Rochester Capital Leasing Corp. v. Sprague

• Decision Date: 10 September 1970
• Docket Number: CA-CIV,No. 1,1
• Citation: 13 Ariz.App. 77,474 P.2d 201
• Parties: , 50 A.L.R.3d 1012 ROCHESTER CAPITAL LEASING CORPORATION, a corporation, Appellant, v. H. Y. 'Bert' SPRAGUE, and Catherine Sprague, his wife, Appellees. 1067.
• Court: Arizona Court of Appeals

Page 201

474 P.2d 201

13 Ariz.App. 77, 50 A.L.R.3d 1012

ROCHESTER CAPITAL LEASING CORPORATION, a corporation, Appellant, v. H. Y. 'Bert' SPRAGUE, and Catherine Sprague, his wife, Appellees.

No. 1 CA-CIV 1067.

Court of Appeals of Arizona, Division 1, Department B.

Sept. 10, 1970.

Rehearing Denied Oct. 6, 1970.

Review Denied Nov. 24, 1970.

Wilson, McConnell & Moroney, by Beverly J. McConnell, Phoenix, for appellant.

David M. Lurie, Phoenix, for appellees.

HAIRE, Judge.

In the trial court, the plaintiff-foreign corporation filed an action to collect rentals due under a personal property leasing contract. The trial court entered summary judgment for the defendant-lessees on the grounds that the contract was null and void because of the failure of plaintiff to comply with the Arizona foreign corporation qualification statutes. ¹ In order to uphold the trial court's ruling, the evidence must show (1) that plaintiff was 'transacting business in Arizona' within the meaning of the qualification statute at the time the leasing contract was entered into, and (2) that the particular act sought to be declared null and void occurred in Arizona. Neiderhiser v. Henry's Drive-In, Inc., 96 Ariz. 305, 394 P.2d 420 (1964); Bank of America, etc. v. Barnett, 87 Ariz. 96, 348 P.2d 296 (1960); Monaghan & Murphy Bank v. Davis, 27 Ariz. 532, 234 P. 818 (1925); Martin v. Bankers' Trust Co., 18 Ariz. 55, 156 P. 87 (1916). See also, Worcester Felt Pad Corp. v. Tucson Airport Authority, 233 F.2d 44 (9th Cir. 1956).

We have examined the record and are of the opinion that neither statutory requirement was fulfilled, and that therefore the judgment for the defendant-lessees must be reversed.

The question of what constitutes the 'transaction of business' within a state cannot be considered in the abstract, but rather must be considered in relation to the particular statute or object of inquiry before the court. The question can arise in many different contexts, but the three most common instances relate to (1) the right of a state to subject a foreign corporation to In personam jurisdiction by service of process, See Reed v. Real Detective Publishing Co., 63 Ariz. 294, 162 P.2d 133 (1945); Phillips v. Anchor Hocking Glass Corp., 100 Ariz. 251, 413 P.2d 732 (1966); (2) the right to impose a tax on the corporation or certain of its activities within the state, See State Tax Commission v. Murray Company of Texas, Inc., 87 Ariz. 268, 350 P.2d 674 (1960); Arizona State Tax Commission v. Ensign, 75 Ariz. 220, 254 P.2d 1029 (1953); and (3) the right to prohibit or impose restrictions or conditions upon the in-state activities of a foreign corporation through foreign corporation qualification statutes, Neiderhiser v. Henry's Drive-In, Inc., 96 Ariz. 305, 394 P.2d 420 (1964); Ranch House Supply Corporation v. Van Slyke, 91 Ariz. 177, 370 P.2d 661 (1962); Union Interchange, Inc. v. Mortensen, 90 Ariz. 112, 366 P.2d 333 (1961); Bank of America, etc. v Barnett, 87 Ariz. 96, 348 P.2d 296 (1960); National Union Indemnity Co. v. Bruce Bros., 44 Ariz. 454, 38 P.2d 648 (1934); Monaghan & Murphy Bank v. Davis, 27 Ariz. 532, 234 P. 818 (1925); Martin v. Bankers' Trust Co., 18 Ariz. 55, 156 P. 87 (1916).

It is apparent from an analysis of the decisions concerning the doing business question that generally the courts require a much stronger showing of in-state activities in order to invoke the sanctions of corporate qualification statutes than is required to subject the foreign corporation to local taxation or to state court jurisdiction through service of process. Filmakers Releasing Organization v. Realart Pictures, Mo.App., 374 S.W.2d 535 (1964); 36 Am.Jur.2d Foreign Corporations § 324, at 318 (1968); 23 The Corporation Trust Company, The Corporation Journal 163--166 (No. 9, 1961); Humboldt Foods, Inc. v. Massey, 297 F.Supp. 236 (N.D. Miss.1968); F. W. Myers & Co. v. Piche, 109 N.H. 357, 252 A.2d 427 (1969). As stated in Filmakers Releasing Organization v. Realart Pictures, Supra:

'This much seems to be clear that the greatest amount of business activity is required to subject a corporation to the state's statutory qualification requirements.' (374 S.W.2d at 539).

In National Union Indemnity Co. v. Bruce Brothers, 44 Ariz. 454, 38 P.2d 648 (1934), the Arizona Supreme Court, while holding that the many activities of the foreign corporation required qualification in that particular case, recognized the harshness of the law and stated that wherever there was a doubt as to the validity of the contract objected to, that doubt should be resolved in favor of its validity.

With the foregoing in mind, we emphasize that the question before this Court is not whether the facts would have justified a finding that plaintiff-foreign corporation was doing or transacting business in Arizona sufficient to support In personam jurisdiction, or sufficient to uphold the validity of the imposition of a tax. Rather, as stated above, a much stronger showing of in-state contacts is required when the question before the court is whether or not a corporation's activities fall within the proscription of a corporate qualification statute.

Turning now to the case at hand, the pleadings, interrogatories and affidavits filed in connection with the motions for summary judgment show that the plaintiff Rochester Capital Leasing Corporation is a New York corporation, engaged in financing through a leasing procedure the acquisition of various products and items used in connection with the running and operation of farms and related agricultural enterprises. The particular transaction here involved originated as follows:

In April of 1964 plaintiff received at its office in New York, through the mail, an application from the defendants requesting that plaintiff lease to defendants certain hydroponic feeding equipment. There had been no prior contact or dealings between plaintiff and the defendants, and plaintiff had no knowledge of the equipment in which the defendants were interested. The defendants had contacted an Arizona dealer in this equipment, had decided that they wanted to purchase the same, and had been told by the dealer that they could acquire it by paying cash or by arranging to lease it through plaintiff. The dealer had a supply of plaintiff's forms, ² but had no contractual relationship with plaintiff and was not authorized to bind plaintiff in any way. After plaintiff checked the defendants' credit, plaintiff, by mail, advised the defendants that it would approve a leasing arrangement. Defendants then forwarded to the plaintiff, again in New York, an acknowledgment that the equipment specified on the lease application was in their possession, was in good order and condition acceptable to them, and requested that plaintiff purchase the equipment from the Arizona dealer, Arizona Hydroponics, for the purpose of consummating the lease. Thereafter, in New York, the plaintiff did accept the lease application by executing the proposed lease agreement. The Arizona dealer then forwarded to the plaintiff an invoice for the purchase price of the equipment and plaintiff paid it. At no time during the transaction did plaintiff have an employee or agent in the state of Arizona ³ nor maintain an office, warehouse, telephone listing or an inventory of goods available for lease in the state of Arizona. The plaintiff did not solicit the defendants' lease application, or participate in any way in the selection or demonstration of equipment, or make any representations to the defendants about the equipment. The plaintiff did not deliver the equipment, install it or service it at any time.

After execution of the lease agreement and payment by plaintiff of the dealer's invoice, defendants made a few of the lease payments to plaintiff, but eventually defaulted and plaintiff sued for the balance due.

The record is devoid of any showing that at the time of the execution of the lease with the defendants, or during its term, plaintiff engaged in any activity Within the state of Arizona. The record does show that between 1962 and August 1967, plaintiff entered into 20 other leases with lessees who resided in Arizona. These leases were entered into 'in a manner similar to' the lease at issue. There is nothing in the record to indicate that any of these other lease agreements were executed in the state of Arizona, or that they were the results of activities of plaintiff which actually occurred in this state.

From the foregoing it is obvious that there has been no showing of any actual activities of plaintiff in Arizona which would support a finding that at the time the lease was entered into plaintiff was transacting business in this state. It is true that under the leasing contract here involved, plai...