Portneuf Lodge No. 20 v. Western Loan & Savings Co.

59 P. 362, 6 Idaho 673, 1899 Ida. LEXIS 56

Opinion

SULLIVAN, J.

— This suit was brought by the respondent, the Portneuf Lodge, No. 20, Independent Order of Odd Eel-lows, a corporation, under the provisions of section 3364 of the Revised Statutes to compel the cancellation or satisfaction of the two mortgages hereinafter referred to, the surrender of the promissory notes secured by said mortgages, and for judgment for $200, the statutory penalty for failing to enter satisfaction of said mortgages of record. The transcript shows that the appellant, Western Loan and Savings Company, and the respon dent corporation, on the thirty-first day of May, 1893, entered into a contract, by the terms of which appellant loaned the respondent $4,000, to draw interest at the rate of nine per cent per annum, evidenced by a promissory note, with sixty-nine coupon interest notes attached for thirty dollars each, which coupon note called for interest after maturity at the rate of twelve per cent per annum, and the respondent was to pay appellant $2,000. premium for the $4,000 loan. One mortgage was executed to secure the $4,000 loan, and one to secure the $2,000 premium. Despondent made numerous payments upon this indebtedness, aggregating the sum of $4,026, and thereupon demanded the discharge of said mortgage, which demand was refused. The appellant filed a demurrer to the complaint, which was overruled. The appellant then answered, and filed a cross-complaint, to which plaintiff demurred. The decision of the court on the last-mentioned demurrer was withheld, and the cross-complaint considered denied, with the privilege to answer to conform to the proof, and the court proceeded to try the case. Certain witnesses were sworn and testified on behalf of the plaintiff, and no evidence was offered by the defendant; and, after argument by the respective counsel, the cause was submitted to the court. The trial took place on the twelfth day of December, 1898, and on the sixteenth day of that month the plaintiff moved to strike out paragraphs 1 'and 2 of the prayer of the complaint, which motion was granted. Counsel for respondent claims that said motion was made on the suggestion of the court. The court then sustained the demurrer to the cross-complaint, and denied the demurrer to the answer, and gave judgment in favor of the plaintiff for the sum of $102, damages and costs! of suit. Both parties appeal from the judgment. The defendant assigns as error the overruling of its demurrer to the complaint and the order sustaining plaintiff’s demurrer to the cross-complaint.

The demurrer to the cross-complaint was properly sustained and apparently the appellant (defendant) concedes that to be so, as that point is not presented by its brief nor by the oral argument of its counsel.

Counsel for appellant (defendant) contends that, as the mortgages referred to in the complaint are prohibited by sections 1264 and 1265 of the Revised Statutes, a court will not grant plaintiff any relief; that the complaint on its face shows that the mortgages referred to were given to secure usurious contracts, and prohibited; and that the plaintiff cannot obtain any relief — cannot maintain an action on said contracts. Bishop on Contracts, section 216, is cited. Said section holds since an express promise, founded on a consideration immoral, illegal, or contrary to public policy is void, the law will not create a contract between its violators. The rule there stated has no application to this case, for the reason that a suit in this state may be maintained upon a usurious contract, and the principal sum loaned recovered. The statute does not make such a contract absolutely void.

It is also contended that the only action authorized in this case is that authorized by section 1266 of the Revised Statutes. That section does not especially authorize any action. It simply directs what judgment must be entered when an action is brought on a contract in which a rate of interest is contracted far greater than authorized by law. This action is not brought on the contract, nor to enforce the payment of the demand secured by said mortgages. It is apparently brought under the provisions of section 3364, to enforce the satisfaction or cancellation of said mortgages, and to recover the penalty mentioned in said section.

Counsel for the respondent (plaintiff) contends that the respondent is a benevolent corporation, and, under the provisions of section 2764 of the Revised Statutes is prohibited from mortgaging its real estate, except upon an order first had and obtained from the district court, and that, as no such order was obtained authorizing said society to execute said mortgages, their execution was ultra vires. In reply, the counsel for appellant contend that a corporation cannot receive the benefits of a contract, and then deny its power to make the same; and cite 5 Thompson on Corporations, secs. 6016, 6159, 6160; Miller v. Insurance Co., 92 Tenn. 167, 21 S. W. 39, 20 L. R. A. 765. In section 6016 of Thompson on Corporations, it is stated that the great mass of judicial authority seems to be to the effect that when 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, it is estopped from setting up* the defense that it had no power to make it. That, as a general rule, is correct, and well supported by a mass of judicial decisions. In illustration of that rule, the author says, in section 6018: “The simplest illustration of this doctrine will be found in cases where the corporation has acquired money or property by means •of a contract in excess of its powers, .... pleads that it had no power to enter into the contract, and at the same time keeps the money or the property.” In the case at bar, the plaintiff bas repaid $4,036 for the $4,000 borrowed, and has thus returned the money borrowed, and now seeks to clear its property of the cloud said mortgages east upon it, and damages for the refusal of the defendant corporation to discharge the same. The same author, at section 6159, supra, considers the question of how far the principle of estoppel works against corporations in respect to ultra vires mortgages. It is there said that corporations will not be permitted to exercise powers that might be hurtful to the public interests beyond those expressly conferred) by their charters, but when a corporation has exercised powers germane and incidental to those conferred, and in furtherance of the general obj'eets of the corporation, although the subj'ect of the contract may not be within any definite power given, it will be es-topped from denying it had no authority to make such contract. There it is held that corporations will not be permitted to exercise powers that might be hurtful to public interests. Neither will they be permitted to make contracts in direct violation of the laws of the state. In*.the case at bar, the plaintiff, which is a benevolent corporation, is prohibited from mortgaging its real property without an order from the district court. (See Bev. Stats., sec. 3764.) No order was obtained in the case under consideration, and it is a case in which no order could have been obtained authorizing the plaintiff to make a usurious contract. The district court would not have granted an order to the plaintiff permitting it to execute a contract forbidden by the positive statute of this state, had it applied for such an order. So the execution of said usurious and forbidden contracts was not a power germane and incidental to those conferred by the charter of said corporation, and was not within any definite power given to it, but was absolutely prohibited. The notes to Miller v. Insurance Co., supra, are exhaustive and instructive. That was an action to recover on an insurance policy, and the court holds that a contract of a corporation in excess of its powers cannot be enforced because the corporation has received a benefit under it which ex aequo et bono it ought not to retain, but that the remedy was by a suit in disaffirmance and for an accounting. Some very respectable authority holds, when the charter or law prescribes the mode of contracting, it must be strictly pursued, and that all persons are bound to take notice of the limits of corporate power. (Eeese on Ultra Yires, secs. 52, 53.)

Counsel for appellant contends that said mortgage contracts are prohibited, and considered, under the laws of this state, vicious, and that, as plaintiff was a party to them, it cannot maintain this or any action on said contracts. This is an action to quiet plaintiff’s title to the real property covered by said mortgages and to recover damages. It is said in section 302 of 1 Story’s Equity Jurisprudence, that the borrower may maintain a bill to compel the giving up of securities left as collateral se.curity for a usurious debt. New York etc. Assn. v. Cannon, 99 Tenn. 344, 41 S. W. 1054, is very similar in some respects to the case at bar. In that case the court held, where a mortgage executed to a foreign building and loan association was illegal and unenforceable, because the association had not complied with the statute prescribing terms upon which such corporations might- do business in that state, equity would not remove it as a cloud upon the mortgagor’s title, except upon his paying to the association what was justly due, and the amount justly due was the amount actually received by the mortgagor, without interest. We think the prayer of the complaint sufficient to grant a cancellation of said mortgages.

We are of the opinion that, under the facts of this ease, plaintiff is not entitled to the penalty demanded, nor to the damages awarded it by the judgment, but is entitled to a decree canceling the mortgages described in the complaint. For the foregoing reasons, tbe judgment is reversed, and tbe cause remanded to tbe district court for further proceedings consistent with tbe views herein expressed; each party to pay its own costs upon appeal.

Huston, C. J., and Quarles, J., concur.