Opinion · Supreme Court of the United States
Chattanooga National Building & Loan Ass'n v. Denson
Chattanooga Nat’l Bldg. & Loan Ass'n v. Denson, 189 U.S. 408 (1903)
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1903-04-27
- Topic
- general
Mr. Justice McKenna, after making the foregoing statement, delivered the opinion of the court. The question presented by the case is, did the loan made by petitioner and the taking for security the note and mortgage under the circumstances presented by the record constitute a doing of business in the State, within the meaning of the constitution and laws of the State \ It was said by the Supreme Court of Alabama, Beard v. The Union & American Publishing Company, 71 Alabama, 60, that to constitute a doing of business within the. State “ there must be a doing of some of the works, or an exercise of some of the functions, for which the corporation was created.” It was held, however, that receiving a subscription to a newspaper, or collecting the money therefor was not doing business in the State “ within the principle.” In a subsequent case, Dudley v.
Citator
UpLaw has not yet analyzed Chattanooga National Building & Loan Ass'n v. Denson. The absence of a flag is not a finding that it is good law.
- Cited by
- 59 opinions
Headnotes
- Business & Corporate Law — Foreign Corporations — Doing Business A single act by a foreign corporation in the exercise of its corporate functions within a state constitutes doing business there, and the state may prohibit such an act unless the corporation has satisfied the state's constitution and statutes governing foreign corporations. 189 U.S. at 412–413
- Business & Corporate Law — Foreign Corporations — Contracts Made in Violation of Statute Where a foreign corporation transacts business in a state without complying with the statutes regulating foreign corporations, contracts resulting from that business are illegal and cannot be enforced in the courts of that state. 189 U.S. at 412–414
- Business & Corporate Law — Foreign Corporations — Place of Making Contract In determining whether a foreign corporation has done business within a state, the question is not where the contract is deemed to have its situs or by what law its obligation is governed, but whether the corporation exercised corporate functions within the state; a loan transaction in which the corporation, through a soliciting agent in the state, obtained a stock subscription and loan application, approved the loan, and took a mortgage on local real estate, completed when the note and mortgage were executed and the loan proceeds paid in that state, constitutes doing business there notwithstanding that the note is payable elsewhere and by its terms is made with reference to the laws of another state. 189 U.S. at 414–416
- Business & Corporate Law — Foreign Corporations — State Power over Noncomplying Contracts A state has power to declare void the contracts of a foreign corporation doing business within its borders in violation of its laws; an adjudication that such a contract is void rests on an interpretation of the particular penal statutes, and where the statutes impose no such consequence and are unaccompanied by any decision of the state's highest court construing them, no such result follows. 189 U.S. at 416–417
- Business & Corporate Law — Foreign Corporations — Unintentional Noncompliance Failure to comply with the statutory conditions for a foreign corporation to do business precludes its resort to the courts to enforce contracts arising from that business, regardless of whether the noncompliance was inadvertent or conscious, and payment of a required license fee does not excuse its omission to designate a known place of business and an authorized agent as separately required by statute. 189 U.S. at 417
CHATTANOOGA BUILDING c. ASSN.v. DENSON,189 U.S. 408(1903)
23 S.Ct. 630
CHATTANOOGA NATIONAL BUILDING AND LOAN ASSOCIATIONv. DENSON.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT.
No. 206.
Submitted March 12, 1903.
Decided April 27, 1903.
SUIT to foreclose a mortgage given by the respondents to the
petitioner to secure a note for the sum of $5000, given as
evidence of a loan made by petitioner to respondents. The
petitioner is a building and loan association, and a corporation
of the State of Tennessee; the respondents are citizens of
Alabama.
Page 409
One of the defences of respondents is that the transactions were
illegal because petitioner had not complied with the laws of
Alabama in regard to foreign corporations doing business in the
State. This is the only defence with which we are concerned. The
Circuit Court rendered a decree foreclosing the mortgage, which
was reversed by the Circuit Court of Appeals, and the bill was
directed to be dismissed. 107 F. 777. The case was then
brought here by certiorari.
The constitution of the State of Alabama provides as follows:
"4. 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 such corporation may be
sued in any county where it does business by service of process
upon an agent anywhere in this State." Constitution Alabama, Art. XIV.
The material parts of the Code of the State passed in
execution of the constitution are as follows:
"1316. Foreign corporation must file instrument of writing
designating agent and place of business in this State. — Every
corporation not organized under the laws of this State shall,
before engaging in or transacting any business in this State,
file an instrument of writing, under the seal of the corporation
and signed officially by the president and secretary thereof,
designating at least one known place of business in this State
and an authorized agent or agents residing thereat; and when any
such corporation shall abandon or change its place of business as
designated in such instrument, or shall substitute another agent
or agents for the agent or agents designated in such instrument
of writing, such corporation shall file a new instrument of
writing as herein provided, before transacting any further
business in this State." Code Alabama, 1896.
"1318. Unlawful for foreign corporation to transact business
in this State before declaration filed; penalty. — It is unlawful
for any foreign corporation to engage in or transact any business
in this State before filing the written instrument provided for
in the two preceding sections; and any such corporation that
engages in or transacts any business in this State without
complying with the provisions of the two preceding sections
Page 410
shall, for each offence, forfeit and pay to the State the sum of
one thousand dollars.
"1319. Unlawful to act as agent of foreign corporation before
such declaration is filed; penalty. — It is unlawful for any
person to act as agent or transact any business, directly or
indirectly, in this State, for or on behalf of any foreign
corporation which has not designated a known place of business in
this State and an authorized agent or agents residing thereat, as
required in this article; and any person so doing shall, for each
offence, forfeit and pay to the State the sum of five hundred
dollars." Code Alabama, 1896.
There was no point made on the by-laws of the association, and
by agreement they were omitted from the record on appeal to the
Circuit Court of Appeals and are also omitted here. And it was
also stipulated "that the complainant is a corporation chartered
and organized under and in accordance with the public statutes of
the State of Tennessee, authorizing the creation of corporations
for carrying on the business of building and loan associations;
that its principal office and place of business is, and was at
the time the loan involved in this case was made, and has ever
since continuously been, in the city of Chattanooga, State of
Tennessee; and that the loan to defendant, William H. Denson,
involved in this case was made in accordance with the power and
authority conferred on complainant by its charter, and in the
manner prescribed by its by-laws."
The note executed by respondents was as follows:
"$5000.00. CHATTANOOGA, TENNESSEE,June10, 1895.
"On or before nine years from date I promise to pay the
Chattanooga National Building and Loan Association, at its home
office, Chattanooga, Tennessee, five thousand dollars with
interest on the sum of twenty-five hundred dollars, at the rate
of six per cent per annum, payable monthly.
* * * * * * * *
"It is further understood that this note is made with
reference to and under the laws of the State of Tennessee, and if
paid before seven years from this date such rebate from the
premium included herein will be allowed as the board of directors
of said association shall deem equitable."
Page 411
The omitted part recited that the note was for money borrowed
on fifty shares of stock, and expressed certain conditions of the
non-payment of the note when due, or the non-payment of premiums
or assessments; and also expressed the right of petitioner in
case of such non-payments to collect the debt though not due and
to foreclose the mortgage. The mortgage covered lots in the city
of Gadsden, Elowah County, State of Alabama. It repeated the note
and its conditions and contained others. The facts connected with
the execution of the note and mortgage are stated by the Circuit
Court of Appeals as follows:
"The complainant below, the Chattanooga National Building and
Loan Association, is, and was at the time the loan to Mr. Denson
was made, a corporation under the laws of the State of Tennessee,
with its principal office in the city of Chattanooga, in that
State. Among its corporate functions was the authorization, and,
so far as we are advised, its sole business was, to loan its
funds to its stockholders on real estate security. It had no
local office or agent in Alabama, but it had a traveling agent,
whose business it was to solicit subscriptions to its stock, and
to obtain applications for loans, and submit the same to the home
office of the association at Chattanooga.
"On the 25th of April, 1895, appellant Denson, who was a
resident of Gadsden, Alabama, on the suggestion and at the
solicitation of the agent, signed at that place a written
application for fifty shares of stock in the association,
complainant below, appellee in this court. This application was
forwarded by the agent to whom Mr. Denson delivered it to the
home office, where the stock was issued, and returned to the
agent, to be by him delivered to Mr. Denson. On the same day on
which he applied for his stock, Mr. Denson signed a written
application to the association for a loan of $2500 on fifty
shares of stock he had applied for. He offered a premium of $2500
for the loan, and proposed to secure the loan and premium, if his
application should be granted, by a mortgage on certain real
estate in Gadsden, Alabama, which he represented to be of the
value in all of about $9000. This application was accompanied by
the report of two parties, selected by the association,
Page 412
fixing the value of the property which Denson proposed to
mortgage at $8000, and the certificate of an attorney, also
selected by the association, with reference to the condition of
the title. This application was forwarded by the agent to the
home office in Chattanooga, where it was submitted, along with
other applications, to the board of directors, by whom the
application was granted, and the loan directed to be made in
accordance with the charter and by-laws of the association.
Thereupon a note and deed of trust were prepared at the home
office, and were sent to the agent by whom Mr. Denson's
application had been taken and forwarded; and at the same time
the check of the association on the Chattanooga National Bank of
Chattanooga, Tennessee, in favor of W.H. Denson, for the sum of
$2367.50, was sent to one D.P. Goodhue, of Gadsden, with
instructions to him to deliver said check to Mr. Denson when he
should have executed and delivered the note and deed of trust.
Upon the execution of the note and deed of trust by Denson and
wife, and the delivery of the same to the agent, all at Gadsden,
Alabama, the agent delivered to Denson the check for $2367.50,
directing him to present the same to the First National Bank of
Gadsden, which would pay the same. The check was presented to the
said bank, and the face thereof paid over to Denson, as the
cashier said, `under an understanding with the said Building and
Loan Association, and that the Chattanooga National Bank, on
which the check was drawn, would pay the same on presentation.'"
And the following testimony of the secretary of the
association was quoted:
"At the time the loan to defendant Denson was made,
complainant association had been for some time soliciting
subscriptions to stock and receiving applications for loans in
the State of Alabama, and had paid a tax or license fee required
under the laws of the State of Alabama for foreign corporations
proposing to do business in that State; and complainant's
officers supposed and understood that the payment of this fee or
tax was the only condition with which it was necessary for them
to comply in order to be entitled to do business in that State.
Subsequently, however, and some months after the loan to
defendant
Page 413
Denson was made, complainant was informed by an attorney in the
State of Alabama that the Alabama statutes required foreign
corporations doing business in Alabama to designate a local agent
on whom process against the association could be served, and also
a local place of business in that State. Thereupon complainant
promptly designated such local agent and place of business, and
continued up to the second of October, 1899, to pay the license
tax or fee required of non-resident corporations doing business
in Alabama, and to keep a local agent and place of business in
that State."
It was said by the Supreme Court of Alabama,Beardv.TheUnion American Publishing Company,71 Ala. 60, that to constitute a doing of business within the State "there must be a doing of some of the works, or an exercise of some of the functions, for which the corporation was created." It was held, however, that receiving a subscription to a newspaper, or collecting the money therefor was not doing business in the State "within the principle." In a subsequent case,Dudleyv.Collier Pinckard,87 Ala. 431, the court announced that "a loan or borrowing of money by or from" a foreign corporation is a doing of business within the State, and "is an unlawful act, subjecting both the agents and company to a heavy penalty." The provisions of the statute prescribing penalties were considered, and their effect was declared to be not only to punish offenders against the statute but to renderPage 414their contracts void. Many cases were cited in support of the conclusion as a proper deduction from the imposition of the penalties. And the principle was applied to make illegal a contract with an agent for services rendered in procuring a loan for the use of the corporation.
InFarriorv.New England Mortgage Security Co.,88 Ala. 275, it was said that the constitution prohibited the making of a single contract or the doing of a single act of business by a foreign corporation in the exercise of a corporate function, as well as the engaging in or carrying on its business generally. To the same effect areMullensv.American FreeholdLand Mortgage Co.,88 Ala. 280;Ginnv.New EnglandMortgage Security Co.,92 Ala. 135;Sullivanv.SullivanTimber Co.,103 Ala. 371.
These cases constitute an interpretation of the constitutional and statutory provisions, and clearly hold that any act in the exercise of corporate functions is forbidden to a foreign corporation which has not complied with the constitution and statute, and that the contracts hence resulting are illegal and cannot be enforced in the courts.
The petitioner is a building and loan association. Its corporate purpose is to lend money to its stockholders. The respondent Denson was one of its stockholders, and manifestly, regarding the essence of the transactions between them, they constituted a doing of business within the State of Alabama. But, it is insisted, that on account of the form and terms of the instruments and by operation of law the loans must be regarded as having been made in Tennessee. It is said: "The note and mortgage were drawn in Tennessee, and by their express terms were payable there. The note is dated on its face at Chattanooga, Tennessee, and expressly stipulates that it `is made with reference to and under the laws of Tennessee.'" And further, that the petitioner's part of all the transactions was performed in the State of Tennessee, "and only those acts which the borrower was required to doas a condition precedentto the loan of the money to him were performed in Alabama." It is hence deduced that the business done must be regarded as having been done in Tennessee.Page 415
Counsel has discussed at some length the situs of contracts and by the law of what place their obligation is determined. We think, however, that the discussion is not relevant. It withdraws our consideration from the constitution and statute of Alabama; and, it is manifest, the contention based upon it, if yielded to, would defeat their purpose. The prohibition is directed to the doing of any business in the State in the exercise of corporate functions; and there can be no doubt that petitioner considered that it was exercising such functions in the State. Its secretary testified that "at the time the loan to defendant Denson was made complainant association had been for some time soliciting subscriptions to stock and receiving applications for loans in the State of Alabama, and had paid a tax or license fee required under the laws of the State of Alabama for foreign corporations proposing to do business in that State, and complainant's officers supposed and understood that the payment of this fee or tax was the only condition with which it was necessary for them to comply in order to be entitled to do business in that State." The application of Denson was presumably solicited as other applications were, and if what was done in pursuance of it did not constitute doing business in the State, the effect would be, as expressed by the Circuit Court of Appeals, that petitioner "and other foreign associations engaged in the same business of loaning money on real security, may safely flood the State of Alabama with soliciting agents, make all the negotiations for loans, take real estate securities therefor, and fully transact all other business pertaining to their corporate functions as though incorporated therein, and yet neither be obliged to have a known place of business or any authorized agent within the State, nor pay any license tax or fee, as required of non-resident corporations doing business therein."
The case ofFrittsv.Palmer,132 U.S. 282, does not relieve from the effect of the Alabama decisions and from the necessity of following them. The action was ejectment to recover certain real property in Colorado. The title of one of the parties was derived through the Comstock Mining Company, a Missouri corporation, which, before its purchase of the property, had been engagedPage 416in the prosecution of its mining business in the State, but it had not complied with the constitution and statutes of the State prescribing the terms upon which foreign corporations might do business in the State. The constitutional provision was substantially like that of Alabama, but the statutes were materially different, and, besides, there had been no decision of the Supreme Court of Colorado interpreting the statutes. The only penalty expressed in the statutes was the imposition of personal liability upon the officers, agents and stockholders of the corporation for any and all contracts made within the State during the time the corporation was in default. It was held that the fair implication was that "in the judgment of the legislature of Colorado, this penalty was ample to effect the object of the statutes." And it was said that it was not for the judiciary, at the instance of or for the benefit of private parties, to forfeit property which had been conveyed to the corporation and by it to others.Frittsv.Palmer, therefore, was but the interpretation of a particular statute, and there is not a word in it which denies or questions the power of a State to make void the contracts of a foreign corporation which is doing business in the State in violation of its laws.
It is urged by petitioner that it thought it had complied with the law of Alabama, and it was not an intentional offender against it, and, therefore, should not be "repelled from court." But the latter consequence has been decided to result from non-compliance with the statute, and we cannot grant an exemption from it. The statute makes no distinction between an inadvertent and a conscious violation of its provisions, and a familiar legal maxim precludes a defence based on that distinction. Nor can the payment of the license fee be urged as a justification for omitting to comply with the statute. Such payment was one condition to be performed by a foreign corporation; the designation of a known place of business and an authorized agent was another, and was of so much importance as to be enjoined by the constitution of the State.
It is contended that this case cannot be distinguished fromBedfordv.Eastern Building Loan Association,181 U.S. 227, and must be ruled by that case.Page 417
We think there is a marked distinction. In theBedfordcase the contract was legally entered into and was entitled to be enforced. In the case at bar the contract was made in violation of the statute of Alabama, and it cannot, therefore, claim the protection given to the contract in the other case.Decree affirmed.
MR. JUSTICE HARLAN dissents.