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In re V-I-D Inc.

July 16, 1952

IN RE V-I-D, INC. KELLEY, GLOVER & VALE, INC.
v.
KRAMER ET AL.



Author: Swaim

Before MAJOR, Chief Judge, and KERNER and SWAIM, Circuit Judges.

SWAIM, Circuit Judge.

This is an appeal from an order of the District Court which overruled the objection of Kelley, Glover & Vale, Incorporated, Trustee, the appellant, to the allowance in a bankruptcy proceeding for the corporate reorganization of the Debtor, V-I-D, Inc., of all claims based on bearer bonds secured by a certain trust indenture executed December 30, 1927, by Charles Baran and Rosie Baran, his wife, the then owners of certain real estate located in Lake County, Indiana, to the Home Bank and Trust Company, an Illinois corporation, and Lawrence H. Prybylski, a resident of Chicago, Illinois, as Trustees. The trust indenture also named Peter L. Evans as Successor Trustee. There were 270 bonds secured by this trust indenture, each for the principal sum of $500.00.

The claims on these bonds were filed in this reorganization proceeding by Charles J. Kramer and Helen Kramer, his wife, who purchased, after maturity, 200 of these bonds aggregating a total principal face value of $101,000.00, and by Peter L. Evans, the Successor Trustee, on behalf of the holder of the remainder of these bonds. The appellant, Kelley, Glover & Vale, Incorporated, Trustee, held a second mortgage on this real estate securing the payment of the original principal sum of $45,000.00. Both the trust indenture and this second mortgage were duly recorded in Indiana. This mortgage was foreclosed in the Porter Superior Court. The decree, entered February 5, 1931, found that there was then due to the mortgagee the principal sum of $38,970.88, with interest from that date at the rate of 6 per cent per annum.

The parties agree that the real estate here involved is not of sufficient value to satisfy either of these claims. For that reason the District Court ordered that the Trustee in the reorganization proceeding should not participate in this appeal either in person or by counsel.

The principal contention of the appellant is that, since the Home Bank and Trust Company was a foreign corporation which never qualified to do business in Indiana, and since the District Court found that the negotiation by it of the trust indenture loan in Indiana constituted "doing business" in Indiana within the meaning of the Indiana statutes, Burns' Indiana Statutes Annotated 1926, § 4909 and Burns' Indiana Statutes Annotated 1950 Replacement, § 18-2301, no action may be maintained by or on behalf of the present holders of the bonds in either a state or a federal court in Indiana.

An early Indiana statute, Burns' Indiana Statutes Annotated 1926, § 4918, provided a penalty for foreign corporations which did business in Indiana without complying with the requirements of this statute,

"* * * and, in addition to such penalty, if, after this act shall take effect, any foreign corporation shall fail to comply herewith, no suit may be maintained, either at law or in equity, upon any claim, legal or equitable, whether arising out of contract or tort, in any court in this state."

A later Indiana statute on this subject, Burns' Indiana Statutes Annotated 1950 Replacement, § 18-2328, provides:

"(a) No foreign corporation transacting business in this state without procuring a certificate of admission * * * shall maintain any suit, action or proceeding in any of the courts of this state upon any demand, whether arising out of contract or tort; and every such corporation so transacting business shall be liable by reason thereof to a penalty of not exceeding ten thousand dollars ($10,000), * * *.

"(b) If any foreign corporation shall transact business in this state without procuring a certificate of admission, * * * such corporation shall not be entitled to maintain any suit or action at law or in equity upon any claim, legal or equitable, whether arising out of contract or tort, in any court in this state; * * *."

State statutes vary on the requirements for the admission of foreign corporations to do business in the states and on the penalties for non-compliance. Some statutes expressly provide that contracts made by non-complying foreign corporations shall be wholly void. Some statutes make such contracts void only on behalf of the non-complying corporations. Some provide that such contracts shall also be void on behalf of the assignees of the corporation or on behalf of other persons claiming under the corporation. Other statutes provide that such contracts shall be void only on behalf of the corporation but shall be enforceable against the corporation. These variations in the state statutes naturally lead to wide variations in the decisions of the state courts construing the statutes.

Indiana courts hold that the Indiana statute does not make a contract made by a non-complying corporation void, but only prevents the corporation from using the courts of the state to enforce the contract. If a foreign corporation complies after making the contract, it may then maintain an action on the contract in the courts of Indiana. Selph v. Illinois Pipeline Co., 206 Ind. 490, 190 N.E. 191, and Peter & Burghard Stone Co. v. Carper, 96 Ind.App. 554, 172 N.E. 319, 775. See also Metropolitan Life Insurance Co. v. Kane, 7 Cir., 117 F.2d 398, 133 A.L.R. 1163, and Reconstruction Finance Corporation v. Barnett, 7 Cir., 118 F.2d 190, two cases decided by this court. The appellant insists that this statutory restriction on the non-complying foreign corporation also applies to its assignees, the present holders of these bonds.

However, we need not dwell on the question of whether the present owners of these bonds could maintain an action on the bonds in the Indiana state court because their claims were presented in a bankruptcy court. The Supreme Court has repeatedly held that in the allowance ...


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