Opinion ID: 1700082
Heading Depth: 1
Heading Rank: 2

Heading: Private Rights

Text: The determination that subsequent qualification not in anticipation of litigation satisfies the public policy of the state does not by itself restrict the defense of § 10-2A-247 and § 232. Indeed, a party may assert the defense as a private right even though the policy behind the law is fulfilled. However, because subsequent qualification removes any policy concerns, a private party can waive his rights. Hence, subsequent qualification allows the foreign corporation to sue on a contract when the other party is equitably estopped from asserting the defense. In the present case, Sanjay offered evidence that defendants knew Sanjay was not qualified and offered assistance to Sanjay to make it legal to do the construction work in question. Sanjay allegedly relied on these representations in contracting and performing the construction work. If proven, such facts would constitute the basic elements of equitable estoppel. See Baker v. Hospital Corp. of Am., 432 So.2d 1281, 1285 (Ala.1983); Mazer v. Jackson Ins. Agency, 340 So.2d 770 (Ala.1976). Since we recognize equitable estoppel as a defense in this situation, summary judgment on this issue was inappropriate. We have reached a similar conclusion in an earlier case. In Day v. Ray E. Friedman & Co., 395 So.2d 54 (Ala.1981), this Court held that a party may, by his conduct, waive the contract defense of § 10-2A-247. In Day, the plaintiff, Ray E. Friedman & Co., was an Illinois corporation properly licensed by federal authorities to conduct business as a commodities broker. Friedman, in connection with opening a branch office in Birmingham, entered into a written contract with Day, who was to act as Friedman's account executive in Birmingham. Friedman did not qualify to do business in Alabama until April 12, 1974, more than one month after signing the contract. On September 30, 1974, Day and Friedman mutually agreed to sever their relationship. Before transferring his license to another brokerage house, Day was required under the rules of commodities exchanges to settle his debts with his former employer, Friedman. The employment contract provided that Day would guarantee to Friedman payment of account deficiencies incurred by Birmingham customers trading on margin. As a result of this guarantee, as well as personal losses allegedly incurred by Day, Day owed Friedman $8,745.34. To settle the debt, Day executed a promissory note for the amount of the indebtedness to Friedman. Subsequently, Friedman filed suit to collect on the promissory note. Day's answer alleged, inter alia, that the note was void because of a failure of consideration on the theory that the underlying contractual obligation was void in Alabama at the time when Friedman was a foreign corporation which was not licensed to do business in Alabama. 395 So.2d at 56. In an unanimous opinion on this issue, written by Justice Maddox, we found that Day's conduct after Friedman qualified to do business constituted a waiver of the § 10-2A-247 defense. In affirming the trial court's grant of summary judgment on this issue, we approved the language of the trial court's decision. Following Friedman's qualification to do business on April 12, 1974, Day continued as an employee of Friedman. When he terminated his employment with Friedman, Day executed a promissory note in the principal amount of $8,745.34, recognizing his obligation to Friedman with respect to his own and his customer's debit balances. From the undisputed evidence in this case, the Court concludes that after Friedman had qualified to do business in Alabama, Day by his conduct recognized and adopted the employment agreement entered into by him with Friedman. It is then no defense to Friedman's claim under the note that Friedman had failed to qualify to do business in Alabama at the time the employment agreement was executed. While Day in his supplementary affidavit denies that any part of the balance due under the note represents his own debit account balance, he does not deny that the same represents debit balances of customers procured by him for which he is liable to Friedman under the terms of the employment agreement. There is then ample consideration for the execution of the note.... 395 So.2d at 56-57. Although the Day holding does not expressly refer to equitable estoppel, the behavior involved created waiver and reliance, the essential characteristics of estoppel. Presumably, the Court was unconcerned with the public policy issue in Day; indeed, like those in the present case, the facts in Day do not appear to invoke the policy concerns underlying § 10-2A-247, since Friedman subsequently qualified not in anticipation of specific litigation and was subject to relevant regulation. I do not entirely dismiss public policy concerns in the present case, recognizing the necessity of formally addressing the issue. Only in this limited sense do I disapprove of Day's approach. The majority opinion attempts to distinguish Day from this case on three grounds. First, the contract sued upon in Day was a promissory note entered into after the foreign corporation qualified to do business. The issue was whether the note was void because of a failure of consideration related to the underlying agreement entered into at a time when Friedman was not qualified. In other words, the note would have been void if the contract which gave rise to the debt was itself void under § 10-2A-247. Therefore, the issue of the voidability of a contract entered into by a non-qualified foreign corporation was squarely before us in Day. The majority's second ground for distinction is that some of the money owed by Day represented his personal losses while trading commodities. To the extent that Friedman was liable for the personal losses of Day, this liability was apparently the result of the underlying employment agreement. Therefore, the voidability of the contract, even as to Day's personal losses charged to Friedman's account, determined if there was any consideration for the note. The fact that Day owed money to Friedman for personal losses or debts arising from a guarantee can only flow from some contract relationship between the parties, fully subject to § 10-2A-247. Moreover, Day denied that he owned any money personally; summary judgment was only based upon the assumption that the account balance reflected money owed as a result of the contract guarantee. 395 So.2d at 56-57. Therefore, personal losses were not considered by the Court. The third distinction is an attempt to describe Friedman's activities as interstate commerce and thus not subject to state regulation. See Johnson v. M.P.L. Leasing Corp., 441 So.2d 904 (Ala.1983). Friedman's activities of setting up an Alabama office, hiring employees, and regularly selling commodity shares in Alabama clearly constitute intrastate involvement completely subject to state regulation. Because the majority opinion fails to distinguish Day from this case, the reasoning in Day must apply here. Defendants' alleged conduct in this case, like Day's, constitutes a waiver of the defense under § 10-2A-247. In the absence of a public policy behind enforcement of a statute in a given case, a private party's rights under the statute may be waived. In the present case, I find that Sanjay's subsequent qualification not in anticipation of litigation does not violate the public policy of Alabama. Because a party who accepts the benefits of a contract should not be allowed to escape the burdens, Smith v. Edward M. Thompson Agency, Inc., 430 So.2d 859, 862 (Ala.1983), I would reverse the summary judgment. ADAMS, J., concurs.