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they comply with such conditions. Whether or not contracts made by such corporations before complying with such conditions, when any are imposed, are void, depends upon the terms of the statute imposing the conditions. Chattanooga Building Association v. Denson, 189 U. S. 408, 23 Sup. Ct. 630, 47 L. Ed. 870; Frittz v. Palmer, 132 U. S. 285, 10 Sup. Ct. 93, 33 L. Ed. 317; Cooper v. Ferguson, 113 U. S. 727, 5 Sup. Ct. 739, 28 L. Ed. 1137; Ammons v. Brunswick-Balke Co. (C. C. A.) 141 Fed. 570. While it is true, as a general rule, that a penalty imposed by statute for the doing of an act implies a prohibition of the act, yet the courts will look to the entire statute, the subjectmatter of it, the wrong which it seeks to remedy or prevent, and the purpose sought to be accomplished by its enactment; and if in so doing it is apparent that it was not intended to render the forbidden act void the statute will be construed accordingly. Harris v. Runnels, 12 How. 79, 13 L. Ed. 901; National Bank v. Matthews, 98 U. S. 621, 25 L. Ed. 188; Watrous v. Blair, 32 Iowa, 58; Pangborn v. Westlake, 36 Iowa, 548.
It is nianifest that the statute of Iowa relating to corporations was not intended to render void their contracts made before they had complied with its provisions. The requirements that foreign corporations should file copies of their articles of incorporation with the Secretary of State, and otherwise comply with the law relating to them, was to place them on a level with domestic corporations, impose upon them the same duties, obligations, and liabilities, and subject them, equally with domestic corporations, to the jurisdiction of the courts of the state; this, as a source of revenue to the state, and for the protection of its citizens and others dealing with them in that state, and not to strike down and render void their contracts. Instead of declaring unlawful or void the contracts of either domestic or foreign corporations made before complying with the law, section 1636 of the Code expressly provides that:
"No person or persons acting as a corporation shall be permitted to set up a want of legal organization as a defense to any action against it; nor shall any person sued on a contract made with such an acting corporation be permitted to set up a want of such legal organization in his defense."
When defendant made its contract with plaintiff, the latter was certainly acting as a corporation in Iowa, and no reason has been suggested and none is perceived why the parties to the transaction are not within at least the spirit of this section. Courtright v. Deeds, 37 Iowa, 503–511; Howe Machine Co. v. Snow, 32 Iowa, 433; Washington College v. Duke, 14 Iowa, 14. In fact this section seems but declaratory of the existing rule. National Bank v. Matthews, 98 U. S. 621, 25 L. Ed. 188; Cedar Rapids Water Co. v. Cedar Rapids, 118 Iowa, 234–245, 91 N. W. 1081; Dutchess Manufacturing v. Davis, 14 Johns. (N. Y.) 239-245, 7 Am. Dec. 459 ; Swartwout v. Michigan, etc., Railroad Co., 24 Mich. 389–394; East Norway, etc., Church v. Froislie, 37 Minn. 447, 35 N. W. 260. In National Bank v. Matthews, above, the following from Sedgewick on Statutory Construction is quoted with approval:
"When it is a simple question of authority to contract, arising either on a question of regularity of organization or of power conferred by the charter, a party who has had the benefit of the agreement cannot be permitted in an action founded upon it to question its validity. It would be in the highest degree inequitable and unjust to permit a defendant to repudiate a contract the benefit of which he retains."
Chattanooga Building Association v. Denson, 189 U. S. 408, 23 Sup. Ct. 630, 47 L. Ed. 870, principally relied on by defendant, arose in Alabama, whose statute expressly declares that "it is unlawful for any foreign corporation to engage in or transact any business in this state before complying with this law," and to do so is declared an offense. The Supreme Court of Alabama had construed this statute as rendering void any contract made by a foreign corporation before complying with its provisions. This construction was necessarily followed by the Supreme Court of the United States in determining the case. The statute of Iowa is materially different, for the corporation commits no offense in transacting business in that state before compliance with its provisions, but incurs a civil liability only to the state of $100 for each day in which its business is transacted, though its officers or agents who knowingly transact the business when the corporation has no permit may be guilty of a misdemeanor. The Supreme Court of that state has directly held that the failure of a foreign corporation to comply with the statute does not render its contracts void. Spinney v. Miller, 114 Iowa, 212, 86 N. W. 317, 89 Am. St. Rep. 351; Prudential Insurance Co. v. Cushman (Iowa) 106 N. W. 394. The bond in suit, therefore, is not void. Again, it is well settled that a defendant sued by a corporation upon a contract made with it cannot question the right or authority of the corporation to make the contract, or to transact business in the state in which it is made. The state alone may do this. Smith v. Sheeley, 12 Wall. 358–361, 20 L. Ed. 430; National Bank v. Matthews, 98 U. S. 621, 25 L. Ed. 188; Cowell v. Springs Co., 100 U. S. 55–61, 25 L. Ed. 547; Frittz v. Palmer, 132 U. S. 285, 10 Sup. Ct. 93, 33 L. Ed. 317; Railway Co. v. Lewis, 53 Iowa, 101–113, 4 N. W. 842; Spinney v. Miller, 114 Iowa, 210-213, 86 N. W. 317, 89 Am. St. Rep. 351; Cedar Rapids Water Co. v. Cedar Rapids, 118 Iowa, 234, 91 N. W. 1081; Prudential Insurance Co. v. Cushman (Iowa) 106 N. W. 394; Blodgett v. Lanyon Zinc Co., 120 Fed. 893, 58 C. C. A. 79. In Smith v. Sheeley, 12 Wall. 358–361, 20 L. Ed. 430, it is said:
“It is not denied that the bank was duly organized in pursuance of the provisions of an act of the Legislature of the territory of Nebraska, but it is said that it had no right to transact business until the charter creating it was approved by Congress. This is so, and it could not legally exercise its powers until this approval was obtained, but this defect in its Constitution cannot be taken advantage of collaterally. No proposition is more thoroughly settled than this, and it is unnecessary to refer to authorities to support it.”
Even in a direct action by the state to oust a foreign corporation from doing business in Iowa without complying with the law of that state, judgment of ouster will not be awarded if the corporation shall within a reasonable time comply with such law. State v. Railway Co., 91 Iowa, 517, 60 N. W. 121.
Miller v. Ammon, 145 U. S. 421, 12 Sup. Ct. 881, 36 L. Ed. 759, involved the validity of a contract for the sale of intoxicating liquors made in violation of a city ordinance, and Richardson v. Brix, 94 Iowa, 626, 63 N. W. 325, was the case of a real estate broker or agent conducting a business in violation of a city ordinance. In each case the ordinance violated was a valid police regulation, which in one case imposed a fine and in the other a fine and imprisonment for its violation. Diamond Glue Co. v. United States Glue Co., 187 U. S. 611, 23 Sup. Ct. 206, 47 L. Ed. 328, involved an executory contract to carry on business, which was to continue after the passage of a statute imposing a
, fine for conducting or carrying on such business in violation thereof. The decision seems to rest upon the ground that to conduct such business after the passage of the statute without compliance therewith would, under its terms, be a crime.
The principles upon which these decisions rest are not deemed applicable under the Iowa
the Iowa statute in question. The conclusion is that the demurrer should be sustained, and it is so ordered.
JONATHAN CLARK & SONS CO. V. CITY OF PITTSBURGH. (Circuit Court, W. D. Pennsylvania. May 21, 1906. Amendment to Opinion
June 11, 1906.) 1. CONTRACTS-BUILDING PUBLIC WORK-ACTION TO RECOVER CONTRACT PRICE.
A contract for a public work for a city which gave the city the right to stop the work of the contractor if at any time in the opinion of the director of public works he was not complying with the contract, and to complete the work and charge the cost to the contractor, construed, and a provision, requiring the contractor to obtain a final certificate from such director of the completion of the work in accordance with the contract before being entitled to final payment, held not applicable where such right was exercised and the work completed by the city, and the obtaining of such certificate not a condition precedent to an action by the contractor to recover from the city an alleged balance due him under the contract.
[Ed. Note.-For cases in point, see vol. 11, Cent. Dig. Contracts, §
1308.] 2. SAME.
A contract with a city for the construction of a reservoir gave the city the right, if in the opinion of the director of public works there was undue delay in the work or a failure to comply with the contract in good faith, to stop the work of the contractor and complete the work at his expense; the contractor to be entitled to any excess of the amount due him under the contract above the cost of such completion, and liable for any deficiency. It also contained a provision that any dispute arising between the parties under the contract should be submitted to the director of public works as arbitrator, whose decision should be final and conclusive. Held, that the exercise by such director of the right given him to stop the work of the contractor and the completion of the work by the city was a waiver of the arbitration clause, and that the contractor could not be required to submit the question of the amount due him after the work was completed to the director as ar
bitrator, but was entitled to maintain an action in the courts therefor. 8. SAME-BURDEN OF PROOF.
In such an action the burden does not rest upon the contractor to show the cost of the work done by the city in completing the contract, there being no presumption that such cost exceeded the prices specifically fixed by the contract for the work so done, and being, moreover, peculiarly within the knowledge of the defendant, any excess of cost is a matter of affirmative defense.
Pursuant to a stipulation in writing, this case was tried by the court without the intervention of a jury.
Breck & Vaill, for plaintiff.
ACHESON, Circuit Judge. On the 13th day of May, 1897, a written contract was entered into between the city of Pittsburgh (the defendant) as party of the first part, through Edward M. Bigelow, director of the department of public works of said city, and Jonathan Clark & Sons Company (the plaintiff), as party of the second part, whereby the plaintiff agreed to furnish the materials, labor, tools, and appliances for, and to construct for, the defendant, a reservoir in Highland Park, in said city, in conformity with the specified requirements and conditions.
The contract contained the following provision lettered section J:
“The party of the second part further agrees that if at any time the director shall be of the opinion that the said work, or any part thereof, is unnecessarily delayed, or that the said contractor is willfully violating any of the conditions or covenants of this agreement, or is executing the same in bad faith, he shall have the power to notify the contractor to discontinue all work under this contract, or any part thereof, and thereupon the contractor shall cease said work, or such part thereof, and the director shall thereupon have the power to place such and as many persons as he may deem necessary, the same to be employed by contract or otherwise, to work at and complete the work herein described, or any part thereof, and to use such material as he may find upon the site of said work or to procure other materials for the completion of the same, and to charge the expense of said labor and materials to the aforesaid contractor, and the expense so charged shall be deducted from and paid by the party of the second part out of such moneys as may then be due, or may at any time thereafter become due to the said party of the second part, under and by virtue of this agreement; and in case such expense is less than the sum which would have been payable under this contract, if the same had been satisfactorily completed by the said party of the second part, then, and in that event, the said party of the second part shall be entitled to receive the difference; but in case such expense shall exceed the said last sum, then, and in that event, the said party of the serond part, his sureties and heirs and assigns, shall pay the amount of such excess to the party of the first part on notice from said director of the excess due.”
The plaintiff entered upon the execution of the work under the contract and proceeded therewith until April 16, 1900, when the said director, acting on behalf of the city, by letter, notified the plaintiff that in his (the director's) opinion the work provided for in the contract "has been and is unnecessarily delayed, and that you have willfully violated various of the conditions and covenants in said contract, and that you have executed the contract in bad faith. And therefore I do hereby exercise the power in me vested and notify you from this date to discontinue all work under said contract. And I hereby notify you that I shall, as authorized by said contract, have completed the work therein described, and that, in case the expense of said completion shall exceed the sum which would have been payable under the contract had you faithfully kept and performed the same, I shall require you and your sureties to pay the amount of such excess to the city of Pittsburgh.” In pursuance of the foregoing noti
fication, the city, acting by the director, forthwith put the plaintiff off the work then uncompleted, and subsequently employed the Mercantile Trust Company to complete the work. From that time the plaintiff was not permitted by the city to do, and did not do, any more of the work.
Under the proofs in this case, I think the director was not justified upon the facts in the opinion stated in his letter of dismissal. Entertaining, however, as he did, the opinion thus expressed by him, he had a right, under the above-quoted terms of the contract, to notify the plaintiff to discontinue the work, and the city had a right to have the work completed by another in accordance with the terms of the above-quoted section s of the contract.
This suit (as finally submitted) is for the recovery by the plaintiff from the defendant of the alleged balance for materials furnished and used and work and labor done by the plaintiff in the construction of this reservoir. The defendant sets up in bar of the action two provisions of the contract, which may be designated as the “final estimate provision” and the “arbitration clause. The former, having to do with the final estimate, is as follows:
“(V) And whenever, in the opinion of the director, the party of the second part shall have completed the reservoir and its appurtenances, ready to be put into service, then the director shall, with all reasonable diligence, cause a final estimate to be made from actual measurements, giving the whole amount of work done by the party of the second part, and the value thereof under and according to the terms of this contract. The party of the first part will then, within thirty (30) days after the said final estimate, pay to the party of the second part the remainder which shall be found to be due, excepting therefrom five (5) per cent, to be retained as below stipulated, · and such other sum or sums as may be lawfully retained under any of the provisions of this contract; provided that nothing herein contained shall be construed to affect the right hereby reserved to reject the whole or any portion of the aforesaid work, should the final estimate be found to be inconsistent with the terms of this agreement, or otherwise improperly given.
"(W) Twelve (12) months after the reservoir and its appurtenances have been completed and put into service, as above stipulated, the director will make a final examination of the whole work; and, if he shall find that the party of the second part shall have fully and faithfully performed this contract on his part, then he will accept the work and the party of the first part will, within thirty (30) days, pay to the party of the second part the previously retained five (5) per cent. and all other money which shall be found to be due.
“(X) The party of the second part further agrees that he will receive the compensation, as above stipulated, in full for all fees or royalties for patented inventions, and all charges for labor, materials, contrivances or processes used in connection with the work, and that he shall not be entitled to demand or receive payment for the aforesaid work or materials or any part thereof, except in the manner set forth in this agreement, nor unless each and every of the promises, agreements, stipulations, terms and conditions herein contained shall have been performed, kept, observed, and fulfilled on his part, and the director shall have given his certificate to that effect."
These provisions just quoted contemplate and expressly cover the contingency of the completion of the reservoir by the “party of the second part," and they do not in terms apply to, and are inappropriate to, the extraordinary contingency of the said party's being turned off the work and prevented from completing it. The above provisions do not say that when the director is of opinion that the reservoir is