United States Sayings & Loan Co. v. Convent of St. Rose

HAWLEY, District Judge. Appellee is a religious corporation formed, organized, and existing under the laws of the state of Washington. Appellant is a corporation organized and existing under the laws of the state of Minnesota, and engaged in business as a building and loan association in the sale of stock, and the loaning of moneys received on account of such stock, to its stockholders only, on what is generally known as “the building and loan association plan.” In January, 1893, appellee made application in writing to appellant for a loan of $7,000, and (as was required by the rules and regulations of the appellant) subscribed for 70 shares of stock therein, of the par value at maturity of $100 each, and, upon the acceptance of the application by appellant, the mortgage in controversy was duly executed by appellee. Appellee in May, 1901, brought this suit to cancel and set aside the mortgage upon the ground that the mortgage indebtedness has been fully paid and discharged, and upon the further ground that the contract as made was ultra vires, in that appellee was incapable of entering into a valid contract to acquire, own, or pay for stock in another corporation. The pleadings and evidence herein threshes out the “old story,” which has been so often discussed in cases of this character, whether the contract is to be construed as a simple loan of money with interest thereon, and whether the amounts paid for premiums on the stock should be credited on the loan. It was stipulated that the answer should be treated as a cross-complaint. The circuit court, upon the proofs in said cause, adjudged and decreed “that the defendant herein surrender for cancellation the bond, stock certificates, and mortgage referred to in the complainant’s bill, and that the defendant execute an acknowledgment of satisfaction and discharge of the mortgage herein mentioned and referred to, sufficient to authorize the cancellation of record of the said mortgage in the office of the auditor of Chehalis county, Washington,” and for costs. From this decree the appeal herein is taken. The assignments of error raise the question whether the written contract was unconscionable, or made under false representations of the appellant’s agent, which appellee believed at the time to be true; and upon the further ground as to whether the plea of ultra vires, which the court below held to be good, can be sustained. 1. Upon the first ground but little need be said. It is claimed that a pamphlet published by the appellant led the appellee to understand that there was no premium to be paid in connection with the loan. The testimony does not support this claim. Father Deichman, who was the convent’s chaplain and business adviser, testified that he had read the pamphlet and all of the writings that were signed; that he wrote out the application for the loan, and witnessed the certificate for 70 shares of stock issued by appellant to appellee, etc. In his examination the witness testified as follows: “Q. State whether or not any premium was to be paid. A. Not that I remember.” The testimony also shows that in all things in connection with this loan he took .an active, zealous interest to obtain favorable consideration for the convent. It also shows that he was anxious to get the loan. “Q. Had you had any [356] personal correspondence with the company prior to the making of your application? A. No, sir, I had not; it was some time later on, when they came first. I started in with them to talk about insurance matters. I wanted to save the sisters the premium — what the agent would get. We were very anxious to get that money, and so we didn’t care. We would consent to anything at that time.” The uncontradicted testimony shows that appellee, for a period of eight years after the mortgage was executed, acquiesced, with full knowledge of all the facts, in the method adopted by appellant in applying the payments each month, in strict accordance with the written contract. This being true, we are of opinion that the court should not make a different rule for the application of such payments simply because appellee, at the time of the contract and loan, thought a different application should be made. It is unnecessary to further review the testimony. A careful examination of it shows that there are no questions involved in it which distinguishes it in any manner from the principles announced by this court in the Pacific States Savings, Loan & Bldg. Co. v. Green, 123 Fed. 43, 59 C. C. A. 167, and followed in the United States Savings & Loan Co. v. Parker, 123 Fed. 1007, 59 C. C. A. 683, upon substantially similar facts. In the Green Case this court said: “Tlie general rule is, we think, well settled that a court of equity is not authorized to set aside and annul a contract made by parties with full knowledge of all the terms and conditions of the same, without it is clearly and satisfactorily shown that there was fraud, oppression, or undue advantage taken with reference to its execution. * * * We understand the law to be that payments of premiums on the stock are not premiums made upon the loan, but are to be applied solely to the credit of the shares.” Numerous authorities were there cited in support of the views therein expressed. The contract, if enforceable at all, is to be enforced as the parties made it, and its terms and provisions must govern their rights. 2. Conceding, for the purpose of this opinion, that the appellee was not authorized to become a shareholder in the stock of appellant for the purpose of securing a loan of money to enable it to build a convent on the land mortgaged, it does not necessarily follow that the court should set aside and annul the contract on that ground. The mortgage in this case was given under and in pursuance of the contract made between the parties. It was an executed contract. Appellant paid $7,000 to appellee, and did everything which it agreed to do. Appellee has received the fruits and benefits of the contract, but has not paid all the money agreed to be paid thereon by the terms of the written contract. Can it now. successfully defeat the contract by the plea of ultra vires ? It must be remembered that we are called upon to deal directly with the rule as applied to private corporations, where the contract has been fully executed by the party against whom the plea of ultra vires is invoked, as distinguished from the rule which is applied to cases of executory contracts or contracts made by public or quasi public corporations, which owe important duties to the public. The general rule applicable to the case in hand is expressed in 5 Thompson on Corporations, § 6016, as follows: [357] “Tlie great mass of judicial authority seems to be to the effect that where a private corporation has entered into a contract in excess of its granted powers, and has received the fruits or benefits of the contract, and an action is brought against it to enforce the obligation on its part, it is estopped from: setting up the defense that it had no power to make it.” And numerous authorities are there cited in support of this text. In Blue Rapids Opera House Co. v. Mercantile Building & Loan Ass’n (Kan. Sup.) 53 Pac. 761, the opera house company had taken stock in the building and loan association, and obtained a loan to finish the construction of the opera house. It got the money, and gave its bond and mortgage. It will thus be seen that the case is directly in point. The court said: “The opera house company contends that its officers were without power to make the loan by taking stock in the building and loan association. Whatever may have been the powers of the officers of the opera house company in this respect, the defense of ultra vires is not available to the company. The contract has been in good faith fully performed by the other party, the money has been paid, and the opera house company has had the full benefit of the payment and the performance of the contract. The law now interposes an estoppel, and will not permit the validity of the loan contract to be questioned. Railroad Co. v. Johnson, 58 Kan. 175, 183, 48 Pac. 847.” In Bowman v. Foster & Logan Hardware Co. (C. C.) 94 Fed. 592, 596, the court based its decision upon other grounds, but announced the rule upon the point here under discussion as follows: “Whether it be true that an ordinary corporation, authorized by its chárter to do a general merchandise business, can become a shareholder in a building and loan association, in order to borrow money to carry on its business, in the opinion of the court is not decisive of this case; indeed, the question is not necessary to its decision. If it be admitted that it cannot, still, underlying this question is another, about which there cannot be much doubt in the light and trend of modern decisions. The Foster & Logan Hardware Company complied with the rules and regulations required by the plaintiff building and loan association in order to become a borrower, and executed the note and mortgage sued on, and accepted the stock. It used the money so borrowed in constructing its business house. So far as the plaintiff building and loan association was concerned, the contract was an executed contract. All the plaintiff building and loan association could do was done. Can the Foster & Logan Hardware Company, after having received and used the plaintiff’s money under this executed contract, be heard to say that it had no power to become a member of the association, and that its act was therefore ultra vires? I think not. * * * The court is of opinion that the Foster & Logan Hardware Company, if in existence, and a defendant, could not avail itself of the plea of ultra vires.” See, also, Kadish v. The Garden City Eq. L. & B. A., 151 Ill. 531, 538, 38 N. E. 236, 42 Am. St. Rep. 256; The Sherman Center Town Co. v. Morris, 43 Kan. 282, 284, 23 Pac. 569, 19 Am. St. Rep. 134; Booth Bros. v. Baird (Sup.) 82 N. Y. Supp. 432, 435; Schrimplin v. Farmers’ Life Ass’n (Iowa) 98 N. W. 613, 616; Hunt v. Hauser Malting Co. (Minn.) 96 N. W. 85, 87, and authorities there cited. Appellee relies principally upon Parsons v. Tacoma Smelting & Refining Co., 25 Wash. 492, 65 Pac. 765, but that case is wholly unlike the case at bar in this, that there the suit was brought by a stockholder of the corporation to declare a certain transaction invalid on the ground that the corporation had no power or authority in the premises. No such question as is here presented was' [358] there r.ais.ed or discussed. It is simply a case that upholds the. general proposition which we have conceded. The decisions in the state of Washington, .wherever the question has been raised, are to the effect that, where a corporation has accepted the benefits of a contract, it is estopped from denying the validity of the instruments by which those benefits came to it. In Tootle v. First National Bank, 6 Wash. 181, 33 Pac. 345, the court held that, where a banking corporation has received and retained the benefits of a transaction, it cannot set up the plea that the contract was ultra vires; and cited, in support of this principle, 2 Morse on Banks and Banking (3d Ed.) § 740; 2 Beach, Priv. Corp. § 425; 2 Morawetz, Priv. Corp. (2d Ed.) § 688; Green’s Brice’s Ultra Vires, 729, note a; Railway Co. v. McCarthy, 96 U. S. 258, 24 L. Ed. 693; and further stated that: “This rule is so well established that it is the work of supererogation to quote authorities to sustain it.” In Allen v. Olympia Light & Power Co., 13 Wash. 307, 309, 43 Pac. 55, 56, the court said: “Tiie second contention, viz., the want of authority in the officers to make the' note in suit, will not serve the defendant when it appears, as it does from the pleadings, in this case, that it had the benefit of the money which it received by reason of the execution of the not,e. This court has often decided that corporations cannot escape their honest obligations by pleading want of authority to execute a contract, where, as • a result of the contract, the corporation had received the benefit of the money obtained.” The same doctrine was followed in City of Spokane v. Amsterdamsch Trustees Kantoor, 22 Wash. 172, 180, 60 Pac. 141, 143. The court, after citing Thomas v. Railroad Co., 101 U. S. 71, 25 L. Ed. 950, said: “It seems that the rule stated in Parish v. Wheeler, 22 N. Y. 494, has been applied by this court, and where a corporation has received benefits under a contract it is estopped from saying it has no power to make it.” See, also, Dexter, Horton & Co. v. Long, 2 Wash. St. 437, 440, 27 Pac. 271, 26 Am. St. Rep. 867; Wheeler, Osgood & Co. v. Everett Land Co., 14 Wash. 630, 633, 45 Pac. 316. The .decisions in the state of AVashington are in line with the decisions herein cited from other states. If, under the facts of this case, appellee is estopped from pleading that the contract was ultra vires, then it follows that, if the contract was valid, it can be enforced. A different contract cannot be made between the parties simply because of the plea of ultra vires, unless the plea can be held good. The authorities in the state of AVashington did not change any of the terms of the original contract or agreement. The parties were held estopped from asserting the plea of ultra vires solely because they had received money or property on the faith of the contract or transaction, and could not, under circumstances similar to the case at bar, in equity and good conscience deny their contract, because they were estopped by their own acts and conduct from doing so. ■■ The decree of the Circuit Court is reversed, and cause remanded, with directions to the Circuit Court to enter a decree of foreclosure in favor of appellánt herein for the amount found to be due under the contract, consistent with the views expressed in this opinión.