated purpose was to manufacture lumber
and all articles made of wood, i.e., to own and run a sawmill. It acknowledged that in such
manufacturing businesses it is frequently necessary to have tramways and railroads as parts
of the manufacturing plant. The court concluded that the articles, as written, would not
authorize the corporation to buy, lease, or operate a railway for public traffic.
The court explained that the incidental mention of tramways or similar appliances as part
of the manufacturing plant did not vitiate the incorporation; however, the incorporation
thus formed could not exercise the power of eminent domain to acquire rights of way.
Regarding amendment of the complaint, the court recognized that leave to amend is
generally a matter of absolute right, and that refusal requires the court to be able to see
that the complaint cannot be amended so as to state a good cause of action. Although such a
determination is not often possible, the court concluded that here the trial court properly
determined the complaint could not be so amended.
On these bases, the court found the trial court properly sustained the demurrer and properly
refused leave to amend.
Holding and Implications
Judgment affirmed.
The direct effect of the decision is that the trial court's ruling sustaining the demurrer
to the plaintiff's quo warranto information and its refusal to permit amendment were
upheld. The court held that the inclusion of references to railroads and tramways in the
articles did not authorize the corporation to operate a railway for traffic and did not
invalidate the incorporation as to its primary purpose of manufacturing lumber; nonetheless,
such incorporation could not exercise eminent domain powers. The opinion does not announce
any broader legal rule beyond its application to the facts presented, and it does not set
forth or rely upon cited precedents.
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