Source: https://openjurist.org/181/us/227
Timestamp: 2019-04-20 08:16:39+00:00

Document:
EASTERN BUILDING & LOAN ASSOCIATION OF SYRACUSE, New York.
Argued January 30, 31, 1901.
This suit was brought in the circuit court of the United States for the western district of Tennessee by respondent to foreclose a mortgage executed by petitioners. A decree was entered in favor of the respondent. 88 Fed. Rep. 7. There was an appeal taken to the United States circuit court of appeals for the sixth circuit. From that court the case came here on certificate. Subsequently a writ of certiorari was issued.
On the 2d day of January, 1891, H. L. Bedford, one of the petitioners, then being a resident of Shelby county, Tennessee, made application in due form, and under seal, to become a member of the association, and subscribed for forty-six shares of instalment stock. He delivered the application to the soliciting agent of the association at Memphis, to be forwarded to Syracuse. He agreed in the application 'to abide by all the terms, conditions, and by-laws contained or referred to in the certificate of shares,' and to comply with the rules and regulations of the association; and he appointed the secretary of the association as proxy to appear and vote on his shares.
Further conditions of the stock were '(4) that members could withdraw their monthly instalments at any time by giving thirty days' notice, and to receive six per cent annual interest on all shares of six months' standing and up to two years; the third year, 7 per cent; any time after the third year and before maturity, 8 per cent; (5) if a shareholder died, his personal representative could continue or withdraw his share; (6) at stated periods the profits arising from interest, premiums, fines, and other sources shall be apportioned among the shares in good standing; (7) all payments were required to be paid to an authorized agent, or sent to the secretary at the home office; (8) reservation of a right in the association to make investigation prior to approval of claims; '(9) the by-laws of this association, which are attached to and indorsed hereon, are a part of this contract, and such by-laws and this certificate are to be construed together as part of the contract between the association and the shareholder;' (12) no shareholder to have an interest in the affairs, assets, or funds of the association, except as above stated, or to assume liability, except as hereafter described; (13) upon the cessation or determination of the contract, all payments made thereon shall become forfeited to the association; (14) actions to be brought within six months after filing proofs in the county of Onondaga, in the state of New York; (15) 'no agent has authority to change this contract, and the association assumes no liability for any statements not contained in its printed literature."
Given under the seal of said association at Syracuse, New York, the second day of Feby., A. D. 1891.
To the Board of Directors of the Eastern Building & Loan Association of Syracuse, N. Y.
At a regular meeting of your board, held May 18, 1891, having obtained the preference for an advance on forty-six shares of No. 4,773 of your association, at a premium of 10 per cent, I now respectfully request the advance be granted. I hereby agree to comply with the charter and by-laws of your association and all requirements defined by your committee of the board of directors.
Witness: J. H. T. Martin.
This letter was accompanied by a mortgage to the association, duly executed and acknowledged by Bedford and wife before a notary in Shelby county, Tennessee, of the land in that county previously tendered as security. The mortgage had been duly recorded in Shelby county.
On or before the last Saturday of June, 1893, I promise to pay seventy-two and 86-100 dollars ($72 86/100) to the order of the Eastern Building & Loan Association at its office in Syracuse, N. Y. Value received.
Bailey, Tenn., May 1, 1891.
An Act to Amend Chapter 31 of the Acts of 1877, Declaring the Terms on Which Foreign Corporations Organized for Mining or Manufacturing Purposes May Carry on their Business and Purchase, Hold, and Convey Real and Personal Property in this State, So as to Make the Provisions of Said Act Apply to all Foreign Corporations that May Desire to Own Property or to Do Business in this State.
Sec. 1. Be it enacted by the general assembly of the state of Tennessee, That chapter 31 of the Acts of 1877 be so amended and enlarged as that the provisions of said act shall apply to all corporations chartered or organized under the laws of other states or countries for any purpose whatsoever, which may desire to do any kind of business in this state.
Sec. 2. Be it further enacted, That each and every corporation created or organized under or by virtue of any government other than that of this state, for any purpose whatever, desiring to own property or carry on business in this state, of any kind or character, shall first file in the office of the secretary of the state a copy of its charter, and cause an abstract of same to be recorded in the office of the register in each county in which such corporation desires or proposes to carry on its business or to acquire or own property, as now required by § 2 of chapter 31 of Acts of 1877.
Sec. 3. Be it further enacted. That it shall be unlawful for any foreign corporation to do or attempt to do any business, or to own or acquire any property in this state, without having first complied with the provisions of this act; and a violation of this statute shall subject the offender to a fine of not less than $100 nor more than $500, at the discretion of the jury trying the case.
Sec. 4. Be it further enacted, That when a corporation complies with the provisions of this act it shall then be, to all intents and purposes, a domestic corporation, and may sue and be sued in the courts of this state, and subject to the jurisdiction of the courts of this state, just as though it were created under the laws of this state.
Sec. 5. Be it further enacted, That when such corporation has no agent in this state upon whom process may be served by any person bringing suit against such corporation, then it may be proceeded against by an attachment to be levied upon any property owned by the corporation, and publication, as in other attachment cases. But for the plaintiff to obtain an attachment he, his agent, or attorney, need only make oath of the justness of his claim, that the defendant is a corporation organized under this act, and that it has no agent in the county where the property sought to be attached is situated upon whom process can be served.
Sec. 6. Be it further enacted, That said chapter 31 of the Acts of 1877, except in so far as the same is amended, enlarged, and extended by this act, be and the same is declared to be in full force.
Sec. 7. Be it further enacted, That this act take effect from and after its passage, the public welfare requiring it.
First. File with the treasurer of this state a duly authenticated copy of its charter or articles of corporation.
Second. File with the treasurer of this state the certificate of the proper state officer of another state or the president and treasurer of some responsible trust company, certifying that it has on deposit securities, not less than $25,000, taken in the regular course of business as mentioned in this act, in trust for all the members and creditors of such building and loan association.
Third. File with the state treasurer a duly authenticated copy of a resolution adopted by the board of directors of such association stipulating and agreeing that if any legal process affecting such association be served on said state treasurer, and a copy thereof be mailed, postage prepaid, by the party procuring the issuing of the same, or his attorney, to said association, addressed to its home office, then such service and mailing of such process shall have the same effect as personal service on said association of this state.
Fourth. Pay the state treasurer twenty-five ($25) dollars as fees for filing the papers mentioned in this section.
Sec. 7. Be it further enacted, No officer, director, or agent of any foreign building and loan association shall, in this state, solicit subscriptions to the stock of such association, or sell, or knowingly cause to be sold or issued, to a resident of this state, any stock of an association while said association has not on deposit securities as required by § 3 of this act, or before said association has complied with all the provisions of this act. License to agents of such companies or associations shall be issued by the treasurer annually, on the 1st of January, and said treasurer is authorized to collect from each agent for said license $2 fee. Any violation hereof shall be deemed a misdemeanor, and upon conviction shall be punished by a fine of not less than ten dollars or more than fifty dollars.
The association filed its charter with the secretary of state of Tennessee on the 11th day of August, 1893, and filed an abstract of the same in the office of the register of Shelby county on August 15, 1893. The association did not comply with the building association laws quoted above in any respect.
There is no evidence that the association solicited stock subscriptions after March 26, 1891, but it does appear that it made several loans of the same kind as the Bedford loan upon stock already subscribed for, after that date.
The supreme court of Tennessee has decided that notes and a mortgage executed under similar circumstances and made payable in Minnesota are Minnesota contracts, but that they are nevertheless void in Tennessee, and cannot be enforced in the courts of Tennessee. United States Sav. & L. Co. v. Miller (Tenn. Ch.) 47 S. W. 17, Affirmed on appeal by the supreme court of Tennessee, December 18, 1897, without written opinion.
Bedford defaulted in his payments on the notes, and the association filed a bill in equity in the circuit court of the United States for the western district of Tennessee to foreclose the mortgage and collect the amount due under his contract. The defendant Bedford answered, averring that the notes and mortgage were in violation of the above-quoted laws of Tennessee, and were void, and could not be enforced.
Messrs. R. M. Heath, W. C. McLean, and Heber J. May for petitioner.
Messrs. Wm. Hepburn Russell, D. A. Pierce, Wm. B. Dent Minor for respondent.
The assignments of error, except one, present the question of the enforceability of the notes and mortgage under the Tennessee law, or, as the question may be put, whether there was a contract between the parties,—a right in one and an obligation in the other arising from a consideration given and received; mutual covenants by which each party acquired the right to that which the other promised or engaged to do, and whether the laws of Tennessee, as interpreted by its courts, impaired that right.
Sec. 1. The terms and conditions expressed in the certificate of stock, in connection with the application for membership and the by-laws of the association, form the contract between the association and each shareholder therein.
Sec. 2. All persons desiring to become shareholders of this association must fill out, sign, and deliver to the secretary an application according to the form adopted by the association, which said application shall be a part of said application with this association. Such applicant shall also pay a membership fee of $1 per share for each and every share held by him.
Sec. 16. All remittances for advance, instalments, premiums, monthly instalments, fines and penalties, interest and premiums, and all other payments shall be made to the secretary of the association at the home office, and in registered letter, express or money order, or drafts. Individual checks shall not be received.
The articles also provide with what the stock shall be charged and to what it shall be subject, the amount of monthly instalments to be paid, and when paid, and when and to what extent and upon what terms shares may be withdrawn, and for the issue of paid-up stock.
Sec. 1. Each shareholder, for each share named in their certificate, shall be entitled to a loan of one hundred dollars from the association, provided they shall first make application for such a loan upon a blank furnished by the association for that purpose, if the condition of the loan fund in the treasury shall warrant it. All applications for loans shall be filed and numbered consecutively as received, and be examined and approved, or rejected, by the board in their regular order.
Sec. 2. All shares must be in force three months before said shareholder shall be entitled to a loan. All applications for loans are part of the contract of the shareholders with this association. Nothing herein contained shall prevent the board of directors from loaning funds of the association to any member in greater sums than the above provided, upon approved securities.
The application and report of the local board of appraisers was received by the association on the 12th of May, 1891, by mail from H. B. Martin, the soliciting agent of the association. It was accepted and a loan granted on the 18th of May, and to secure the same the notes and mortgage in suit were subsequently executed.
And the court observed that it could not be considered that the association and Cannon were winding up an old transaction and unfinished business, but were doing business in the sense of the statute and in defiance of its prohibition, and refused to enforce the mortgage of the association. We cannot assent to the view that there is nothing to prevent the association from complying with the statutes. The mere filing of its charter in a particular office—the secretary of state's or some other office—might be easily complied with, but the deposit, with some responsible trust company or state officer of the state or some other state, of mortgages or securities of from $25,000 to $50,000 in amount, at the discretion of the state treasurer, might be impossible to comply with. At any rate, the requirement is so very onerous that the association could justly decline to do business in the state on that condition. It might indeed have the right to decline any condition and retire from the state, and from all it had the option to retire from. But it could not retire from the execution of its contracts. It contracted with Bedford to make him a loan if it had the means in its treasury and his security was good. The state could not affect that obligation nor impair it. 'The obligation of a contract 'is the law which binds the parties to perform their agreement." 4 Wall. 452. The building association was incorporated under the laws of New York to make loans to its members, and rights to a loan accrued to membership. The condition of a loan existing,—means in the treasury, a tender of good security,—the contingent right became a vested one, a contract was formed; and can there be a doubt that it was enforceable against the association? If it could have been enforced by suit, it was properly yielded to without suit, and possessed all legal sanctions.
We recognize the power of the state to impose conditions upon foreign corporations doing business in the state. We have affirmed the existence of that power many times; but manifestly it cannot be exercised to discharge the citizens of the state from their contract obligations.
It is claimed, however, that if the transactions between Bedford and the association were otherwise legal they were affected with usury, and to the extent that they were usurious they were unenforceable. The contention is that in making the loan of $4,600 Bedford was required to pay a fixed premium of $460, and received only $4,140, and that this constituted usury in Tennessee. This is made out because, it is said, Bedford was required to withdraw his stock and receipt in full, and could therefore get no benefit from future profits of the association, and, it is asserted, that thereby the loan became 'fixed and certain, and no element of contingency' remained, and the transactions are withdrawn from the principle expressed in Spain v. Hamilton, 1 Wall. 604, 17 L. ed. 619, that 'where the promise to pay a sum above legal interest depends upon a contingency, and not upon the happening of a certain event, the loan is not usurious.' But the fact was not as asserted.
The stock was pledged as security for the advance; and the pledge was no more a withdrawal of the stock, terminating Bedford's ownership of it, than his mortgage was an absolute conveyance of his land. It is provided in § 3, article 19, that in addition to real-estate security for a loan a shareholder shall 'transfer in pledge to the association one share of the stock held by said shareholder, as collateral security, on all loans made by the association' to him. Besides, the transactions were not usurious under the laws of New York, where the notes were payable. Concordia Sav. & Aid Asso. v. Read, 93 N. Y. 474. Therefore the principle expressed in Miller v. Tiffany, 1 Wall. 298, 17 L. ed. 540, applies. It was said in that case: 'The general principle in relation to contracts made in one place to be performed in another is well settled. They are to be governed by the law of the place of performance, and if the interest allowed by the law of the place of performance is higher than that permitted at the place of contract, the parties may stipulate for the higher interest without incurring the penalties of usury. The converse of this proposition is also well settled. If the rate of interest be higher at the place of the contract than at the place of performance, the parties may lawfully contract in that case also for the higher rate.' See also Andrews v. Pond, 13 Pet. 78, 10 L. ed. 67; Junction R. Co. v. Bank of Ashland, 12 Wall. 226, 20 L. ed. 385; Scotland County v. Hill, 132 U. S. 107, 33 L. ed. 261, 10 Sup. Ct. Rep. 26; Cromwell v. Sac County, 96 U. S. 57, 24 L. ed. 686; Cockle v. Flack, 93 U. S. 344, 23 L. ed. 949.
In Pioneer Sav. & L. Co. v. Cannon, 96 Tenn. 599, 33 L. R. A. 112, 36 S. W. 386, a note secured by mortgage was given to a building association and made payable at Minneapolis. It provided for the payment of 5 per cent interest per annum, a 5 per cent premium per annum, monthly, on or before the last Saturday of each month, and stipulated, further, that 'any failure to pay interest or premium, when due, shall, at the election of the payee, make the principal, interest, and premium at once due.' Of the note and mortgage the court said: 'The second assignment of error is that the note and mortgage were both usurious on their faces, and nonenforceable. As already stated, the note stipulates on its face to pay 5 per cent interest per annum, and 5 per cent premium per annum, at the office of the company at Minneapolis, Minnesota. This contract is a Minnesota contract, and is expressly authorized by the charter of the company and the laws of that state, which have been distinctly proved, and appear on the record.' The assignment of error was held not well taken.
The judgment of the Circuit Court will be modified in accordance with the stipulation, and, as modified, affirmed. Costs are awarded to Mrs. Bedford on her appeal to and in the Circuit Court of Appeals and in this court.

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