Williams v. Bank of Commerce

Cooper, J., delivered the opinion of the court. The appellants, who are creditors of the Fischer & Burnett Lumber Company, an incorporated company under the laws of this state, exhibited their bill in this cause in the chancery court of Bolivar county against the said Fischer & Burnett Lumber Company, and against the Bank of Commerce and the Continental National Bank of Memphis, Tennessee, and the Seaboard National Bank of New York, and against James A. Omberg and Charles F. M. Miles, and against other defendants who have no relation to the questions presented by this appeal. The purpose of the bill is to cancel as fraudulent certain deeds of trust executed by the Fischer & Burnett Lumber Company to Omberg and Miles to secure the payment of certain notes to the other above-named defendants, and to subject the property thereby conveyed to the payment of complainants’ demands. By the laws of the state of Tennessee, corporations created under the laws of other states desiring to engage in business in that state, are required, before engaging therein, to file a copy of its charter with the secretary of state, and also 'to. — 864 — cause an abstract of the same to be recorded in the office of the register in the county in which it desires to carry on its business, or to acquire or own property, and it is made unlawful for any foreign corporation to do, or attempt to do, any business, or to own or acquire any property in that state, without having first complied with the provisions of the law, under a penalty of afine of not less than one hundred nor more than five hundred dollars, at the discretion of the jury. Milliken & Yertrees’ Laws of Tenn., §§ 1992-2003; Laws of 1891, p. 212. The Fischer & Burnett Company, without having complied with the law of Tennessee, opened an office in the city of Memphis, in that state, and engaged in business there, in which business it contracted debts to the Bank of Commerce and to the Continental Bank. The debt to the Seaboard National Bank of New York originated by the Fischer & Burnett Company discounting its notes to that bank in the city of New York, and it does not appear that this bank had any transactions with the company in the state of Tennessee other than that referred to in the next paragraph of this opinion. On the twenty-fifth of May, 1893, the Fischer & Burnett Lumber Company, in the city of Memphis, executed its several promissory notes to the respective banks for the amount it owed each, those in favor of the Bank of Commerce and the Continental Bank being payable in Memphis, and that in favor of the Seaboard National Bank being payable at its banking house in the city of New York; and, to secure the payment of said notes, it executed, at said time and place, a deed of trust to the defendants, Omberg and Miles, whereby a large quantity of real and personal property in the state of Mississippi was conveyed to said trustees, and power to sell said property in the state of Mississippi was conferred upon said trustees if default should be made in the payment of the notes it secured. After the execution of these notes and the deed of trust, the creditors learned that — 865 — the Fischer & Burnett Company had not complied with the law of the state of Tennessee, by filing its charter with the secretary of state, and an abstract thereof with the register of Sbelby county, in which county the city of Memphis is •situated, and a doubt was entertained as to the validity of the notes and deed of trust. For the purpose of curing this supposed defect, the proper officer of the Fischer & Burnett Company came to Lake Cormorant, in this state, .and, on the twenty-seventh day of May, 1893, there executed and delivered other notes and a deed of trust, of like tenor as those made in Memphis on the twenty-fifth of said month. Both deeds of trust were recorded in the proper offices in this state. On the third day of July, 1893, the complainants exhibited their original bill, seeking to cancel the deeds of trust as fraudulent, and afterwards, the trustees having advertised the lands for sale under the deed of date May 27, a ■supplemental bill was filed by which an injunction was prayed and obtained against the sale. The defendants, in vacation, moved for a dissolution of the injunction on bill, .answer and exhibits, and, upon the hearing, the injunction was dissolved. On the hearing the defendants suggested damages. The chancellm; found, as a fact, that the value of the property covered by the deed of trust was $30,000, it being of less value than the debts secured, and allowed damages as follows: (1) Attorney’s fees, $1,750; (2) for one day’s services of trustee, Ailes, $25; (3) for costs of re-advertising property, $55; (4) for services of night watchman to guard property during period of injunction, $85; (5) hotel bill of trustees, $7.40. Total, $1,922.40. From the decree dissolving the injunction and allowing •damages, the complainants appeal. The defendants asked the court to allow them damages of five per cent, on the value of the property in addition to those allowed, and from the decree disallowing the same, ■they prosecute a cross-appeal. Upon the principal question, it is contended by appellants — 866 — that the business transacted by the Fischer & Burnett Company in the state of Tennessee without having complied with the laws of that state, was an unlawful business, made such by the terms of the statute, and that neither that company nor any one dealing with it, could acquire any rights by virtue of a contract entered into in the course of such business; that the creditors of the company, becoming such in dealing with it while engaged in an unlawful business, acquired no right by the contracts, nor could they recover from the company the sums advanced to it, suing not upon the contract but for money ex cequo et bono due to them, wherefore they contend that the notes and deed of trust executed at Lake Cormorant in this state were not supported by any consideration, and, because they were not, that the conveyance was a voluntary one, and therefore fraudulent as against the creditors of the company. It is further argued that since the notes to the Bauk of Commerce and the Continental Bank, though made in Mississippi, were payable in Memphis, they are to be treated as contracts made in the state of Tennessee, and that the courts of this state should, through comity, consider them as void. In the construction of statutes of the character of that of the state of Tennessee — i. e., statutes prohibiting or making unlawful an act, or declaring a penalty against it — the most conflicting conclusions have been reached by the courts of the various states, and sometimes by the same court, in reference to statutes apparently similar. In Bank v. Owens, 2 Pet., 527, the charter of the bank provided that “ the bank shall not be at liberty to purchase any public debt whatever, nor shall it take more than at the rate of six per centum per annum for or upon its loans or discounts.” A rate of discount exceeding six per centum was reserved, and it was held that the contract was void, and no recovery could bo had on the note. In Mining Co. v. Bank, 96 U. S., 640, the bank had lent to the defendant more than one-tenth of its capital stock, in — 867 — violation of the twenty-ninth section of the act under which it was incorporated, and which declared that “,the total liabilities to any association of any person, or of any company, corporation or firm, for money borrowed, including in the liabilities of a company or firm the liabilities of the several members thereof, shall at no time exceed one-tenth part of the amount of the capital stock of such association actually paid in.”" It was held that, though the plaintiff had violated •its charter in making the loan, a recovery could be had. In Bank v. Matthews, 90 U. S., it was held that, though the act under which the bank was incorporated prohibited it from accepting real estate as security for a loan to be made, yet that a mortgage executed to the bank in violation of the act was valid, and might be enforced by the bank; and to the same effect are Bank v. Whitney, 103 U. S., 99, and Fritts v. Palmer, 132 Ib., 282. It has been frequently held that the contracts of corporations made in states in which they were forbidden from doing business, or in violation of statutory provisions, were not enforcible at the suit of the corporation. Bank v. Merrick, 14 Mass., 321; Bank v. Owens, 2 Pet., 527; Williams v. Cheney, 3 Gray (Mass.), 215; Ins. Co. v. Pursell, 10 Allen (Mass.), 231; Cin. Mut. Health Ass’n v. Rosenthal, 55 Ill., 85; Lumber Co. v. Thomas, 92 Tenn., 587. And also that the contract was void, and could not be enforced by an innocent pai’ty who contracted with the delinquent. But, whatever view may be taken of the effect of a statute prohibiting a foreign corporation from doing business in a state upon contracts entered into against its provisions, it cannot be that the delinquent corporation may repudiate the contract and retain the consideration received by it, especially when the other party is innocent and ignorant of the fact that the law has been violated. It would be a reproach to the law if the Fischer & Burnett Company, having received over thirty thousand dollars of the money of the defendant banks under the circumstances disclosed by this record, could — 868 — plead its own default in defense of suits brought on its contracts, and yet hold the money by reason of the contracts. If the contracts were invalid, and conferred no right of action on the banks, they gave no right to the company to hold the money, and, repudiating the contracts, the company, ex aequo et bono, was liable to repay the money it had received — liable not under or by virtue of the contracts, but by reason of the fact that, there being no valid contract, it had received money’ which in good conscience it could not retain. There is a' wide and marked distinction between transactions of the character here involved and those involving moral turpitude, the mere making of which is detrimental to the public welfare or private morals. In Marble Co. v. Harvey, 92 Tenn., 115, it was held that the defense of ultra vires might be interposed by the corporation, although the contract had been fully executed by the other party. The coui’t declined to pass upon the question of its liability, if sued upon a quantum meruit, because the question was not presented by the record, but it is evident from the opinion that approval is given to the authorities by which such right of recovery is upheld. In Ohio Life Insurance & Trust Co. v. The Merchants' Insurance & Trust Co., 11 Humph., 1, the precise question was involved and decided. The defendant, a corporation created by the state of Tennessee, had entered into contracts beyond its corporate power, and had received benefits therefrom. Being sued in equity, it defended upon the ground that it had no power to make the contracts. The’court held that, while the defendant was not liable on the contracts, relief should be afforded to the complainant outside of them, saying: “ We are of opinion, therefore, that the complainant is not repelled by reason of the illegality relied upon in defense, but is entitled to relief, and that in granting it the court will promote both the claims of private justice and the ends of public policy. It is to be observed, however, that the relief is against the contract and not upon the contract; for we — 869 — have seen that, in the nature of things, the law cannot enforce an illegal contract, although the parties be not in pari delicto. But it is cpnsistent with itself that the law shall annul such contract, and place the parties in all respects in. statu quo.” It is, therefore, evident that the Fischer & Burnett Company would have been liable to the banks if it had been sued in the courts of Tennessee, not upon its contracts, but in an equitable action for the money it had received. The notes and deed of trust executed by the company in this state were, therefore, fully supported by the consideration of the money it had received. We think it obvious that the validity of the notes secured by the deed of trust was not at all impaired by reason of the fact that they were made payable in the state of Tennessee — first, because in executing the notes in this state, payable in the state of Tennessee, the Fischer & Burnett Company were not doing business in the state of Tennessee; and, secondly, because, if making the note had been doing business, it would have been only promising to do that which the courts of Tennessee would have compelled the company to do if suit had been brought there. The court below properly dissolved the injunction. The remaining questions for decision are presented by the appeal and cross-appeal from the decree allowing damages on the dissolution of the injunction. Section 572, code 1892, is as follows : “When an injunction, obtained to stay proceedings at law for money, shall be dissolved, in whole or in part, damages at the rate of five per centum shall be added to the judgment enjoined, or to so much thereof as shall be found due, including the costs; and the clerk of the chancery court shall certify such dissolution to the clerk of the court in which the judgment was rendered, who shall thereupon issue execution for the damages, as well as for the original debt and costs. Damages at the same rate shall be allowed upon the dissolution of injunctions to stay sales under deeds of trust or mortgages with — 870 — power of sale; and such damages may be added to the debt and collected by the sale of the property, or execution may issue from the chancery court for the same, together with the costs of suit, unless the value of the property the sale of which was restrained, be less than the amount of the debt, in which case the damages shall be computed on the value of the property, to be ascertained and determined by the chancellor; and in all cases, upon the dissolution of an injunction, the damages may be ascertained by the court or chancellor,- or upon a reference to a master, and proof, if necessary, and decree therefor be made and execution be issued thereon.” The chancellor was of opinion that the damages provided for by this law could be allowed only where an injunction was sued out by the defendant to a judgment or the grantor in a deed of trust or mortgage, being influenced by those parts of the section which provide that the damages allowed when the injunction was to stay proceedings at law should be added to the debt and collected by execution, and that those allowed upon dissolution of injunction to stay sales under deeds of trust or mortgages with power of sale, “ may be added to the debt and collected by the sale of the property.” The first clause of the section, we think, refers exclusively . to injunctions sued out by a party to the judgment. There may be cases in which one not a party to a judgment may sue out an injunction to stay proceedings thereon, but we cannot now recall an instance in -which it could be done. One not a party to a judgment may, by injunction, prevent his property from being subjected thereto, but this is not the stay of proceedings meant by the statute, for in such case the judgment is not stayed,but only aparticular execution thereof. But sales under deeds of trust or mortgages with power of sale may be, and frequently are, stayed by injunction by strangers to the deed, and the statute was enacted with reference to such injunctions, as well as those issued at the suit of a party to the instrument. Its terms are broad enough — 871 — to include them, and the injury in either case to the creditor is the same. When the writ is issued at the suit of a party bound for the secured debt, the damages given may be added to the debt and collected by the sale authorized by the deed. But they may also be collected by execution, and that may be awarded as well against a stranger as against a party to the conveyance. The statute was intended to provide for and limit the damages allowable in the cases to which it applips. Ordinarily, the injury sustained by the party interrupted in the collection of his debt consists of the delay occasioned and the costs incident to the defense of his cause. For such cases and for such injury the law has provided a fixed rule by which the damages may be ascertained, to wit r By giving a per centum certain of the collection which would have been made but for the issuance of the injunction. There may be cases, exceptional in their circumstances, in which, by reason of change in the condition of the property or the expense incident to its care and preservation during the pend-ency of the injunction, other and different damages should be allowed. But when one claims and receives the damages allowed by the statute, he cannot receive, in addition thereto, other damages, to be ascertained by reference to other considerations. Those provided by the code are exclusive when allowed. We do not decide that one having a right to dam-’ ages may, by his own choice, determine whether he will accept the damages fixed by the statute or will elect to have ascertained the real injury he has suffered. The statute, as we have said, was intended to provide fixed damages for those cases in which delay only is the injury sustained; and in such cases the defendant is confined to the damages it provides. Exceptional cases may arise to which the statute may not apply, and in these the actual damages sustained would be allowed; but in such instances the per centum given by the code would not be added to the sum awarded as actual damages. — 872 — The court should have allowed as damages five per cent, on the value of the property, it being less than the debt secured. This value was found by the chancellor to be $80,000, on which five per cent. ($1,500) should have been allowed as the total sum to which the defendants were entitled. The decree dissolving the injunction is sustained; the decree allowing damages is reversed, and a decree will be entered here for the sum of $1,500; costs of appeal to be divided equally between the parties. Reversed, and decree here.