Utah Const Co. v. St Louis Construction & Equipment Co.

• Decision Date: 30 December 1916
• Docket Number: 116.
• Citation: 254 F. 321
• Parties: UTAH CONST. CO. v. ST. LOUIS CONSTRUCTION & EQUIPMENT CO. et al.
• Court: U.S. District Court — District of New Mexico

254 F. 321

UTAH CONST. CO. v. ST. LOUIS CONSTRUCTION & EQUIPMENT CO. et al.

No. 116.

United States District Court, D. New Mexico.

December 30, 1916

POLLOCK District Judge.

This is an action to recover an alleged balance claimed by the plaintiff against the defendant St. Louis, Rocky Mountain &amp Pacific Railway Company, for construction work in building said railroad in New Mexico, and to enforce a mechanic's lien therefor. The Bell & Levy Contracting Company, a subcontractor, files a cross-petition to enforce a mechanic's lien in its favor on the corpus of the railroad for an alleged balance due it from the principal contractor. The Metropolitan Trust Company of New York City trustee under a mortgage for the railroad, is made a party defendant.

Among other defenses the defendant Railway Company pleads the following statute of New Mexico, in force at the time of making the contract in question, and yet in force:

'Every foreign corporation, except banking, insurance and railroad corporations, before transacting any business in this territory, shall file in the office of the secretary of the territory a copy of its charter, or certificate of incorporation, certified by the proper authority of the territory, state or county of its creation, and a statement of the amount of its capital stock authorized and in amount actually issued, the character of the business which it is to transact in this territory, and designating its principal office in this territory and an agent who shall be a domestic corporation or a natural person of full age actually resident in this territory, together with his place of abode, upon which agent process against said corporation may be served. * * * Upon the filing of such copy and statement, the secretary of the territory shall issue to such corporation a certificate that it is authorized to transact business in this territory, and that the business is such as may be lawfully transacted by corporations of this territory, and he shall keep a record of all such certificates issued.'

'Until such corporation so transacting business in this territory shall have obtained said certificate from the secretary of the territory, it shall not maintain any action in this territory, upon any contract made by it in this territory.'

'Every foreign corporation transacting any business in any manner whatsoever, directly or indirectly, in this territory, without having first obtained authority therefor, as hereinbefore provided, shall for each offense forfeit to the territory the sum of two hundred dollars, to be recovered with costs in an action prosecuted by the solicitor general in the name of the territory.'

Laws 1905, c. 79, Secs. 102, 103, 105.

The Construction Company and the subcontractor were foreign corporations of states outside of New Mexico, and the work to be done was on a railroad situated in said territory. The contractor did not comply with the requirements of the foregoing statute, but after the work was completed, and after suit was brought, it did attempt to comply with the statute.

As the suit was instituted in a territorial court of New Mexico, in 1908, where the principal pleadings were had, and the case was not removed therefrom into the United States District Court of New Mexico until 1912, which removal was made at the instance of the plaintiff, the federal court took the case as it stood at the time of removal, subject to the legal status and rights of the parties as they were established at the time of the removal. If the cause of action had no right to exist in the jurisdiction where suit was brought, the plaintiff could not vitalize it by getting it transferred to another jurisdiction.

The cause must therefore be considered, in respect of the above provisions of the statute of New Mexico, the same as if the case now stood in the territorial court. We must therefore eliminate, as of any controlling effect, the ruling of the federal courts, of which the case of Lupton's Sons v. Auto Club et al., 225 U.S. 489, 32 Sup.Ct. 711, 56 L.Ed. 1177, Ann. Cas. 1914A, 699, is representative, wherein, under the New York statute, which declared:

'No foreign stock corporation doing business in this state shall maintain any action in this state on a contract made by it in this state unless prior to the making of such contract it shall have procured from the designated office the required certificate authorizing it to do business in the state' -- it was held that, inasmuch as the statute only prohibited the right to bring such action in the state court, it did not have the effect to prevent the nonresident contractor from bringing and maintaining suit in the United States court.

As the statute imposed no other restriction than a denial of the right to sue in the courts of the state, without imposing any penalty therefor, the Supreme Court held that such regulation of the state did not have the effect to deny the right of a citizen of a foreign state to resort to the federal court, when the requisite diversity of citizenship existed.

But the case at bar is where the plaintiff has sued in the local court to enforce a contract made without compliance with the statute, where the statute stigmatizes the dereliction of the corporation as an offense against the state and penalizes it. In this regard it is worthy of note the statute above quoted does not alone prohibit the bringing and maintaining of any action on a contract made in this state in violation of its terms, but it further provides as follows:

'Every foreign corporation transacting any business in any manner whatsoever, directly or indirectly, in this territory, without having first obtained authority therefor, as hereinbefore provided, shall for each offense forfeit to the territory the sum of two hundred dollars, to be recovered with costs in an action prosecuted by the solicitor general in the name of the territory. ' Laws 1905, c. 79, Sec. 105.

In such case there can be no doubt whatever but that the very business transacted by complainant and cross-complainant, the Bell & Levy Contracting Company, was prohibited by the act, hence unlawful, for which they might have been penalized in the sum of $200.

Mr. Benjamin, in his work on Sales (3d Am. Ed.) Sec. 538, after reviewing at length the authorities, says:

'The propositions that seem fairly deducible from the foregoing authorities are the following; First. That, where a contract is prohibited by statute, it is immaterial to inquire whether the statute was passed or revenue purposes only, or for any other object. It is enough that Parliament has prohibited it, and it is therefore void. Secondly. That when the question is whether a contract has been prohibited by statute, it is material, in construing the statute, to ascertain whether the Legislature had in view solely the security and collection of the revenue, or had in view, in whole or in part, the protection of the public from fraud in contracts, or the promotion of some object of public policy. In the former case, the inference is that the statute was not intended to prohibit contracts; in the latter, that it was. Thirdly. That, in seeking for the meaning of the law-giver, it is material also to inquire whether the penalty is imposed once for all, on the offense of failing to comply with the requirement of the statute, or whether it is a recurring penalty, repeated as often as the offending party may have dealings. In the latter case the statute is intended to prevent the dealing, to prohibit the contract, and the contract is therefore void; but in the former case such is not the intention, and the contract will be enforced.'

The above text appears to be amply supported by authority. See McMullen v. Hoffman, 174 U.S. 639, 19 Sup.Ct. 839, 43 L.Ed. 1117; Bartlett v. Vinor, Carthew, 253; Pittsburg Const. Co. v. West Side Belt Railroad Co., 154 F. 929, 83 C.C.A. 501, 11 L.R.A. (N.S.) 1145; Thorne v. Travelers' Insurance Co., 80 Pa. 29, 21 Am.Rep. 89; Johnson v. Hulings, 103 Pa. 498, 49 Am.Rep. 131; Stevenson v. Ewing, 87 Tenn. 46, 9 S.W. 230; Yount v. Denning, 52 Kan. 629, 35 P. 207; Holt v. Green, 73 Pa. 198, 13 Am.Rep. 737; Dillon v. Allen, 46 Iowa, 299, 26 Am.Rep. 145; Woods & Co. v. Armstrong, 54 Ala. 150, 25 Am.Rep. 671.

In McMullen v. Hoffman, supra, the court said:

'The authorities from the earliest time to the present unanimously hold that no court will lend its assistance in any way towards carrying out the terms of an illegal contract. In case any action is brought in which it is necessary to prove the illegal contract in order to maintain the action, courts will not enforce * * * any alleged rights directly springing from such contract. In cases of this kind the maxim is 'Potior est conditio defendantis."

In the noted case, often cited with approval by the courts, of Bartlett v. Vinor, supra, Lord Chief Justice Holt said:

'Every contract made for or on account of any matter or thing which is prohibited and made unlawful by any statute is a void contract, though the statute itself does not mention that it shall be so, but only inflicts a penalty on the offender, because a penalty implies a prohibition, though there are no prohibitive words in the statute.'

The Court of Appeals for the Third Circuit, in Pittsburg Construction Co. v. West Side Belt Railroad Co., supra considered a somewhat similar right of a foreign corporation to maintain an action to enforce a similar contract to the one at bar without having complied with the provisions of the statute of the state of Pennsylvania. That statute, as here, required the foreign corporation, before doing any business in the state of Pennsylvania, to file a like statement, to establish an office, and to appoint an agent in the state upon whom...