Africani Home Purchase & Loan Ass'n v. Carroll

108 N.E. 322, 267 Ill. 380, 1915 Ill. LEXIS 2337

• Court: Illinois Supreme Court
• Decided: February 17, 1915
• Status: Published

Opinion

Mr. Justice Craig

delivered the opinion of the court:

■It is conceded that the appellee association never , filed in the office of the recorder of deeds of Cook county the certificate of organization issued by the Secretary of State, as required'by section 3 of the Homestead Loan Associations act. (Hurd’s Stat. 1913, p. 588.) In the case of People v. Mackey, 255 Ill. 144, we held that the failure of a corporation to file the certificate of organization with, the county recorder within two years, as required by section 4 of the general Incorporation act, (Hurd’s Stat. 1913, p. 566,) which is similar to section 3 of the Homestead Loan Associations act, was fatal to the legal existence of the corporation. In that case, on page 158 of the opinion, it was said: “The failure to record the certificate for two years after the date of the license, ipso facto, by virtue of the language of the statute, ended the corporate existence. There was thereafter no license to organize a corporation. That had been revoked by the statute. There were no subsequent proceedings, for they had all become void. In this situation nothing short of a complete re-organization would resuscitate the defunct corporate body. The privilege of being a corporation had passed from the defendants and had to be again acquired from the State.” The law is the same for homestead and loan associations as for other corporations, and unless such an association files for record with the recorder of deeds of the proper county its certificate of organization within two years it ceases to be a corporation and has no right to exercise any of the powers3 conferred by its charter.

Appellee is organized under the Homestead Loan Associations act of this State. Corporations organized under that act do not possess all of the powers of corporations-organized under the general Incorporation act, but are endowed with more limited powers and are subject to a more strict supervision by the State in the exercise of the powers conferred upon them by their charters. They are required to make annual reports of their affairs to the Auditor of Public Accounts. They are subject to frequent examination by the State authorities, and must not only be going concerns but also profitable to their stockholders, and when an examination of their affairs shows an impairment of their assets to such an extent that they do not exceed the dues paid in, with interest thereon at the rate of three per cent per annum for the average time invested, or that they are conducting their business in a fraudulent, illegal or unsafe manner, it is the duty of the Auditor of Public Accounts to appoint a custodian for such associations and call a special meeting of, the shareholders and lay the matter before them and require a re-organization or liquidation of the affairs of such associations, to be effected in one of the methods pointed out by the statute. (Hurd's Stat. 1913, chap. 32, pars. 91c, 91d, 91f.) If the stockholders fail to arrange for a re-organization or voluntary liquidation of such associations, it becomes the duty of the Auditor of Public Accounts to ‘report such fact to the Attorney General, whose duty it is to institute proceedings for the purpose of winding up their affairs. (Par. 91h.) The provisions for an annual statement of their affairs, frequent examinations under the supervision of the State Auditor, and a forfeiture of their charters whenever it is found that such associations are conducting their business in a fraudulent, illegal, unsafe or unprofitable manner, were evidently enacted for the purpose of confining such corporations to a transaction of süch business, only, as is strictly within their charter powers.

The powers of building, loan and homestead associations organized under the Homestead Loan Associations act, as set forth in section 1 thereof, (Hurd's Stat. 1913, p. 587,) are limited to “the purpose of building and improving homesteads and loaning money to the members thereof only;” and with respect to their power to acquire and hold real estate, such power is set forth in section 13 of the same act, which provides as follows: “Any loan or building association incorporated by or under this act is hereby authorized and empowered to purchase at any sheriff’s or other judicial sale, or at any other sale, public or private, any real estate upon which such association may have or hold any mortgage, lien or other encumbrance, or in which said association may have an interest, and the real estate so purchased, to sell, convey, lease, mortgage or exchange for other real estate and to dispose of such real estate so acquired at pleasure to any person or persons whomsoever.”

The rule for construing statutes of this character is stated in Fritze v. Equitable Building and Loan Society, 186 Ill. 183, as follows: “It is well settled that the powers of a corporation organized under a legislative charter are only such as the statute confers, and the enumeration of these powers implies the exclusion of all others. (Thomas v. Railroad Co. 101 U. S. 71.) The rule of construction applicable to statutory provisions is, ‘that every power that is not clearly granted is withheld, and that any ambiguity in the terms of the grants must operate against the corporations and in favor of the public.’ (American Loan and Trust Co. v. Minnesota and Northwestern Railroad Co. 157 Ill. 641.) If the power claimed is withheld, ‘it is regarded as a prohibition against the exercise of such a power.’ ” To the same effect is People’s Loan and Homestead Ass’n v. Keith, 153 Ill. 609.

In National Home Building Ass’n v. Bank, 181 Ill. 35, in construing the provisions of the statute in regard to acquiring real estate, it was held that building and loan associations could not acquire and hold any real estate except such as had been mortgaged to it or in which it had an interest. On pages 41 and 42 of the opinion it is said: “The purpose of this corporation is the raising of funds to be loaned to its members upon the security of its stock and unencumbered real estate. Manifestly, the business of "trading in real estate or acquiring the same, except as incidental to their legitimate business, is wholly foreign to the purpose for which the State has created such corporations and conferred upon them corporate powers. They have no power to take and hold real estate, and contracts made for the purchase of it are not enforceable. (Endlich on Building Associations, secs. 305-308.) * * * Such corporations are not authorized, either by their charters or as an incident to their existence, to acquire or hold any real estate, except such as has been mortgaged to them or which they may have an interest in. Not only is this the rule to be derived from the act of the legislature authorizing their incorporation, under the general principles of law, but it is, and always has been, against the policy of the State to permit corporations to accumulate landed estates, or to own real estate beyond what is necessary for their corporate business or such as is acquired in the collection of debts. (Carroll v. City of East St. Louis, 67 Ill. 568; People v. Pullman Palace Car Co. 175 id. 125; United, States Trust Co. v. Lee, 73 id. 142; First M. E. Church of Chicago v. Dixon, 178 id. 260.) It is also a settled principle of American jurisprudence. (5 Thompson’s Law of Corporations, sec. 5772.) If a building and loan association were permitted to invest its money in the purchase of real estate or to traffic or trade in such property instead of keeping within the powers conferred upon it by loaning such money and collecting it, it would not only be exercising powers not granted, but it would be carrying on a business inconsistent with the purpose of its creation and against the fixed and uniform policy of the State. In People ex rel. v. Chicago Gas Trust Co. 130 Ill. 268, it was said (p. 292) : ‘The word ‘unlawful,’ as applied to corporations, is not used exclusively in the sense of malum in se or malum prohibitum. It is also used to designate powers which corporations are not authorized to exercise, or contracts which they are not authorized to make, or acts which they are not authorized to dó,—or, in other words, such acts, powers and contracts as are ultra vires'. In Central Transportation Co. v. Pullman Palace Car Co. 139 U. S. 24, the result of the decisions as to the exercise of powers not granted is summed up, as follows: ‘All contracts made by a corporation beyond the scope of those powers are unlawful and void and no action can be maintained upon them in the courts,—and this upon three' distinct grounds: the obligation of everyone contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders not to be subjected to risks which they have never undertaken; and above all, the interest of the public that the corporation shall not transcend the powers conferred upon it by law.’ ” To the same effect is United States Brewing Co. v. Dolese & Shepard Co. 259 Ill. 274, and cases cited.

While it, is true that section 13 has been amended and in its present form, as heretofore set out, permits the exchange of property which a homestead and loan association has lawfully acquired for other property, which was not the case when National Home Building Ass’n v. Bank, supra, was decided, the principles announced in that decision are still the law.

The above cases are decisive of the case at bar. It is admitted that the title and possession of the property are not in appellee but in Carroll, as grantee of Mrs. Chittenden, and that the only right or interest which appellee has in the property is by virtue of the assignment of the contract by Neighbors to it, and the payments, largely from rents derived from the property, claimed-to have been made by it, through Neighbors, on the purchase of the property pursuant to the contract. It is clear, under the above authorities, that appellee had no power to enter into the contract or to purchase and hold the real estate in question in that way, and for a court of chancery to grant the relief sought by the bill would be not only lending its aid to assist the appellee in violating the law, but would be actively enabling it to do that which the law forbids it to do. Under the uniform holdings of this court specific performance of the contract cannot be granted under such circumstances.

We do not wish to be understood -as saying that where a homestead and loan association has unlawfully acquired title to real estate such real estate cannot be disposed of and the proceeds held for the benefit of the stockholders of the association. The association could be compelled to disrpose of it, and a shareholder of such an association could by a proper suit bring about the dissolution of such corporation and a distribution of its assets among those entitled thereto. But that is not this case. The bill in this case seeks squarely to enforce a contract for the sale of real estate. The association is seeking to become the owner of the real estate in question contrary to the express law of this State as such law has been construed by this court, but for what purpose is not disclosed in the bill. The decree found that this real estate was, in part, paid for by money of the association, so that the question is squarely raised as to the power of the appellee to become the owner of -real estate for general purposes. We think the contract was ultra vires and that the association is not entitled to enforce such contract, and the decree granting the relief sought was erroneous.

If appellant, were seeking to specifically enforce the contract against appellee there could be no question but that the defense of ultra vires interposed in this case would constitute a good defense to such a suit. The rights of the parties in the premises are reciprocal. Specific performance of a contract will not be decreed at the instance of a party against whom the contract could not be enforced. (Bauer v. Lumaghi Coal Co. 209 Ill. 316.) It is not a matter of absolute right but rests in the sound discretion of the chancellor, to be exercised as the facts and circumstances in each case and the equities between the parties may require. It is not an arbitrary discretion, but is one that is governed by well understood and well settled legal rules and principles of law. (Chicago, Burlington and Quincy Railroad Co. v. Reno, 113 Ill. 39; East St. Louis Railway Co. v. City of East St. Louis, 182 id. 433; Beach v. Dyer, 93 id. 295; Allen v. Woodruff, 96 id. 11.) A contract, to be specifically enforced, must be reasonable, fair, just, mutual, certain and unambiguous, (Barrett v. Geisinger, 148 Ill. 98; Koch v. National Union Building Ass’n, 137 id. 497; Gould v. Elgin City Banking Co. 136 id. 60;) and if incapable of being specifically enforced against one ofi the parties it will not be enforced against the other. (Bauer v. Lumaghi Coal Co. supra; Tryce v. Dittus, 199 Ill. 189; Kuhn v. Eppstein, 219 id. 154; Ulrey v. Keith, 237 id. 284.) In Bauer v. Lumaghi Coal Co. supra, the rule is stated as follows: “As a general rule, specific performance will not be decreed in any case where mutuality of obligation and remedy does not exist. * * * The general principle is, that where the contract is incapable of being enforced against one party, that party is equally incapable of enforcing it against the other.” In Baird v. Linthicum, 1 Md. Ch. 345, Chancellor Johnson held “that if one of the parties is not bound or is not able to perform his part of the contract he cannot call upon the court to compel specific performance by the opposite party.” The facts in this case bring the contract in question well within the rule above announced.

It appears very clearly from the evidence that one of the main objects, if not the only object, in filing the bill was to enable A. L. Williams to recover the several amounts paid by him into the treasury of appellee as a member of the association. The evidence' shows that he and the appellant, Carroll, by assignment from Neighbors, were the owners of all the stock and assets of the association. Williams undoubtedly has a right to a return of his pro ratashare of the assets of the association, and to require that Neighbors, and all other members of the association, in a proper proceeding account for all moneys and property of the association that have come into their hands or possession. But his remedy is not by invoking the aid of a court of chancery to decree specific performance of a contract the appellee had no lawful power or authority to make, and thereby invest it with the legal title and possession of real estate which it has no legal right to own or possess. Courts of equity cannot lend their aid to the specific enforcement of void and illegal contracts and agreements, even where the evidence in the record shows that to do so would afford the most speedy way of adjusting equities between the parties. Long -established rules and well settled principles of law cannot be wholly disregarded and made to yield to the seeming equities of any particular case, merely, because the party aggrieved has misconceived the proper proceeding to be instituted in a court of chancery for the accomplishment of the purpose sought.

For the reasons given we are constrained to hold that the decree of the superior court must be reversed and the cause remanded to that court, with directions to dismiss a-p- ■ pellee’s bill for want of equity.

Reversed and remanded, with directions.