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and it is inapplicable to the business of interstate commerce in that state and to the right of a foreign corporation to institute, maintain, and defend suits in the federal courts.
(c) In the making and performance of the factorage contracts in suit the New Jersey corporation was not doing business in Colorado within the true meaning of the Constitution and statutes of that state.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 12, Corporations, $8
2519, 2524.] 7. COURTS-JURISDICTION OF NATIONAL COURTS-STATE LEGISLATION MAY Not
REVOKE OR IMPAIR.
While the national courts may enforce rights created and remedies granted by state statutes according to their terms, the jurisdiction and power of those courts was not granted by, and it may not be revoked, annulled, or impaired by, state legislation.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 13, Courts, $ 795.) 8. CORPORATIONS-FOREIGN CORPORATION-CONSIGNMENT OF GOODS TO Fac
TOR IN ANOTHER STATE Not DOING BUSINESS THEREIN.
A foreign corporation, which has no warehouse, office, or place of business, and which neither incurs nor pays any of the expenses of receiving, handling, storing, or selling its goods, in a state to which it consigns them to its factor, who conducts all the business there, assumes and pays all the expenses of receiving, selling, handling, and storing the goods, is not doing business in the latter state within the true meaning of the statutes relative to the admission of foreign corporations.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 12, Corporations,
8 2524.] 9. EQUITY-JURISDICTION-CONTROVERSY OVER EXTENDED ACCOUNT INVOKES.
An action at law is not as practicable, efficient, or adequate a remedy as a suit in equity, where the controversy involves an account which consists of many items, and a federal court has jurisdiction of it in equity.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 19, Equity, 151 ;
vol. 1, Account, § 65.] (Syllabus by the Court.)
Appeal from the Circuit Court of the United States for the District of Colorado.
See 132 Fed. 398.
The United States Rubber Company, a corporation of New Jersey, was a large manufacturer of rubber goods, and its principal office was in New York. It had a factory in one of the Eastern states and a warehouse in Chicago, from which it shipped its merchandise to consignees and purchasers. The Butler Bros. Shoe Company, a corporation of Colorado, was a wholesale merchant engaged in the purchase and sale of rubber goods and other merchandise at Denver, in that state. In January, 1901, in January, 1902, and in January, 1903, it made similar factorage contracts with the rubber company for the shipment of the goods of the latter from its mill and warehouse to the shoe company at Denver upon its orders. By the contract of January, 1903, the rubber company appointed the shoe company its agent to sell, and agreed to consign to it at Denver, certain of its goods at agreed prices, and the shoe company agreed to receive the goods and assume the risk thereof; to pay freight and expenses of handling, carting, storing, selling, and delivering to its customers; to make advances to the rubber company in cash, or in notes, if requested; to guarantee the rubber company against all losses from sales to the extent of the shoe company's profits; to pay the rubber company at agreed prices, which were so much below the prices at which the shoe company sold to its customers that it thereby secured a liberal factorage or commission, and at specified times, for all consigned goods it sold to its (ustomers; to purchase, at the option of the rubber company, at the temination of the contract, all of the consigned goods then in its possession, except original and unbroken packages, at the prices that should then be ruling; to keep separate account books of the goods, of their receipt and sales; to keep a separate bank account under the name of the “Butler Bros. Shoe Company Consignee Account," in which the proceeds of the sales, including the consignee's profits or factorage should be deposited, and from which the consignee should check out the amounts due the consignor, the freight charges, and the consignee's profits or factorage; to bill the goods to the purchasers as consignee, and that all goods then on hand and those subsequently consigned should be the property of the consignor until they were sold to the consignee's purchasers; and that the books, accounts, bills receivable, and cash derived from the sales of the consigned property should be the property of the consignor. Pursuant to this contract the consignee ordered for sale to its customers, and the consignor shipped from its warehouse in Chicago, and from its mill, to Denver, Colo., goods of the value of many tens of thousands of dollars. After a few months the rubber company demanded an advance in cash from the factor. The latter failed to make this advance, but at the same time ordered the rubber company to send to it from $15,000 to $20,000 worth of rubber goods to fill orders it had previously taken from its customers therefor. In this state of the case, on October 22, 1903, the parties made a supplemental agreement to the effect that the consignor would waive its demand for the advance and would fill the factor's orders, and that the factor would pay the consignor for all the goods which it sold to its customers 60 days after the accounts for them fell due. The contracts provided that they should terminate at the end of one year from January, 1903. At the end of the year the factor made default in its payments, and in March, 1904, the rubber company exhibited its bill against the shoe company in the court below for an accounting, for a receiver of the property in the hands of the factor under the contract, for an injunction, for a recovery of its property remaining in the possession of the shoe company, and for a recovery of the moneys which the shoe company owed to it. The defendant answered, among other things, that the complainant had not qualified itself to do business in Colorado and had not paid the annual license tax prescribed by the stat. utes of Colorado for the doing of business in that state by a foreign corporation. To this portion of the answer the complainant excepted, its exception was overruled, and it, then filed a general replication. Evidence was taken, there was a final hearing on the merits, and the court below rendered a decree that the complainant should receive $8,276.47 which remained in the bank in the “Butler Bros. Shoe Company Consignee Account,” $29,647.09 which the receiver had realized from the goods, bills receivable, and accounts that accrued under the consignment and were taken from the shoe company by the receiver, and that the rubber company should recover of the shoe company $14,856.27 which the latter owed it, and the costs of the suit. From this decree the shoe company appealed.
J. E. Robinson (Charles J. Hughes, Jr., on the brief), for appellant.
Henry T. Rogers (Lucius M. Cuthbert, Daniel B. Ellis, and Pierpont Fuller, on the brief), for appellee.
Before SANBORN and VAN DEVANTER, Circuit Judges, and PHILIPS, District Judge.
SANBORN, Circuit Judge, after stating the case as above, delivered the opinion of the court.
Counsel for the appellant first assail the decree on the ground that, by filing the replication after its exception to the defense that the complainant had been doing business in the state of Colorado without a license was overruled, the complainant estopped itself from again questioning the sufficiency of that defense. This is not a case in which complainant waived its objections to the answer by failing to file any exception to it (Story's Equity Pleading (10th Ed.] § 877; Slater v. Maxwell, 73 U. S. 268, 275, 18 L. Ed. 796; Hughes v. Blake, 6 Wheat. 463, 472, 5 L. Ed. 303; Farley v. Kittson, 120 U. S. 303, 314, 7 Sup. Ct. 534, 30 L. Ed. 684); and, even if it were, the facts alleged therein, if proved, would avail the defendant, under equity rule No. 33, only so far as in law and equity they ought to avail it. In the national courts the complainant in equity does not waive any substantial insufficiency of the facts set forth in a plea or answer to constitute a defense by filing a replication and taking the proofs. Pearce v. Rice, 142 U. S. 28, 42, 12 Sup. Ct. 130, 35 L. Ed. 925; Green v. Bogue, 158 U. S. 478, 500, 15 Sup. Ct. 975, 39 L. Ed. 1061; Soderberg v. Armstrong (C. C.) 116 Fed. 709.
The second and chief objection of counsel to the decree is that the contracts of factorage were illegal, and therefore void, because the complainant was a foreign corporation, and it carried on business in the state of Colorado without a license in violation of the statutes of that state. The contract of January, 1903, when reduced to its lowest terms, was that for one year the complainant would send on the orders of the defendant from its factory and warehouse in Eastern states shoes, boots, and rubber goods to the shoe company in Colorado, that the latter would make such advances to the complainant as it requested and would conduct the business and pay all the expenses of selling the goods for the factorage or commission, which consisted of the difference between the agreed prices between the parties to the contracts and the selling prices to the purchasers from the factor. The question has been exhaustively argued whether this was a contract for a conditional sale or a contract of agency. It did not evidence a conditional sale, because there was no obligation of the rubber company to transfer the title to the shoe company for an agreed price, and no obligation of the shoe company to pay an agreed price for the goods. There was no vendor or vendee named in the agreement. It was a contract of bailment for sale, not a contract of sale. In re Columbus Buggy Co., 143 Fed. 859, 74 C. C. A. 611. It was a contract of factorage. The supplemental contract of October, 1903, relieved the factor of making advances and bound it to guarantee payment for the goods it sold. It transformed the factor into a del credere factor. Were these contracts illegal and void ?
The Constitution and the statutes of Colorado by their terms prohibit any foreign corporation from doing any business, exercising any corporate power, acquiring or holding any property, or prosecuting or defending any suit in the state, unless it has first filed with the Secretary of State a certificate of its incorporation, a written appointment of an agent in the state to accept service of process, and a written specification of a principal place of business in the state, has paid to the Secretary of State $30 for its first $50,000 and 50 cents for each additional $1,000 of its capital stock, a fee of $5, and numerous other fees for filing papers and issuing his certificate, and has paid to the Auditor of the State an annual license fee of 2 cents for each $1,000 of its capital stock. Const. Colo. art. 15, § 10; 1 Mills' Ann. St. $$ 499, 500; Sess. Laws Colo. 1901, p. 121, c. 52, § 10; Sess. Laws 1902, p. 73, c. 3, § 64. The statutes of Colorado further provide that a failure to file this certificate of incorporation shall render each officer, agent, and stockholder of the foreign corporation liable for all contracts made in Colorado while it is in default (1 Mills' Ann. St. § 501), and that a failure to pay the annual license tax shall deprive the corporation absolutely of all rights and privileges to do business in the state, and shall constitute an absolute defense to all actions, suits, and proceedings in law or equity brought by the corporation in any court of competent jurisdiction within the limits of the state, until the tax is paid. Sess. Laws Colo. 1902, p. 74, c. 3, § 66. It is obvious that by the literal terms of this Constitution and these statutes no foreign corporation may lawfully exercise any corporate power, maintain any suit in any state or federal court, or do any business of any kind whatever in the state of Colorado, unless it first pays the license fees which that state has prescribed for perniission to do business therein. Is this the true meaning of this statute ? Is a contract by a manufacturer or owner of articles of commerce to send them from one state to a factor in another to be sold by him for an agreed commission doing business in the latter state, within the true intent and meaning of such laws? If a California corporation ships a car load of fruit to a commission merchant in New York to be sold by him on agreed factorage, is the California corporation doing business in New York within the meaning of its statutes of this character? If it contracts to ship 1,000 car loads during a year on the same terms, is it violating the statutes of New York, unless it obtains a license to do business there? Counsel for the appellant insist that the appellee was doing business in Colorado under these contracts, and that they were void because it thus violated the laws of that state. They quote and rely upon the remarks of Mr. Justice Field, in Paul v. Virginia, 8 Wall. 168, 181, 19 L. Ed. 357, where he said:
"Now a grant of corporate existence is a grant of special privileges to the corporators, enabling them to act for certain designated purposes as a single individual, and exempting them (unless otherwise specially provided) from individual liability. The corporation, being the mere creation of local law, can have no legal existence beyond the limits of the sovereignty where created. As said by this court in Bank of Augusta v. Earle, 13 Pet. 519, 10 L. Ed. 274: 'It must dwell in the place of its creation, and cannot migrate to another sovereignty. The recognition of its existence even by other states, and the enforcement of its contracts made therein, depend purely upon the comity of those states--a comity which is never extended where the existence of the corporation or the exercise of its powers is prejudicial to their interests or repugnant to their policy. Having no absolute right of recogition in other states, but depending for such recognition and the enforcement of its contracts upon their assent, it follow's, as a matter of course, that such assent may be granted upon such terms and conditions as those states may think proper to impose. They may exclude the foreign corporation entirely, they may restrict its business to particular localities, or they may exact such security for the performance of its contracts with their citizens as in their judgment will best promote the public interest. The whole matter rests in their discretion."
From the statements in this quotation, counsel argued that the power and purpose of the state of Colorado were unrestricted, and that a foreign corporation cannot lawfully exercise any corporate power or do any business whatever in the state of Colorado without a compliance with the requirements of its statutes. But the contention fails to give due weight to the Constitution of the United States, to the opinions of the Supreme Court which have construed it, and to the actual decision in Paul v. Virginia. In that case Paul had been convicted of delivering an insurance policy as agent of a foreign corporation in violation of the laws of the state of Virginia, which prescribed the terms on which such corporations might do business in the state. He insisted that these laws were unconstitutional, because they deprived the foreign corporation of the privileges and immunities of the citizens of the several states, and because they constituted a regulation of commerce among the states. The Supreme Court decided that a foreign corporation was not a citizen, within the true intent of the clause of the Constitution which declares that “the citizens of each state shall be entitled to all the privileges and immunities of citizens in the several states” (8 Wall. 177-180, 19 L. Ed. 357); that such a corporation was within the provision of the Constitution that Congress shall have power "to regulate commerce with foreign nations and among the several states,” but that an issue of a policy of insurance was not a transaction of commerce. “It is undoubtedly true, as stated by counsel,” said the court, “that the power conferred upon Congress to regulate commerce includes as well commerce carried on by corporations as commerce carried on by individuals. * * The language of the grant makes no reference to the instrumentalities by which commerce may be carried on. It is general, and includes alike commerce by individuals, partnerships, associations, and corporations.” 8 Wall. 182, 183, 19 L. Ed. 357.
In Pensacola Telegraph Company v. Western Union Telegraph Company, 96 U. S. 1, 8, 24 L. Ed. 708, the state of Florida had granted to the Pensacola Telegraph Company the exclusive right to establish and maintain lines of electric telegraph in certain counties of the state, and the Western Union Telegraph Company, a foreign corporation, sought to erect a line of telegraph therein. Chief Justice Waite opened the opinion of the court in that case in these words:
“Congress has power 'to regulate commerce with foreign nations and among the several states' (Const. art. 1, § 8, par. 3) and 'to establish post offices and post roads' (Id. par. 7). The Constitution of the United States and the laws made in pursuance thereof are the supreme law of the land. A law of Congress made in pursuance of the Constitution suspends and overrides all state statutes with which it is in conflict. Since the case of Gibbons v. Ogden, 9 Wheat. 1, 6 L. Ed. 23, it has never been doubted that commercial intercourse is the element of commerce which comes within the regulating power of Congress.”
And he announced the unanimous opinion of the court that the grant of the exclusive right by the state of Florida to the Pensacola Company, and its attempt thereby to exclude the foreign corporation from certain portions of the state, were futile. Of the case of Paul v. Virginia he said:
“We are aware that in Paul v. Virvinia, 8 Wall. 168, 19 L. Ed. 3:57, this court decided that a state might exclude the corporation of another state from its jurisdiction, and that corporations are not within the cause of the Constitution wbich declares that 'the citizens of each state shall be entitled to all