Continental & Commercial Trust & Savings Bank v. Corey Bros. Const. Co.

• Decision Date: 17 November 1913
• Docket Number: 2,264.
• Citation: 208 F. 976
• Parties: CONTINENTAL & COMMERCIAL TRUST & SAVINGS BANK et al. v. COREY BROS. CONST. CO. et al.
• Court: U.S. Court of Appeals — Ninth Circuit

208 F. 976

CONTINENTAL & COMMERCIAL TRUST & SAVINGS BANK et al. v. COREY BROS. CONST. CO. et al.

No. 2,264.

United States Court of Appeals, Ninth Circuit.

November 17, 1913

[Copyrighted Material Omitted]

Mayer Meyer, Austrian & Platt and Mos C. Miller, all of Chicago Ill., and Richards & Haga, of Boise, Idaho, for appellants.

H. H. Henderson, of Ogden, Utah, for appellees.

Before GILBERT, ROSS, and HUNT, Circuit Judges.

GILBERT Circuit Judge.

The appeal in this case presents the question of the priority of lien claimants upon the Big Lost River irrigation system in Idaho. The appellants are trustees under two certain trust deeds securing bonds to the amount of $2,400,000 on the system. The appellees are mechanic's lien claimants for work done and materials supplied in the construction of said system. The court below found that the mechanic's liens were entitled to priority over the liens of the bondholders.

In June, 1909, the construction company began the construction of a dam under a contract with the Big Lost River Irrigation Company, an Idaho corporation. The irrigation system was a 'Carey Act project,' arising out of a contract which had been entered into by the state of Idaho with one George S. Speer, of date May 27, 1909, all rights under which were subsequently, with the consent of the state, transferred by Speer to the irrigation company. The work of the construction company upon the dam continued until August 15, 1910, when the state of Idaho through its State Land Board forbade the further prosecution of the work and the further sale of water rights in the projected system, principally on account of faults in the construction of the dam. It is conceded that the dam is a failure and that to impound any useful quantity of water therein would imminently endanger life and property. The appellants contend that the decree of the court below is erroneous, and that they are entitled to priority over the mechanic's lien claimants for the reason that the failure of the dam was owing to the fault of the construction company, in that it so far departed from the terms and specifications of its contract with the irrigation company as to make the dam a useless structure.

That contention presents the principal question in the case. The right of the appellants to advance it as a defense to the suit of the appellees is disputed; but we think there can be no question that they have the same right to present that ground for denying the equities of the mechanic's lien claimants that the irrigation company would have, there being no evidence of fraud or collusion between the parties to the construction contract.

In the absence of such evidence, it follows, also, that the appellants are bound by the construction which the parties to the contract placed upon its doubtful or uncertain provisions, and by any waiver by the irrigation company of its strict performance.

There is evidence tending to prove that the dam was improperly constructed and in a manner different in some respects from that which was provided in the contract. The dam was 2,000 feet long, and was intended to impound water to the depth of more than 100 feet. It had a concrete core, but in the main it was constructed of dirt and gravel. No complaint is made of the core or of the material or method of its construction, but it is urged that the material for the embankment was neither deposited in place nor properly puddled in the manner prescribed by the contract. Upon that issue the court below upon a consideration of the evidence found against the contention of the appellants, and we are not convinced that there was error in that conclusion. Undoubtedly a portion of the loose material was handled and deposited in a manner different from that which was prescribed in the specifications, and probably such deviation from the prescribed method contributed in some degree to the inefficiency of the dam. But however that may be, the evidence is that all that was done by the construction company was done with the knowledge and approval of the engineering company under whose supervision, according to the terms of the contract, the work was to be done. We are unable to discover from the evidence that the court below erred in finding that the vital defect was not in the dam itself, but in the fact that subjacent to it there was a stratum pervious to water. It is not shown that for that defect the construction company was responsible. It is true that the terms of the contract required that the core-wall 'shall extend down to and into impervious material'; but the drawings which were made a part of the contract expressly and in no doubtful way indicated the limit of the depth to which the excavation was intended to go. The construction company was justified in assuming as it did that the depth so indicated had been established after inspection of the material beneath the site of the dam and was sufficient. They were confirmed in this view by the attitude of the representative of the engineering company on the ground as the work progressed, who assented to the course which the construction company pursued in accordance with the drawings. The construction company had the right to look to the engineer for the proper construction of the terms of the contract.

It is contended that the contract of the construction company cannot be enforced in any court, state or federal, for the reason that the company, a corporation of Utah, entered into the contract without having complied with the laws of the state of Idaho in reference to foreign corporations. Section 2792 of the Revised Codes of Idaho provides that:

'Every corporation not created under the laws of this state must, before doing business in this state, 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. * * * No contract or agreement made in the name of, or for the use or benefit of, such corporation prior to the making of such filings as first herein provided, can be sued upon or enforced in any court of this state by such corporation.'

At the time when the construction company commenced the work, the irrigation company had not been organized; but its organization was contemplated. The work proceeded under a verbal contract between the construction company and the promoters of the irrigation company until August 26, 1909, when, the construction company having complied with the laws of Idaho with reference to foreign corporations, a written contract was entered into. It was upon that contract that the suit was predicated. No valid reason is perceived why, under the circumstances, the suit might not have been brought in a court of the state of Idaho. That question, however, it is not necessary to decide. It is uniformly held that notwithstanding a provision of state law, such as that of Idaho, which does not declare void a contract made before obtaining the necessary certificate of compliance with the local law, the corporation may enforce the contract in the federal courts. There are some expressions in the opinion in the case of Katz v. Herrick, 12 Idaho, 1, 86 P. 873, which are relied upon as indicating that the Supreme Court of that state held such a contract void; but the opinion of the same court in Valley Lumber & Mfg. Co. v. Driessel, 13 Idaho, 662, 93 P. 765, 15 L.R.A. (N.S.) 299, 13 Ann.Cas. 63, explains what was said in the former decision in language as follows:

'The court there held that the noncomplying foreign corporation had no legal existence in this state, and, under the law, was without a remedy for the enforcement of any contracts made by it within the state, but did not hold that its contracts were absolutely void.' In 19 Cyc. 1301, the rule is thus stated:

'Where, however, the contract is not void, but the statute merely prohibits the foreign corporation from maintaining an action thereon in any court of the state, it has been held that the corporation may nevertheless maintain an action in the federal courts, since a federal court will not refuse to enforce a valid contract, harmless in itself, which is nonenforceable in the state court merely on account of noncompliance with the state administrative regulations.'

The decisions of the federal courts uniformly sustain the rule so expressed. Blodgett v. Lanyon Zinc Co., 120 F. 893, 58 C.C.A. 79; Groton Bridge & Mfg. Co. v. American Bridge Co. (C.C.) 151 F. 871; Dunlop v. Mercer, 156 F. 545, 86 C.C.A. 435; Johnson v. New York Breweries Co., 178 F. 513, 101 C.C.A. 639.

It is contended that the court below was without jurisdiction of the cause for...