Source: https://supreme.justia.com/cases/federal/us/181/227/
Timestamp: 2019-04-20 00:17:04+00:00

Document:
the notes and mortgage violated the laws of Tennessee, and were void.
(1) That Bedford's subscription to the stock of the association, its issuance, and the application of a loan in pursuance of it constituted a contract, which is inviolable by the state legislature.
(2) That by his subscription to the stock of the association, Bedford became a member of it, bound to the performance of what its bylaws and charter required of him, and entitled to exact the performance of what the bylaws and charter required of the association.
This Court recognizes the power of a state to impose conditions upon foreign corporations doing business within the state, but that cannot be exercised to discharge the citizens of the state from their contract obligations.
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 F. 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.
to accept applications for membership or subscriptions for stock, but only the authority to transmit them by mail to the office of the company in Syracuse, New York, where they were accepted or rejected by the board of directors of the association. Three months after a person had subscribed for stock and the stock had been issued to him, he was, by the bylaws of the association, permitted to apply for an advance of the nominal par value of his shares, or, in effect, a loan. This application was forwarded through the soliciting agent to the company at Syracuse, together with the certificate of stock, already issued, as a pledge and a statement of the value of the property which it was proposed to mortgage to secure the loan. The application was accompanied by a recommendation of what was called 'the local board' in regard to the wisdom of the loan. The local board consisted of certain stockholders of the association living at the applicant's place of residence, who had been elected by all the resident stockholders, and whose duty it was to advise the association at Syracuse concerning the value of the property offered and the character of the applicant. The local board had officers, one of whom was a treasurer, through whom members might, if they desired, forward payments due to the association at Syracuse; but the bylaws stated that in so doing the local treasurer was acting as agent for the stockholders, and not for the association. Another bylaw provided that all payments should be made to the secretary of the association at the home office, in registered letter, express or money order, or drafts."
On the second 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 installment 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 bylaws 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.
On the second of February, 1891, the certificate of stock was issued by the association and sent to its soliciting agent at Memphis, who, a few days later, handed it to Bedford. The certificate was numbered 4,773, and stated the number of shares to be forty-six, and the amount $4,600; date of maturity, August 1, 1897. It certified that Bedford was thereby constituted a member of the association and holder of forty-six shares therein of $100 each. "The terms, conditions, and bylaws printed on the front and back" of the certificate were made part of the contract, and it was stated "that this certificate of shares is issued to and accepted by the holder thereof upon the following express terms and conditions."
The payments of a monthly installment of seventy-five cents on each share until it matures or is withdrawn; a fine of ten cents per share per month for each month if the payment of the installment shall be in arrears; declaring the stock nonforfeitable; providing for its sale at auction if the monthly installments due thereon be in arrears for six months or more, and providing for the application of the proceeds of the sale to the payment of such installments and accrued fines; the balance remaining, if any, to be paid to the member in whose name the stock stands at the time of sale.
"If the stock brings no more than enough to pay the accrued fines and monthly payments, it shall be bid in by the association and cancelled, and the amount standing to the credit thereof in the loan fund shall be divided among the other shares as profits."
(8) reservation of a right in the association to make investigation prior to approval of claims; '(9) 'the bylaws of this association, which are attached to and indorsed hereon, are a part of this contract, and such bylaws 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."
"[L. S.] Jno. W. Reynolds"
"To the Board of Directors of the Eastern Building & Loan Association of Syracuse, N.Y."
bylaws of your association and all requirements defined by your committee of the board of directors."
"Witness: J. H. T. Martin"
"grant is intended as security for the payment of the sum of fifty-six hundred eighty-three and 8/100 dollars, the same being the principal, interest, and premium of a loan from said association, which said loan was made pursuant to and accepted under the provisions of the bylaws of said association, and which said bylaws have been read by the mortgagor, H.L. Bedford, and are made a part of this contract, which said loan is evidenced and secured to be paid by seventy-eight (78) certain promissory notes of even date herewith, executed by the said H.L. Bedford, payable to the said association at its office in Syracuse as follows: one of each of said notes to be paid on or before the last Saturday of each and every month until all of said seventy-eight notes are fully paid, together with the interest, and each of said notes after maturity at the rate of six (6) percent per annum, payable semiannually, until said notes are fully paid. And the said mortgagor, H.L. Bedford, for himself and his heirs, executors, administrators, and assigns, hereby covenants and agrees with the party of the second part, its successors and assigns, to pay said principal, interest, and premiums at maturity and the interest accruing on said notes after maturity, and all fines and penalties that may be imposed pursuant to the provisions of the constitution and bylaws of said association, and also to keep and perform all promises and engagements made and entered into with said association according to the true intent and meaning of its bylaws and articles of association. . . . "
"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 H.L. Bedford"
"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 section 2 of chapter 31 of Acts of 1877."
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 insofar 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."
this or some other State of the United States, mortgages (or other securities) received by it in the usual course of its business amounting to not less than twenty-five thousand ($25,000) dollars nor more than fifty thousand ($50,000) dollars at the discretion of the state treasurer. All of the personal obligations of its members taken in the ordinary course of business of such association and secured on first mortgage on real estate, all dividends and interest which may accrue on securities held in trust, as aforesaid, by the trust company or the state, as provided herein, and all dues or monthly payments which may become payable on stock pledged as security for loans, the mortgages for which are on deposit in accordance with the provisions of this act, may be collected and retained by the association depositing such securities or mortgages so long as such association remains solvent and faithfully performs all contracts with its members. Any securities on deposit, as provided herein, may from time to time be withdrawn if others of equal value are substituted therefor. Every building and loan association organized under the laws of any state, territory, or foreign government shall, before commencing to do business in this state --"
"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 section 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 first 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."
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 Savings and Loan Company v. Miller, 47 S.W. 17, affirmed on appeal by the Supreme Court of Tennessee, December 18, 1897, without written opinion.
were in violation of the above-quoted laws of Tennessee, and were void, and could not be enforced.
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.
deposited at interest in the savings banks, trust companies, or duly incorporated banks of said state, and which are in good standing."
"SEC. 1. The terms and conditions expressed in the certificate of stock, in connection with the application for membership and the bylaws 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, installments, premiums, monthly installments, 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 other sections of the article provide for the manner in which the loan shall be made, upon what security, interest and premium, and covenants, the manner of payment and prepayment, and the enforcement of payment, and when shares may be cancelled and forfeited.
"Punctuality and strict performance on the part of all members, borrowers, and shareholders, in payment of fines, dues, interest, loans, and premiums, are made the essence of the contract."
and to what it shall be subject, the amount of monthly installments 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."
"_____ _____ do hereby make application for a loan of forty-six hundred ($4,600.00) dollars, for six and a half years, to bear interest at the rate of five percent per annum, and a premium of five percent per annum payable on or before the last Saturday of each month,"
easily to be worth $40,000. The application was sworn to and accompanied by the affidavit of three other persons that they regarded Bedford "as a prompt, upright, reliable person, pecuniarily responsible for his contracts."
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.
"Cannon, having become a stockholder in the association before the acts were passed, with a view to becoming a borrower, and for that purpose, and having made his application for a loan likewise before the acts passed, acquired a vested right to the consummation of the loan, and the association became legally obligated to complete it, and it was also unfinished business, which the association had a right, and which was its duty, to finish, notwithstanding the acts of the legislature."
made, only in compliance with the law. There was nothing to prevent the association from complying with the statutes and thus placing itself in the attitude where it could legally make the loan and take the mortgage, if it were under obligation to do so as it claims."
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 [argument of counsel -- omitted]. 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.
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.
"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.
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; Railroad Company v. Bank of Ashland, 12 Wall. 226; Scotland County v. Hill, 132 U. S. 107; Cromwell v. Sac County, 96 U. S. 57; Cockle v. Flack, 93 U. S. 344.
"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 five percent interest per annum, and five percent 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 circuit court adjudged Mrs. Bedford personally liable for the indebtedness to the association. This is conceded to be error, and it has been stipulated "that an order or decree may be entered in this cause releasing her from said liability upon such terms and conditions as to this Court may seem just."

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