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to it which would otherwise be enforceable in the courts of the State, the corporation cannot, because of the statutory prohibition, maintain an action upon such contract in the courts of the State. This conclusion is regarded as clear where the prohibition of the statute is unaccompanied with any specific penalty; since in such cases this is the only way by which the prohibition can be enforced.2
§ 7951. Doctrine that Domestic Citizen may Treat the Contract as Void and Recover What He has Advanced thereon. The Supreme Court of Indiana have held that, where a life insurance company created and existing under the laws of another State, has assumed to do business and write policies upon lives within the State of Indiana, one whose life has been thus insured by it, may, a year and a half after accepting the policy, elect to treat the contract as void, and may maintain an action to recover back the cash premium paid thereon. The court sought to avoid the effect of the objection that the contract was partly executed, and that, during at least a year, the plaintiff had been in fact insured
1 Cincinnati Mutual Health Assurance Co. v. Rosenthal, 55 Ill. 85; s. c. 8 Am. Rep. 626; Thorne v. Travelers' Ins. Co., 80 Pa. St. 15; s. c. 21 Am. Rep. 89; Bank of British Columbia v. Page, 6 Or. 431; Farrior v. New England Mortgage &c. Co., 88 Ala. 275 (distinguishing Sherwood v. Alvis, 83 Ala. 115; s. c. 3 Am. St. Rep. 695, 698); Mullens v. American Freehold &c. Co., 88 Ala. 280; Christian v. American Freehold &c. Co., 89 Ala. 198; Utley v. Clark-Gardner Lode Mining Co., 4 Colo. 369, 372, per Elbert, J., arguendo; Re Comstock, 3 Sawy. (U.S.) 218; s. c. 11 Nat. Bank. Reg. 169; Semple v. Bank of British Columbia, 5 Sawy. (U.S.) 88; Hoffman v. Banks, 41 Ind. 1; Union Central Life Ins. Co. v. Thomas, 46 Ind. 44; Farmers' &c. Ins. Co. v. Harrah, 47 Ind. 236; Franklin Ins. Co. v. Louis
ville &c. Packet Co., 9 Bush (Ky.), 590; Barbor v. Boehm, 21 Neb. 450; Lycoming Fire Ins. Co. v. Wright, 55 Vt. 526; Lamb v. Lamb, 13 Nat. Bank. Reg. 17; Stewart v. Northampton Mut. &c. Ins. Co., 38 N. J. L. 436; New Hope &c. Co. v. Poughkeepsie Silk Co., 25 Wend. (N. Y.) 648; Washington County Mut. Ins. Co. v. Hastings, 2 Allen (Mass.), 398; Williams v. Cheney, 8 Gray (Mass.), 206; Jones v. Smith, 3 Gray (Mass.), 500; Ætna Ins. Co. v. Harvey, 11 Wis. 394; National Bank v. Phoenix Warehousing Co., 6 Hun (N. Y.), 71. That such contracts are void even when questioned collaterally, see Rising Sun Ins. Co. v. Slaught r, 20 Ind. 520 (a plain aberration).
"Bank of British Columbia v. Page, 6 Or. 431. Compare post, § 7958.
by a contract which, under all judicial theories, estopped the foreign corporation, by saying that "as the contract was void, we do not see any place for the doctrine relating to the rescission of contracts." The decision is believed to be unsound. The true theory of such statutes is that they are intended for the protection of the domestic citizen with whom foreign corporations seek to enter into executory contracts; and this theory is of special force in respect of foreign insurance companies. The failure of the foreign insurance company, after complying with the provisions of the domestic statutes, to give the domestic citizen, with whom it has made a contract, that security for the performance of the contract to which he is entitled, is manifestly a protection which he is at liberty to waive. He must then make his election; and, as in every other case, he cannot affirm and disaffirm, - affirm in part and avoid in part-affirm so far as the contract is beneficial to him, and avoid it when it becomes onerous to him. He cannot, for instance, after procuring a solvent life insurance company of another State to write a premium upon his life, wait a year, during which time the beneficiary in the policy has had the benefit of the insurance, and then, when the next premium is called for, not merely refuse further to execute the contract, but maintain an action to recover back the consideration of that part of it which has already been executed. Decisions of this kind do not do credit to the courts which render them.
§ 7952. Doctrine that Domestic Citizen may Defend against the Contract so far as Unexecuted on his Part. Another very numerous class of cases is to the effect that contracts made under the circumstances which we have under consideration, are voidable at the election of the domestic citizen, in such a sense that he can elect to treat the contract as void whenever an action is brought against him by the foreign corporation to enforce it, and that he can successfully defend against such an action, by merely pleading and prov
1 Union Central Life Ins. Co. v. Thomas, 46 Ind. 44.
ing the failure of the foreign corporation, prior to making the contract with him, to comply with the laws of the State entitling it to do business therein.'
§ 7953. Illustration in the Case of Premium Notes of Foreign Insurance Companies. A large number of these cases hold that foreign insurance companies, which have not complied with such local statutes, cannot maintain actions against domestic citizens upon what are called "premium notes," that is to say, upon notes given for the settlement, in whole or in part, of amounts agreed to be paid for insurance, fire or life; or on notes given by the members of mutual insurance companies to make up the joint fund upon which they do business, whereby their members stand as the insurers of each other. On the same ground, it has been held that a foreign insur
1 Franklin Ins. Co. v. Louisville &c. Co., 9 Bush (Ky.), 590; Columbia Fire Ins. Co. v. Kinyon, 37 N. J. L. 33; Washington County &c. Ins. Co. v. Dawes, 6 Gray (Mass.), 376. The governing principle of the text is more or less discussed in the following cases: Hyde v. Goodnow, 3 N. Y. 266; People v. Imlay, 20 Barb. (N. Y.) 68; Huntley v. Merrill, 32 Barb. (N. Y.) 626. There is an analogous decision to the effect that a foreign corporation keeping an office in New York, of discount and deposit, when prohibited by statute to do so, cannot maintain an action for money loaned a note or other security taken on such loan, or on a count for money lent. New Hope Co. v. Poughkeepsie Silk Co., 25 Wend. (N. Y.) 648. Another decision is to the effect that a statute providing that if a foreign corporation do any act forbidden by the laws of the State to be done by a home corporation, "it shall not be authorized to maintain any action founded on such act," — merely debars it from maintaining any action on a contract prohibited to domestic corporations, but leaves the contract
good for other purposes. Wright v. Douglass, 10 Barb. (N. Y.) 97, 105.
Jones v. Smith, 3 Gray (Mass.), 500; Washington County &c. Ins. Co. v. Dawes, 6 Gray (Mass.), 376; Williams v. Cheney, 8 Gray (Mass.), 206; Washington County Mutual Ins. Co. v. Hastings, 2 Allen (Mass.), 398; Etna Ins. Co. v. Harvey, 11 Wis. 412; Farmers' &c. Ins. Co. v. Harrah, 47 Ind. 236; Hoffman v. Banks, 41 Ind. 1; Barbor v. Boehm, 21 Neb. 450; Cincinnati Mutual Health Assurance Co. v. Rosenthal, 55 Ill. 85; 8. c. 8 Am. Rep. 626; Franklin Ins. Co. v. Louisville &c. Packet Co., 9 Bush (Ky.), 580; Lamb v. Lamb, 13 Nat. Bank. Reg. 17; Lycoming Fire Ins. Co. v. Wright, 55 Vt. 526; Columbia Fire Ins. Co. v. Kinyon, 37 N. J. L. 33; Haverhill Ins. Co. v. Prescott, 42 N. H. 547; 8. c. 80 Am. Dec. 123; distinguished in Union Ins. Co. v. Smart, 60 N. H. 458; and overruled, it is believed, in subsequent cases. In Haverhill Ins. Co. v. Prescott, supra, a Massachusetts corporation failed to comply with a New Hampshire statute imposing the same burdens upon corporations or
ance company, not having complied with such a domestic statute, cannot recover an assessment made against a member who is a citizen of the domestic State.'
8 7954. Exception in Case of Bona Fide Holders of Such Notes for Value. But, as in the case of other ultra vires contracts, such notes, if negotiable, are good in the hands of bona fide holders for value.3
§ 7955. Illustration in the Case of Mortgages Taken by Foreign Corporations. Another class of decisions illustrating the proposition that the domestic citizen may elect to treat such contracts void when sued by the foreign corporation thereon, is found in cases where foreign corporations, without having so complied with domestic statutes as to entitle them to do business within the domestic State, have loaned money to citizens of such State upon mortgages of their property situated therein, or have sold goods to them on credit and taken security in the form of such mortgages, in which case these decisions allow the domestic citizen, when an action is brought by the foreign corporation against him to foreclose the mortgage, to set up as a defense the fact that the contract was void because the foreign corporation had not complied with the statute." It cannot escape attention that these decisions ignore the distinction, often taken by enlightened courts in respect of the validity of contracts, between contracts which are merely malum prohibitum, and contracts
ganized under the laws of another
1 Stewart v. Northampton Mut. &c.
2 Ante, §§ 5737, 6068.
laws of the State, knew, or had reasonable cause to know, when he took the note, that the company had not complied with such laws, he could not recover; and the fact that such indorsee was a director, the treasurer, and one of the executive committee of the foreign insurance company, was sufficient evidence that he had reasonable cause to know such fact. Williams v. Cheney, 8 Gray (Mass.), 206.
Ante, § 7951.
Farrior v. New England Mortgage &c. Co., 88 Ala. 275; Mullens v. American Freehold &c. Co., 88 Ala. 280; Christian v. American Freehold &c. Co., 89 Ala. 198.
which are malum in se. Such decisions put the contracts under consideration, although perfectly innocent and meritorious in themselves, on the footing of contracts which are essentially criminal, corrupt, or fraught with moral turpitude, or otherwise opposed to the public policy of the State. In leveling such contracts to this ground, and in allowing their own citizens to repudiate them on such a plea while keeping the consideration, the courts degrade the commercial morals of the people, encourage general dishonesty, expel capital from the State, and bring its judiciary into deserved disrepute. A better view is that such a statutory restraint upon foreign corporations, in the absence of express language declaring the contract void, merely operates to suspend the remedy thereon, until such time as the corporation complies with the statute;' and that the legislature may validate such a mortgage by a retrospective statute.'
§ 7956. Doctrine that the Failure of the Foreign Corporation to Comply with Domestic Statutes merely Suspends its Remedy on Contracts until Compliance. The spectacle of the demoralization produced by judicial decisions which uphold the citizens of the State in repudiating their honest engagements with foreign corporations, on grounds having no relation to the merits of those engagements, was evidently the circumstance which drove the Supreme Court of Indiana to a reconsideration of this question, so as to hold that the statute of that State relating to foreign corporations and their agents, which put such foreign corporations and their agents under a restraint enforced by a penalty, against doing business in the State until they complied with certain named conditions,- did not operate to render the contracts made by such corporations with citizens of the State before complying with such conditions, absolutely void, but merely operated to suspend the remedy of the foreign corporation in the courts of the State upon such contracts, until it should have complied with the statutory conditions.3 The new theory was that, until such compliance, any action by the
Daly v. National Life Ins. Co., 64 Ind. 1; post, § 7956.
2 Post, § 7963.
8 Wood Mowing &c. Co. v. Cald
well, 54 Ind. 270; s. c. 23 Am. Rep. 641; Daly v. National Life Ins. Co., 64 Ind. 1; Singer Man. Co. v. Brown, 64 Ind. 548.