Court Opinion

ID: 4886637
Source: CourtListenerOpinion
Date Created: 2021-09-02 23:40:36.182962+00
Date Added: 2024-06-11T08:05:42.131121
License: Public Domain

ON REHEARING.
White, P. J.
When the case was reversed by us at the last Austin term the appellee had not been represented by counsel. A motion was filed, supported by an able oral argument and brief, just before the adjournment at that term, and was transferred to this branch *253for want of time properly to consider and dispose of it. We have been profoundly impressed with the power and plausibility of*fche positions and reasoning of the learned counsel for appellee as contained in the printed brief filed in support of the motion. We have endeavored to give the questions involved that renewed consideration which their merits and importance demands, and only regret that our limited time will not permit us more than a brief statement of the propositions submitted, and our conclusions thereon from authorities considered.
In the first place it is substantially contended that we erred in holding that the appellee, the building and loan association, exercised banking and discounting privileges in the transaction involved in the litigation; and, secondly, that the doctrine of ultra vires could not legally be invoked in this case. It is insisted that appellant Anderson’s plea as defendant below on its face fails to show the exercise of banking or discounting powers, and consequently fails to show the exercise of powers ultra vires. Said portion of said plea is as follows: “Defendants further aver that said corporation did on January 19, 1887, in direct, open and flagrant violation of the terms of its charter and of the constitution and laws of that state, lend to one A. B. Anderson, who was never a member of said corporation, the sum of $150, and did then and there accept and receive as security for the payment of said sum of money the note of said A. B. Anderson, with W. J. Lightfoot, John C. Brown and G-. W. Patterson as securities thereon. Said note was payable twelve months after date, with interest at the rate of twelve per cent, per annum from maturity until paid, and t^n per cent, attorney’s fees if collected by law, etc. That said A. B. Anderson died before the maturity of the above-described note, and at the maturity thereof S. L. Anderson, a son of A. B. Anderson, received from plaintiff the said note, and thereupon he and his co-defendant executed and delivered to plaintiff the note here *254sued ou for no other consideration than the surrender and cancellation of said first-mentioned note. That $36 was added to the sum ($150) borrowed a»d received by A. B. Anderson from plaintiff, and was put into said first note; and that said sum of $36 was the interest on the $150 at the rate of two per cent, per month for twelve months, the time said note had to run. And, further, defendants charge that at the time of making and delivering by defendants to plaintiff the note here sued upon plaintiff added to said note of $186 the sum of $37.20 to get the amount of said note of $223.20, and said sum of $37.20 was obtained by calculating interest at the rate of two per cent, per month for ten months, the time the note sued upon had to run from its date.
The contention is that by the terms “discount” and “ banking,” as used in our constitution and laws, is meant “bank discounts.” That “ ‘bank,discount5 is a certain per cent, deducted from the face value of a negotiable instrument transferred to the bank, the bank paying the remainder of the face value, less the per cent, deducted, and is equal to interest paid in advance,” etc. That there can be no discount unless there is deduction. That to add in the interest,— the unearned increment, so to speak,— and put it into the face of the note, and then pay for said note a sum less said interest, is an addition, and not a deduction, and consequently not a discount. Several of the authorities cited would seem to warrant this restricted meaning to the word “discount,” and may be found cited by Mr. Bouvier in his Law Dictionary. Anderson, in his Dictionary of Law, defines “discount” as “the difference between what is paid for a claim evidenced by negotiable paper and the face amount thereof.” We quote from the well-considered opinion of Brewer, J., now one of the justices of the supreme court of the United States. He says: “The term ‘discounting’ includes purchase as well as loan.” “To ‘discount ’ signifies the act of buying a bill of exchange or promissory *255note for less than that which upon its face is payable.” [1 Bouv. Law Diet., tit. “Discount.”] “It is also undeniably clear that the term ‘discount,’ when used in a general sense, is equally applicable to either business or accommodation paper, and is appropriately applied either to loans or sales by way of discounts when a sum is counted off or taken from the face or amount of the paper at the time the money is advanced upon it, whether that sum is taken for interest upon a loan or as the price agreed upon a sale.” [Bank v. Baker, 15 Ohio St. 85. See, also, Meckner v. Bank, 8 Wheat. 338; Pape v. Bank, 20 Kan. 440.] In our former opinion in this case we also cited, as holding the same definition, Bank v. Johnson, 104 U. S. 276. Loaning money where the interest is taken at the termination instead of the commencement of the loan was held within a prohibition against discounting notes. [Bank v. Benedict, 1 Hall, 556.] We quote this authority from the note on ‘ ‘ discount ” in 5 Amer. & Eng. Enc. Law, pages 679, 680. Also in said note we find the following, from Weckler v. Bank, 42 Md. 592: “The ordinary meaning of the term ‘to discount ’ is to take interest in advance, and in banking it is a mode of loaning money. It is the advance of money not due until some future period less the interest due thereon when payable.” Without further discussion upon this branch of the case, we hold that the law when applied to the facts set forth in defendants’ plea made the transaction a discounting one, and as such obnoxious to our constitution and laws.
Was the contract ultra vires; and, if so, did this so vitiate the whole contract as that plaintiff would not be permitted in law to recover anything upon it; not even the amount which had been actually paid originally in the purchase of the first note? “The term ‘ultra vires’ is used to designate the acts of corporations beyond the scope of their powers as defined by their charters or acts of incorporation. [2 Bouv. Law Diet. 620.] So, whether *256with strict propriety or not, the term is also used in different senses. Thus an act is said to be ultra vires when it is not within the scope of the powers of the corporation to perform it under any circumstances, or for any purpose. . . . When an act is ultra vires in this sense it is generally, if not always, void in foto. ” [2 Wait, Act. & Def., 332.] Our constitution and laws unquestionably intended that no private corporation should be created with or ever exercise banking or discounting privileges. This is the plainly expressed policy and even language of our law [Const., art. 16, § 16; Sayles’ Civil St., art. 566, subd. 28], and, as if to place and emphasize this and all other matters with regard to their power and authority, it is expressly declared that “ no corporation created under the provisions of this title shall employ its stock, means, assets or other property, directly on indirectly, for any other purpose whatever than to accomplish, the legitimate objects of its creation.” [E. S., art. 589.] Their authority is expressly limited by the authority of their charters. To go beyond the legitimate object of their charters is ultra vires, and the act is void, because the law says it shall not be done. We are free to concede that in other states “ there would seem to be no rule or principle recognized ... by which an act creating a corporation for certain specific objects or to carry on a particular trade or business is to be strictly construed as prohibitory of all other dealings or transactions not coming within the exact scope of those designated.” [2 Wait, Act. & Def., 333.] But this rule cannot obtain in the face of our statute (article 589), which confines their operations to the legitimate objects of their creation. If the attempted act does not come within these legitimate objects, then it is void per se under the statute. It follows from what we have found the law to be that the act of appellee was discounting, in contravention of law, and was, moreover, ultra vires.
But it is claimed that appellant is estopped from set. *257ting up ultra vires because he is in pari delicto, and the law will not assist him. That he is not so estopped is decided in Insurance Co. v. Ely, 5 Conn. 560, cited in our first opinion, and Loan Co. v. Towner, 13 Conn. 249. See, also, Association v. McKnight, 35 Pa. St. 472; Moseley v. Brown, 76 Va. 419. He is not estopped by virtue of the rule announced in Daniel on Negotiable Instruments, section 386, upon the ground that the shareholders of the corporation should not suffer for breaches of trust committed by their officers, and permit parties who desire a benefit thereby to take advantage of their own wrong in borrowing from those who had no authority to lend. It is not shown that the .parties lending had no authority, and were not themselves the shareholders. “ Qui facit per aliwn facit per se; ” and if the lenders were the agents of these shareholders, and acting in the apparent scope of their authority, the principals are es-topped to deny the authority. But, again, it is contended that no person can avail himself of the plea of ultra vires uuless he connects himself directly with the contract which is claimed to be prohibited to the corporation. The position is that, if any illegality attached to the transaction, it occurred in connection with the purchase of the first note, and the making of the loan to A. B. Anderson, and that appellant was no party to that transaction, but simply took up that note and executed his own in lieu thereof. This position is not maintainable. In the execution of the second note — the note now in controversy — the process of discounting occurred. But we will not pursue the matter further. We are still of the opinion that our previous decision reversing the judgment because the court struck out the defendants’ pleas is correct, and the motion for rehearing is therefore refused and overruled.
Rehearing refused.