Winget v. Quincy Building & Homestead Ass'n

Mr. Justice Bailey delivered the opinion of the Court: One of the grounds upon which the complainants seek to be relieved from the legal consequences of Winget’s membership in the Quincy Building and Homestead Association, and from the obligations created by the notes and deeds of trust executed by them to said association is, that the association has no valid legal existence. In support of this contention they insist that the act of 1872 under which said association was organized is unconstitutional and void, because the entire scope of the act, as is claimed, is not sufficiently expressed in the title. On this point it is sufficient to say, that whatever may be the ■fact in relation to the valid legal existence of said association as a corporation, the complainants are not in a position in which they can be permitted to challenge its validity. A party who has contracted with a corporation de facto as such, can not be permitted, after having received the benefits of his contract, to allege any defect in the organization of such corporation, as affecting its capacity to enforce such contract, but all such objections, if valid, are available only on behalf of the sovereign power of the State. 2 Morawetz on Corporations, sec. 750, and authorities cited in note. And this rule applies even where the corporation is organized under a law alleged to be unconstitutional. Friedland v. Pennsylvania Central Ins. Co. 94 Pa. St. 504; McCarthy v. Lavasche, 89 Ill. 270; Dows v. Naper, 91 id. 44; Morawetz on Corporations, secs. 759, 760. It is also contended that the loans of money for which said notes and deeds of trust were given are usurious. It is claimed that the rate of interest reserved was in excess of that allowed by the general interest laws of the State, and that the tenth section of the' act of 1872 is in conflict with the provisions of section 22, article 4, of the Constitution which prohibits the General Assembly from passing any local or special laws regulating the rate of interest on money. The questions here raised were fully considered by this court in Holmes v. Smythe, 100 Ill. 413, and it was there held that the said section of the act of 1872 was not within the prohibition of the Constitution, and that the transaction under consideration in that case, which in all its material aspects was precisely similar to those now before us, was not usurious. As we held in Freeman v. Ottawa Building, Homestead and Savings Association, 114 Ill. 182, these questions are no longer open to discussion. The principal controversy arises upon the charges of fraud and misrepresentation whereby, as it is claimed, Winget was induced to become a member of said association and to apply to it for said loan of money, and whereby Winget and wife were induced to execute to the association their notes and deeds of trust as security for said loans. The evidence bearing upon these charges is quite voluminous and to a considerable degree conflicting, but after having given it patient consideration, we are disposed to concur with the decision of the Appellate Court that said charges are not sustained. The form of organization of the association, and the general scheme upon which its business is conducted, are, so far as we are able to perceive, in strict accordance with the provisions of the act of 1872, and they must therefore be held to be fully authorized by l&w. Thus, the rules that no loans should be made except to members; that loans should he put up at auction and struck off to the members who should bid the highest premium; that every share of stock should he subject to a lien for the payment of unpaid installments and other charges incurred thereon under the provisions of the charter and by-laws, and that no stockholder should withdraw from the association whose stock was held in pledge for security, are all based directly upon the act. The by-law providing that when the shares of stock of any series upon which a loan should be granted should reach the matured value of $100 each, the value of the stock should be credited to the account of the borrowing member, thus satisfying and discharging the loan, and that the stock so credited should thereupon he can-celled and revert to the association, furnished a mode of satisfying loans and adjusting the accounts between the association and its borrowing members which was entirely consistent with and warranted by the provisions of the act. Most if not all the representations complained of were made with reference to and in laudation of the financial scheme, authorized by said act and adopted and put in practice by the association. The evidence in relation to the representations alleged to have been made orally is conflicting, and we are of the opinion that the master was correct in pronouncing it unsatisfactory, and in declining to find that any of the representations imputed to the officers and agents of the association were in fact made, except so far as they corresponded in substance with those contained in the printed circulars issued by the association. It remains to be seen whether said circulars contained misrepresentations of such character as should call for a rescission of the contractual relations between the parties. There can be no doubt that the association, by said circulars, presented the advantages to laboring men and others having small incomes, of its financial scheme, in a somewhat roseate light, and that opinions were expressed which, when subjected to the test of experience, have proved to be fallacious., But we are unable to find in said circulars any statement or representation of any material fact which is shown by the evidence to be essentially untrue. Besides, Winget, at the time he became a member of the association, or before, was furnished with a printed copy of the charter and by-laws of the association, in which the rights and obligations of members, and the principles upon which loans of money were made and secured were fully-stated. He had thus in his own hands the means of ascertaining and judging for himself as to the desirability of membership in the association, and as to the advisability of seeking to obtain from it loans of money. The first loan was obtained May 3, 1876, and after an interval of a little more than two years and a half, during which he must be deemed to have had sufficient opportunity to investigate the soundness and honesty of the financial methods adopted by the association, and the truthfulness of its representations, he applied for and obtained a further loan upon like terms and giving the same kind of security as before. It is difficult to see how, under these circumstances, even if the circulars should be found to contain statements of fact which were false and misleading, the complainants could be permitted to rescind their contracts on the ground of fraud. The alleged misrepresentations upon which chief reliance is placed are, that it would be better and cheaper for Winget to obtain a loan from the association than to borrow elsewhere, and, that all the profits of the association would be shared equally by all the members. The first of these representations would seem to be a matter of opinion rather than the statement of a fact; but waiving that consideration, its failure to prove true in the case of Winget’s loans results from two causes, first, the large premiums bid by him for the loans, and second, the frequent fines incurred by him by reason of his failure to pay his installments at maturity. It is needless to say that the fines which he had to pay were the result of his own negligence, and should not enter into the computation in testing the truthfulness of the representation. The premium's bid and paid were very large, the first being thirty-eight and the second thirty-one per cent of the amount of the proposed loan, and such premiums being paid by him voluntarily and with his eyes open, their effect upon the general result was a matter for which he was responsible equally with the association. If it be said that, under the circumstances, the loans could be obtained only by paying the premiums bid, it need only be replied that he was under no coercion, and was not compelled to take the loans if the rates of premium were bid up to a figure which would make them too expensive. It is demonstrable that if Winget had incurred no fines and had paid no premiums or but small ones, the loans would have been more advantageous than if made at the then usual rate of interest. Thus, if no premium had been paid and the stock had become par in eight or nine years, which the evidence shows was the usual period, the loans would have been almost or quite without interest. The payments in eight years would aggregate only ninety-six and in nine years only one hundred and eight per cent of the face of the loans, and as the stock would then equal in value the principal of the loan, the indebtedness would be cancelled by a credit of the par value of the stock and no further payments would be required. That this result was impossible in Winget’s case was due solely to the large premiums bid and the numerous fines incurred. We are unable to see that the representation that the profits of the association would be shared equally by all the members was in any degree untruthful. All the profits arising out of the funds belonging to a particular series of stock were accumulated and held until that series of stock became par, and then all members holding stock in that series were alike entitled to a credit to the amount of the par value of their stock. If the stockholder was not also a borrower, the par value of his stock was paid to him in cash. If he was a borrower the same amount was applied to the cancellation of his loan. After fully considering the case, we are satisfied with the conclusion reached by the Appellate Court, and the judgment of that court will therefore be affirmed. Judgment affirmed.