§ 1771. Contracts of corporations doing business illegally. The laws of the several States almost invariably prescribe certain conditions which must be satisfied before foreign corporations are authorized to do business within the State. Some of these statutes do not expressly provide that no action can be maintained upon contracts or sales made without satisfying the statutory conditions for doing business legally. Such statutes may either provide a specific penalty for doing business illegally or no consequence may be expressed in the statute as a result of violation of the law. A plausible argument has been made in some cases for a difference under statutes of these two types in regard to the effect upon the right of a corporation to sue upon a contract made by it, though it has not complied with that statute. It is suggested that when a penalty is expressly imposed it may fairly be regarded as the only consequence the law meant to impose for violation of the law, but that where the statute merely prohibits without penalty, the contract must be thereby made unenforceable or no punishment would follow a violator of the law. 10 Though careful consideration must be given in each case to the words of the statute in question, the conflicting decisions of the courts do not seem, generally, based on very secure or sound distinctions. In a number of cases it has been held that recovery may be had upon contracts made in violation of laws prohibiting the transaction of business without observance of certain formalities, either with a penalty attached or without such a penalty. Other authorities, however, hold that contracts 10 The statutes and decisions under N. E. 1090; Enterprise Brewing Co. v. them are collected in 50 Am. L. Rev. Grime, 173 Mass. 252, 53 N. E. 855; 641. See also Ann. Cas. 1914 A. 702, Gold Issue Mining &c. Co. v. Pennsyl24 L. R. A. 315n, 21 L. R. A. (N. S.) vania F. Ins. Co., 267 Mo.. 524, 608, 707, 38 id. 210. 184 S. W. 999 (Colorado law); King v. National Mining Co., 4 Mont. 1, 1 Pac. 727; G. Ober & Sons Co. v. Katzenstein, 160 N. C. 439, 76 S. E. 476; Wright v. Lee, 4 S. Dak. 237, 55 N. W. 931; Eastern Building Assn. v. Snyder, 98 Va. 710, 37 S. E 298; Dearborn Foundry Co. v. Augustine, 5 Wash. 67, 31 Pac. 327; Edison General Electric Co. v. Canadian Pacific Navigation Co., 8 Wash. 370, 36 Pac. 260, 24

11 Northwestern Mutual Life Ins. Co. v. Overholt, 4 Dill. 287; Lasswell Land &c. Co. v. Lee, Wilson & Co., 236 Fed. 322, 149 C. C. A. 454; Thomas Cusock Co. v. Ford, 138 La. 1096, 71 So. 196; Kendrick & Roberts, Inc., v. Warren Bros. Co., 110 Md. 47, 72 Atl. 461; Rogers & Co. v. Simmons, 155 Mass. 259, 29 N. E. 580; Kelly v. RiceBlake Lumber Co., 167 Mass. 28, 44

So in

made under such circumstances cannot be enforced. 12 surance companies have been denied the right to recover premiums when the business was done in violation of local statutes, 13

§ 1772. Statutes expressly prohibiting recovery.

Modern statutes in regard to foreign corporations frequently expressly provide, in effect, that no action shall be maintainable on the contracts of the corporation if it has not satisfied the requirements of the statute. Even where such is the form of the statute, the contracts are generally held not void, but merely unenforceable until satisfaction of the statute. The statute may, therefore, be satisfied so as to make a contract or sale enforceable, after the contract or sale has been entered into, and in some States even after action has been brought upon it. 13 In other jurisdictions a different result has been

L. R. A. 315, 40 Am. St. Rep. 910; Toledo Tie & Lumber Co. v. Thomas, 33 W. Va. 566, 11 S. E. 37, 25 Am. St. Rep. 925. See also Fritts v. Palmer, 132 U. S. 282, 10 S. Ct. 93, 33 L. Ed. 317.

12 Cullman County v. Vincennes Bridge Co., 251 Fed. 473, 163 C. C. A. 467; Dudley v. Collier, 87 Ala. 431, 6 So. 304, 13 Am. St. Rep. 55; Boulden v. Estey Organ Co., 92 Ala. 182, 9 So. 283; Dundee Mortgage & Trust Investment Co. v. Nixon, 95 Ala. 318, 10 So. 311; Cook v. Rome Brick Co., 98 Ala. 409, 12 So. 918; Alabama Western R. Co. v. Talley-Bates Const. Co. (Ala.), 50 So. 341; Oliver Company v. Louisville Real Est. Co., 156 Ky. 628, 161 S. W. 570, 51 L. R. A. 293, Ann. Cas. 1915 C. 565; Quartette Music Co. v. Haygood, 108 Miss. 755, 67 So. 211; Chicago Mill & Lumber Co. v. Sims, 197 Mo. 507, 95 S. W. 344; GermanAmerican Bank v. Smith (Mo. App.), 208 S. W. 878; Pennington v. Townsend, 7 Wend. 276; Cary-Lombard Lumber Co. v. Thomas, 92 Tenn. 587, 22 S. W. 743.

13 The Manistee, 5 Biss. 382; Cin

cinnati Mut. Health Assur. Co. v.
Rosenthal, 55 Ill. 85, 8 Am. Rep. 626;
Franklin Ins. Co. v. Louisville & A.
Packet Co., 9 Bush, 590; American
Ins. Co. v. Stoy, 41 Mich. 385, 1 N. W.
877; American Ins. Co. v. Smith, 73
Mo. 368; Stewart v. Northampton
Mutual Live Stock Ins. Co., 38 N. J.
L. 436.

134 See Crefeld Mills v. Goddard, 69 Fed. 141; Blodgett v. Lanyon Zinc Co., 120 Fed. 893, 897, 58 C. C. A. 79; Wetzel & T. Ry. v. Tennis Bros. Co., 145 Fed. 458, 75 C. C. A. 266; Buffalo Zinc & Copper Co. v. Crump, 70 Ark. 525, 534, 69 S. W. 572, 91 Am. St. Rep. 87; Sutherland-Innes Co. v. Chaney, 72 Ark. 327, 80 S. W. 152; Woolfort v. Dixie Cotton Oil Co., 77 Ark. 203, 91 S. W. 306, 113 Am. St. Rep. 139; Waxahachie Medicine Co. v. Daly, 122 Ark. 451, 183 S. W. 741; J. R. Watkins Medical Co. v. Martin, 132 Ark. 108, 200 S. W. 283 (cf. Hogan v. Intertype Corporation, 136 Ark. 52, 206 S. W. 58); California Savings & Loan Soc. v. Harris, 111 Cal. 133, 43 Pac. 525; State v. American Book Co., 69 Kans. 1, 76 Pac. 411; John Deere Plow Co. v.

reached, and such bargains have been held permanently unenforceable by the offending corporation. 136 As has been said, however, the statutes in the various States are not identical and must in each case be examined. In a few States the statutes are expressed in such clear terms that no other inference is possible except that the contracts in question, if not void, at least are permanently unenforceable in the state courts.14

Even though a claim of a corporation is said to be void under local law, it is sometimes said that any recognition of the claim after the corporation has complied with the law amounts to a binding ratification. 14a

Ratification as a means of making binding what was originally void for illegality or of creating a new obligation without consideration has been elsewhere criticized; 146 but after the corporation has complied with the law, there is no difficulty in an adoption by the parties of the terms of a bargain made before such compliance, if both parties thereby assume some detrimental performance.14€

The New York statute requires a certificate from the Secretary of State to the effect that a foreign corporation has complied with certain prescribed conditions; and further provides that "No foreign stock corporation doing business in this State shall maintain any action in this State upon any contract made by it in this State unless prior to the making of such contract it shall have procured such certificate." Under this provision a contract made without obtaining the required certificate is not void, 14 and an action may be maintained upon it either in the courts of another State, 14o or in the Federal courts,14 if jurisdiction can be obtained. In Vermont it has been held that under a statute prohibiting an action in the State by the offending corporation or by an assignee of the corporation or by any person claiming under such assignee or corporation, a receiver of the corporation might maintain an action; 149 and a

14 St. Louis Union Trust Co. v. Chicot County &c. Co., 127 Ark. 577, 193 S. W. 69. Part payments by the maker on account of a note, said to be void, were held to bind him to pay the remainder.

14b Supra, §§ 1145, 1707; infra, § 1896.

14c Montgomery Traction Co. v. Montgomery Light & W. P. Co., 229 Fed. 672, 144 C. C. A. 82; Turner Construction Co. v. Union Terminal Co., 229 Fed. 702, 144 C. C. A. 112, cert. denied, 241 U. S. 678, 60 L. Ed. 1233, 36 S. Ct. 727. See also LanzOwen Co. V. Garage Equipment

Mfg. Co., 151 Wis. 555, 139 N. W. 393.

14d Mahar v. Harrington Park Villa Sites, 204 N. Y. 231, 97 N. E. 587, 38 L. R. A. (N. S.) 210.

14e Alleghany Co. v. Allen, 69 N. J. L. 270, 55 Atl. 724.

14f David Lupton's Sons Co. v. Automobile Club, 225 U. S. 489, 56 L. Ed. 1177, 32 S. Ct. 711, Ann. Cas. 1914 A. 699; Johnson v. New York Breweries Co., 178 Fed. 513, 101 C. C. A. 639. See also under an Illinois statute, Kawin v. American Colortype Co., 243 Fed. 317, 156 C C. A. 97.

140 Underhill v. Rutland R. (Vt.), 98

holder in due course of a negotiable note originally given to such a corporation as part of its unauthorized business within the State, has almost universally been allowed to recover. 14h

§ 1773. Corporation illegally doing business is liable on its contracts, and may set them up in defence.

It should be added that even though a corporation does business in violation of a statute, and in consequence thereof becomes unable to enforce the obligation of the other party under a contract, it is not itself excused from liability upon its own obligation. 15 The corporation, however, whether sued directly upon the contract or on other grounds, may set up by way of defence the terms of such a contract; 15 and when the other party to the contract has repudiated his obligations the corpora