State ex rel. Prout v. Nebraska Home Co.

Sedgwick;, J. This is an information in the nature of quo warranto to annul the corporate existence of defendant and oust it of its corporate powers, franchises and privileges. To the answer of the defendant the attorney general filed a general demurrer. The answer alleges that defendant has been and is entering into contracts with various parties in pursuance of its franchise. The terms of these contracts are set out in full in the answer. The principal questions presented and discussed by counsel are: First. Do these contracts contain the elements of a lottery? Second. Are they unlawful as against public policy? By the terms of the contract the company “agrees and undertakes to assist the said holder of this contract in purchasing and paying for a home.” The holder agrees to pay $3 for the “com — 371 — pany’s services in registering and issuing each application and contract” and “to pay to the company, at the home office of the company, in Qmaha,- Nebraska, $1.35 each month, on or before the last day thereof, from the date hereof until this contract shall mature as hereinafter described.” After the contract matures, the amount of the monthly payments is increased to $5.35, and continues “until the holder shall have paid into the home fund, as herein provided, the total sum of one thousand ($1,000) dollars, or such fractional part of said sum as shall he fur- • nished for him by the company. Five dollars of said sum of $5.35, so paid, shall be placed by the company in the home fund, as hereinbefore described, and 35 cents thereof, ■ is in payment for the services of the company.” The contract also provides: “First. Said company shall number and date all contracts issued in regular numerical order as applications are received at the home office, and shall keep a record thereof, showing the date and serial number of each contract. “Sixth. This contract shall be deemed to be matured within the meaning hereof, when there shall be, over and above what is required to be paid out on contracts of lower serial number than this contract, either, first, an income of fifty ($50) dollars per month due said home fund from contract-holders; or second, an amount of money in said home fund which, when added to the income so due from contract-holders for a period of twenty months, will equal one thousand ($1,000) dollars. “Seventh. When this contract matures, the company agrees on each and every month thereafter, for twenty months, to pay out of the said home fund the sum of fifty ($50) dollars, in assisting the holder to purchase a home, to pay off a mortgage on a home owned by the holder, or to erect a dwelling-house on a lot belonging to a holder, as said holder may prefer. “It is understood and agreed that the holder shall select property of the value of one thousand ($1,000) dollars, — 372 — on the basis of said payments thereon of fifty dollars ($50) per month, and thereupon the company shall immediately proceed to investigate title and value of the property, and, as soon as possible, notify the holder of its approval or disapproval of the holder’s selection. * * * “If the company approves the selection, it shall immediately cause the property selected to be purchased, and put the holder in possession thereof, on the terms and conditions hereinafter contained.” 1. Does this scheme involve the elements of a lottery? To constitute a lottery, there must be a prize offered and the payment of something for a chance to obtain it. The ■attorney general has furnished the court with an “expert’s table,” which is derived from a computation based upon the issuing of contracts upon one thousand applications received at the same time, and each holder paying his in-stalments according to his agreement. We do not understand that defendant’s attorneys deny the accuracy of the result obtained upon the basis assumed, and it appears that the twenty-two holders of the lowest numbered contracts would get their first instalments, respectively, ■ within the first twenty-month period after the contracts were made, and would receive the full sum of $1,000 within the next twenty-month period thereafter; whereas the holder of contract numbered 1,000, although making his payments monthly, would not have any return from his investment until more than seventy years from the time he took his contract and began payment. The advantage of the fortunate holder of the early number is manifest. To obtain such a preference is to obtain something of value. “It is idle to say that a sum or an obligation for a sum due and payable to-day or at an early day is of no more value than an obligation for an equal amount, without interest,payable at a remote and indefinite time.” MacDonald* v. United States, 12 C. C. A., 339, 345. The question, then, is whether the element of chance enters into the scheme by which one contract-holder obtains this advan — 373 — tage over another. The contracts are to he numbered and dated “in regular numerical order as applications are received at the home office.” The applicant must take his chances as to how many applications may he received at the same time that his is received and, if there are several at the same time, he must take the chance of preference over other applications received with his. In MacDonald v. United States, supra, Judge Woods said (p. 344) : “Whether or not a purchaser will obtain a bond of one number or another depends * *• * upon the order in which his application shall reach the hand of the secretary, and that is largely a matter of chance. The secretary receives applications by mail and otherwise, sometimes singly and sometimes a number together, and in the order of receipt, and, as he chances to take up one or another first, passes them through a registering device, and in accordance with the notations thereby made upon the applications the bonds are numbered and issued. But for the purchaser’s hope, or, as it may as well be said, for his chance, of getting a multiple number, the business would soon cease.” He held that “the element of chance incident to the numbering of the bonds before they were issued” made the scheme a lottery. The reasoning of the court in the MacDonald Gase was adopted by Judge McComas in a similar case recently decided in the supreme court of the District of Columbia. United States v. Sherwood.* Judge McComas fortifies his conclusions by quotations from other authorities, and holds that under such a plan, “the number of the certificates, and their consequent value, depends upon chance.” A certified copy of his very clear and satisfactory opinion is on file in this case. He says: “In different states, applicants, on the same day, may mail subscriptions for certificates in this company. Whether or not an applicant will receive a certificate of one number or another depends upon the order in which the applications may reach the officer of this company who issues the certificates, and that — 374 — is a matter of chance. This officer receives these applications by mail, or otherwise; it may be one at a time; it may he many at the same time; and, according to the order in which he chances to receive them, or as he chances to take np one or another, and determines the number of each applicant’s certificate, the certificates are numbered and issued. He who by these chances luckily receives an earlier number, will be paid sooner, and will pay in less money than another, who, subscribing on the same day, receives a later number, and will by these chances be required to pay longer and pay more money, and wait longer for payment of his shares. It is this element of chance in the numbering of the certificates which I believe to be a violation of this anti-lottery law. It is evident that the inducement to subscribe consists mainly in the chance of securing an early or lucky number.” This' reasoning is satisfactory to our minds, and we have been referred to no authority conflicting with the views so announced. The suggestion that the applicant will know the number of his contract before he accepts it, and if not satisfied, may reject the contract, is without merit. By his application he agrees to accept the contract and he is presumed to know the terms of the contract before he makes the application. The suggestion is predicated upon the idea that he wall not perform the agreement that he has made in his application, but will forfeit the fee “for registering and issuing each application and contract” and so risk only the three dollars. If that is the proper construction of the contract, the result is the same. It involves the payment of three dollars for the chance of obtaining an early number. 2. This defendant can not be allowed the protection of its charter to do business in this state for another reason. Its plan involves taking money from its patrons upon contracts which on its part it is impossible to perform. It professes to be a “home company,” and it “agrees and undertakes to assist” the holders of its contracts “in purchasing and paying for a home.” It issues contracts — 375 — which, through, the misfortune of the holders in the numbering of the applications, will bring no assistance before the expiration of the ordinary allotment of three score years and ten. It can not result in assistance to such holders in procuring a home in this world, and it does not profess to render assistance in any other. If it is intended that there will be new patrons, whose monthly payments shall be used to make good the company’s promise to holders of earlier contracts not. otherwise provided for, the situation is still worse. The company can not furnish the funds to assist these new patrons to obtain homes before the time will come when, in the ordinary course of nature, they can not avail themselves of such assistance. Their own payments can not do so, nor help to do so. These are pledged to make up a deficiency existing before they obtained their contracts. They can hope to obtain the fruits of their contracts during their natural lives only from the payments to be made by others who obtain contracts after them, and there must be a sufficient number of these others in order to bring about the hoped-for result. It appears from the table referred to that about one-third of the holders of the first one thousand contracts supposed to be issued at one time would be able to procure homes within twenty-five years. To enable one thousand to do so, there must be three thousand contracts taken, or two thousand new patrons, who must take their contracts soon after the first thousand are taken. To enable these additional two thousand to obtain the promised assistance, there must be a still larger number of other contracts taken within a short time after the two thousand take theirs, and so on in progressional numbers, which must in a few7 years run into infinity. The contracts so contemplated can not, of course, all be fulfilled, and public policy will not permit the state to become a party to such a scheme. The defendant’s business is, for these reasons, unlawful. The demurrer is sustained, and judgment of ouster will be entered as prayed. Judgment of ouster. — 376 — Note. — The following is the contract referred to in the foregoing opinion: “Serial No. -. $1,000 “NEBRASKA. HOME COMPANY, “ (Incorporated) “Oe Omaha, Nebbaska. “This agreement, made and entered into by and between the Nebraska Home Company, of Omaha, Nebraska, a corporation duly organized under the laws of the state of Nebraska, party of the first part, and, for convenience, hereinafter referred to as the company, and .. party of the second part, hereinafter called the holder, “Witnesseth: That for and in consideration of the covenants and agreements hereinafter contained, to be kept and performed by the said parties hereto, the said Nebraska Home Company hereby agrees and undertakes to assist the said holder of this contract in purchasing and paying for a home, and the said holder agrees to pay to said company the sums hereinafter provided for its services, all as stipulated herein. The terms and conditions of this agreement, which the parties hereto mutually promise and agree with each other to perform and do, are as follows, to-wit: ‘‘First. Said company shall number and date all contracts issued in regular numerical order as applications are received at the home office and shall keep a record thereof, showing the date and serial number of each contract. “Second. Eor said company’s services in registering and issuing each application and contract, the holder agrees to pay said company the sum of three ($3.00) dollars. “Third. The holder ag-rees to pay to the company, at the home office of the company in Omaha, Nebraska, one dollar and thirty-five cents ($1.35) each month, on or before the last day thereof, from the date hereof until this contract shall mature as hereinafter described. “Fourth. The company shall depiosit one ($1.00) dollar of each one dollar and thirty-five cents ($1.35) so paid, in some approved national bank, in the city of Omaha, in a fund to be known as the home fund, which fund shall be a trust fund held by said bank for the benefit of contract-holders, and said fund shall only be drawn from on the order of the board of directors, addressed to the president and treasurer, on checks signed by them, to be used as provided for in this contract. The said one dollar a month shall apply in the repayment of the amount furnished the holder under this contract. “Fifth. The remaining thirty-five (35) cents of each one dollar and thirty-five ($1.35) cents, so paid, is in payment for the services rendered by the company. “Sixth. This contract shall be deemed to be matured within the meaning hereof, when there shall be, over and above what is required to be paid out on contracts 'of lower serial number than this — 377 — contract, either, first, an income of fifty ($50.00) dollars per month dne said home fund from contract holders; or second, an amount of money in said home fund which, when added to the income so due from contract-holders for a period of twenty months, will equal one thousand ($1,000.00) dollars. “Seventh. "When this contract matures, the company agrees on each and every month thereafter, for twenty months, to pay out of the said home fund the sum of fifty ($50.00) dollars, in assisting the holder to purchase a home, to pay off a mortgage on a home owned by the holder, or to erect a dwelling-house on a lot belonging to the holder, as said holder may prefer. “It is understood and agreed that the holder shall select property of the value of one thousand ($1,000.00) dollars, on the basis of said payments thereon of fifty ($50.00) dollars per month, and thereupon the company shall immediately proceed to investigate title .and value of property, and, as soon as possible, notify the holder of its approval or disapproval of the holder’s selection. “It is understood that the company reserves the right before paying any sum of money on any property selected, to satisfy itself that the property selected by the holder is of the value of said one thousand ($1,000.00) dollars, as aforesaid, and that the title thereof is perfect; and in ease of the erection of a dwelling-house upon the property owned by the holder, that the company shall have the right to see that the holder’s title to the lot is perfect, and that the money spent in the erection of the building is judiciously expended, so that the lot with the building so erected thereon shall be worth the sum of one thousand ($1,000.00) dollars, as aforesaid. “The company shall have ninety days from the time that the holder notifies it of his selection, in which to make said investigations, and to complete the arrangements for the purchase thereof. “If the company approves the selection, it shall immediately cause the property selected .to be purchased, and put the holder in possession thereof, on the terms and conditions hereinafter contained. “Eighth. The holder may, on the maturity of this contract, elect to take any fractional part of the said sum of one thousand ($1,-000.00) dollars, if he so desires. “Ninth. At the time the company malees said advancements, the holder agrees, as security to the company for the faithful performance of this contract, and security that the holder will keep the property purchased in good repair, and insured in a suitable sum with an approved insurance company; and will not commit, or suffer to be committed, any waste upon said premises, and will promptly pay the taxes thereon before same become, by law delinquent, and that he will faithfully make the. payments herein required to be made by him, all of which the holder agrees to perform and do, that the holder shall give the company, or some bank, or trustee, to be named by the company, suitable security on the property purchased or improved, either by means of a lease from the owner to the said holder of this contract, a land contract, mortgage, or trust deed, or otherwise, as required by the company. — 378 — “Until the sum of two hundred and fifty ($850.00) dollars is paid into the home fund on this contract, the holder may only demand a lease of said premises, and until three hundred and fifty ($350.00) dollars is paid into the home fund on this contract the holder may only demand a land contract for said premises. Thereafter the security may he by mortgage, trust deed, or otherwise, as the company shall elect. In all cases of advancements to a contract-holder, the contract-holder must pay the sum of ten ($10.00) dollars to defray the expenses of drawing the necessary papers and for the examination of the title of the property. , “Tenth. It is one of the conditions of this contract, and shall be one of the conditions of said security, that if the holder shall fail to make his payments, as herein provided, after said advancements have been made to the holder, or shall commit any breach of the conditions of said security contract, then all the sums to be paid on this contract shall immediately become due and collectible. “Eleventh. After maturity, as aforesaid, of this contract, the holder agrees to pay said company the sum of five dollars and thirty-five cents ($5.35), each month,' on or before the last day thereof, from the time of maturity until the holder shall have paid into the home fund, as herein provided, the total sum of one thousand ($1,000.00) dollars, or such fractional £)art of said sum as shall be furnished for him by the company. “.Five ($5.00) dollars of said sum of five dollars and thirty-five cents ($5.35), so paid, shall be placed by the company in the home fund, as hereinbefore described, and shall apply in the repayment of the amount furnished for the holder of this contract, and shall be used to mature contracts. “The. remaining thirty-five (35) cents thereof is in payment for the services of the company; but ihe holder shall in no event be required to pay said thirty-five cents per month for a period exceeding two hundred (200) months from the date of this contract, or to exceed seventy ($70.00) dollars in all. “Twelfth. The holder may make as many payments of five dollars and thirty-five cents ,($5.35) each, as he may desire in advance of the time same are due, and at any time the holder desires to settle with the company in full he may do so by paying’ to the company the balance due the home fund, with one payment of thirty-five cents for the company’s expenses. “Thirteenth. If the holder hereof shall fail to make any payment within one calendar month from the time when the same becomes due and payable, and shall fail to have same extended on the terms and in the conting’encies hereinafter mentioned, then the company shall sell this contract to some other person, and all the rights which the holder has hereunder shall be terminated and transferred to the purchaser; and to fully carry into effect this provision, the undersigned holder hereby appoints the secretary of the Nebraska Home Company, of Omaha, Nebraska, the holder’s true and lawful attorney in fact irrevocably, with full power, for him and in his name and — 379 — place, to sell, assign, ancl transfer to the purchaser all the holder’s rights, title and interest under this contract, for snch sum as may he realized therefor. Said sale shall he made substantially as follows: Within ten days after the holder becomes in arrears for payment due and payable, the said secretary shall post in a conspicuous place in the home office of the company, a written or printed notice setting- forth the name of the contract-holder, the date and number of this contract, the amount paid thereon, and the amount delinquent. Said notice shall be posted for at least twenty days prior to the sale, and shall state that the holder being in arrears, this contract will be sold to the highest bidder therefor, and that sealed bids therefor will be received by the company until the date set for the sale thereof and give the date of said sale, which date shall be the ‘first day, not a Sunday or a holiday, of the next succeeding month. The company shall receive and file all bids made in accordance with said notice, and on the date appointed the secretary shall publicly open said bids, and award and sell said contract to the highest responsible bidder therefor. The amount received from said sale shall be applied in payment as follows: Mrst, of all delinquent payments due the home fund; second, of all delinquent payments due the expense fund; third, a transfer fee of two ($2.00) dollars to the company. The balance shall be paid on demand to the holder whose contract is sold. On the payment by the purchaser of the amount of his bid, the company shall execute to him a receipt therefor, and within ten days thereafter, deliver to him this contract duly assigned; or if unable to obtain this contract with assignment from the original holder, the secretary as aforesaid, shall issue to the purchaser a new contract of ev.en date, amount and serial number herewith, and this contract shall thereupon be and become null and void, and the holder of said new contract shall be subrogated to all the rights of the original holder. “The holder expressly agrees that the company or any of its officers may make b(ds for this contract on the same terms and in the same manner as others. “The company may, with the consent of the holder, reject any and all bids made and offer said contract for sale again as hereinbefore provided, the next succeeding month. “Provided, That no sale shall be made by the secretary under this power .of attorney while the holder is not in arrears for any payments due, nor for one calendar month thereafter. “This contract shall not be construed to prevent the holder from selling this contract at any time before his rights hereunder are sold; by obtaining consent of the company and paying the transfer fee of two ($2.00) dollars, and all delinquent payments. Nor shall this x^ower of attorney be construed to authorize the said secretary to sell or convey the holder’s interest in any real estate purchased by him through the assistance of the company. “Fourteenth. After the holder shall have come into possession of the property, to be purchased for him under this contract, if he shall be — 380 — unable, by reason .of sickness, or lack of employment, to make Us monthly payment, when same becomes due, he may procure an extension of the time of said payment for one month by reporting-the said cause of his delinquency to the secretary of the company during- the calendar month immediately succeeding said delinquency. Said information shall be given under the oath of the party reporting the same.’ If such sickness, or disability, as aforesaid, shall continue, such extensions may be made from month to month, as aforesaid; but in'no event shall the holder be allowed to have to exceed six payments so extended at one time. When such disability ceases, the holder shall make at least two payments each month until all such extended payments are paid in full. “Fifteenth. If the holder desires assistance in: a sum larger than one thousand ($1,000.00) dollars on any purchase, or on the erection of a home on a single piece of property, or the payment of a mort-gag-e ,or mortgages on one piece of property, he shall procure same by taking out additional contracts with the company, and all contracts so taken out shall be applied for and regularly matured the same as-new contracts. When two or more contracts are used for the purpose of procuring the company’s assistance in the purchase of a single piece of property, the contract so used shall be and become merged into one contract, and thereupon the following words or words to that effect shall be indorsed by the secretary of the company, on all the contracts so merged, to-wit: ‘This contract is merged' with 'serial number.’ and any breach of any condition of either of said contracts shall be a breach of the conditions of all said contracts so merged together. Nothing herein contained shall prevent the holder of this contract from taking out other contracts with this company and securing assistance in the purchase of propi-erty separate and distinct from the property purchased under this contract. ' “Sixteenth. This contract may be assigned by the holder, and the said holder may be' released from its .obligations upon making assignment hereof to a satisfactory and reliable assignee,' on the following terms: The holder shall pay to the company two ($2.00) dollars assignment fee, and shall procure the approval of the secretary of said assignment, which approval shall be indorsed thereupon. Said assignment shall be in writing, duly signed, witnessed, and acknowledged. “Seventeenth. It is agreed that the total amount to be paid on this contract shall not exceed one thousand and seventy-three ($1,073.00) dollars, one thousand ($1,000.00) dollars of which is for the home fund, seventy ($70.00) dollars being thirty-five cents per month for two hundred months, and three ($3.00) dollars application and registration fees. “Eighteenth. It is further understood and agreed that the covenants and agreements herein contained shall extend to and be binding upon the respective heirs, executors, administrators, legatees, devisees, successors and assigns of the parties hereto. — 381 — “Nineteenth. No officer or agent oí this company has any authority to change or alter the conditions of this contract, or to make any other or different contract, or representations in regard thereto, than is contained herein. “In Witness Whereof, the Nebraska Home Company, has caused these presents to be signed by its president, and countersigned by its secretary, and sealed with the seal of said corporation, and the said holder has hereunto set his name, at Omaha, Nebraska, this —— day of 190 — . “Nebraska. Home Company, “By-, President. “(Contract-holder’s signature)-. “ Coun ter sigmed: “Secretary.” Lottery. — There is an excellent note on what constitutes a lottery in 12 C. C. A., pages 346 to 350, inclusive. — W. P. B. Footnotes [*] This name is spelled differently in different reports of this ease. —W. S’. B. [*] 31 Wash. L. Rep. — Unofficial.