Story Case

The Shelby Lumber Company was a corporation, organized under the laws of the state of Mississippi. Its business consisted in buying timber, sawing it, and selling lumber. In order to dispose of the lumber the more easily, the corporation established an office in Chicago, Illinois. A warehouse was leased from Mr. McDonald, in which the lumber was quite frequently stored. The business did not prosper as anticipated. The company fell behind in payment of its rent to Mr. McDonald. He now sued to recover it. The company set up the fact that it had not complied with the laws of Illinois, in respect to the right of a foreign corporation to do business in that state. That such failure rendered the contract unenforcible. What should the Court decide under the foregoing circumstances?

Ruling Court Case. Gaul Vs. Kiel And Arthe Company, Volume 199 New York Reports, Page 47

The Kiel and Arthe Company was a foreign corporation transacting business in the state of New York. It employed Gaul, the plaintiff in the present action, to act as its salesman in the state of New York. The company, by way of compensation for his services, promised to pay Gaul a certain salary, and, in addition thereto, a commission upon the profits of the business. At the end of the year the company paid him the salary promised, but refused to pay anything more, because, as it alleged, no profits were made that year. Gaul brought this action, and showed that the company had made profits.

The company then contended that the contract was void, because no license had been procured to do business in New York, as required by law.

Decision

The law of New York provides that a corporation, incorporated under the laws of a foreign state, must procure a license, in order to engage in business in New York; failure to do so renders its contracts unenforcible. This means that the corporation may not enforce such contracts; not that the other party may not enforce them. Accordingly, Gaul is entitled to recover from the corporation in this action.

Mr. Justice Chase said in part: "It is contended by the defendant that, as it is a foreign corporation and it does not affirmatively appear by the record that it had obtained a license to do business in this state, pursuant to Section 15 of the general corporation law, the contract should be held to be illegal and unenforcible. It is enough to say, in answer to this proposition, that the statute in question was not enacted for the benefit of foreign corporations. If the defendant has not obtained a license, pursuant to such statute, it cannot now take advantage of its failures to obey such statute to defeat an action brought against it in this state." Judgment was given for Gaul.

Ruling Law. Story Case Answer

In order to enforce the observance of the terms and conditions imposed upon foreign corporations, the state law generally provides that a failure to comply with them renders unenforcible the contracts of the corporation. This does not mean, however, that the contract is void for all purposes. Other parties may still enforce their contracts against the corporations, provided Service of Court Writ can be made upon some one in the state representing the corporation. In the Story Case, therefore, Mr. McDonald may recover from the corporation the amount of rent due him.