Jackson Loan & Trust Co. v. State ex rel. Hudson

| Miss. | Oct 15, 1911

Lead Opinion

Smith, J.,

delivered the opinion of the court.

Appellant, a loan company, by means of attractively worded literature and by representations made by its soliciting agents, seeks to induce the public generally, and prospective customers particularly, to believe that all purchasers of what it 'styles its “investment, home purchasing contract” will receive loans from the company upon easy terms with which to purchase homes. (The reporter in reporting this case is directed to set out this contract, together with sections 5, 7, and 8 of the “Benefits, Provisions, and Requirements” .printed on the back thereof.) While this contract ostensibly has an investment feature. of a. vague and indefinite character, contained in section 7 of the “Provisions, Benefits, and Requirements,” the loan feature thereof is the principal inducement held out to the public and because of which these contracts are purchased. The funds out of which loans are to be made, and from which only the company is required to make them, consists of eighty per cent, of the monthly payments made by the purchasers of contracts, excluding the first three payments, plus transfer fees, interest, and return payments on loans. The first dollar which the purchaser pays goes to the company’s agent, who solicits the contract, as his commission. The next three monthly payments of one dollar each and twenty per cent, of all payments made thereafter go to the company and become its property absolutely. When a loan is made to the purchaser of a contract, he ceases to make any further payments thereon, and thereafter his payments are in return of the money borrowed, with interest. The addition by the borrowers to the loan fund consists of only the interest on the money borrowed. It is utterly impossible, therefore, for the company to comply with its promise to make loans to all purchasers of its contracts. The language in which the opinion in the case of Fidelity Funding Company v. Vaughn, 18 Okla. 13" court="Okla." date_filed="1907-02-13" href="https://app.midpage.ai/document/fidelity-funding-co-v-vaughn-3833843?utm_source=webapp" opinion_id="3833843">18 Okl. 13, 90 Pac. 34, 10 L. R. A. (N. S.) 1123, is couched, is strikingly applicable here, although the case itself can be distinguished from the case at bar. Changing this language slightly the ability of appellant to make loans depends almost entirely upon the number of contracts sold; the monthly payments made on the new contracts being used to make loans to holders of earlier contracts. The sale of new contracts must constantly increase at a high progressive rate in order that such loans may be made, and, it being impossible to continue this indefinitely, the end must come sooner or later, and, when it does come, the more successful the business up to that time, the greater the number of contracts to make loans which the company will be unable to fulfill. In the language of Public Clearing House v. Coyne (C. C.), 121 F. 929" court="None" date_filed="1903-01-30" href="https://app.midpage.ai/document/atlas-reduction-co-v-new-zealand-ins-8750301?utm_source=webapp" opinion_id="8750301">121 Fed. 929, it is a literal demonstration of the old saying, ‘‘ The devil takes the hindermost.” Since appellant’s organization in 1906 up to October, 1910, eleven thousand, one hundred and sixty persons have applied to it for ninety-six thousand, six hundred and thirty-two contracts. Most of these applications have fallen by the wayside, there being now outstanding eight thousand contracts, owned ■ by one thousand, two hundred and thirty-three persons. The number of loans made by the company in this time is one hundred and seventy, and of the one thousand, two hundred and thirty-three owners of contracts, three hundred and eight only are eligible. Truly, “Many are called, but few are chosen.”

It being impossible for the company to make loans to all purchasers of its contracts, its promise so to do evidences an' intention to defraud, and consequently the whole course of its business constitutes such a systematic violation and abuse of the rights and privileges conferred upon it by its charter as to justify either the revocation of its charter, or the issuance of a writ of injunction, enjoining the further prosecution of such business. The court therefore committed no error in granting the injunction.

The court did err, however, in appointing a receiver; for, unless there is a statute so providing, the court, in proceedings of this character, is without power to appoint a receiver or trustee to wind up the affairs of a corporation. 5 Thompson on Corporations, Sec. 6353; 2 Clark & Marshall on Private Corporation, Sec. 334, subd. “h;” 3 Cook on Corporations (6 Ed.), Sec. 863. Section 4029 of the Code of 1906 provides for the appointment of such a trustee, but only after judgment of forfeiture and ouster.

Reversed and remanded.

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Dissenting Opinion

Anderson, J.

(dissenting).

I shall very briefly set down the grounds of my dissent. The state has no more to do with the affairs of a corporation chartered by it, except to forfeit its charter when violated, than it has to do with the private affairs of any individual within its borders. The state’s only concern is to see that such a corporation does not violate, misuse, or abuse its charter. It will not forfeit the charter of a corporation because it is engaged in a dishonest business, provided, of course, in the prosecution of such business its charter is not violated. The state will not undertake such a fatherly care over the affairs of the people as that it will prevent a corporation from entering into contracts with them which are improvident and unreasonable. The state is not called upon to litigate strictly for the vindication of private interests. The courts are open to all who have grievances against corporations. There they can obtain redress without calling on the state to espouse their cause.

The business and assets of a corporation belonging to its stockholders, which is not to be destroyed and rendered worthless at the instance of the state, except on the clearest and most convincing evidence that its charter is being violated. Here we have a corporation, prosperous and amply solvent. It has assets subject to the process of the courts. Any investor who is aggrieved has his remedy, and there is property to satisfy any judgment he may recover.

In the majority opinion it is held that the whole course of the business of this company is fraudulent, and constitutes an abuse of its charter. In my judgment the contract (investor’s contract) is perfectly valid; that it is an absolute promise to pay each investor at the end of eighty months one-hundred dollars for every eighty dollars paid in by him. Construing the contract most strongly against the company, as must be done under the law, it can have no other meaning. But even though that be not the proper construction, and conceding that the contract means a promise to pay the investor only his pro rata share of the earnings of the loan fund, still I do not see that that .would render it invalid. Such a contract may be unreasonable, but that does not signify that it is illegal. Investors buy these contracts with their eyes open. They are notified by the company not to pay any attention to what the agents say, but to read the contract. It is argued on behalf of appellee that the scheme of the company will not “finance out,” and a majority opinion holds that new contracts must constantly increase at a high progressive rate in order that loans may be made, and this cannot be continued indefinitely, and therefore the end must come sooner or later. It seems to me a complete answer to this is that the record in this case shows that the scheme has already “financed out.” After about three years of experience the company has demonstrated its ability to meet all obligations. In my opinion not a single authority relied on by counsel for appellee sustains their contention. The contracts and the character of business under consideration in those cases were so widely different from the case here as to render those authorities without point. On the other hand, though the facts in the case of Equitable Loan & Security Company v. Waring, 117 Ga. 599, 44 S. E. 320, 62 L. R. A. 93, 97 Am. St. Rep. 177, are, materially different in some respects from the facts of this case, the reasoning of the court is able and convincing and decisive of the question here.

I am unable to see that the whole course of the business of this company is fraudulent. It may be that its contracts are unreasonable and unjust, and the people ought not to patronize it, but) if that is all, I do not see that it is any of the state’s concern.