Katz v. Herrick

86 P. 873, 12 Idaho 1, 1906 Ida. LEXIS 16

• Court: Idaho Supreme Court
• Decided: January 25, 1906
• Status: Published

Opinions

AILSHIE, J.

(After making the statement.) — The first question to be determined by us in this action is whether or not, under the constitution and laws of Idaho, a foreign corporation can maintain an action in the courts of this state for the breach of a contract entered into by such corporation within the state without first having complied with the constitution and statute in filing a copy of its articles of incorporation, and designating a statutory agent upon whom service of process can be made. Section 10 of article 11 of the constitution provides: “No foreign corporation shall do any business in this state without having one or more known places of business, and an authorized agent or agents in the same, upon whom process may be served, and no company or corporation formed under the laws of any other country, state or territory, shall have or be allowed to exercise or enjoy within this state any greater rights or privileges than those possessed or enjoyed by corporations of the same or similar character created under the laws of this state. ’ ’ Section 2653 of the Revised Statutes as amended by act of March 10, 1903, is in part as follows: “Every corporation not created under the laws of this state must, before doing business in this state, and every such corporation now doing business in this state must, within three months after the taking effect of this act, file with the county recorder of the county in this state, in which is designated its principal place of business in this state, a copy of the articles of incorporation of said corporation duly certified to by the Secretary of State of the state in which said corporation was organized, and a copy of such articles of incorporation duly certified by such county recorder, with the Secretary of State, paying to the latter the same fees as are provided by law to be paid for filing original articles of incorporation, and must within three months after the passage of this act, or from the timé of commencement to do business in this state, designate some person in the county in which the principal place of business of such corporation in the state is conducted upon whom process issued by authority of or under any law of this state may be served, and within the time aforesaid must file such designation in the office of the Secretary of State, and in the office of the clerk of the district court for such county.....No contract or agreement made in the name of, or for the use or benefit of, such corporation prior to the making of such filing as first herein provided can be sued upon or be enforced in any court of this state by such corporation.” The foregoing section also provides that any conveyance of real estate to such foreign corporation prior to the filing of its articles of incorporation and designation of agent “shall be absolutely null and void,” and that all officers, agents and representatives of corporations which have failed to comply with the requirements of the statute shall be jointly and severally personally liable upon all contracts and agreements made in violation of the statute. It further provides that any corporation failing to comply with the provisions of the act shall not be entitled to the benefit of the statute of limitations in any suit or action prosecuted against it.

It will be seen that in the very inception of our existence as a state, the framers of the constitution provided that no foreign corporation shall do any business in this state without having first authorized a lawful agent within the state upon whom process may be served, and also having established a known place of business. This provision of the constitution is self-acting, and self-operative, to the extent that it requires the facts therein enumerated to actually exist at the time such corporation begins to transact business within the state. The constitution, however, failed to require the corporation to furnish evidence of such facts and make the same a matter of record within any designated office or offices. The legislature, nevertheless, in the exercise of its undoubted power and authority, enacted section 2653, supra, and thereby pointed out the specific acts and things necessary to be done by any foreign corporation in compliance with the constitutional and statutory provisions, and in order to entitle it to do business within this state. The people, in adopting section 10 of article 11 of the constitution, clearly announced and proclaimed the policy of the state toward foreign corporations, and have said in unmistakable language that such artificial beings existing only by the will of a foreign state, must subject themselves to the jurisdiction and laws of this state before they can have any recognition or legal existence within its borders. Even in the absence of any constitutional declaration on .the subject, the power of the legislature to impose conditions and restrictions upon foreign corporations before allowing them to do business in the state is clearly settled and firmly established.

In 1868 Mr. Justice Field, in the leading case of Paul v. Virginia, 8 Wall. 181, 19 L. ed. 357, laid down the doctrine as follows: “The corporation, being the mere creature of local law, can have no legal existence beyond the limits of the sovereignty where created. As said by this court in Bank of Augusta v. Earle [13 Pet. 586, 10 L. ed. 306] : ‘It must dwell in the place of its creation, and cannot migrate to another sovereignty.’ The recognition of its existence even by other states, and the enforcement of its contracts made therein, depend purely upon the comity of these states — a comity which is never extended where the existence of the corporation or the exercise of its powers are prejudicial to their interests or repugnant to their policy. Having no absolute right of recognition in other states, but depending for such recognition and enforcement of its contracts upon their assent, it follows, as a matter of course, that such assent may be granted upon such terms and conditions as those states may think proper to impose. They may exclude the foreign corporation entirely; they may restrict its business to particular localities, or they may exact such security for the performance of its contracts with their citizens as in their judgment will best promote the public interest. The whole matter rests in their discretion.”

It has been contended by appellant that since the statute points out certain penalties against a corporation and its agents and employees, in case it attempts to do business without complying with the statute, and since it also fails to specifically declare contracts entered into in violation of the statute to be void, that it was the intention of the legislature to only impose such restrictions and penalties, and not the intention to avoid such contracts. It will be seen that the constitution requires that a corporation shall have an authorized agent and a known place of business before transacting any business within the state. The statute says that “before doing business in this state” a foreign corporation must comply with the statute, etc. It also provides that no contract or agreement can be enforced by any corporation that has failed to comply with the statute. This language seems to us to clearly indicate both the intention of the framers of the constitution and of the legislature to prohibit any transaction of business until the statute has been complied with. The purpose and spirit of these provisions indicate a clear intent to make such contracts unlawful. It would hardly be' consonant with the duties of the courts and the office of the judicial department of the state to uphold and enforce contracts at the instance and on the application of corporations or individuals that have transacted business in the manner and under conditions which both the framers of the constitution and the legislative department of the state have said shall be unlawful. The courts are established for the purpose of upholding and enforcing the constitution and laws of the state, and when once they have arrived at the purpose and intent of the law-making department, it is their duty to enter such judgment and decrees as will render effective that intent. The corporations that have transacted business without observing the legal requirements, and also their assignees with notice, are therefore left without a remedy for the enforcement of such contracts.

In the consideration of statutory provisions similar to the one under discussion, it is said by the authors, at section 847-b of volume 3 of Clark and Marshall on Private Corporations, that “Most of the courts hold that the object of the statute is to prohibit foreign corporations, on grounds of public policy, from doing any business in the state until they have complied with all the conditions precedent prescribed by the statute; that this prohibition is absolute, and renders illegal contracts made by a foreign corporation in the state in violation of the statute; and that, since the contract is thus illegal, the corporation cannot maintain an action to enforce the same. ’ ’ The authors quote at some length and with approval from the opinion of Justice Walker in Cincinnati Mutual Health Assur. Co. v. Rosenthal, 55 Ill. 85, 8 Am. Rep. 626. This is one of the leading and most numerously cited cases on the subject, and, in considering the legislative intent in the passage of an act very similar to the one here under consideration, the Illinois court says: “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. To hold otherwise would be to give the person, or corporation, or individual the same rights in enforcing prohibited contracts as the good citizen who respects and conforms to the law. To permit such contracts to be enforced, if not offering a premium to violate a law, it certainly withdraws a large portion of the fear that deters men from defying the law. To do so places the person who violates the law on an equal footing with those who strictly observe its requirements. That this contract is absolutely void as to appellee, we entertain no doubt.” This principle has been so repeatedly announced and affirmed by the courts as to make it impracticable, as well as unnecessary to review the authorities on the subject. We will therefore content ourselves with citing a few of the leading cases to the same effect as above: Diamond Glue Co. v. United States Glue Co., 103 Fed. 838; In re Comstock Lumber Co. v. Thomas, 92 Tenn. 587, 22 S. W. 743; Williams v. Scullin, 59 Mo. App. 36; Seamans v. Zimmerman, 91 Iowa, 363, 59 N. W. 290; Seamans v. Temple Co., 105 Mich. 400, 55 Am. St. Rep. 467, 63 N. W. 408, 48 L. R. A. 430; Farrion v. New England Mort. Security Co., 88 Ala. 275, 7 South. 200, where constitutional requirement was considered; Bank of British Columbia v. Page, 6 Or. 431; Thorn v. Travelers’ Ins. Co., 80 Pa. St. 15, 21 Am. Rep. 89. On the other hand, the courts have very consistently and uniformly held that the corporation, when sued on one of these contracts, cannot interpose its failure to comply with the law as a defense, on the principle that one cannot be heard to excuse himself in a court of justice on account of his own violation of the law.

It is next urged by the appellant that if it be held that the corporation cannot maintain its action without first showing a compliance with the statute, that still he is entitled to recover for the reason that the legislature, by an aet approved February 8, 1905, entitled: “An act relating to foreign corporations doing business in the state of Idaho,” has removed the disability and relieved them of the penalties imposed by the constitution and statute. This act provides in substance that every foreign corporation doing business in the state of Idaho at the time of the passage of this latter act which had failed or neglected to file its articles of. incorporation and designation of statutory agent as provided by section 2653 of the Revised Statutes, as amended by act of March 10, 1903, and which had ‘ ‘ complied, or in good faith attempted to comply, with the constitution and laws of this state” prior to the passage of the 1905 act, should be relieved from all the penalties, forfeitures and obligations previously imposed upon it by law, and that ‘'all acts, transactions, contracts and agreements made or entered into by such corporation, and all deeds and conveyances to it or by it shall be as valid and effectual .... as if such corporation had duly complied with the said constitution and laws before the expiration of the time fixed and limited by section 2653.” Respondent maintains that the act of February 8, 1905, is invalid and void, for the reason that it is in violation of section 10, article 11, and also section 16 of article 3 of the constitution. The reasons presented for holding this aet in violation of section 10 of article 11 are, first, that it attempts to validate acts and contracts of foreign corporations that have done business in the state without having first appointed an authorized agent upon whom process might be served and established a known, place of business; second, that it gives foreign corporations greater rights and privileges than those possessed or enjoyed by corporations of the same or similar character created under the laws of this state, in that it attempts to relieve them for a time after having commenced business from the burden of filing articles of incorporation, and freedom from the burden of appointing, designating and maintaining a statutory agent upon whom process can be served; and that it also attempts to relieve them for a time from the danger and liability of suits and actions against them within this state for breach and violation of their contracts. It must certainly be conceded that the act is unconstitutional and necessarily void if it should be held that it attempts in any manner to relieve foreign corporations of any of the duties, obligations or liabilities imposed upon them by the constitution, or extends to them any privileges not enjoyed by similar domestic corporations. It would seem from the most casual reading of this act that it attempts to do those things. It is unnecessary, however, for us to further consider this contention, for the reason that the act is clearly in violation of section 16, article 3 of the constitution which provides: “Every act shall embrace but one subject, and matters properly connected therewith, which subject shall be expressed in the title.” The sole and only purpose of the act was to relieve foreign corporations of the pains, penalties and forfeitures incurred by them in the transaction of business within this state in violation of both the constitution and statute. It was intended, as stated in the body of the act, to validate all conveyances of real estate to which they had been parties; to enable them to sue upon their contracts; to enable them to plead the statute of limitations; and to place them upon the same footing as they would have been had they complied with the organic law and the statutes of the state. The title, “An act relating to foreign corporations doing business in the state of Idaho,” would never suggest to the most imaginative reader that it is the index to an act which has for its sole and only purpose the relief of foreign corporations, from the penalties and liabilities incurred by reason of their violating the law. The purpose of the title is to indicate to the lawmaker and the citizen as well the character and subject matter of the legislation proposed by the act. (Turner v. Coffin, 9 Idaho, 338, 74 Pac. 962; State v. Jones, 9 Idaho, 693, 75 Pac. 819.) The title under consideration would scarcely afford any suggestion or intimation of the enactment it conceals. Again, this act is outside of the ordinary and usual scope of legislation. It is a retrospective law; its object is to remove burdens and obligations already incurred, and this makes it the more necessary and important that snch an act have an appropriate title sufficient to give notice of its contents and bring it within the constitutional requirement.

The supreme court of Alabama, in Lindsay v. United States Sav. etc. Co., 120 Ala. 126, 24 South. 171, 42 L. R. A. 783, recently had occasion to consider the sufficiency of the title to a legislative act which had for its purpose the legalization of past transactions, and the court there entered into a discussion of the subject at considerable length and with much reason. The court says: ‘ ‘ The future, and not the past, is the ordinary usual field and scope of legislation.....Prospective laws— laws looking to and operating in the future — are the rule; retrospective laws, looking backward, are exceptions. (Wade on Retroactive Laws, sec. 1.) Because the future, not the past, is the usual field and scope of operation, comes the general rule that, by construction, retfoactive or retrospective operation will not be given a statute, unless its terms show clearly the legislative intention that it should have such operation..... And there may be ‘curative,’ or, as they are sometimes termed ‘healing,’ statutes, the subject being expressed in general terms, and may satisfy the requirement of the constitution. But when it is proposed by an act like the present to deal with existing contracts and liabilities, there should be in the title some expression of that intention — some indication that such is the intent, or the purposes of the constitutional requirement are not satisfied.” To the same effect is Snell v. Chicago, 133 Ill. 413, 24 N. E. 532, 8 L. R. A. 858; Lockport v. Gaylord, 61 Ill. 276; Brieswick v. Mayor of Brunswick, 51 Ga. 639, 21 Am. Rep. 240.

The next contention with which we are met is that since the act of March 18,1901, establishing the office of insurance commissioner, and providing for the regulation and licensing of insurance companies, imposes substantially the same requirements and restrictions'on insurance companies as section 2653, supra, enjoins on foreign corporations in general, it was unnecessary for an insurance company to comply with section 2653, and was not the intention of the legislature that it should do so. We do not think we are either required to consider, or would be justified in passing on, this question in the condition the case comes before us. If the plaintiff intended in the lower court to excuse and justify the company’s failure and neglect to comply with the act of March 10, 1903, on the grounds that it had complied with the act of March 18, 1901, it was plaintiff’s duty, when the question was raised, to have made the showing that the company had in fact complied with the latter act, and thereby established the company’s legal standing within this state, and its right to recognition and consideration by the courts of this jurisdiction. (Cary-Lombard Lumber Co. v. Thomas, 92 Tenn. 594, 22 S. W. 743.) Having failed to do so, and the record being entirely silent as to whether or not the Mutual Life Insurance Company has ever complied with the insurance laws of 1901, and it affirmatively appearing that it failed to comply with the act of March 10, 1903, this court is not placed in possession of sufficient evidence to justify it in considering as to whether or not a compliance with the insurance law alone would entitle such companies to transact business within this state.

Lastly, the appellant, Mr. Katz, is not an innocent purchaser for value. He was in charge and control of the Mutual Life Insurance Company’s business in this state, and had notice of the consideration for which the note was executed, and is presumed to have known of the company’s failure and neglect to comply with the law in filing a copy of its articles and designation of an agent on whom service of process might be had. Plaintiff occupies no more favorable position in the ease than the insurance company would hold if suing on this contract. On this point Clark and Marshall on Private Corporations, volume 3, section 847h, say: “By the weight of authority, if a negotiable note or bond is given to a foreign corporation in a transaction which is illegal because of the corporation’s failure to comply with the conditions precedent to the right to do business prescribed by statute, the illegality may be set up as against a holder of the note or bond who has not paid value, or who purchased with notice, but not as against a bona fide purchaser for value without notice.”

(September 6, 1906.)

It follows from what has been said that the judgment of the lower court must be affirmed, and it is so ordered. Costs awarded to respondent.

Stockslager, C. J., and Sullivan, J., concur.'