Thomas v. Birmingham Ry., Light & Power Co.

• Decision Date: 13 April 1912
• Docket Number: 1,375.
• Citation: 195 F. 340
• Court: U.S. District Court — Northern District of Alabama
• Parties: THOMAS v. BIRMINGHAM RY., LIGHT & POWER CO.

195 F. 340

THOMAS v. BIRMINGHAM RY., LIGHT & POWER CO.

No. 1,375.

United States District Court, N.D. Alabama, Southern Division.

April 13, 1912

Gaston & Pettus, for plaintiff.

Tillman Bradley & Morrow, for defendant.

GRUBB District Judge.

This cause is submitted by agreement for decision upon a preliminary defense only and upon stipulated facts, so far as that defense is concerned. If the defense is sustained, a judgment for the defendant with costs is to be entered; if overruled, the defendant is to have the opportunity to present further defenses without prejudice.

The plaintiff is the trustee in bankruptcy of the Scofield Company. The Scofield Company was a New York corporation which at the time of the making of the contracts sued on and the performance thereof had not qualified to do business in Alabama as required by its Constitution and statutes imposing entrance conditions upon foreign corporations before engaging in business in this state. The defense is that the failure to comply made void the contracts and precluded a recovery for the value of materials furnished and work performed under them.

It is conceded that there was no compliance with the Alabama law and that the failure to comply with it would preclude a recovery in a state court of Alabama upon the cause of action sued on.

The plaintiff contends that the statute does not preclude the plaintiff from seeking redress in the federal court. This is undoubtedly the rule where the effect given to the state statute by the courts is that it merely prevents the maintenance of a suit by the delinquent corporation. Johnson v. New York Breweries Co., 178 F. 513, 101 C.C.A. 639. The rule is otherwise where the effect of the legislation is to render void all contracts made and transactions done by the delinquent corporation within the state. Johnson v. New York Breweries Co., 178 F. 513, 101 C.C.A. 639; Chattanooga Building Association v. Denson, 189 U.S. 408, 23 Sup.Ct. 630, 47 L.Ed. 870.

The Alabama legislation has been construed by its court of last resort to invalidate contracts and transactions done within the state by foreign corporations which have not qualified themselves to engage in business therein. Dudley v. Collier, 87 Ala. 431, 6 So. 304, 13 Am.St.Rep. 55; Alabama West Railroad Co. v. Tally Bates Construction Co., 162 Ala. 396, 50 So. 341; American Amusement Co. v. East Lake Chutes Co. (Ala.) 56 So. 961; Muller Co. v. First National Bank of Dothan (Ala.) 57 So. 762. The federal courts will follow the construction of the Alabama Constitution and statutes in this respect. Chattanooga Building Association v. Denson, 189 U.S. 408, 23 Sup.Ct. 630, 47 L.Ed. 870. From this it results that no action can be maintained upon a contract, subject to this infirmity under the Alabama statute in the federal court.

The plaintiff also contends that the transaction is one of interstate commerce, and that the bankrupt was not required to comply with the conditions prescribed by the statute as to it. The cases of Amusement Co. v. East Lake Chutes Co. (Ala.) 56 So. 961, and Muller Co. v. Bank of Dothan (Ala.) 57 So. 762, each hold that it is not an interstate transaction, and, while not conclusive on this court, will be followed in the absence of conflicting and controlling authority in the federal courts, both on account of their authority and reason.

The plaintiff also contends that the plaintiff, being an individual and not a foreign corporation and suing as trustee in bankruptcy, cannot be precluded from maintaining the action. If the only effect of the statute was to disqualify the foreign corporation from maintaining a suit, the objection might have force. The effect of the Alabama legislation being that no cause of action can be maintained on the void contract, the status of the plaintiff is not material, provided the cause of action is based upon the void contract.

The plaintiff also contends that the defense should not succeed because the stipulation fails to show that any one of the contracts sued on was executed in Alabama. The tenth paragraph of the stipulation is as follows:

'That the making of said contracts, and the performance thereof by the Scofield Company, including said extra work, constitute the only business the said Scofield Company ever did or engaged in within the state of Alabama.'

This would imply that the making of the contracts was the engaging in business in Alabama. The eleventh paragraph is, however, in conflict with this implication. Is the contention sound, assuming that the contracts were executed outside of the state of Alabama? It is conceded that they were to be performed and were in fact performed within the state, and that the parties so contemplated when they contracted. It is conceded that their performance required the bankrupt to engage in business in this state. If, before so engaging, it had complied with the state laws as to entrance conditions, the contracts would have been valid and performance of them legal. When performance of them was entered upon by the bankrupt, without such compliance by it, such performance became illegal and rendered the contracts void from that time on as against plaintiff. This was held by the Supreme Court of Alabama in the case of Alabama Western Railroad Co. v. Tally Bates Construction Co., 162 Ala. 396, 50 So. 341. The language of the court in that respect was as follows:

'We are not inclined to concur in appellant's contention that the contract was void ab initio because compliance with the statute did not antedate its execution. Necessarily, however, the contract was entered into with the purpose that it should be executed in this state. It could not be executed elsewhere. It must be taken to have contemplated legal action by the plaintiff, since compliance with the statute was a condition precedent of plaintiff's right to build the railroad. A promise to comply is implied as an essential and necessary element of the contract, if it is to be sustained and enforced as a valid agreement. When the time came for the execution of the agreement, and the plaintiff failed to take the necessary steps to comply with the statute-- thus leaving the defendant without a protection for which he had stipulated, viz., the power to redress any wrong which it might suffer in the courts of this state-- the defendant had a right under the law to renounce the contract, then or at any subsequent time, as for a breach by the plaintiff. Diamond Glue Co. v. United States Glue Co., 187 U.S. 611, 23 Sup.Ct. 206, 47 L.Ed. 328.'

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