90 F. 373 | 6th Cir. | 1898
These three appeals have been heard together, and are appeals from the final decree in a stockholders’ suit filed for the purpose of winding up an insolvent Tennessee building and loan association. A number of errors have been assigned upon the final decree: (1) By the receiver, who has appealed from so much of the decree as held the loans made by the association to its stockholders to have been usurious, and from so much thereof as settles the basis upon which the indebtedness of such borrowers was adjusted. (2) By certain usury claimants, who have intervened to recover usury paid by them upon loans which were either voluntarily or involuntarily adjusted and closed while the association was a solvent and going concern. (3) By certain individual stockholders, who excepted to the participation of certain alleged illegal or overissue shares in the distribution of assets, and who have appealed because their exceptions were overruled, and the alleged unlawful shares suffered to participate with legal shares in the distribution of assets. We shall dispose of these questions in the order stated.
1. The receiver’s exception was properly overruled. The loans made by the association were not in accord with the terms of the charter, and were clearly usurious. The general law of the state provided that no interest in excess of 6 per cent, should be lawful. This association was incorporated under another general law of the state, providing for the organization of building and loan associations. That general law permitted such companies to lend their money to stockholders at a rate not exceeding the lawful rate of 6 per cent, per annum, but also provided that all such loans shall be made by the directors, at stated times and in open meeting, to the stockholder who should bid the highest premium. This charter law contemplated that this premium should be a bonus paid, “not as interest, but as a means of determining which one of the shareholders shall receive the loan whenever there are a number of stockholders who may simultaneously desire to effect a loan.” Laws 1875, c. 142, § 14. The effect of this charter provision was to modify the interest laws of the state, and to legalize the taking of such a “bonus” or “premium,” when paid, as a result of the free and open competition of bidders, at a sale of the money of such an association, in the mode and manner provided by the law of organization. This was the construction, and meaning put upon the statute authorizing the incorporation of such companies in the leading case of Patterson v. Association, 14 Lea, 689. In the subsequent case of Post v. Association, 97 Tenn. 408, 37 S. W. 216, this case was followed, and the necessity of strictly following the charter method of making loans was emphasized in a remarkably strong:
2. Were the intervening usury claimants entitled to recover usurious premiums paid by them? These appellants may be divided into two or more subclasses. We shall first dispose of those who, while the corporation was solvent and going, voluntarily paid off their loans by paying the balance due after applying as a credit thereon the then full withdrawal value of the shares upon which the loan had been made. The withdrawal value of stock thus canceled was ascertained according to the by-law which permitted a stockholder who was a borrower to receive the value of his stock as a credit on his loan, upon paying the balance due. That withdrawal value was made up of two items, — dues paid on the particular shares, and the distributive share of the profits of the association due to such stock. The profits included the unlawful gains taken from the whole class of borrowers. These settlements were made when the capital had not been impaired, and thus such settlements involved the return to the shareholder of all dues paid on his shares, as well as a proportion of the supposed gains of the association. It now turns out that the gains were for the most part unlawful, and the company is insolvent. Those who remained to the end will receive no gains, and but a pro rata of the stock dues paid in. These petitioners propose to hold on to all they received in their settlement, and recover in addition the premiums paid on their loans. They do not offer to open up the settlement made, but stand on section 1955 of Code Tenn. 1858, which provides that one who has paid usury may, in an action, recover it from him who received it. This statutory right of action is by no means conclusive as to the remedy of these interveners. This is a court of equity. This association is insolvent. If petitioners stood upon the footing of judgment creditors for usury paid, it would still be the duty of this court to marshal the assets, and determine the equitable right of such a creditor to share in the assets. The question is whether such claimants shall be suffered to inquire into the amount of usury paid by them, without opening up the settlement heretofore made, so that they shall stand, as withdrawing stockholders, upon an equal footing with those who remained. Equity is equality. These claimants have settled and adjusted their relations, and received the benefit of unlawful gains through usurious premiums. They cannot hold with one hand to the results of that settlement, and reach out the other for a further dividend at the expense of shareholders who will suffer a greater loss pro rata than petitioners. They must account for what they received. This they do not propose to do. They were properly repelled. This was in accord with Loan Ass’n v. Woods, 42 S. W. 872,—a case decided by the supreme court of Tennessee pending this suit, and not yet officially reported. The appellants of this class, who made default and suffered foreclosure, and now sue to recover usury, are in substantially the same situation as
3. The last question is as to the attitude of certain shares, presented for participation in the assets, supposed to have been illegally issued. The charter provides that “no one person shall hold more than 50 shares of stock.” Laws 1875, c. 142, § 14. It now appears that several persons were permitted to subscribe for more than 50 shares. The right of such excess shares to participate in the distribution of the assets was challenged by an exception taken to the master’s report by a few individual stockholders, who claimed the right to protect the common fund by excepting to any claim they should deem improper. Neither the corporation nor the receiver made objection to these (access shares. This was doubtless due to a ruling; made by the court which convinced them that it was not to the general interest of the corporation, its creditors or shareholders, to make technical objections to the report in respect to these shares. That ruling- came about in this way: The holders of these excess shares applied to (he court: for leave to so a,mend their several intervening petitions as to aver their ignorance of (he inhibition in the charter in respect to the holding of shares, and to pray thai the contract of subscription be canceled, and their installments paid on such stock be returned to them. This leave was denied; the court ruling that, without formal pleadings, he would permit them to recover their payments on this stock, if it should he found
“Where money has been paid upon an illegal contract, it is a general rule that if the contract he executed, and both parties are in pari delicto, neither of them can recover from the other the money so paid; but if the contract continues executory, and the party paying the money be desirous of rescinding it, he may do so, and recover back by action of indebitatus assumpsit for money had and received. And this distinction is taken in the books, that, where the action is in affirmance of an illegal contract, the object of which is to enforce the performance of an engagement prohibited by law, clearly such an action can in no case be maintained; but where the action proceeds in disaffirmance of such a contract, and, instead of endeavoring to enforce it, presumes it to be void, and.seeks to prevent the defendant from retaining the benefit which he derived from an unlawful act, then it is consonant to the spirit and policy of the law that the plaintiff should recover.”
This doctrine was applied in the case of Spring Co. v. Knowlton, supra; and a subscriber who had paid one installment upon an issue of illegal increase stock was permitted to recover the money paid, though before rescission his subscription had been forfeited for default in payment of subsequent installments. In that case the court, through Mr. Justice Woods, said:
“It is to be observed that the making of the illegal contract was malum prohibitum, not malum in se. There is no moral turpitude in such a contract, nor is it of itself fraudulent, however much it may afford facilities for fraud.”
The doctrine in this case finds further illustration and application in Thomas v. City of Richmond, 12 Wall. 349; Hitchcock v. Galveston, 96 U. S. 341; Louisiana v. Wood, 102 U. S. 294; Central Transp. Co. v. Pullman’s Palace-Car Co., 139 U. S. 24-57 et seq., 11 Sup. Ct. 478; Ohio Life Ins. & Trust Co. v. Merchants’ Ins. & Trust Co., 11 Humph. 1; and Andrews Bros. Co. v. Youngstown Coke Co., 30 C. C. A. 293, 86 Fed. 585, 596.