National Investment Co. v. National Savings, Loan & Building Ass'n

Collins, J. The only question which we need to discuss on this occasion is that of defendant’s liability upon the contract on which plaintiff’s right to recover is based. The defendant is a building association organized under the provisions of 1878 G. S. ch. 34, tit. 2, and the various amendatory acts. By a proviso found at the end of section one hundred and nine (109) of said chapter, such associations are expressly prohibited from loaning their funds, except to their own members or shareholders; and by means of Laws 1889, ch. 236, § 4, the manner of making such loans to members and stockholders is pointed out and regulated with great care. Upon the trial it was stipulated that Woolsey, named in the writing as‘the applicant for a loan, was not such member or shareholder; and it follows that a loan to him by defendant would have been in direct violation of a clear and express provision of the statute governing defendant association, under which it existed, and of which plaintiff and all other persons dealing with it were bound to take notice. With this notice and knowledge, then, of defendant’s restricted and limited powers as fixed by law, plaintiff entered into an executory contract with defendant which, if valid and enforceable, enabled the latter to evade a statute by loaning its funds to a person ineligible as a borrower, because not a member or shareholder, and to accomplish indirectly that which was expressly forbidden. Such a transaction cannot be permitted, and it is immaterial whether we regard it as a loan made by plaintiff at defendant’s request, with a promise to take it off plaintiff’s hands, or as an agreement to purchase a note and mortgage which plaintiff was about to acquire. In either event, the contract, if fulfilled, led directly to a violation of the statute before referred to. Nor can the transaction, in legal effect, be regarded as a loan of money to defendant. It received no money and no benefit. It had [520] no claims upon Woolsey, or upon his note and mortgage, and none upon the plaintiff, save such as would come from an improper and unlawful use of its funds at a future time. It is not analogous to a case where a corporation, in excess of its powers, has procured a loan of money; nor is it such a case as might have arisen between defendant and Woolsey, not a member and shareholder, had the former performed its part of the agreement, and became the holder of a note and mortgage it was forbidden to take. (Opinion published 52 N. W. Rep. 138.) The respondent’s counsel cites State Board of Agriculture v. Citizens' St. Ry. Co., 47 Ind. 407, and other cases in support of the decision reached below. We are not inclined to question the soundness of the position that, where a corporation has merely exceeded its powers when entering into a contract, and by its promise induced a party relying on the promise, and in execution of the same, to expend money and perform on his part, the corporation is liable. But here the appellant was positively prohibited from making the loan to Woolsey, or accepting the note and mortgage it agreed to take from plaintiff; and its contract was in violation of a statute. The rule in such cases is unquestioned. There is nothing whatever in respondent’s suggestion that Wool-sey might have become a member and shareholder before or at the time of performance on defendant’s part. Judgment reversed.