Case ID: iowa_126/html/0464-01.html
Source: Caselaw Access Project
Author: {"author": "Bishop, J.—", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Wood & Duvall, Appellees, v. Iowa Building & Loan Association, Appellant.
    Contract of employment: • breach : remedy. A contract of em-1 ployment for personal services to be performed in the future, is not the subject for an action for specific performance, but the remedy in case of breach is a law action for damages.
    Contract of employment: termination by legislative enactment. 2 A contract for personal services entered into with a building and loan association providing for compensation from a specified fund, and which contemplates a possible change in .the law rendering the creation of such a fund and payment of services therefrom illegal, is terminated by a subsequent legislative act to that effect, thus rendering performance impossible.
    
      Appeal from Pollc District Court.— Hon. S. F. Prouty and Hon. W. II. McHenry, Judges.
    Tuesday, February 1, 1905.
    
      AotioN in equity to enforce tbe provisions of a written contract, for an accounting, etc. Plaintiffs are copartners, and tbe defendant, as its name implies, is a building and loan association organized and incorporated under tbe laws ' of this State. The contract in question was entered into in September, 1897. Therein plaintiffs agreed that for tbe period beginning on the date named and ending January 1, 1903, they would engage exclusively in the sale of the capital stock of said association, and in connection therewith appoint, take charge of, and direct the entire agency force engaged in the procurement of subscriptions to such capital stock. Further, that they would have no interest adverse to the association, but would use all efforts to build up and promote the best interests thereof. It was then provided that in consideration for such services the association agreed to pay fifty per cent, of the gross expense fund received on business done from and after the date of the contract and while the plaintiff firm was actively employed under said contract, and fifty per cent of the receipts to tbe expense, fund on. all such business for five years after the expiration or termination of the contract; also all membership fees collected on stock sold by plaintiffs or their agents, and a fixed sum named on all full-paid or prepaid stock sold by them. Quarterly settlements are stipulated for, and to that end the books, records, etc., of the association are to be open to inspection. It was then provided that the association retained the right to change its articles of incorporation, by-laws, and method of doing business whenever the laws of the State or the rulés or requirements of the State Auditor or other supervising officer of the State may require, or whenever its board of directors may deem expedient.; and to all such changes the plaintiff firm agreed, upon notice, to conform, anything in the contract. to the contrary notwithstanding.
    Plaintiffs allege that they entered upon the performance of said contract, and continued therein until July 1, 1900, when defendant refused to longer recognize or be bound by said contract, and discharged plaintiffs from its employ, and has refused- and still refuses to make quarterly account of the amounts due plaintiffs. A decree is prayed for directing defendant to allow plaintiffs to proceed under the contract, that an accoiint be" taken of the amount which has accrued and become due since July 1, 1900, and for siich order with respect to all accounts yet to mature as may be equitable.
    The answer alleges that under the provisions of the articles of incorporation and by-laws of the defendant association-in force at the time of the execution of the contract sued upon an expense fund was provided for, out of which all expenses of the association were to be paid; that such is the fund referred to in said contract. The provisions so pleaded are as follows: The expense fund “ shall consist of ten cents per share deducted from each monthly payment in Division A stock, and six cents per share deducted from each monthly payment in Division C stock, but shall not exceed eight dollars for the maturing of a single share of installment stock. There shall also be paid into the expense fund, from the profits, two dollars per year for each share of deposit or prepaid stock.” The answer then alleges the enactment of, chapter 69, page 51, Acts Twenty-eighth General Assembly, which took effect Hay 3, 1900, and the amendment of its articles of incorporation and by-lav's to conform thereto; that from the time thereof it has had no expense fund, nor any receipts thereto. The defendant pleads that accordingly the further performance of said contract on its part is impossible.
    With the answer the defendant presented a counterclaim based upon the allegation that subsequent to July 1, 1900, the members of the plaintiff firm went abroad in the State, and, in violation of the letter and spirit of the contract alleged, misrepresented the financial condition of the defendant association, asserting that it was insolvent, etc., and thereby induced many of its shareholders to withdraw their interests; that they also procured to be assigned to them much of the outstanding stock of the association, which they presented, and demanded the redemption thereof. Damages in a sum named are claimed. The case came on for trial before Judge Prouty, and was submitted upon the sole question as to the legal rights of the parties under the contract; the affirmative claim for damages pleaded in the answer to be heard and determined at some future date. An interlocutory decree, so denominated, was entered by the court, in which it was found that since July 1, 1900, the defendant had paid its expenses from its profit earnings, and that under the present statute it has the power to use for expenses an annual sum, to be taken from profit sources, equal to two and one-half per cent, of its assets; that plaintiffs were not entitled to recover upon or out of a fixed charge upon stock payments, but that defendant was liable upon the contract in suit in a sum “ equal to one and one-fourth per cent, upon so much of its assets as arises out of and is based upon the stock solicited or caused to be sold by plaintiffs under said contract from July 1, 1900, and interlocutory judgment for said amount is hereby rendered in favor of plaintiffs.” A reference was ordered, conditioned upon a failure of the parties to agree upon the amount plaintiff firm is entitled to recover. From such interlocutory decree the defendant appeals. At a later term said cause came on again before the court, Judge McHenry presiding, and there was then tided the issue under the counterclaim pleaded by the defendant, resulting in a dismissal thereof and judgment against the defendant for costs. From this judgment the defendant appeals. —
    Reversed on first .appeal; Affirmed on second appeal.
    
      Baily & Stipp, for appellant.
    
      Dale & Harvison, for appellees.
   Bishop, J.—

It will be observed that the plaintiff firm is not seeking a recovery in tbe way of damages growing ont of a breach of tbe contract alleged. Tbe relief prayed for is in the nature of a demand for specific performance, and, secondarily, for an accounting to ascertain tbe amount that bad become due under tbe contract, and for judgment. Tbe contract was one for personal services to be rendered. We know of no rule under wbicb future performance of a simple contract of that character can be enjoined or enforced by a decree of court. In all such cases tbe parties are remitted to a law action for damages. But in view of what is presently to be said this point need not be elaborated upon.

As tbe plaintiff firm does not claim to have solicited or made sales of any stock since July, 1900, tbe daté of tbe last settlement, it must be understood that tbe demand fox' an accounting is predicated upon that provision of the contract under wbicb plaintiffs , . , . _ were to be paid fifty per cent, of tbe expense . . . r fund arising out of payments on stock sold previous to that date. Proceeding upon this assumption, we have for determination tbe question whether, in view of the change in tbe situation dictated by tbe subsequent act of tbe Legislature, there remained to plaintiffs any enforceable right under the contract. Tbe statute in force at tbe time of the making of tbe contract authorized the creation of an expense fund substantially as provided for in tbe articles of incorporation and by-laws ®f tbe defendant association. That tbe parties in making their contract had in mind such provisions of tbe statute, as well as tbe laws of tbe association, must be accepted as true, and this to begin with. Now, by a further provision of the statute enacted prior to the organization of tbe defendant association, and in'force at the time of tbe contract in question, it was provided that such corporations, in common with all others, should at all times' be subject to legislative control to tbe extent that tbe rights and powers, granted thereto may be at any time altered, abridged, or set aside by law, * * * whenever the General Assembly shall deem necessary for the public good.” Code, section 1619 (Code 1873, section 1090). With respect to such provision, the presumption authorized by law need not be indulged in. The parties themselves gave recognition thereto, and made their contract to depend as to its terms and the enforceability thereof upon the continuance of the laws then in force, and subject to be affected by any future legislation upon the subject.

' Now, the act of the Twenty-Eighth General Assembly in effect worked a repeal of the former statute authorizing the creation of an expense fund. .After such act took effect there was no longer any right to levy á fixed charge upon stock or stock payments for such purpose, or otherwise to set apart moneys to be devoted to the payment of expenses, whatever the source from which the same were derived. The provision is simply that all expenditures and expenses for management and conducting the affairs of said association * * * shall be paid from the receipts of interest, premiums, and other sources of profit.” The act provides for a limitation upon the amount which may be thus expended — as applied to the defendant association being two and one-half per cent, on its assets as shown by its last annual report. The defendant amended its articles of incorporation and bylaws to bring the same into conformity with the change thus made in the statute. Consideration of the foregoing must make it manifest that with the taking effect of the amenda-tory statute it became impossible for the defendant to carry out its contract by making payments conformably to the terms thereof as written. By general acceptance the expression “ expense fund ” means a fund set apart and dedicated to expense purposes. The defendant no longer has an expense fund which it can divide with plaintiffs, either voluntarily or under stress of judicial decree. True, it is still authorized to meet the current expenses of conducting its business, ,but this it may do only by drawing upon moneys on hand derived from profit sources, and in a sum sufficient for that purpose, observing always the limitation prescribed in the statute. We think it must be said that the situation in which the parties find themselves placed is one contemplated by the provisions of their contract. 'Proceeding upon this assumption, it must also be said that the plaintiff firm is in no position to complain. And. this not only because of such provision in the contract, but by virtue of the prevailing doctrine that a change in the law which makes the performance of a contract impossible or illegal operates to release the obligor from his obligation to perform. Brady v. Insurance Co., 11 Mich. 425; Cordes v. Miller, 39 Mich. 581 (33 Am. Rep. 430); Jones v. Judd, 4 N. Y. 412; Wharton on Contracts, sections 297, 305; 9 Cyc. 629.

This must be true, as otherwise relief could be granted only upon the hypothesis that the power is lodged in the court to-make a new contract for the parties, and to require of the defendant that, without reference to the amount actually needed by it to pay current expenses, it must draw from profit sources the full sum of two and one-half per cent, on all its assets traceable to payments on stock sold by the plaintiff firm, and make division thereof on a moiety basis. There is no authority that recognizes the existence of such power in the courts. Moreover, as we think, any attempt, however made, to divert the profit fund of the association to the extinguishment of a contract obligation in character as here claimed under the guisé of current expense, would be an act in contravention of both the letter and the spirit of the present statute. It follows that the court, as presided over by Judge Prouty, erred in finding that the contract had been breached, and in holding that in view of the extinguishment of the expense fund, compensation could be made by resorting to moneys in the hands of the association derived from profit sources.

Counsel for appellees point out that the moneys sought to be recovered by the plaintiff firm in this action had actually been earned prior to July, 1900; that nothing remained to be done thereafter but to make quarterly settlements and payments. In view of this it is said that, if the act of the Twenty-Eighth General Assembly is to be given effect as contended for by appellant, -the same is violative of the Constitution, in that the result would be, as applied to this case, to impair a fixed contract obligation. In our opinion, the contention is without force. As we have already seen, the right was reserved in the Legislature to change the law at pleasure, and thereunder it might go so far, even, as to legislate such associations out of existence. The parties contracted with such provision as to the right and authority of the Legislature staring them in the face. More than that, they made it a part and parcel of their contract. But, if this were not so, it must be said that the obligation of the defendant to pay was conditioned upon its having a certain fund out of which to make payment. In no event could plaintiffs be heard to assert that they were possessed of a claim ripe for judgment until it had first been made clear that a fund existed out of which, by the terms of their contract, they were entitled to be paid.

II. At a later term of the court the matter involved in the counterclaim pleaded by defendant came on for trial, Judge McHenry presiding. The judgment of dismissal was based upon the insufficiency of the evidence to support the allegations of such counterclaim. .We have read the record in full, and we agree that the trial court had no warrant for reaching any other conclusion.

From what we have said it follows that in respect of the first appeal the interlocutory decree must be, and it is reversed; in respect of the second appeal, the judgment dismissing the counterclaim must be, and it is, affirmed.

Reversed on first appeal; affirmed on second appeal.