Lee v. Great Northern Nekoosa Corporation

• Decision Date: 29 August 1972
• Docket Number: No. 71-2944.,71-2944.
• Citation: 465 F.2d 1132
• Parties: Mrs. Janet M. LEE and Charles McDowell Lee, Plaintiffs-Appellants, v. GREAT NORTHERN NEKOOSA CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

465 F.2d 1132 (1972)

Mrs. Janet M. LEE and Charles McDowell Lee, Plaintiffs-Appellants, v. GREAT NORTHERN NEKOOSA CORPORATION, Defendant-Appellee.

No. 71-2944.

United States Court of Appeals, Fifth Circuit.

August 29, 1972.

Thomas S. Lawson, Jr., Champ Lyons, Jr., Montgomery, Ala., Robert H. Harris, Decatur, Ala., for plaintiffs-appellants.

Charles E. Porter, J. Theodore Jackson, Jr., Montgomery, Ala., for defendant-appellee.

Before RIVES, BELL and MORGAN, Circuit Judges.

RIVES, Circuit Judge:

Here, of necessity, we must interpret and apply Alabama constitutional and statutory provisions relating to the validity of contracts with foreign corporations which have failed to qualify to do business in Alabama.¹

The Lees brought suit against Nekoosa seeking a declaratory judgment that a lease made between the Lees, as Lessors, and Nekoosa's predecessor in interest, Southern Land Timber and Pulp Company, as Lessee, is void. Most of the relevant facts were stipulated (App. pp. 113-126). Only those facts essential to an understanding of this opinion will be stated.

Southern entered into the lease² with the Lees in April, 1961. In 1959 or 1960 Southern opened an office in Troy, Pike County, Alabama, which it maintained until it conveyed its assets in 1962 to Great Southern Land and Paper Company which continued to use this office. Both Southern and Great Southern had employees who lived in Troy and worked out of the Troy office. Among the assets which Southern had acquired and conveyed to Great Southern were timber leases of approximately 14,000 acres, of which the lease involved in this case is typical, and also approximately 8,000 acres of land which Southern had purchased outright. Southern never did qualify to do business in Alabama. On July 21, 1963, Great Southern qualified to do business in Alabama. Great Southern was acquired by Nekoosa in a statutory merger in June, 1965. Nekoosa qualified to do business in Alabama on March 8, 1966. The terms of the lease were faithfully observed by both lessor and lessee until August, 1970, when the Lees learned of Southern's failure to qualify. One month later on September 23, 1970, the Lees filed this suit to have the lease declared void.

Nekoosa pleaded at least`three defenses: (1) That the lease contract was valid from its inception; (2) that the Lees are barred from relief by laches; and (3) that after Great Southern and Nekoosa qualified in Alabama the Lees by their conduct ratified the lease contract or adopted it as their contract with Great Southern and Nekoosa respectively.

The district court in thorough, but as yet unreported findings and conclusions, sustained the contract on a theory of laches. We reach neither that theory nor the theory of ratification or adoption, because we are of the view that the lease contract was valid from its inception. For that reason we affirm the judgment of the district court.

Section 232 of the Constitution of Alabama provides:

"No foreign corporation shall do any business in this state without having at least one known place of business and an authorized agent or agents therein, and without filing with the secretary of state a certified copy of its articles of incorporation or association. Such corporation may be sued in any county where it does business, by service of process upon an agent anywhere in the state. The legislature shall, by general law, provide for the payment to the State of Alabama of a franchise tax by such corporation, but such franchise tax shall be based on the actual amount of capital employed in this state. Strictly benevolent, educational, or religious corporations shall not be required to pay such a tax."

The Legislature of Alabama has provided money penalties against any foreign corporation which does business in the State without qualifying. Code of Alabama, Title 10 §§ 21(29) and 21(93). In addition to money penalties, the Legislature has provided in three separate Code sections as to the effect on contracts of a foreign corporation doing business in the State without qualifying:

Title 10, § 21(89) provides in pertinent part:

"§ 21(89). Foreign corporations not qualified to do business in state; contracts or agreements; service on.—All contracts or agreements made or entered into in this state by foreign corporations which have not qualified to do business in this state shall be held to be void at the suit of such foreign corporation or any person claiming through or under such foreign corporation by virtue of said void contract or agreement; but nothing herein shall abrogate the equitable rule that he who seeks equity must do equity; * * * In all suits against such foreign corporation or against any person claiming under such foreign corporation by virtue of such void contract, the foreign corporation or such person claiming under it shall be held to be estopped from setting up the fact that the contract or agreement was so made in violation of law."

Title 51, § 342 provides:

"§ 342. Void contracts.—All contracts made in this state by any foreign corporation which has not first complied with the provisions of the three preceding sections relating to qualification requirements shall, at the option of the other party to the contract, be wholly void."

Title 51, § 345 provides in pertinent part:

"No corporation, its agents, officers or servants shall transact any business for or in the name of such corporation within the state of Alabama without having first procured said permit and all contracts, engagements or undertakings or agreements with, by or to such corporations made without obtaining such permit shall be null and void."

Two of these provisions, Title 10, § 21(89), and Title 51, § 342, are expressly limited in their application to "contracts made in this State." The third, Title 51, § 345, is impliedly so limited, and especially so when construed in pari materia with the other two Code sections. These statutes have no extraterritorial operation. Contracts made outside of Alabama are valid when made. The making of such contracts outside the State does not constitute doing business in the State. If the contract is to be performed in the State of Alabama, it is its performance which would amount to doing business in Alabama. The pertinent Alabama constitutional and statutory provisions are all directed against doing business in the State without first qualifying. There is time to qualify between the execution of the contract and entry upon its performance. If at such time Southern had so qualified, the regularity of its conduct could not reasonably be questioned.

It is not questioned that the present lease contract was made in Georgia. It had been executed by the Lees in Alabama, and became a binding contract when Southern executed it in Manchester, Georgia, and mailed to the Lees an executed copy together with the first year's rent. At that point in time the lease contract was entirely valid. When Southern entered upon performance of the contract in Alabama without qualifying, it violated the Alabama statutes and was subject to the money penalties provided and also to an inability to enforce the contract. The failure of Southern to qualify and the slight delays in qualification by Great Southern and Nekoosa did not operate to render void or voidable the lease contract which was valid in its inception. The Lees brought this suit many years after Southern's interest had passed first to Great Southern and then to Nekoosa, and after each of them had in turn qualified to do business in Alabama. Nekoosa could then successfully defend because the lease contract had been valid from its inception.

It must be conceded that there is language in Chattanooga National Building and Loan Association v. Denson, 1903, 189 U.S. 408, 23 S.Ct. 630, 47 L.Ed. 870, which might lead to a different conclusion, but we do not consider that case applicable...