Case Name: MEARES AND MANNING, RECEIVERS OF CAROLINA INTERSTATE B. & L. ASSN., v. FINLAYSON
Court: Supreme Court of South Carolina
Jurisdiction: South Carolina
Decision Date: 1899-05-08
Citations: 55 S.C. 105
Docket Number: 
Parties: MEARES AND MANNING, RECEIVERS OF CAROLINA INTERSTATE B. & L. ASSN., v. FINLAYSON.
Judges: Messrs. Justices Gary and Jones concur in the dissenting opinion of Mr. Chief Justice Mclver.
Reporter: South Carolina Reports
Volume: 55
Pages: 105–124

Head Matter:
MEARES AND MANNING, RECEIVERS OF CAROLINA INTERSTATE B. & L. ASSN., v. FINLAYSON.
1. Contract — N. C. Contract — B. & L. Assn. — Is this contract made with a North Carolina building and loan association a North Carolina contract?
2. B. & L. Assn. — Corporations—Stockholder—Corporator.—The question whether a non-resident borrower of a building and loan association who has assigned his stock to the association to secure his loan, is liable for his prorata share on his stock to pay losses of the association, does not arise in this case, but only that of lender and borrower. Justice Pope dissents.
3. Ibid. — Ibid.—Ibid.—Foreign Courts — Comity of Courts. — A borrower of a foreign building and loan association is not bound by the proceedings in North Carolina Courts to wind up the affairs of the insolvent association, because: (i) he was not a party; (2) of exemption in order; (3) he had assigned his stock to association before insolvency, and is not now a stockholder. Justice Pope dissents.
4. Usury — B. & L. Assn. — A contract of a building and loan association charging six per cent, interest on a loan and six per cent, premium is usurious.
5. Ibid. — Ibid.—A Transferee of a building and loan contract may plead usury as to payments made by him on such contract.
6. Remedies — Usury—Statutory Penalty — Foreign Contracts— Contracts. — When a North Carolina contract is held by the Courts of that State to be usurious, and such contract is sought to be enforced against a resident, and he pleads usury, the penalty for charging usury prescribed by our statute will be enforced against the foreign contract. Justice Pope dissents.
7. Usury — Reference.-—Order remanding case to master to compute amount due after sustaining plea of usury, proper.
8. B. & L. Assn. — Attorney's Fees — Mortgages.—Where a borrower of a building and loan association agrees to pay ten per cent, attorney’s fees in case of foreclosure of his mortgage, but on account of insolvency of association he cannot complete his contract, and foreclosure becomes necessary in order to ascertain his liability in winding- up affairs of the association, such claim becomes nugatory.
Before Gary, J., Chesterfield, July, 1898.
Affirmed.
Action by Iredell Meares and P. B. Manning, receivers of the Carolina and Interstate Building and Loan Association, against Plenry W. Finlayson. The contract under which defendant borrowed from plaintiff corporation provided for payment of six per cent, interest and six per cent, premium. From Circuit decree plaintiffs appeal.
Mr. R. T. Cast on, for appellant,
cites: Contracts of defendant are North Carolina contracts, and are to be performed and construed under laws of that State: 49 S. C., 402; 50 S. C, 303; 51 S. C, 427; 53 S. C., 73. Defendant is bound by decisions of North Carolina Courts as a stockholder in suit in zvhich his insolvent corporation was defendant: 11 S. E. R., 610; 85 Va., 9; 6 S. E. R., 866; 9 S. E. R., 129; 10 S. E. R., 277, 679; 29 L. R. A., 184; 10 Rich. Eq., 482; 3 Strob. Eq., 300. Is this borrowing stockholder liable to contribute his pro rata share to pay losses? 115 N. C, 825; 116 N. C., 825; 28 S. E. R., 188; 117 N. C, 318; 120 N. C, 420; 34 L. R. A., 201; 29 L. R. A., 184; 61 Fed., 446; 35 L. R. A., 244; 115 Penn., 274; 177 Penn., 233. 'Plaintiffs are officers of Court appointed in behalf of all: 89 N. Y., 103; hi Mass., 510; 26 Wall, 228; 9 S. C., 323; 30 S. C, 206. Usury can only be pleaded by defendant as against his ozvn contract: 47 S. C., 397; 29 S. C., 501; 53 S. C., 115. Original contracts of defendants zvere not usurious under laws of either State: 51 S. C., 420, 550; 115 N. C., 825; 116 N. C., 877.
Messrs. Stevenson & Matheson, contra,
cite: Respondent is not bound by any adjudication in North, Carolina: 95 U. 5., 714; 35 S. C, 95; 44 S. C, 195; 39 S. C, 484; 40 S. G, 520. There can be no reduction of amount paid in by respondent; all paid in must be credited on debt: 23 S. E. R., 452; 52 S. C, 421. The stock can only be assessed against holder, and respondent holds no stock: 96 U. S., 328; 99 U. 5., 628; 6 Hill, 624; 11 N. Y., 148; 18 N. Y., 199; 11 Cush., 183; 44 Md., 349; 10 Md., 525; 77 111., 296. If contract is usurious must settlement be made under laws of this State or North Carolina? 49 S. C., 452; 44 S. C, 121; 9 L. R. A., 603. Respondent may plead usury as to Fesperman debt: 47 S. C., 405; 53 S. C, 115. Charging usury is sufficient to bring dozvn the penalty: 51 S. C, 583.
Mr. Edward Mclver, also contra,
cites: These contracts are usurious whether construed under North or South Carolina lazvs: 21 S. E. R., 924; 18 S. E. R., 965; 23 S. E. R., 450; 12 Rich. Eq., 124; 15 S. C., 462; 44 S. C.,'120; 27 S. C., 110; 45 S. C, 381; 51 S. C., 583. Under the laws of what State should this contract be construed? 18 S. E. R., 967; 21 S. E. R., 926; 19 S. C., 583; 49 S. C., 402; 50 S. C., 303. Act of 1898, p. 747, as to construction of contracts, is not unconstitutional as to existing contracts, but merely remedial: 4 Wheat, 122; 9 S. C, 20; 31 S. C., 1; 16 S. C., 15. In this State, such contracts are regarded merely as loans: 12 Rich. Eq., 124; 15 S. C, 462; 44 S. C., 120; 45 S. C., 391; 51 S. C., 420; 50'S. C., 303. Assessment must be made against party holding stock: 9 Otto, 628; 6 Otto, 328. Assessment if properly made can be no part of mortgage debt: 36 S. C., 331; 52 S. C., 421. Respondent can plead usury to the Fesperman debt: 47 S. C., 397; 53 S. C., 1x5.
May 8, 1899.

Opinion:
The opinion of the Court was delivered by
Mr. Justice Pope.
In July, 1895, at the suit of William H. Strauss, the Carolina Building and Loan Association, located at Wilmington, in the State of North Carolina, and doing business in that State, and in the States of South Carolina and Georgia, in the Superior Court of New Hanover County, was declared insolvent, and its affairs ordered to' be wound up. For this purpose the present plaintiffs were duly appointed, by said Court, as the receivers of said building and loan association, and they have accepted, qualified, and entered upon the discharge of the duties of such office of receivers. The defendant, Henry W. Finlayson, in the year 1891 became a stockholder by having issued to- him thirty shares of loan stock, and upon these shares as abasis; he borrowed $3,000 of such building and loan association, and to secure such loan he assigned his thirty shares of the said stock to said building and loan association, and also> executed a mortgage on- real property located in Cheraw, in the State of South Carolina, to said building and loan association, as an additional security for said loan. One Lawrence FI. Fesperman also became the holder of seven shares in said building and loan association, in the year 1891, and in the year 1892, he borrowed $700, executing an assignment of his stock and a mortgage of a house and lot in Che-raw, S. C., to the building and loan association, but on the 4th February, 1893, the aforesaid Finlayson purchased from the said Fesperman the land SO' mortgaged, and his seven shares of said stock, together with all his rights and interests therein and thereto, and assumed the obligations of the said Fesperman, as set out in the act incorporating the building and loan association, and in its by-laws. Finlayson con tirmed the payments on his own thirty shares of stock and the seven shares purchased from Fesperman, until the 5th day of March, 1895; but nothing was done between 5th March, 1895, and July, 1895, touching Finlayson's failure to pay, although the three months were out on 5 th June, 1895. The plaintiffs, as receivers, were directed by the Superior Court of New Hanover, in North Carolina, to' settle -with the borrowers of the bankrupt building and loan association and according to the complaint herein: "The Court in said cause further ordered and decreed that the receivers, these plaintiffs, in ascertaining the value or amount of stock of the respective stockholders, should credit each stockholder with all that he had paid on his stock, whether held as borrowing or non-borrowing shares, including all payments of dues, fines, and all amounts under whatever name paid; and that in addition thereto1, he should be credited with an average interest of six per cent, thereon, and that the aggregate so ascertained should constitute the value of his stock or claim against the association as of the date of July 24th, 1895; and that upon this aggregate so ascertained, he should be permitted to participate pro rata in the dividends declared from time to time. That the Court in said cause further directed these receivers, in settling with the members of the association, who have borrowed upon their stock, and either given their bond and mortgage or the said stock as collateral therefor, to charge them with the áctual amount they have borrowed, with interest at the rate of six per cent, per annum to the 24th day of July, 1895, and to credit thereon a percentage of the value of their stock, after ascertaining the value in the manner hereinbefore alleged as such stock would be entitled to receive as its pro rata dividend in the distribution of the assets of the association; and that upon the payment of the balance found to be due, with interest upon such balance from the 24th day of July, 1895, to the date of payment, such interest to' be at six per cent., to release and cancel the bonds and mortgages of the member so1 paying and settling his indebtedness to the association. Upon these orders, the defendant, Finlayson, paid on his indebtedness for $3,000 borrowed by himself and for $700 borrowed by Fesperman assumed by defendant, the sum of $1,200. After such payments made in the year 1897, he refused to pay any more, alleging that the $3,700 which he and Fesperman had borrowed had already been paid in full. Thereceivers then brought this suit to enforce against Finlayson what they conceived he owed. It should be stated just here that the suit of Strauss against the said building and loan association had, as ancillary to» that in the State of North Carolina, been brought in the county of Richland, in the State of South Carolina, wherein Judge Witherspoon, on the 4th September, 1895, appointed the plaintiffs as receivers, and directed them to file copies of the orders made in the original suit in North Carolina, in the Court of South Carolina, for the information of the Court and all persons interested in said cause." The answer of the defendant denied that the suit of Strauss against the Carolina Interstate Building and Loan Association was brought on behalf of all the shareholders of said association; denied that the plaintiffs, as receivers, were empowered to deduct thirty per cent, from the payments made by this defendant because of losses made by the association; denied that the contract of the association with the defendant was a North Carolina contract, so» to speak, but on the contrary was a contract to» be construed as contracted for performance in the State of South Carolina, alleged that the contract was usurious, and also alleged that the indebtedness of the defendant had been fully paid. Judge Ernest Gary, who heard the action upon the pleadings, and an agreed statement of facts, decided that the contract of defendant with Carolina Interstate &c. Association was usurious under the laws of both the States of North and South Carolina; that the plaintiffs had no right to deduct thirty per cent, from the aggregated payments of defendant for and on account of losses of the association, for the reason that defendant is not bound by the decree in North Carolina, and was not before that Court.
The plaintiffs appeal from the decree of Judge Gary on the following grounds, namely: "I. His Honor erred in not holding that the contracts of the defendant.with the Carolina Interstate Building and Loan Association, of Wilmington, N. C.. were North Carolina contracts, and should be enforced under the laws of that State, as construed by its Supreme Court. II. That he erred, after it was admitted that Finlayson was a stockholder in said association, and that the losses upon stock had been found by the North Carolina Court to be thirty per cent., in not making said Finlayson responsible for his share of said losses. III. He erred in holding that because the defendant, Finlayson, was not personally served with process in the Strauss case, that he was not bound thereby, under the decisions of the Supreme Court in said case, to the same settlement that all members of said association were held to be bound to' make, and in not deciding the case under the law as stated by said Supreme Court. IV. Lie erred in holding that the Courts of North Carolina, in equitably winding up the affairs of an insolvent corporation, created by and under the laws of North Carolina, cannot decree an equitable adjustment and settlement, which will be binding upon all the corporators, unless all of said corporators were individually served with process and made parties to the suit. V. While .each corporator must be sued, and process served upon him, before he can be made to settle his indebtedness to the association, he erred in hold-' ing that in such suit, this defendant was not bound, as to the legality and construction of his contract, by the decisions of the Supreme Court of the State of the contract, and of the jurisdiction to which he voluntarily subjected himself, by becoming a corporator in said association and in borrowing money therefrom. VI. He erred in holding that the settlement directed by the Courts of North Carolina, which the receivers ask to be enforced against defendant, is usurious. VII. He erred in sustaining the plea of usury against the officers of the Court, who are endeavoring, to enforce a settlement with defendant, which had been directed by said Court, and which said defendant had refused to' make. VIII. He erred in holding that the original contracts entered into by the defendant, Finlayson, and by Fesperman, his grantor, were usurious under the laws of either North or South Carolina, or that any usurious claim is made in the complaint against defendant. IN. He erred in holding that Finlayson could plead usury against the Fesperman bond and mortgage, and that usury could be pleaded by defendant against these plaintiffs. X. He erred in directing the referee to compute the amount due on bond and mortgage set forth in complaint,'under section 1390 of Revised Statutes of South Carolina, and in holding that the claim set up in complaint by plaintiffs against defendant was obnoxious to said section of Revised Statutes. XI. He erred in not granting plaintiffs' judgment of foreclosure for the amount asked in complaint, including ten per cent, as attorney's fees."
We will examine these exceptions in their numerical order. So far as the first exception is concerned, it seems to us that it must be sustained. In Pollock v. Carolina Interstate Building & Loan Association, 51 S. C., 420, this Court held that a similar contract to that made by the respondents with the same association was a contract to- be performed in North Carolina. All things being equal, the contract should be enforced under the laws of North Carolina, as construed by its Supreme Court.
As to the second exception, we might say at the outset that we are not entirely clear that the Circuit Judge was in error on this point, for the decision of the Superior Court, Judge Coble presiding, held that thirty per cent, was proper, but qualified his holding with these words: "This order shall not be binding upon any one concerned therein without his consent to the same, and this order is made without prejudice to those wishing to contest the rule therein prescribed " It certainly is true that Henry W. Finlayson has not consented to this order. Therefore, by its very terms, no liability yet exists against him to pay the thirty per cent., or, what is the same thing in effect, to allow his payments .diminished by thirty per cent. But we cannot see how Finlayson is to' escape the consequences of his being a corporator in said association, so far as outside creditors of the Carolina Interstate &c. Association are concerned. Indeed, -we do not see how he is to escape liability for his pro rata share of the losses of said association. However, in the abundance of caution, we will not pass directly unon this question, and as it must go back before the special master — Mr. Shipp — the parties will be granted leave to make this question as to Finlayson's liability for any debt, expense or other liability in closing up such association.
As to the third exception, we may say that a person is not usually bound by the judgment rendered in an action to which he is not made a party. Now,'so far as corporations created under the laws of a State are concerned, when it' becomes necessary to place them in liquidation, because of their insolvency, for example, certainly the Courts of that State, clothed with jurisdiction in such matters, may properly, by their decrees, wind up all the concerns of such insolvent corporation, and such decrees would be binding and conclusive against all the corporators in such insolvent corporation, so' far as the property and other assets of such corporation are concerned, while within the jurisdiction of such Courts of the domicile. We are not by any means prepared to admit that such proceed- ings and judgments of said domiciliary Courts could, of themselves, operate upon persons and property situated in another jurisdiction. In order to affect such persons and property in another jurisdiction, new or ancillary proceedings would be necessary in that other jurisdiction. So, therefore, as far as Mr. Finlayson is concerned in the matter of the property and assets of the Carolina Interstate &c. Association, he is bound and concluded by the action of the Courts of North Carolina, and it is perfectly legitimate for these appellants in this action in the Courts of this State (South Carolina) to fasten upon said Finlayson his liability as a corporator upon due proofs of such liability. We mean by the use of the words "due proofs," proofs of all matters of facts contested in the original, and not by records taken from an action to which he was not a party.
As to the fourth exception, we have already held that the Courts of North Carolina could by their judgment conclude Finlayson as a corporator, so far as the assets of the insolvent corporation are concerned; could also wind up its affairs, so as to conclude him, but we still hold that outside of the jurisdiction of the Courts of the State of North Carolina, in order to reach Finlayson or his property, new suits must be brought in this jurisdiction.
As to the fifth exception, we hold that the Circuit Judge was in error in not holding directly that the liability of Finlayson must be fixed as arising under a contract made by him to be enforced in the State of North Carolina.
As to the sixth exception, we cannot say that the Circuit Judge erred in holding that the contract of Mr. Finlayson with the Carolina Interstate &c. Association was usurious, for the laws of the State of North Carolina, as construed by the Supreme Court of that State, clearly fasten the offense of usury upon this association. This is what the Circuit Judge meant in his reference to usury. It could not be that in providing for a plan to have corporators liquidate their share of the deficiency of assets of the association to pay expenses, &c., the sum of money necessary for each corporator to contribute for that purpose under the decree of a Court would be usury.
As to the seventh exception. Under the views we have hereinbefore expressed, it will not be. necessary to pass upon this exception.
As to the eighth exception, we have already announced our conclusion that the contracts of Finlayson and his assignee, Fesperman,- were usurious both under the laws of the State of North Carolina, as construed by the Supreme Court of that State. It would certainly be usurious under the laws of this State.
As to the ninth exception. While Mr. Finlayson, as the assignee of Fesperman, could not hold the Carolina Interstate &c. Association to the penalties for usury — because the plea of usury has been held by the Courts of this State as a personal privilege — still, when he comes to settle with the association on a contract which he has made with such association, he can invoke the defense, as a protection as far as it extends, to payments made by himself.
As to the tenth exception. We think the Circuit Judge was in error, as here pointed out. If this is a North Carolina contract, so to speak, and under the laws of that State it is usurious, clearly the penalties for usury as fixed by such laws should be applied by the. special master, Mr. Shipp, and not the provisions of our laws touching usury.
As to the eleventh exception. We cannot view the decree of the Circuit Judge as erroneous in the matters set out in this exception. Certainly it was necessary to have a reference in order to learn if there was anything due by the defendant. If there should be found that the defendant owes the plaintiffs nothing, why then no judgment for foreclosure would be proper.
As to that part of the exception relating to the ten per cent., as attorney's fees, we must hold that inasmuch as the Carolina Interstate &c. Association by its conduct — to' wit: its insolvency — rendered it impossible for Mr. Finlayson tO' carry out his contract with such association, that thereby the fault of having to* resort to foreclosure proceedings was not that of Finlayson, nor was such fault such as was contemplated in the bond when this ten per cent, attorney's fees were provided, there is no liability on Mr. Finlayson to pay any such ten per cent, attorney's fees.
It seems to me that those persons who hold that whenshares of a building and loan association are pledged as collateral for a loan to a stockholder, such shares no longer fasten upon such borrower any liability therefor, are unmindful of the fact that if Courts should sustain such a position as sound, serious loss would be entailed upon the borrowers; for thereby, they (such borrowers) would forfeit all right to have their indebtedness reduced by the value of such stock at the date the building and loan association fails.
It follows that, in my opinion, the decree of his Honor, Judge Gary, should be modified, and our judgment should read that: "It is the judgment of this Court, that the judgment of the Circuit Court be modified in these particulars herein required, and that the action be remanded to the Circuit Court, so .that the special master, Mr. Shipp, ma)*' pass upon the issues referred to him, as modified by the judgment of this Court." But the majority of the Court seem to entertain views at variance with those herein expressed by me.
Therefore, it is the judgment of this Court, that the judgment of the Circuit Court be affirmed, but I dissent from such judgment.
Messrs. Justices Gary and Jones concur in the dissenting opinion of Mr. Chief Justice Mclver.