Metropolitan Life Ins. Co. v. Kane, 7303.

• Citation: 117 F.2d 398,133 ALR 1163
• Decision Date: 30 January 1941
• Docket Number: No. 7303.,7303.
• Parties: METROPOLITAN LIFE INS. CO. v. KANE.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

133 ALR 1163, 117 F.2d 398 (1941)

METROPOLITAN LIFE INS. CO. v. KANE.

No. 7303.

Circuit Court of Appeals, Seventh Circuit.

January 30, 1941.

Hoy D. Davis, of Gary, Ind., for appellants.

Mitchell D. Follansbee, Clyde E. Shorey, and Frederic Barth, all of Chicago, Ill., and Albert H. Gavit and Robert E. Richardson, both of Gary, Ind., for appellee.

Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.

MAJOR, Circuit Judge.

This is an appeal from a judgment entered December 19, 1939, foreclosing a mortgage given to secure the payment of a note in the sum of $22,500, both executed by the defendants, February 14, 1929, to the Chicago Trust Company, an Illinois Corporation, for a loan made to the former by the latter. The property described in the mortgage is located in the City of Gary, Lake County, Indiana, where the defendants then, and at the time of the institution of this suit, were residents and citizens. The loan was negotiated, the instruments in question executed, and the money delivered to the defendants at a branch office of the Chicago Trust Company in Gary, Indiana. The note and mortgage were purchased by the plaintiff on May 3, 1929, and by stipulation of the parties, the plaintiff is the holder and owner of said note and mortgage, acquired for a valuable consideration in the regular course of business. The defendants made regular payments as provided, up to June 1, 1933, and then defaulted.

At the time of the hearing there was due and owing upon said note, the sum of $19,800 as principal, and in addition, interest and certain other items as provided for by the obligation.

The Chicago Trust Company, subsequent to the assignment of the note and mortgage, consolidated or merged with the Central Republic Bank and Trust Company, an Illinois Corporation, and the name of the latter was afterwards changed to Central Republic Trust Company, which, at a later date, was placed in the hands of a receiver for liquidation.

Neither the Chicago Trust Company, nor any of its successors, all Illinois Corporations, ever qualified, as required by the Statutes of the State of Indiana, to do business in that state. At the time of the involved transactions, and since, there has been in force in the State of Indiana, the following statutory provisions:

"Before any foreign corporation for profit shall be permitted or allowed to transact business or exercise any of its corporate powers in the State of Indiana, other than insurance companies, building and loan companies and surety companies, they it shall be required to comply with the provisions of this act and shall be subject to all 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." Sec. 4909, Burns Annotated Statutes, 1926.

"Every foreign corporation amenable to the provisions of this act, which shall neglect or fail to comply with any of the provisions of the same, as herein provided, shall be subject to a penalty of not less than one thousand ($1,000) dollars nor exceeding ten thousand ($10,000) dollars, to be recovered before any court of competent jurisdiction, and it is hereby made the duty of the secretary of state, as he may be advised or may ascertain that any corporation is doing business in contravention of this act, to report such fact to the attorney-general, and it shall be the attorney-general's duty, and the duty of the prosecuting attorney of the proper county to bring such action at law as shall be necessary for the recovery of the penalties imposed hereby, and, 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." Sec. 4918.

Defendants' position in the court below, and here, as we understand it, is that the note and mortgage are void or nonenforceable for the reason that neither the Chicago Trust Company nor any of its successors ever qualified to do business in the State of Indiana in compliance with the above provisions and, that the Chicago Trust Company having ceased to exist, could not make such compliance. It is further the position of the defendants that the obligation being nonenforceable by the Chicago Trust Company, is likewise nonenforceable by its assignee, the plaintiff in the instant suit.

Defendants' contention that the note and mortgage are void, must, under the rule of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A. L.R. 1487, be determined by the provisions of the Indiana Statute as construed by the decisions of the courts of that state. If the obligation was void in its inception, we assume no suit could be maintained in any court, State or Federal. If, however, the contract were only nonenforceable in the State Courts of Indiana, there is the further important question as to whether it may be enforced in the Federal Court.

A number of Indiana cases are cited by the defendants having to do with the right of the State to impose conditions, such as are found in the Statutory provisions in question. It is unnecessary to consider such cases for the reason that the right or the authority of the state in this respect is not in dispute. It is the interpretation to be given such provisions and not their validity with which we are concerned. The only Indiana authority called to our attention which has held an instrument void under the circumstances here presented is United States Construction Co. v. Hamilton National Bank, 73 Ind.App. 149, 126 N.E. 866. There it was held that a failure to comply with the Statute was a misdemeanor and rendered any contract made in violation thereof, void. No further consideration, however, need be given this case for the reason that this pronouncement was subsequently expressly overruled in Peter & Burghard Stone Co. v. Carper, 96 Ind.App. 554, 172 N.E. 319, 775. The latter case was approved by the Supreme Court of Indiana in Selph v. Illinois Pipe Line Co., 206 Ind. 490, 190 N.E. 191.

At this point we shall give consideration to these cases and subsequently to other cases relied upon by the defendants. In the Burghard case, the suit was brought by a foreign corporation which had not complied with the involved Statutory provisions for material and labor supplied a contractor in the State of Indiana. The defendants there, as here, contended that the contract was void, and relied upon the Hamilton case in support of such contention. The Appellate Court repudiated the holding of the Hamilton case, held the contract was not void, and permitted the foreign corporation to recover upon showing that it had complied with the Statute prior to suit. In discussing the Statutory provisions, the court said 96 Ind.App. 554, 172 N.E. 325:

"* * * A foreign corporation doing business in this state without complying with the law of this state is subject to two penalties: (1) It may be forced to pay a penalty of not less than $1,000 nor more than $10,000; and (2) it may not maintain a suit in the courts of this state. The statute does not, as do the statutes of some states, declare contracts entered into by a foreign corporation before complying with the statute void, nor does it provide that no action can be maintained on such contracts.

* * *

"The very fact that the prohibition against maintaining an action in the courts of the state was inserted in the statute ought to be conclusive proof that the Legislature did not intend or understand that contracts made without compliance with the law were void. The statute does not fix any time within which foreign corporations shall comply with the act. If such contracts were void no suits could be prosecuted on them in any court."

In the Selph case, it was contended that the contracts before the court were void because the plaintiff was a noncomplying foreign corporation. The court held the contract not void and that the foreign corporation, upon compliance with the Statute, might maintain its suit in the court of that state. The court said (page 192 of 190 N.E.): "In the Peter & Burghard Stone Co. Case the court held that, although a foreign corporation enters into a contract before a compliance with the statute, this fact does not render the contract void, and if, after the execution of the contract, but before suit, the corporation complies with the statute, then an action may be maintained by the corporation upon the contract. In this case all of the cases in this state upon the question at issue were collected and considered as well as cases from many other jurisdictions. The case is well considered and reasoned, and we do not consider it necessary to dwell further upon the law as decided in that case."

It is argued by the defendants, however, that its position is sustained by later Indiana cases. Two cases in particular are cited, namely Barnett v. Central Republic Bank & Trust Co., 100 Ind.App. 495, 196 N.E. 369, decided by the Appellate Court June 19, 1935, and Mitchell v. Hart, Ind. App., 25 N.E.2d 665, decided by the same court March 5, 1940. The Barnett case was an action by the Chicago Trust Company to recover on a note and mortgage executed by Indiana citizens. The defendants' plea was to the effect that the Chicago Trust Company had not complied with the Corporation Act; that it had ceased to do business as a corporation; that its assets and affairs had been taken over...