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Docket Number

No. 7526.

Attorney(S)

Turner, Seaberry Springer, of Eastland, McGown, McGown, Godfrey Logan, and Harry L. Logan, Jr., all of Fort Worth, for plaintiff in error. Although plaintiff's petition alleged it was a foreign corporation doing business and maintaining an office in Texas under a permit, the uncontroverted evidence proved that plaintiff's suit was founded on an interstate transaction, therefore plaintiff was entitled to rely on the interstate character of the transaction as supporting its right to maintain the suit because Article 1536, R.S. 1925, does not apply to interstate transactions. Dickson Pub. Co. v. Bryan, 5 S.W.2d 980; Bruce v. Hannon, 283 S.W. 862; Allen v. Tyson-Jones Buggy Co., 91 Tex. 22, 40 S.W. 393; 11 Tex. Jur. 162; Jarrell v. Mortgage Co., 129 S.W.2d 379. Mayfield, Grisham Grisham, and J.A. Lantz, of Tyler, for defendant in error. As the testimony does not show that any contract, oral or written, was made between the plaintiff and the defendant Lockhart to the effect that the casing furnished by the plaintiff was to be used in making a particular improvement (drilling a well) on the particular tract in question, but on the contrary does show that such casing was purchased by Lockhart on open account in accordance with the usual course of dealing theretofore obtaining between such parties and constituted personal property, such contract could not form the basis or predicate for a materialman's lien. Reeves v. York Eng. Sup. Co., 249 Fed. 513; Taber v. Interstate B. L. Assn., 91 Tex. 92, 40 S.W. 954; Smith v. Jasper County Lbr. Co., 124 Tex. 156, 76 S.W.2d 505.

Judges

R. H. Harvey

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Smart Summary

Case Summary: The Continental Supply Company v. P.L. Hoffman (Supreme Court of Texas, decided November 6, 1940)

Factual and Procedural Background

The Continental Supply Company, a Delaware corporation, sued C.H. Lockhart and P.L. Hoffman in the District Court of Eastland County. The plaintiff sought: (1) recovery from Lockhart for the purchase price of certain oil well casing sold to Lockhart; (2) foreclosure of a lien on the casing as against both defendants; and (3) recovery against Hoffman for conversion, based on Hoffman's purchase of the casing from Lockhart in Loving County, Texas.

Lockhart defaulted and judgment was rendered against him. The case as to Hoffman was tried to the court without a jury and judgment was entered against Hoffman. On appeal the Court of Civil Appeals affirmed the judgment as to Lockhart but reversed and remanded as to Hoffman, based solely on the absence in the record of evidence that the Supply Company had a permit to do business in Texas (reported at 120 S.W.2d 851). The Supply Company obtained a writ of error to the Supreme Court of Texas.

The case was referred to the Commission of Appeals, Section A, whose opinion the Supreme Court adopted. The Supreme Court reversed the judgment of the Court of Civil Appeals and affirmed the trial court's judgment in all respects.

Legal Issues Presented

Whether Article 1536 of the Revised Statutes (prohibiting a foreign corporation from maintaining a suit in Texas unless it had filed for a permit to do business) applies to demands arising out of interstate transactions (i.e., transactions involving interstate commerce).
Whether, when a plaintiff foreign corporation's petition does not affirmatively allege that a sale was an intrastate transaction, the defendant's failure to raise the character (interstate vs. intrastate) of the transaction constitutes a waiver of the issue.
Whether the lack of evidence in the record that the foreign corporation had a permit to do business required reversal of the judgment as to the defendant who purchased the goods from the defaulting defendant.

Arguments of the Parties

Plaintiff (Continental Supply Company) — Contentions

The suit was founded on an interstate transaction. Because the sale of the casing to Lockhart was an interstate transaction, Article 1536 does not apply and the plaintiff was entitled to maintain the suit despite the record lacking evidence of a permit to do business in Texas.
The petition contained allegations identifying the plaintiff as a Delaware corporation with its principal office and place of business in Dallas and alleged it was "doing business in Texas under and by virtue of a lawful permit." (The record, however, contained no evidence of such a permit.)

Defendant (P.L. Hoffman) — Contentions

The defendant interposed a general denial. The Court of Civil Appeals relied on the absence of evidence of a permit to do business as a basis to reverse the judgment as to Hoffman.
Separate counsel arguments (as reflected in the record) contended that the evidence did not show any contract between the plaintiff and Lockhart to the effect that the casing was furnished for use in making a particular improvement on a particular tract (drilling a well). Instead, counsel argued the casing was purchased by Lockhart on open account and constituted personal property; thus, such a contract could not form the basis for a materialman's lien, citing authorities to that effect.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Dickson Pub. Co. v. Bryan, 5 S.W.2d 980	Cited in support of the proposition that Article 1536 does not apply to interstate transactions (authority relied on by plaintiff's counsel).	Listed among authorities showing that an interstate sale allows a foreign corporation to maintain suit without a Texas permit; treated as supporting the plaintiff's contention (cited by counsel).
Bruce v. Hannon, 283 S.W. 862	Cited as authority for the same general principle regarding interstate transactions and application of Article 1536 (cited by plaintiff's counsel).	Included among authorities the plaintiff relied on to show the statute does not apply to interstate transactions.
Allen v. Tyson-Jones Buggy Co., 91 Tex. 22, 40 S.W. 393	Cited by counsel in support of the proposition that Article 1536 does not apply to interstate transactions.	Referenced by the plaintiff's counsel as authority for the interstate commerce exception to Article 1536.
Jarrell v. Mortgage Co., 129 S.W.2d 379	Cited by plaintiff's counsel in support of the contention that Article 1536 does not apply to interstate transactions.	Listed among authorities relied on by counsel for that legal proposition.
Reeves v. York Eng. Sup. Co., 249 Fed. 513	Cited by defendant's counsel for the principle that where materials are purchased on open account and not for a specific improvement on a tract, a materialman's lien is not supported.	Appears in the record as authority urged by defendants' attorneys on the materialman's lien issue.
Taber v. Interstate B. L. Assn., 91 Tex. 92, 40 S.W. 954	Cited by defendant's counsel on the same lien principle (open account purchase does not support lien).	Cited in the defendants' arguments regarding absence of a contract creating a materialman's lien.
Smith v. Jasper County Lbr. Co., 124 Tex. 156, 76 S.W.2d 505	Cited by defendant's counsel for the proposition limiting the basis for a materialman's lien to appropriate contractual circumstances.	Used in the record by defendants' attorneys to support their position on the lien issue.
Miller Co. v. Goodman, 91 Tex. 41, 40 S.W. 718	Stands for the proposition that Article 1536 applies exclusively to intrastate transactions and does not apply to interstate transactions involving interstate commerce.	The Court expressly relied on this authority (and related discussion) to state and affirm the rule that Article 1536 does not apply to demands arising from interstate transactions.
Texas P. Ry. Co. v. Davis, 93 Tex. 378, 54 S.W. 381	Supports the proposition that the interstate/intrastate distinction controls application of the permit statute even if the foreign corporation maintains an office and does business in Texas without a permit.	The Court cited this case to demonstrate that maintenance of an office or doing business in Texas without a permit does not bring an interstate transaction within Article 1536.
Oklahoma Tool Supply Co. v. Daniels, 290 S.W. 727	Authority for the proposition that a defendant's failure to tender or raise the issue of the character (interstate vs. intrastate) of the transaction is a waiver of that issue.	The Court applied this principle to hold that because the petition did not affirmatively allege the sale was intrastate and the defendant failed to raise the character of the sale, the defendant waived the issue.
Court of Civil Appeals decision, 120 S.W.2d 851	The intermediate appellate court reversed the trial court's judgment as to Hoffman on the ground that the record contained no evidence the Supply Company had a permit to do business in Texas.	The Supreme Court reversed that portion of the Court of Civil Appeals' judgment and affirmed the trial court, finding no error in the trial court's judgment and holding the absence of permit evidence did not mandate reversal under the circumstances.

Court's Reasoning and Analysis

The Court's analysis proceeded in these main steps, all drawn from the opinion:

Statutory framework: The Court examined Articles 1529 and 1536 of the Revised Statutes. Article 1529 prescribes the filing requirement for foreign corporations desiring to transact business in Texas and to obtain a permit. Article 1536 states that no such foreign corporation may maintain suit in Texas "upon any demand" unless it had filed its articles under the statute at the time the contract was made or tort committed.
Scope of Article 1536: The Court relied on controlling precedent to state the legal proposition that Article 1536 applies exclusively to demands arising out of intrastate transactions and does not apply to demands arising out of interstate transactions (i.e., those involving interstate commerce). The Court cited Miller Co. v. Goodman and related authorities for this rule.
Effect of maintaining an office in Texas: The Court noted precedent holding that the interstate/intrastate distinction controls even if the foreign corporation maintained an office and was doing business in the State without a permit. Texas P. Ry. Co. v. Davis was cited for that proposition.
Evidence and pleadings: The record contained uncontroverted evidence that the sale to Lockhart constituted an interstate transaction, but the Court expressly stated it would not rely on that uncontroverted evidence "in discussing the case" and therefore discarded it for purposes of the legal analysis. Instead, the Court examined the plaintiff's petition, which alleged the corporation had its principal office in Dallas and was "doing business in Texas under and by virtue of a lawful permit," but did not affirmatively allege that the sale was intrastate.
Waiver by failure to raise issue: The Court held that because the petition did not affirmatively allege the sale was intrastate and the defendant failed to tender an issue as to the character of the sale (interstate vs. intrastate), the defendant must be regarded as having waived the issue. The Court cited Oklahoma Tool Supply Co. v. Daniels in support of the waiver principle.
Conclusion from legal principles and procedural posture: Applying the rule that Article 1536 does not reach interstate transactions and concluding that the defendant waived the issue that the sale might have been intrastate, the Court found no error committed by the trial court and therefore reversed the Court of Civil Appeals' reversal and remanded portion and affirmed the trial court's judgment in all respects.

Holding and Implications

Holding: The Supreme Court reversed the Court of Civil Appeals' reversal and affirmed the trial court's judgment in all respects. The Court held that (1) Article 1536 of the Revised Statutes applies only to intrastate transactions and does not apply to interstate transactions involving interstate commerce; and (2) where the plaintiff's petition does not affirmatively allege the sale was intrastate and the defendant fails to raise that issue, the defendant is deemed to have waived the issue.

Implications and direct consequences:

As applied here, the plaintiff (a foreign corporation) could maintain its suit on an interstate transaction without proof in the record of having obtained a Texas permit under Article 1536.
The absence of evidence of a permit to do business in Texas did not compel reversal because the transaction in question falls outside Article 1536's scope when it involves interstate commerce, and because the defendant failed to preserve an intrastate-character objection.
The decision affirmed the trial court's judgment against both defendants as entered by that court; the Court of Civil Appeals' reversal as to Hoffman was itself reversed.

Note: This summary is based exclusively on the information contained in the provided opinion. No additional facts or inferences beyond those expressly stated in the opinion have been included.

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THE CONTINENTAL SUPPLY COMPANY v. P.L. HOFFMAN.

1. — Commerce — Statutes.

Article 1536 R.S. 1925, which denies to a foreign corporation the benefits of the courts of the State, unless same have a permit to do business within the State, applies only to intrastate commerce and has no reference to interstate commerce, even though the foreign corporation is maintaining an office within the State and doing business without a permit.

2. — Commerce — Waiver — Pleading.

Where in a suit for the recover of purchase price of goods purchased from a foreign corporation, doing business in Texas without a permit, the petition does not affirmatively allege that the sale is an intrastate transaction, defendant's failure to raise the issue in respect to the character of such sale, shall be regarded as a waiver on his part of such issue.

MR. PRESIDING JUDGE HARVEY delivered the opinion of the Commission of Appeals, Section A.

This suit was instituted in the District Court of Eastland County. The plaintiff in the suit is the Continental Supply Company, a Delaware corporation. The defendants in the suit are C.H. Lockhart and P.L. Hoffman, both of whom reside in this State. The object of the suit is the recovery of judgment (1) against Lockhart for the purchase price of certain oil well casing sold to him by the Supply Company; (2) against both defendants for the foreclosure of a lien on the casing; (3) against Hoffman for conversion of the casing — he having purchased same from Lockhart in Loving County, Texas. Judgment by default was recovered against Lockhart. As between the Supply Company and Hoffman, the case was tried before the trial judge, without a jury. The trial resulted in a judgment against Hoffman. The latter appealed, and the Court of Civil Appeals affirmed the trial court's judgment in the respect that it was against Lockhart; but reversed same in the respect that it was against Hoffman, and remanded the cause. 120 S.W.2d 851. In the respect that its judgment reverses the trial court's judgment and remands the cause, the action of the Court of Civil Appeals is based exclusively on the fact the record contains no evidence to show that the Supply Company had a permit to do business in Texas. The Supply Company has been granted the writ of error.

The Supply Company contends that notwithstanding the record contains no evidence to show that the Company had a permit to do business in this State, the Court of Civil Appeals erred in reversing the trial court's judgment and remanding the cause, in the respects it did. This contention is grounded on the fact that the record contains uncontroverted evidence, which shows that the sale of the casing to Lockhart constituted an interstate transaction. The facts relevant to said contention are substantially as follows:

The petition of the Supply Company, upon which the case was tried, contains appropriate allegations for the recovery of the purchase price of the oil well casing which was sold by the Supply Company to Lockhart. Nothing appears in the petition to characterize said sale as an interstate transaction. Except by inference deducible from the paragraph of the petition quoted below, the petition does not signify that the said sale to Lockhart was an intrastate transaction. Said paragraph reads as follows: "Plaintiff, the Continental Supply Company, is a corporation organized and existing under and by virtue of the laws of the State of Delaware, with its principal office and place of business in Dallas, Dallas County, Texas, and doing business in Texas, under and by virtue of a lawful permit so to do." The defendant Hoffman pleaded the general denial. The record, as has been said, contains no evidence to show that the Supply Company had a permit to transact business in this State; but does contain uncontroverted evidence which shows that the sale of the casing to Lockhart constituted an interstate transaction. However, in discussing the case this uncontroverted evidence will not be considered in order to reach a conclusion, and for this reason will be discarded.

The ruling of the Court of Civil Appeals, upon which its judgment of reversal is based, is to the effect that because the Supply Company is a foreign corporation, it was necessary for the Company to show by evidence that it had a permit to transact business in this State. In the final analysis this ruling was induced by the allegation in the Company's petition, in substance, that the Company had its principal office in this State and was doing business here. This calls to notice the provision of Articles 1529 and 1536 of the Revised Statutes. So far as relevant said statutes read as follows:

Article 1529. "Any corporation for profit * * * organized or created under the laws of any other state * * * desiring to transact or solicit business in Texas, or establish a general or special office in this state, shall file with the secretary of state a duly certified copy of its articles of incorporation; and thereupon such official shall issue to such corporation a permit to transact business in this state * * *"

Article 1536. "No such corporation can maintain any suit * * * in any court of this state, upon any demand, whether arising out of contract or tort, unless at the time such contract was made, or tort committed, the corporation had filed its articles of incorporation under the provisions of this chapter. * * *"

1 It is well settled by the decisions of this Court that the provisions of Article 1536 have reference exclusively to demands which arise out of intrastate transactions. They do not apply to demands which arise out of interstate transactions — that is to say, transactions which involve interstate commerce. Miller Co. v. Goodman, 91 Tex. 41, 40 S.W. 718; 11 Tex. Jur. p. 162. In a word, as regards interstate transactions, no permit to transact business is required.

2 This holds true regardless of the fact that, at the time the interstate transaction occurred, the corporation was maintaining an office and doing business in this State without a permit. Texas P. Ry. Co. v. Davis, 93 Tex. 378, 54 S.W. 381, 11 Tex. Jur. p. 163. So in the present case, treating as true the allegation in the Supply Company's petition, to the effect that the Company had its principal office here, and was doing business in this State, still the necessity for a compliance with the statute does not appear. The fact that the sale to Lockhart constituted an intrastate transaction, is not affirmatively alleged in the plaintiff's petition; the defendant failed to tender issue in respect to the character of such sale and therefore he must be regarded as having waived the issue. Oklahoma Tool Supply Co. v. Daniels, 290 S.W. 727.

We find no error committed by the trial court in any respect. The judgment of the Court of Civil Appeals, in the respect it reverses the trial court's judgment, is reversed, and the judgment of the trial court is in all respects affirmed.

Opinion adopted by the Supreme Court November 6, 1940.

Rehearing overruled December 18, 1940.

THE CONTINENTAL SUPPLY CO. v. HOFFMAN