Fourth Northwestern Nat. Bank of Minneapolis v. Hilson Industries, Inc.

• Citation: 117 N.W.2d 732,264 Minn. 110
• Decision Date: 02 November 1962
• Docket Number: No. 38411,38411
• Parties: FOURTH NORTHWESTERN NATIONAL BANK OF MINNEAPOLIS, Respondent, v. HILSON INDUSTRIES, INC., Appellant.
• Court: Supreme Court of Minnesota (US)

Page 732

117 N.W.2d 732

264 Minn. 110

FOURTH NORTHWESTERN NATIONAL BANK OF MINNEAPOLIS Respondent, v. HILSON INDUSTRIES, INC., Appellant.

No. 38411.

Supreme Court of Minnesota.

Nov. 2, 1962.

Syllabus by the Court.

Tested by the principles of forum non conveniens, a nonresident defendant who is a corporate buyer having no contact in this state other than designating the office of plaintiff, a resident corporate vendor, as the place for payment of its promissory notes, is not amenable to process under Minn.St. 303.13, subd. 1(3), in an action on the notes, where the real issue is an alleged breach of warranty which defendant will attempt to prove by evidence that is only available in the area of defendant's forum.

Cronin, Mitchell & Spooner, Paul L. Spooner, Jr., Minneapolis, for appellant.

Wheeler, Fredrikson & Larson, T. E. Holloran and Gary B. Crawford, Minneapolis, for respondent.

OTIS, Justice.

Hilson Industries, Inc., an Ohio corporation, appeals from an order denying its motion to quash plaintiff's service of the summons and complaint under Minn.St. 303.13, subd. 1(3), and to dismiss the action on the ground the court has no jurisdiction over defendant.

Plaintiff sues to recover the face amount of three promissory notes executed by Hilson on March 17, 1960, payable to Atland Manufacturing Company, a Minnesota corporation, to whom the notes have now been reassigned after being negotiated to the Fourth Northwestern National Bank of Minneapolis which appears in the title as plaintiff. Each note is in the sum of $1,196.15, 196.15, and each is payable at Atland's Minnesota office. Only the due dates differ. It is undisputed that the notes were executed in Ohio.

Since it now holds the notes, the parties have treated Atland as the proper substituted plaintiff under Rule 25.03 of Rules of Civil Procedure.

For purposes of appeal we accept as facts the uncontroverted recitations in various affidavits accompanying the moving papers in so far as they are germane to the issues which we must decide. It appears that in July of 1959 Hilson's predecessor, a Kentucky corporation, wrote to three companies in Minnesota engaged in the manufacture of cooling boxes inviting negotiations for the purchase of housing for automatic ice-vending machines of a walk-in variety designed for outdoor use. In response to Hilson's letter, one of Atland's officers telephoned for an appointment and traveled to Kentucky to discuss the terms under which Atland would be willing to do business with Hilson. Pursuant to these conversations, Hilson sent Atland an order for 50 coolers on August 5, 195., the first of which was delivered in Ohio on November 10, 1959. Between the order and delivery dates the Hilson company was converted from a Kentucky corporation to an Ohio corporation and has thereafter maintained that corporate identity.

It is undisputed that neither as a Kentucky nor Ohio corporation did Hilson advertise, conduct any sales campaign, locate any officer, agent, salesman, employee, or office in Minnesota, or secure a license to do business in this state.

It is the claim of Hilson that almost immediately after the cooling boxes were put into use, serious defects developed, consisting of warping, swelling, and buckling of the wood and a breaking away of the doors from their frames. Hilson's customers and distributors in Tennessee, Michigan, Indiana, West Virginia, and Ohio brought these complaints to Hilson's attention and demanded adjustments. Hilson states that it was obliged to spend substantial sums of money in making the boxes suitable for use as ice-vending machines. As a result of these expenses Hilson withheld payment on shipments which had been received by it, which prompted Atland to meet with Hilson for the purpose of compromising their differences. At this conference, held in Ohio on March 17, 1960, the three promissory notes which are the subject of this litigation were executed in acknowledgment of the balance due on the contract. It is uncontroverted that in all, six notes were executed and delivered in Ohio, in return for assurances by Atland that an equitable settlement would follow when the cost of necessary repairs had been determined. Hilson claims that the notes were given only as an accommodation to Atland because of the latter's urging and its representation that payment would not be required until reimbursement for necessary repairs was forthcoming. Notwithstanding these assurances, it is Hilson's contention that Atland proceeded to demand payment of the notes before fulfilling its obligation to make satisfactory adjustments. Prior to suit, it appears that one of the notes was voluntarily paid by Hilson.

This action was commenced by service of the summons and complaint upon the secretary of the State of Minnesota pursuant to § 303.13, subd. 1(3), which provides in part as follows:

'If a foreign corporation makes a contract with a resident of Minnesota to be performed in whole or in part by either party in Minnesota, or if such foreign corporation commits a tort in whole or in part in Minnesota against a resident of Minnesota, such acts shall be deemed to be doing business in Minnesota by the foreign corporation and shall be deemed equivalent to the appointment by the foreign corporation of the secretary of the State of Minnesota and his successors to be its true and lawful attorney upon whom may be served all lawful process in any actions or proceedings against the foreign corporation arising from or growing out of such contract or tort.'

It is appellant's contention that the application of § 303.13 to the facts of this case is a denial of due process under U.S.C.onst. Amend. XIV and Minn.Const. art. 1, § 7, and constitutes an unreasonable burden on interstate commerce.

In considering whether the Minnesota statute is constitutional under the fact situation presented, we start with the premise that there is no contest or dispute over the execution and validity of the promissory notes upon which the action is based. The only fact issue in the case is whether there was adequate consideration given for the notes, or whether the breach of warranty Hilson claims constitutes a valid equitable defense. For whatever effect it may have, the situs of the controversy must be determined by reference to the breach of warranty issue.

The validity of statutes such as ours, in a multitude of fact situations, has been decided by rules enunciated in a series of cases by the United States Supreme Court beginning with International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95, 102. That decision approved a Washington unemployment compensation statute which permitted assessments to be levied on nonresident corporations by mailing notice to the employer. In sustaining the Washington statute the court held that due process with respect to a nonresident defendant required that he have sufficient minimum contacts with the foreign state to avoid offending 'traditional notions of fair play and substantial justice.' The court emphasized the fact that the foreign corporation exercised a privilege in conducting activities within the state and enjoyed the benefits and protection of its laws, giving rise to commensurate obligations. On this theory the statute was upheld. Of two decisions of the Supreme Court which followed, one seems to expand the concept of securing jurisdiction over nonresident corporations and the other appears to have contracted it. McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223, had to do with a contract of life insurance purchased from an Arizona corporation and later reinsured by a Texas corporation. Upon the death of the insured the beneficiary sued in California under a statute similar to ours, which the Supreme Court held was valid. It is significant that in the McGee case there was the Sale of a policy to an Individual residing in the forum. The court stressed the practical financial obstacles which inhere in requiring such a litigant to travel to the corporate defendant's jurisdiction in order to enforce a relatively small claim. The defense interposed was suicide, which involved the calling of witnesses residing in the plaintiff's jurisdiction.

The third case of particular significance is Hanson v. Denckla, 357 U.S. 235, 251, 78 S.Ct. 1228, 1238, 2 L.Ed.2d 1283, 1296. An unsuccessful attempt was there made to secure jurisdiction over a nonresident trustee. The court stated:

'* * * In response to these changes, the requirements for personal jurisdiction over nonresidents have evolved from the rigid rule of Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565, to the flexible standard of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95. But it is a mistake to assume that this trend heralds the eventual demise of all restrictions on the personal jurisdiction of state courts. See Vanderbilt v. Vanderbilt, 354 U.S. 416, 418, 77 S.Ct. 1360, 1362, 1 L.Ed.2d 1456. Those restrictions are more than a guarantee of immunity from inconvenient or distant litigation. They are a consequence of territorial limitations on the power of the respective States. However minimal the burden of defending in a foreign tribunal, a defendant may not be called upon to do so unless he has had the 'minimal contacts' with that State that are a prerequisite to its exercise of power over him.'

The Supreme Court pointed out that the defendant had exercised no privilege in the forum state giving rise to any enforceable obligation. No benefit or protection was afforded by the forum.

Tested by these standards, we have upheld the validity of Minn.St. 303.13, subd. 1(3), and similar statutes in a number of cases. Beck v. Spindler, 256 Minn. 543, 99 N.W.2d 670; Atkins v. Jones & Laughlin Steel Corp. 258 Minn. 571, 104 N.W.2d 888; The Dahlberg Co. v. Western Hearing Aid Center, 259 Minn. 330, 107 N.W.2d 381; Adamek v. Michigan Door Co., 260...