Erie & Michigan Railway & Navigation Co. v. Central Railway Equipment Co.

152 Ill. App. 278, 1909 Ill. App. LEXIS 225

• Court: Appellate Court of Illinois
• Decided: December 23, 1909
• Docket: Gen. No. 15,725
• Status: Published

Opinion

Mr. Justice Freeman

delivered the opinion of the court.

It is said in behalf of appellant that having been dismissed as to the defendant Q. B. Engiisch, the bill is fatally defective; that it is apparent that he is an indispensable party. Appellee states that “Engiisch was dismissed as a party because the lower court announced and the Equipment Company had claimed that the attempt to obtain relief against Engiisch proved the action was not merely defensive, but was an affirmative proceeding for an accounting; ’ ’ that the remedy sought by appellee “is an injunction against a suit upon a contract, the execution of which by it was procured by fraud,” and that “the only thing it was granted by the lower court and which is the only question for determination here is the right to avail itself of an equitable defense against a claim based solely upon the fraudulent contract.” The interlocutory decree appealed from merely restrains appellant from further prosecuting its action against appellee in the Municipal Court. We regard the bill as sufficient on its face to this extent.

Appellant’s main contentions are that at the time of the transactions out of which appellee’s claim to relief arises, the latter was a foreign corporation transacting business and exercising corporate powers in this state in violation of law, without having complied with the requirements of the Act of 1905, regulating “the admission of foreign corporations for profit to do business in the State of Illinoisthat it cannot therefore maintain this suit nor any suit upon any cause of action arising out of such transactions; that it could not at that time enter into any valid contract in this state, and that neither directly nor as an alleged cestui que trust can it take any benefit flowing from contracts which it was incapable of making. A further contention is that no equity appears in the bill.

It is not questioned that as a matter of fact the lease in controversy was executed and all the transactions relating thereto set forth in the bill occurred at a time when appellee, a foreign corporation for profit, organized and existing under the laws of Michigan, had not complied with the requirements of the said Act of 1905 regulating the admission of foreign corporations to do business in Illinois. The first section of that Act (R. S., chap. 32, sec. 67b) provides that before any such “foreign corporation for profit shall be permitted or allowed to transact any business or exercise any of its corporate powers in the State of Illinois,” such corporation 1 ‘ shall be required to comply with the provisions of this Act and shall be subject to all of the regulations prescribed herein, as well as all other regulations, limitations and restrictions applying to corporations of like character organized under the laws of this state.” The sixth section of the Act provides certain penalties for failure to comply therewith and that “in addition to such penalty, if after this Act shall take effect, any foreign corporation shall fail to comply herewith, no suit may be maintained either at law or in equity upon any claim, legal or equitable, whether arising out of contract or tort in any court in this state.” In United Lead Co. v. Reedy Elevator Manf’g Co., 222 Ill. 199-201, a provision of a statute then in force (R. S. 1903, chap. 32, sections 67b and 67d) similar to that from the Act of 1905 last above quoted was under consideration. The court said: “The contract upon which this suit was brought having been entered into in this state when appellant was not permitted to transact business in this state, is in violation of the plain provisions of the statute, and is therefore null and void, and no action can be maintained thereon at any time even if the corporation should at some time after the making of the contract qualify itself to transact business in this state by a compliance with our laws in reference to foreign corporations that desire to engage in business here.” So in the case at bar, the fact that appellee has, since the transactions now in question, complied with the requirements of the Act of 1905 and been licensed to transact business in Illinois does not relieve it from the prohibition of the statute, so as to enable it to maintain at any time any action upon any contracts which it entered into in this state prior to January 14, 1909, the date when it was licensed. All such contracts, including the lease in controversy, are, in the language of the Supreme Court, null and void.

In so far as the bill by its averments and its prayer seeks affirmative relief other than that granted by the injunction (which merely restrains the prosecution of a suit upon the lease in the Municipal Court), it is difficult to see upon what ground it can be maintained. It prays for an injunction not only restraining appellant from prosecuting the suit at law, but also from selling, transferring, encumbering or disposing of the cars mentioned in the lease and from interfering with appellee’s possession or use of the cars pending an ac - counting by the court and its determination of the real ownership of the ears. In appellee’s brief it is said that “appellee’s ownership need not he adjudicated” at this time, that the “contention therefore is not solely or necessarily, did the appellee become the owner, hut is primarily, is it not sufficient to show that appellant is not the owner. Unless this is answered in the negative, the other question is not material.” It is clear therefore that appellee seeks by its hill to maintain an equitable claim for affirmative relief upon transactions which by the statute were forbidden to it as a foreign corporation not licensed to do business in the state at the time, and which transactions were and are therefore to be deemed null and void. It asks the court to determine the question of ownership of the cars and having done this then to grant affirmative relief by injunction. The statute forbids to appellee the maintenance of such a suit.

It is urged however that the foreign corporation Act does not prevent a corporation from defending in the courts of this state; that the scope of the injunction “goes no further than a mere defense of the pending aqtion in the Municipal Court,” that it is the injunction order and “not the prayer of the bill that is hereby reviewed,” that such order “merely held that a bill could be maintained in so far as it set up in chancery facts to defeat an action at law which must otherwise succeed;” that “the question for this court to consider is whether or not the legislature intended to bar foreign corporations from defending in this state, and second, whether if that defense is equitable, the legislature intended by the use of the words ‘maintaining a suit upon any claim legal or equitable,’ to include a suit wherein the sole relief consisted in enjoining a pending law action in which the corporation had already been made a party, for the purpose of setting up an equitable defense to that action and preventing a judgment being entered therein.” The intention of the legislature is to be determined from the Act itself. In United Lead Co. v. Reedy Elevator Mfg. Co. supra the language of the court in Cincinnati v. Rosenthal, 55 Ill. 85, is approved as follows: “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. This is as manifest as if the statute had declared that it should be void.” It is true that the language of the Act does not in terms prohibit a foreign corporation from defending a suit brought against it, but only from maintaining such suit. We are however unable to concur in appellee’s contention that the question for us to consider is “whether or not the legislature intended to bar foreign corporations from defending in this state.” The question is whether appellee, a foreign corporation now authorized to transact business in this state and to sue and defend in its courts, can maintain a suit for relief from the consequences of a contract made in this state which it had then no power to make and upon which it had not then and has not now the right to maintain any suit “either at law or in equity.”

Appellee’s counsel urge that “a foreign corporation may maintain an action founded upon rights involuntarily conferred upon it by operation of law, provided it is licensed at the time it institutes its action;” that appellee is not seeking to enforce a contract, but to have the court decree that the lease of December, 1906, was procured through fraud and is void, and that the acts of business said to have been done by appellee in Illinois in violation of the foreign corporation Act were “all unauthorized acts of O. B. Englisch, the owner of appellant, who is now seeking to set them up for his own benefit.” The lease being void for want of power on the part of appellee to execute it, it is clear appellee cannot maintain its bill so far as it seeks affirmative relief on such void contract. The question whether unauthorized acts done by an agent in the name of a foreign corporation are business transactions of the latter done in the state in violation of law, is not now before us. As to that we express no opinion. Appellee’s argument is that appellant acquired under the lease “no real rights against appellee,” that on its face “being executed by the parties, it would appear valid in a court of law, where appellee’s defense is not available, and hence must be set up in chancery; that while a suit upon the contract could not be maintained by appellee, in view of its disability when the contract was made, yet that its bill in this case is not founded upon a contract, but its cause of action is involuntary on its part, and that in such case the test applied is whether the corporation was licensed at the time the suit was instituted,” that appellee having been licensed at the time it filed its bill is entitled to maintain the action. In support of this contention we are referred to Thompson v. Whitehed, 185 Ill. 454-465, where it was said the rights of the corporation “are to be determined (at the latest) as of the date of the levy of the writ;” and also to McCarthy v. Chimney Construction Co., 219 Ill. 616-625, where it is said that the corporation’s “rights are to be determined as of the date of the beginning of the suit.” In these cases the language cited is not we think open to the construction sought to be given it. In the first of them a foreign corporation had sued out an attachment writ in this state, before it had complied with the requirements of the foreign corporation Act. The court held that it had no right then to invoke the aid of the courts of this state and therefore did not by levy of the attachment writ secure a lien upon the property in dispute; that the fact it subsequently complied with the Act and received a certificate of compliance from the Secretary of State did not make the void writ valid, and that the corporation’s rights in that respect were to be determined as of the date of the levy; in other words that having no right when it began the suit and having acquired no lien under the attachment writ, it acquired none by subsequent compliance with the law. The McCarthy case was a suit by a foreign corporation on an appeal bond. It was held that the execution of the appeal bond by the appellant to obtain a review of the case in an upper court did not constitute a “transaction of business” on the part of the appellee, whose consent to the execution of the appeal bond was not required; that inasmuch as the pleas alleged only that the appellee had not complied with the statute at the time of the execution of the appeal bond, which “was involuntary on the part of appellee,” and did not allege that appellee had not complied with the statute at the time of beginning its suit on the appeal bond, “its rights were to be determined as of the date of the beginning of the suit,” and not as of the date when the appeal bond was executed without its consent by another party. In the case at bar, while it is contended that the execution of the lease in controversy was a fraud on appellee, the latter did nevertheless in fact execute the lease by its then authorized officer. Such execution was not involuntary on its part. The fact that the suit in the Municipal Court which the chancellor has enjoined was without appellee’s consént, does not make “the cause of action involuntary on the corporation’s part.” We cannot concur in appellee’s contention that the test “is whether the corporation (appellee) was licensed at the time the suit was instituted.” If there was any room for doubt, that question was settled by the Supreme Court in United Lead Co. v. Reedy Elevator Co. supra.

It is further said in appellee’s behalf that the word “claim” as used in the statute does not include “defense,” and that where, as here, appellee does not sue on nor seek to enforce a contract, but has an equitable defense, it may maintain an “independent bill for the sole purpose of setting up that defense;” that the foreign corporation Act does not deprive a foreign “corporation when sued of the right to defend on equitable grounds.” In Catholic Bishop v. Chiniquy, 74 Ill. 317, which was likewise a suit in equity to enjoin an action at law, the language of the court is very much in point as to whether the relief sought by the bill in the case at bar and granted by the injunction under consideration, constitutes an “equitable claim” in the sense in which those words are used in the foreign corporation Act above quoted. The court (p. 318) says: “The application to equity necessarily concedes the legal right and it is upon the ground that such legal right which is sought to be enforced by the action at law is subservient to an equitable claim which the defendant at law cannot set up there, that the court takes jurisdiction.” And it is further said (p. 319): “Where the application is properly made, the defendant at law virtually says to the plaintiff, ‘I do not controvert your legal right, but I have a claim in respect of that right which in conscience and good faith ought to control you in the exercise of it; and inasmuch as you have brought me into a forum where you can establish and enforce that right, while by the rules of that forum I am precluded from establishing my claim, I will therefore transfer the controversy to another forum, where, admitting your legal right, I shall seek, and be allowed, if I can, to establish my claim, and by doing so, control the exercise of your legal right’." See also County of Cook v. City of Chicago, 158 Ill. 524-531.

It is difficult to perceive any legitimate distinction between maintaining a suit upon an equitable claim and a bill which seeks to establish such claim. The former is forbidden to an unlicensed foreign corporation by the statute; and the prohibition must be deemed to include the latter also. We are of the opinion that such is the meaning and effect of the statute. The language is broad and we think is open to no other construction, where as here the bill does “not controvert” the defendant’s legal right in the suit at law, but seeks to establish affirmatively “a claim in respect of that right” which it alleges ought in conscience and good faith to control the defendant in the exercise of that right. This is, we think, seeking to maintain a suit in equity upon an equitable claim; and where the complainant was an unlicensed foreign corporation transacting business in this state in violation of the law at the time of the transactions upon which its equitable claim is based, is within the prohibition of the statute.

We are compelled to the conclusion that the interlocutory injunction complained of is erroneous. It must therefore be reversed.

Reversed.