Anderson v. Cleburne Building & Loan Ass'n

Opinion by White, P. J. § 174. Private corporations; cannot exercise banking and discounting privileges; contract of, held ultra vires; “discount;” meaning of the word. On the 22d day of December, 1888, the appellee, the Cleburne Building & Loan Association, instituted this suit in the county court of Johnson county, Texas, on a promissory note, against S. L. Anderson, John C. Brown, G. W. Patterson and W. J. Lightfoot, as makers of said note. The defendants S. L. Anderson, G. W. Patterson and John C. Brown answered by general demurrer, general denial, and spe [250] cial plea of usury, and that the plaintiff, being a private corporation, under the laws of Texas had no right to make the contract for which the note sued on was given. To the special plea the plaintiff by supplemental petition demurred. February 1, 1889, cause was called for trial, the .parties appeared, announced ready, and the court sustained the general demurrer of the plaintiff to the defendants’ plea of ultra vires in said plea, to which the defendants excepted, and said cause proceeded to trial upon the remainder of said pleadings, and judgment was given for plaintiff. The defendants S. -L. Anderson and John O. Brown excepted to said judgment, gave notice of appeal in open court to the court of appeals, filed appeal bond and assignment of error, and bring this case here for revision of the errors committed by the court below in sustaining plaintiff’s general demurrer-to defendants’ plea of ultra vires contained in said answer. Defendants’ special plea alleges the plaintiff is a private corporation, organized under the laws o'f the state of Texas; that by its charter the plaintiff is not authorized to loan money to any person but its own members, or at a greater rate of interest than twelve per cent, per annum; that the money for which the note in suit was given was executed in violation of plaintiff’s charter, etc., for money loaned at discount, and to a person not a member of said corporation. The defendants, to procure said loan, went to plaintiff, and, after agreeing on the amount desired by the borrower, that amount, together with the interest thereon at two per cent, per month from date of note and for the time said loan was to run, were added together, put in the note signed by defendants, and plaintiff then paid to defendant the face value of said note, less said two per cent, per month, and took a note which provided that it should draw interest from maturity at twelve per cent. Section 16, article 16, of our state constitution declares that ‘ ‘ no corporate body shall hereafter be created, re [251] newed or extended with banking or discounting privileges.” Our statute (art. 566, E. S.) expressly enumerates all and the only purposes for which private corporations may be created in Texas; and article 589, Eevised Statutes, provides that “no corporation created under the provisions of this title shall employ its stock, means, assets, or other property, directly or indirectly, for any other purpose whatever than to accomplish the legitimate objects of its creation.” In the transaction as set out in defendants’ answer, does it appear that the Cleburne Building & Loan Association was violating these provisions of our constitution and laws? Unquestionably so, if it was exercising or attempting to exercise discounting privileges. Defendants, these appellants, went to plaintiff, appellee, to obtain money on the note sued on. Appellee discounted from the face of the note an amount equal to two per cent, per month, or the amount advanced on the note for the length of time said note was to run, gave appellants the balance, and thus acquired the note. “Discount is the difference between, the price and the amount of the debt, the evidence of which is transferred.. That difference represents interest charged, being at some rate according to which the price paid, if invested until the matuxity or the debt, will produce its arriouxit; axxd the advance, therefore, upon every note discouxited, without reference to its chai'acter. as busixiess or accomxxxodatioxx paper, is properly denomiriated a loaxx, for ixxterest is predicable only of loans, being the price paid for the use of money.” [Bank v. Johnson, 104 U. S. 276; Macl. Bank., 43. “To discount paper, as uixderstood' in the busixiess of banking, is only a mode of loaxiing money with the right to take the interest allowed by law in advance.” [Bank v. Baker, 15 Ohio St. 68.] In Saltmarsh v. Bank, 14 Ala. 677, it is said: “To discount a bill is to buy it for a less sum than that which upoxx its face is payable.” In Loan Co. v. Towner, 13 Conn. 249, it was held that, “ where it was provided in the charter [252] of a corporation established for the purpose of loaning money that nothing therein contained should be construed to authorize the company to discount notes or exercise any banking privileges whatever,” the taking of a note for the sum loaned, and the receiving of the interest on that sum in advance for the period of the loan, was thereby prohibited, and there could be no recovery on the note thus discounted. And so in Insurance Co. v. Ely, 5 Conn. 560, it was held: “A corporation has only such rights and powers as are expressly conferred by its charter, or as are necessary to carry'its express rights and powers into effect. Hence it cannot contract unless it is enabled to do so by its charter, and then only in the mode and as to the subject-matter prescribed.” It was further held in that case that “a corporation authorized by its charter to make contracts of fire and marine insurance, to loan on bottomry, respondentia or mortgage of real estate or chattels real, to buy in mortgaged property when necessary to secure debts, and generally to purchase and hold 'property necessary to carry on its business, but expressly prohibited from exercising banking powers, cannot loan money on the discount of notes.” In the case in hand, defendants’ (appellants’) special plea of ultra vires, if sustained by the proofs, Would have been a complete defense to and entirely defeated plaintiff’s cause of action, or rather right of recovery. The court erred in sustaining the plaintiff’s general demurrer to this answer. June 11, 1889. (Dec. 3, 1890.) Reversed and remanded.