There is a clear distinction between questions concerning the
operation and effect of the law of a state within its borders and
upon the conduct of persons within its jurisdiction and questions
concerning the right of the state to extend its authority beyond
its borders with the same effect, and a decision upon the former
does not constitute a ground for refusing to entertain a writ of
error to review the judgment of the state court involving the
latter. A state may not extend the operation of its statutes beyond
its borders into the jurisdiction of other states so as to destroy
and impair the
Page 234 U. S. 150
right of person not its citizen to make a contract not operative
within its jurisdiction and lawful in the state where made.
Under the full faith and credit clause of the Federal
Constitution, the courts of one state are not bound to declare a
contract, which was made in another state and modified a former
contract, illegal because it would be illegal under the law of the
state where the original contract was made and of which neither of
the parties is a resident or citizen.
The power that a state has to license a foreign insurance
company to do business within its borders and to regulate such
business does not extend to regulating the business of such
corporation outside of its borders and which would otherwise be
beyond its authority.
The Constitution and its limitations are the safeguards of all
the states preventing any and all of them, under the guise of
license or otherwise, from exercising powers not possessed.
A statute of Missouri regulating loans on policies of life
insurance by the company issuing the policy
held not to
operate to affect a modifying contract made in another State
subsequent to the loan by the insured and the company, neither of
whom was a resident or citizen of Missouri.
241 Mo. 403 reversed.
The facts, which involve the jurisdiction of this Court to
review judgments of the state court and also the power of a state
to regulate the business beyond its borders of a foreign
corporation licensed to do business therein, are stated in the
opinion.
Page 234 U. S. 154
MR. CHIEF JUSTICE WHITE delivered the opinion of the Court.
In March, 1894, Richard G. Head, a citizen and resident of New
Mexico, being temporarily in Kansas City, Missouri, made
application at a branch office of the New York Life Insurance
Company for two policies of insurance for $10,000 each on his own
life, for the benefit of his minor son, Richard G. Head, Jr. The
application stated the residence of Head in New Mexico, and it was
stipulated that the policy applied for when issued should
Page 234 U. S. 155
be considered as having been issued in New York and be treated
as a New York contract. When Head made the application, he handed a
note for the premium to the agent with instructions, when the
policies came, to turn them over to a friend to hold for him. The
policies were issued, were delivered as directed, and were
subsequently turned over to Head when he again came to Kansas City.
All the premiums but the first, with perhaps one exception, were
paid in New Mexico or at an agency of the company in Colorado. Nine
years after the issue of the policies -- that is, in 1903 -- in New
Mexico, Head transferred one of the policies to his daughter, Mary
E. Head, the transfer having been either by way of original
authority or ratification duly sanctioned by the proper probate
court in the county of New Mexico where Head was domiciled. In
1904, Mary E. Head, under the policy of which she thus became the
beneficiary, borrowed from the New York Life Insurance Company the
sum of $2,270. The loan was requested by a letter written from Las
Vegas, New Mexico, to New York, and accompanied by the policy and
an executed loan agreement in the form usually required by the
company, and which conformed to the requirements of the New York
law. The loan bore 5 percent interest, and the agreement provided
that it should be payable at the home office in New York, and that,
if any premium on the policy or any interest on the loan were not
paid when due,
"settlement of said loan and of any other indebtedness under
said policy shall be made by continuing said policy without further
notice as paid-up insurance of reduced amount in accordance with
Section 88, Chapter 690, of the Laws of 1892 of the State of New
York."
There was default in April, 1905, in the payment of the interest
on the loan and the premium on the policy, and, pursuant to the
terms of the loan agreement and the law of New York, the policy was
settled, the sum remaining from the accumulated surplus after
paying the loan and
Page 234 U. S. 156
the past-due premium being applied to the purchase of paid-up
insurance, and the policy was, at the request of Head and his
daughter, sent to them in New Mexico in May, 1905, and was in the
possession of the daughter when Head died in April, 1906.
In September, 1906, this suit was commenced in a court of the
State of Missouri by Mary E. Head, the beneficiary, to recover the
full amount of the policy. Stating the grounds for relief which
were relied upon not as literally expressed in the pleadings, but
with reference to the ultimate assumption upon which the right to
recover was essentially based, it was as follows: that, although it
was true that, if the face of the policy was adhered to and the
terms of the loan agreement were considered and the law of New York
applied, the settlement of the policy would be binding, it was not
so binding, but, on the contrary, was void, because, at the time
the policy was written, there were statutes in force in the State
of Missouri which made it the duty of the company to retain from
the accumulated surplus a given percentage thereof, and in case it
was necessary to save forfeiture, to apply the sum of such retained
percentage to the payment of premium on temporary insurance as far
as it would go, and if this duty had been discharged when the
failure to pay took place, the sum of the retained percentage would
have been adequate to extend the insurance to such a period as
would have caused the full amount of the policy to be a valid and
existing risk at the death of Head. Resting thus upon the Missouri
statutes, of course, the fundamental assumption upon which the
right to recover was based was the controlling operation and effect
of the Missouri law upon the policy, upon the terms of the loan
agreement, and upon the law of the State of New York which would
otherwise govern, as New York was the place where the loan
agreement was made and the adjustment of the policy took place. As
there is no controversy concerning the meaning of the
Page 234 U. S. 157
Missouri statutes if they were controlling, we content ourselves
with referring to the sections of the Revised Statutes of Missouri
which are relied upon as having produced the consequences stated:
Sections 5856-5859 and 7897-7900 of the Revised Statutes of
Missouri of 1899. And the defense, considered also in its ultimate
aspect, but asserted the validity of the settlement made in New
York under the loan agreement, denied the applicability of the
statutes of Missouri to that settlement, and expressly insisted
that such statutes could not be applied to the situation without
violating the due process clause of the Fourteenth Amendment, and
depriving of the right of freedom of contract guaranteed by that
Amendment, and giving rise to the impairment of the obligation of a
contract, contrary to the provisions of § 10, Article I of the
Constitution of the United States.
There was recovery in the court of first instance for the amount
claimed under the policy, the court maintaining the supremacy of
the Missouri statutes. In the supreme court, to which the case was
taken after a hearing in a division thereof, the judgment below was
affirmed on an opinion which expressly held that the policy of
insurance was a Missouri contract, controlled by the Missouri law,
and that, by the operation and effect of that law, the loan
agreement made in the State of New York, and the settlement
effected in that state in accordance with that agreement,
conformably to the laws of New York, was controlled by the Missouri
statute and was void. And the opinion so holding was in express
terms adopted by the court in banc, where the case was reheard.
The rights under the contract clause of the Constitution of the
United States and the Fourteenth Amendment, which, as we have
stated, were asserted below form the basis of the assignments of
error. As the conflicting contentions concerning these
constitutional questions advanced to refute, on the one hand, and
to sustain, on the
Page 234 U. S. 158
other, the reasons which led the court below to its conclusion
involve the whole case, to briefly state at the outset the
propositions upheld below will concentrate the issues and serve to
give bold relief to the questions which require to be decided. (a)
Determining whether the contract was a Missouri contract, made in
that state and governed by its laws, the court held that the
express stipulation in the contract to the effect that the policy
was to be considered as issued from the home office, and be treated
as a New York contract, was overborne by the fact that the
application for the policy was made to the Kansas City agency, that
the policy was sent there for delivery, and that the first premium
was there paid. (b) In deciding that this view was not modified by
the fact that the insured was a nonresident of Missouri, and by the
further fact that, on the face of the policy, it was clearly
manifest that it was executed not for the purpose of having effect
in Missouri, but to be operative outside of that state, the court
said:
"It has been repeatedly ruled in this state since the enactment
of §§ 5856
et seq. of the Revision of 1889 (now Rev.Stat.
1909, § 6946) and the Act of 1891 (Laws 1891, p. 75), Rev.Stat.
1899, §§ 1024 and 1026 (now Rev.Stat. 1909, §§ 3037, 3040), that
foreign insurance companies admitted to carry on their business in
this state can only contract within the limits prescribed by our
statutes, and that, in the conduct of the business under the
license granted by this state, they"
"shall be subjected to all the liabilities, restrictions, and
duties which are or may be imposed upon corporations of like
character organized under the general laws of this state, and shall
have no other or greater powers."
"The effect of these decisions is to write into every insurance
contract made by a foreign insurance company so licensed in this
state all of the provisions of the statutes of this state
appurtenant to the making of such contract, and which define and
measure the reciprocal rights and duties of the parties
thereto.
Page 234 U. S. 159
These statutes are declaratory of the public policy of this
state, and inhibit the doing of the business of insurance in this
state by any corporation contrary to their regulations by annulling
all the stipulations which offend the provisions of the statutes.
Horton v. Ins. Co., 151 Mo. 604;
Smith v. Ins.
Co., 173 Mo. 329;
Burridge v. Ins. Co., 211 Mo. 158;
Cravens v. Ins. Co., 148 Mo. 583;
Ins. Co. v.
Cravens, 178 U. S. 389;
Whitfield v.
Ins. Co., 205 U. S. 489,
aff'g Keller
v. Ins. Co., 58 Mo.App. 557."
241 Mo. 413.
(c) In disposing of the contention that, as the loan agreement
was made in New York by persons not citizens of Missouri, and was
sanctioned by the law of New York, it could not be treated as void
by extending the Missouri statutes into the State of New York
without a violation of the Fourteenth Amendment, and without
impairing the obligation of a contract, the court said:
"It is not an open question in this state that all subsidiary
contracts made by the parties to an insurance contract are within
the contemplation and purview of the original contract, and are not
to be treated as independent agreements. This being so, they are
inefficacious to alter, change, or modify the rights and
obligations as they existed under the original contract of
insurance.
Burridge v. Ins. Co., supra; Smith v. Ins. Co.,
supra."
Before approaching the constitutional questions relied upon in
the light of these rulings, we must dispose of a motion to dismiss.
It rests upon the ground that, as the court below sustained its
ruling by reference to a line of state decisions, a leading one of
which had been affirmed by this Court (
New York Life Insurance
Co. v. Cravens, 178 U. S. 389)
prior to the decision below, therefore, as the basis for
jurisdiction had been demonstrated to be unfounded by a decision of
this Court announced prior to the time the writ of error was
prosecuted, there was no substantial ground upon which to base the
suing out of the writ, and it
Page 234 U. S. 160
must be dismissed. But the contention rests upon a plain
misconception as to what was involved and decided in the
Cravens case, since that case but concerned a contract of
insurance made in Missouri as to a citizen of that state, and
required it only to be determined whether rights under the
Constitution of the United States had been denied by the ruling of
the state court holding void a forfeiture of a policy which had
been declared by the corporation for a failure to pay in Missouri a
premium there due when such forfeiture was in direct violation of
the prohibition of the state law. The difference, therefore,
between that case and this is that which, in the nature of things,
must obtain between questions concerning the operation and effect
of a state law within its borders and upon the conduct of persons
confessedly within its jurisdiction and its right to extend its
authority beyond its borders so as to control contracts made
between citizens of other states, and virtually, in fact to
disregard the law of such other states by which the acts done were
admittedly valid.
Coming to the merits, to narrow the subject to be decided as
much as possible, we pass the consideration of the ruling below,
holding that, under the proof, the contract was a Missouri
contract, and therefore, for the sake of argument only, concede
that there was power in the state to treat the contract made for
the purposes stated as a Missouri contract, and to subject it, as
to matters and things which were legitimately within the state
authority, to the rule of the state law. And this concession brings
us to consider the second general inquiry, which is the power of
the State of Missouri to extend the operation of its statutes
beyond its borders into the jurisdiction of other states, so as in
such other states to destroy or impair the right of persons not
citizens of Missouri to contract, although the contract could in no
sense be operative in Missouri, and although the contract was
sanctioned by the law of the state where made. That is to say, the
right of a state where a contract
Page 234 U. S. 161
concerning a particular subject matter not in its essence
intrinsically and inherently local is once made within its borders
not merely to legislate concerning acts done or agreements made
within the state in the future, concerning such original contract,
but to affect the parties to such original contract with a
perpetual contractual paralysis following them outside of the
jurisdiction of the state or original contract by prohibiting them
from doing any act or making any agreement concerning the original
contract not in accord with the law of the state where the contract
was originally made. In other words, concretely speaking, we must
consider the validity of the loan agreement -- that is, how far it
was within the power of the State of Missouri to extend its
authority into the State of New York, and there forbid the parties,
one of whom was a citizen of New Mexico and the other a citizen of
New York, from making such loan agreement in New York simply
because it modified a contract originally made in Missouri. Such
question, we think, admits of but one answer, since it would be
impossible to permit the statutes of Missouri to operate beyond the
jurisdiction of that state and in the State of New York, and there
destroy freedom of contract without throwing down the
constitutional barriers by which all the states are restricted
within the orbits of their lawful authority, and upon the
preservation of which the government under the Constitution
depends. This is so obviously the necessary result of the
Constitution that it has rarely been called in question, and hence
authorities directly dealing with it do not abound. The principle,
however, lies at the foundation of the full faith and credit clause
and the many rulings which have given effect to that clause.
[
Footnote 1]
Page 234 U. S. 162
It is illustrated as regards the right to freedom of contract by
the ruling in
Allgeyer v. Louisiana, 165 U.
S. 578, and it finds expression in the decisions of this
Court affirmatively establishing that a state may not, consistently
with due process clause of the Fourteenth Amendment, extend its
authority beyond its legitimate jurisdiction either by way of the
wrongful exertion of judicial power or the unwarranted exercise of
the taxing power. [
Footnote
2]
And an analysis of the opinion of the court below makes it clear
that its ruling was rested not upon any doubt concerning the
obvious operation of the Constitution which we have pointed out,
but because it was deemed that the peculiar facts and circumstances
of this case took it out of the general rule and caused it to be
therefore a law unto itself. We say this because, while it is true
the court based its conclusion upon a line of cases previously
decided in that state, as all the cases thus relied upon involved
only policies of insurance issued in Missouri to citizens of
Missouri, and were solely concerned with the effect of acts done in
Missouri which it was asserted were forbidden by the statutes of
that state existing at the time when the acts were done, it could
not have been that the cases were deemed to be controlling upon the
principle of
stare decisis, but they must have been held
to be controlling because of the persuasive force of the reasoning
upon which they had been decided. Indeed, this is not left to
inference, since the court below, in its opinion, summarized the
reasoning in the previous cases as shown by the passage which we
have quoted, and made it the groundwork of its ruling in this case,
that reasoning being as follows: insurance companies chartered by
Missouri took their existence from
Page 234 U. S. 163
the grant of the state, and therefore had no power to contract
in excess of that which was conferred upon them by the state;
hence, all acts done by them which were prohibited by the state law
were
ultra vires and void. But, as foreign insurance
companies have no right to come into the state and there do
business except as the result of a license from the state, and as
the state exacts as a condition of a license that all foreign
insurance companies shall be subject to the laws of the state as if
they were domestic corporations, it follows that the limitations of
the state law resting upon domestic corporations also rest upon
foreign companies, and therefore deprive them of any power which a
domestic company could not enjoy, thus rendering void or
inoperative any provision of their charter or condition in policies
issued by them or contracts made by them inconsistent with the
Missouri law. But, when this reasoning is analyzed, we think it
affords no ground whatever for taking this case out of the general
rule and making the distinction relied upon. This is so as the
proposition cannot be maintained without holding that, because a
state has power to license a foreign insurance company to do
business within its borders, and the authority to regulate such
business, therefore a state has power to regulate the business of
such company outside its borders, and which would otherwise be
beyond the state's authority. A distinction which brings the
contention right back to the primordial conception upon which alone
it would be possible to sanction the doctrine contended for -- that
is, that, because a state has power to regulate its domestic
concerns, therefore it has the right to control the domestic
concerns of other states. It is apparent, therefore, that to accept
the doctrine, it would have to be said that the distribution of
powers and the limitations which arise from the existence of the
Constitution are ephemeral, and depend simply upon the willingness
of any of the states to exact as a condition of a license granted
to a foreign corporation
Page 234 U. S. 164
to do business within its borders that the Constitution shall be
inapplicable, and its limitations worth nothing. It would go
further than this, since it would require it to be decided not only
that the constitutional limitations on state powers could be set
aside as the result of a license, but that the granting of such
license could be made the means of extending state power so as to
cause it to embrace subjects wholly beyond its legitimate
authority.
It is true it has been held that, in view of the power of a
state over insurance, it might, as the condition of a license given
to a foreign insurance company to do business within its borders,
impose a condition as to business within the state which otherwise,
but for the complete power to exclude, would be held repugnant to
the Constitution. In other words, that a company having otherwise
no right whatever, for any purpose, to go in without a license,
would not be heard, after accepting the same, to complain of
exactions upon which the license was conditioned as
unconstitutional, because of its voluntary submission to the same.
But even if it be put out of view that his doctrine has been either
expressly or by necessary implication overruled, or at all events
so restricted as to deprive it of all application to this case
(
see Harrison v. St.L. & San Francisco R. Co.,
232 U. S. 318,
232 U. S. 332,
and authorities there cited), it here can have no possible
application, since such doctrine, at best, but recognized the power
of a state, under the circumstances stated, to impose conditions
upon the right to do the business embraced by the license, and
therefore gives no support to the contention here presented, which
is that a state, by a license, may acquire the right to exert an
authority beyond its borders which it cannot exercise consistently
with the Constitution. But the Constitution and its limitations are
the safeguards of all the states, preventing any and all of them,
under the guise of license or otherwise, from exercising powers not
possessed.
Page 234 U. S. 165
As it follows from what we have said that the primary conception
upon which the court below assumed this case might be taken out of
the general rule, and thereby the State of Missouri be endowed with
authority which could not be exercised consistently with the
Constitution, was erroneous, it results that the necessity for
reversal is demonstrated without requiring us to consider other
propositions. But, before we come to direct the judgment of
reversal, we briefly refer to another aspect of the subject -- that
is, the ruling of the court below as to the subsidiary nature of
the loan agreement, and its consequent control by the broader
principle upon which its conclusion was really based. Of course,
under the view which we have taken of the case -- that is, of the
want of power of the State of Missouri, because the contract of
insurance was made within its jurisdiction, to forever thereafter
control by its laws all subsequent agreements made in other
jurisdictions by persons not citizens of Missouri, and lawful where
made -- that is, to stereotype, as it were, the will of the parties
contracting in Missouri as of the date of the contract, it is
unnecessary to consider whether the loan agreement was or was not
subsidiary;
but see on this subject,
Leonard v.
Charter Oak Life Ins. Co., 65 Conn. 529;
Fireman's Ins.
Co. v. Dunn,, 22 Ind.App. 332;
S.S. White Dental Mfg. Co.
v. Delaware Ins. Co., 105 F. 642; 2 Wharton Conflict of Laws §
467g, and cases cited,
and see note in 63 L.R.A. 833.
Reversed.
[
Footnote 1]
Huntington v. Attrill, 146 U.
S. 657;
Tilt v. Kelsey, 207 U. S.
43;
Fauntleroy v. Lum, 210 U.
S. 230;
American Express Co. v. Mullins,
212 U. S. 311;
Converse v. Hamilton, 224 U. S. 243.
And see Bedford v. Eastern Building Ass'n, 181 U.
S. 227.
[
Footnote 2]
Pennoyer v. Neff, 95 U. S. 714;
Overby v. Gordon, 177 U. S. 214,
177 U. S. 222;
Old Wayne Life Ass'n v. McDonough, 204 U. S.
8;
Louisville & J. Ferry Co. v. Kentucky,
188 U. S. 385;
Delaware, L. & W. R. Co. v. Pennsylvania, 198 U.
S. 341;
Union Transit Co. v. Kentucky,
199 U. S. 194;
Buck v. Beach, 206 U. S. 392;
W. U. Tel. Co. v. Kansas, 216 U. S.
1,
216 U. S. 38.