Case ID: ohio-st_38/html/0349-01.html
Source: Caselaw Access Project
Author: {"author": "MoIlvaine, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Simpson v. Building and Savings Association.
    An executory contract between a building association, incorporated under the act of May 9, 1868 (S. & S. 194), and one of its members in respect to shares .claimed by him in his own right and in excess of twenty shares, the maximum number which, under the statute, a member may held in his own right, is ultra vires and cannot be enforced by action.
    Error to the District Court of Highland county.
    By consent of parties, two actions, Nos. 2604 and 2606, pending in the court of common pleas of Highland county, were consolidated. In both actions the defendant in error was plaintiff. In No. 2604 plaintiff in error James P. Simpson and Isaac Simpson, E. Davies and Joseph P. Simpson were defendants, and in 2606 said James P. Simpson and Isaac Simpson and Mary Ann Simpson were defendants. The two actions were tried together in the court of common pleas, and judgment in each was rendered in favor of the defendants. Both judgments were reviewed and reversed in the district court, upon a single petition in error, prosecuted by the plaintiff in the original actions, and to reverse the judgment of reversal, this proceeding is prosecuted by the defendants in the original actions.
    The sole cause of action in the original suit No. 2604, and the first and second causes of action in No. 2606 were based on similar written undertakings, differing only in dates, amounts and makers. The following is a copy of the contract set out in the second cause of action in No. 2606 :
    
      “ $12,400. Greenfield, Ohio, May 6, 1873.
    “Por value received, we, James P. Simpson and Isaac Simpson, or either of us, promise to pay to the Greenfield Building and Savings Association, the sum of $12,400, with interest on $8,563.75. Principal and interest payable as follows: said James'P. Simpson, a member of said Greenfield Building and Savings Association, having received from said Association advanced loans to the amount of $12,400, the full value of sixty-two shares of stock in said Association at premiums for precedence as follows: On twenty shares $52.50 ; on one share $58 ; on twenty shares $65; on one share $68.25, and on the remaining twenty shares $68. On said sixty-two shares of stock, we, or either of us, agree to pay said Association a weekly installment of $15.50, twentydive cents per share, and on $8,563.75, the amount of said advanced loans less premium for precedence, we, or either of us, promise to pay interest as follows: $33.31 on the first day of June, 1873, and $41.24 on the first day of July, 1873, and thereafter a monthly installment of $42.82 on the first day of each month succeeding, until said loan is fully paid, and said association dissolved as provided in the constitution, rules and regulations of said association. And it is further agreed that the surrender of this note at the winding-up of said association shall be a full consideration for said sixty-two shares of stock. This note is secured by mortgage on real estate. In testimony whereof we have hereunto set our hands on the day and year first above written. . ' “ James P. Simpson.
    Isaac Simpson.”
    The contract set out in the first cause of action in No. 2606 and in No. 2604 related to advanced loans on twenty other shares (in each case), of the stock of said association owned by said James P. Simpson.
    A third cause of action in No. 2606 was on a mortgage executed by Isaac and Mary Ann Simpson to secure the performance of the contracts set out in the preceding causes of action.
    
      By these actions, the plaintiff sought to recover the amount due and unpaid on account of the 102 shares of stock, including monthly dues, fines, and interest on loans advanced.
    The constitution, rules and regulations of said association, referred to in said contracts, were as follows : — Article I., § 2. “ This association’s stock shall be limited to fifteen hundred shares of the par value of two hundred dollars each, of which no person shall be entitled to hold more than twenty unredeemed shares.” Article II., § 2. “Every member of this association shall pay into the treasury twenty-five cents weekly on each share of stock owned by him or her, beginning on Saturday, March 5, 1870 (with the exception of. the first meeting, when double dues must be paid), until each unredeemed share of said stock shall be worth, in cash, two hundred dollars, and there shall be funds enough in the association to pay that amount to the holders of such unredeemed shares after paying all debts of the association. The board of directors shall then proceed to pay, satisfy and discharge, first, debts and liabilities of the association, and then pay over to the owner of each unredeemed share an equal dividend of all dues on hand, and which shall afterwards be received until the whole shall be divided, and from the commencement of the payment of such dividends no further weekly dues or interest shall be payable, except that all arrears shall be fully paid up. And the association shall deliver to each mortgagor who has fully complied with the conditions of his mortgage, a discharge thereof and all papers connected therewith. After the performance of the foregoing duties, this association shall cease to exist and shall not sooner be dissolved, nor shall this article be altered, amended or repealed.” Section 3. “A member who neglects to pay his weekly dues shall be fined for every share for the first week five cents, the second week ten cents, the third week fifteen cents, fourth and each succeeding week twenty-five cents. A member neglecting to pay the interest on his advanced loan shall pay a fine of twenty-five cents on each share monthly. 'When- the fines of a share shall equal the paid weekly installments on the same it shall be forfeited by its owner.” Article XIY., Redemption of shares. § 1. “ When the funds on hand of this association are sufficient to redeem one or more shares of its stock, the funds shall be given to the stockholder who will pay the highest premium therefor. No stockholder shall be entitled to receive the redemption money who is in arrears to the association from any cause.” Section 2. “ Upon the application for redemption the money shall be set apart for the member entitled to it, and be paid to him upon his giving security, approved by the board of directors, by way of mortgage or leasehold estate, or personal security to the satisfaction of the board of directors, not exceeding six months, allowing the member reasonable time to give real or leasehold security to be at the discretion of the board of directors, conditioned that he will regularly pay the association during its continuance the weekly dues on each, of his redeemed shares of stock, and six per cent, interest payable monthly on the amount of money advanced for the redemption of such share or shares, and upon giving the further security of a transfer of an insurance policy on said premises, also that he will perform all other engagements entered into by him to this association in reference to the mortgaged premises, and upon a breach of the foregoing terms, or any of them, and, such a breach continuing for three months, the mortgaged premises may be sold at the discretion of the board of directors, and the proceeds of the sale thereof be applied — first, to pay all expenses of said sale, arrears of ground rent, taxes, &c. Secondly, to pay all moneys due this association by said delinquent by reason of said redemption, and the balance, if any, shall be paid to said delinquent, and to the extent of the shares which wore redeemed upon the security of said mortgaged property, said delinquent shall cease to be a member of this association.”
    The defense to these actions was, that all 'that was due from Janies P. Simpson in respect to twenty shares of said stock had been fully paid, and all claims of the corporation in respect to all shares in excess of twenty were invalid for want of corporate power to contract them.
    The court of common pleas found and stated the facts and the law separately, as follows
    
      In case No. 2606 : “ That James P. Simpson is the principal on said notes sued on by plaintiffs, and that Isaac Simpson was simply surety, receiving no benefit from the transactions. That Mary Ann Simpson simply executed the said mortgage, having no interest or benefit in the transaction, and that the fee-simple title to the real estate in the petition mentioned was, and is, in Isaac Simpson and Mary Ann Simpson, his wife, and not in James P. Simpson, and that neither Mary Ann Simpson nor Isaac Simpson are, or were, members of said association, and said mortgage was executed as collateral to secure the loans to said James P. Simpson, and the court finds that first loan to said James P. Simpson was as follows,.to wit: On the 24th dáy of August, A. d. 1872, said James P. Simpson borrowed out of said association the value of 21 shares of stock in said association at the time the said James P. Simpson, owning in said association twenty shares of unredeemed stock, and purchasing on the night of August 24,1872,21 additional shares from the association, and thereupon the said association paid to said James P. Simpson cash on said 21 shares, $3,092 less $126 bonus, being $6 per share, leaving the actual money received by James P. Simpson the sum of $2,966 ; and afterwards, December 14, 1872, the said James P. Simpson-borrowed from said association the value of 20 shares of stock, receiving therefor the sum of $2,700, the same being-original stock owned by said James P. Simpson. Next, the said James P. Simpson, on May 3, 1873, borrowed from- said association the value of 21 shares purchased by-said James P. Simpson, and transferred to him from members of said association, receiving on said loan $2,771.45, and the foregoing constituted the consideration for the $12,4003 which said Isaac-P. Simpson signed as security and secured by the-mortgage. The-next loan was for the value of twenty shares of stock purchased-by said James P. Simpson from said association, for which-he executed his note with Isaac Simpson, E. Dines and Joseph P. Simpson as securities, and which is not included in this case, but sued upon separately as No. 2604, Highland common-pleas. The amount of money received on this loan was $2,990, less $240 bonus, bonus being $12- per share, leaving-’ actual money received $2,750. The next loan was August 15, 1871, of 20 shares, the amount received being $3,004, less $400 bonus, being $20 per share, leaving the actual money received, $2,604, • for which he gave the note of $4,000, 'with Isaac Simpson as security, and the loans claimed in this case being for 82 shares. The court finds that the said James P. Simpson has paid on the whole of the 102 shares borrowed out, which includes the 20 shares in case 2604, and the' 82 shares sued on in this case, the sum of $2,530.79 interest up to June 1, 1876, inclusive, being at the rate of $72.29 per month, and has paid as dues on the whole 102 shares, in cases Nos. 2604 and 2606, to July 1, 1877, $9,868.50, being $96.75 per share, and said sums were paid without specifying the particular share or shares upon which the same were to be credited, and the same were to be credited by the plaintiff upon the whole 102 shares. The court finds, as conclusions of law, from the’ foregoing findings of facts, that, at the beginning of this suit, to wit: Case No. 2606, the 29th day of September, a. d. 1877, there was nothing due to said plaintiff on the said twenty shares of original stock held by said James P. Simpson in said association, and borrowed out, whether of dues or interest, and that said James P. Simpson has overpaid on said 20 shares $7,883.50, and that said James P. Simpson has overpaid of interest on said 20 shares the sum of $1,764.78. And the court further finds that Isaac Simpson is not bound as said surety on said notes, nor is said mortgage security a valid lien as to the excess over 20 shares in favor of said plaintiff; nor are said plaintiffs entitled to recover as against any of said defendants on the loans and excess of said 20 shares, to wit, on the 82 shares in the form of action in this case. It is, therefore, considered by the court that said defendants go hence, without day, and recover their costs taxed to $-. By consent of parties in open court, case No. 2604 (the Greenfield Building and Savings Association against James P. Simpson, Isaac Simpson, E. Dines and Joseph P. Simpson) is consolidated with this case for the purpose of saving the taking up two cases on error should either party desire it. And it is agreed that James P. Simpson was the principal in the note sued on in ease 2604, and that Isaac Simpson, E. Dines and Joseph P. Simpson are sureties, and that said note represents a loan of 20 shares, being the fourth loan from the said association to said James P. Simpson, and that nothing is recoverable thereon, in this form of action, 'against auy»tof said defendants upon the ruling heretofore made by the court in case No. 2606. And that said Isaac Simpson, E. Dines and Joseph P. Simpson are not bound by their suretyship, the said loan being in excess of the corporate power of the plaintiffs at the time said loan was made.' It is, therefore, further considered by the court that said defendants go hence, without day, and recover their costs in case No. 2604, taxed at $--. To which action of the court, in case No. 2606, in giving judgment for the defendants upon the facts found, plaintiffs, by their counsel, except, and to which action of the court, in case No. 2604, in giving judgment for the defendants upon the facts found, plaintiffs by their counsel except.”
    Upon this state of the record, the district court, on error, reversed the judgments of the court of common pleas.
    
      G. H. Collins, for plaintiffs in error.
    
      William II. Irwin and Joseph I!. Ma/rlcs, for defendant in error.
   MoIlvaine, J.

We think the judgments of the court of common pleas were right, and the district court erred in reversing them.

The second section of the act of May 9,1868 (Swan & Saylor, 194), under which the defendant in error was incorporated, provides, “Such corporation shall be authorized and empowered to levy, assess, and collect from its members such sums of money, by rates of stated dues, fines, interest on loans advanced, and premiums bid by members or depositors for the right of precedence in taking loans, as the corporation by its by-laws shall adopt.” And in the same section it is provided, “ That no person shall hold more than twenty shares in any such corporation in his own right.”

It is true, that the by-law of this association limits its stock to fifteen hundred shares of the par value of $200 each, “of which no person shall be entitled to hold more than twenty-unredeemed shares,” thereby, by implication, authorizing one person to hold more than twenty shares, provided those in excess of twenty be such as are denominated “ redeemed shares.” If such be the meaning of this by-law, it is void, in so far as it conflicts with the provision of the statute above quoted which limits the ownership of every member in his own right to twenty shares, whether they be such as the by-laws of this association denominate redeemed or unredeemed shai’es.

While it cannot be doubted that the defendant in error was empowered to levy, assess and collect stated dues from Simpson on account of each share of his stock, and make an advanced loan on his shares by way of a provision for their redemption, and to contract for and collect interest on the money advanced, and to impose reasonable fines for the violation of its rules in respect thereto, we think'it is equally clear, that the power of the corporation to make rules, and contract with its members in relation to their stock is limited to such shares as they may lawfully hold, and all contracts as well as by-laws in relation to shares in excess of that number are ultra vires and void.

The number of shares owned by Simpson in his own right and embraced in the contracts in suit is one hundred and two, eighty-two of which he' obtained from the association directly, and twenty by purchase from other members. The association assumed to redeem all these shares in advance by the payment of such sums of money, together with the premiums bid for. preference, as equalled the par value of all the shares, and took these contracts from Simpson, with sureties, to secure the payment of interest on the moneys advanced, and all stated dues and fines on account of said shares, until the final winding-up of the corporation. These contracts, therefore, in so far as they relate to eighty-two shares, the number in excess of all shares which Simpson could lawfully hold, are most clearly 'uli/ra vires and void ; and to that extent, at least, no action can be maintained to enforce them.

Upon this view of the case, the court of common pleas having found that all claims of the association in respect to the original twenty shares owned by Simpson had been fully paid, the judgment that no recovery could be had in this action and on these contracts, for any delinquency on account of the eighty-two shares held in' violation of the compauy’s charter, should have been affirmed by the district court.

The doctrine (discussed by counsel), that a corporation cannot enforce by action a special contract entered into by it in excess of its corporate powers, although fully performed on its part, as held in the leading case of the Bank of Chilicothe v. Swayne, 8 Ohio, 257, has been so repeatedly approved by this court in subsequent, cases, that we do not deem it advisable to» enter again upon its consideration. This doctrine must be regarded as settled in this state.

It has been claimed in argument that there is no limitation in its charter upon the amount of money which it may loan to a member or depositor. This proposition we have not considered, as the case before us is not upon a mere loan of money; but is based upon dealings between the corporation and one of its members in respect to stock owned by him in excess of the amount limited to a member by the statute under which the company was organized.

Judgment of the district court reversed and that of the common pleas affirmed.