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N ERROR to the Supreme Court of the State of Missouri to review a judgment affirming a judgment of the Circuit Court of Greene County in favor of plaintiff in an action on a promissory note. Affirmed. See same case below, 155 Mo. 58, 55 S. W. 1015.

Statement by Mr. Justice Browns "This was an action instituted in the circuit court of Greene county, Missouri, by the Central National Bank, to recover of the defendants the amount of a promissory note for $2,240, executed June 15, 1896, by two of the defendants as principals and two others as sureties. The answer was a general denial and a special defense of usury in the original notes, and partial payments, as set up in the several paragraphs of the answer. The case was referred to a referee, who reported the note sued upon to be a renewal note, and a consolidation of five original notes, the first of which was for $800, given July 27, 1891; the second for $100, of the same date; the third for $500, dated January 24, 1892, and credited by $100 payment thereon; the fourth for $340, dated January 16, 1893, and the fifth and last for $600, dated May 29, 1893. The referee further found that the defendants had received on this note $2,240 (or rather out of the notes constituting that note) the sum of $2,199.35 in cash, making the amount reserved out of the note when it was made $40.65. That there had been paid cash discounts upon the several renewals of the notes which constituted the $2,240 note sued upon, down to October 24, 1894, exclusive of the amounts reserved out of the notes at the time they were originally given, the sum of $566.70, which cash discounts were paid in advance at the dates of the several renewals. That the whole amount of discounts and interest paid, as well as those deducted by the bank, upon all said loans from the beginning to the end down to and including the note sued on, was $947.50. That these payments were made in excess of the legal rate for said loans. Upon this report the court entered judgment in favor of the plaintiff for $2,199.35 (or, apparently, by mistake $2.199), that bethe face of the note sued on after deducting the discount of $40.65, reserved when the note was executed. Upon appeal to the supreme court this judgment was affirmed (155 Mo. 58, 55 S. W. 1015), and defendants sued out this writ of error.

Messrs James Baker and Seward A. Haseltine submitted the cause for plaintiffs in error. * Mr. John Ridout submitted the cause for defendant in error.

Mr. Justice Brown delivered the opinion of the court:

The only question involved in this case is whether, in an action upon a note given to a national bank, the maker may set off usurious interest paid in cash upon renewals of

such note, and of all others of which it was a consolidation. In this case, defendants sought to show that they had paid to the plaintiff bank within two years prior to the execution of this note, upon other notes of which this was a consolidation, and also upon this note, usurious interest aggregating $580, which they asked to have deducted from the principal sum of $2,240, represented by this note, *y reducing the plaintiff's claim to $1,60. We understand it to be conceded that, as the note in question was given to a national bank, the definition of usury and the penalties affixed thereto must be determined by the national banking act, and not by the law of the state. Farmers’ do M. Nat, Bank v. Dearing, 91 U. S. 29, 23 L. ed. 196. In that case it was held that a law of New York forfeiting the entire debt for usury was superseded by the national banking law, and that such law was only to be regarded in determining the penalty for usury. That part of the original national banking act which deals with the subject of us and interest is now embraced in §§ 5197 and 5198 of the Revised Statutes, the first one of which authorizes national banks to charge interest “at the rate allowed by the laws of the state,” and, when no rate is fixed by such laws, a maximum rate of 7 per cent. The next section is as follows: “5198. The taking, receiving, reserving, or charging a rate of interest greater than is allowed by the preceding section, when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon. In case the greater rate of interest has been paid, the person by whom it has been paid, to or his legal representatives, may recover: "back in an action, in the nature of an actions of debt, twice the amount of the interest thus paid from the association taking or receiving the same; provided such action is commenced within two years from the time the usurious transaction occurred.” Two separate and distinct classes of cases are contemplated by this section; first, those wherein usurious interest has been taken, received, reserved, or charged, in which case there shall be “a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon;” second, in case usurious interest has been paid, the person paying it may recover back twice the amount of the interest “thus paid from the association taking or receiving the same.” While the first class refers to interest taken and received, as well as that reserved or charged, the latter part of the clause apparently limits the forfeiture to such interest as the evidence of debt carries with it, or which has been agreed to be paid, in contradistinction to interest actually paid, which is covered by the second clause of the section. Carrying this perfectly obvious distinction in mind, the cases in this court

are entirely harmonious.

That of Brown v. Marion Nat. Bank, 169 U. S. 416, 42 L. ed. 801, 18 Sup. Ct. Rep. 390, arose under the first clause. The facts are not stated in the report of the case, but referring to the †. record, it appears that plaintiff sued the bank to recover twice the amount of certain usurious interest paid to it. Another action was consolidated with this, in which plaintiff sought to enjoin defendant from proving certain notes against the estate of o he was assignee, in which a large amount of usurious interest had been included. In the opinion a distinction is drawn between usurious interest carried with the evidence of debt or which has been agreed to be paid, and interest which has actually been aid, and it was said that interest included in a renewal note, or evidenced by a separate note, does not thereby cease to be interest within the meaning of $ 5,198, and become rincipal; and that, in a suit by a national e bank upon the note, the debtor may insist to that the entire interest, legal and usurious, Fincluded in his written obligation and agreed to be paid, but which has not been actually paid, shall be either credited on the note or eliminated from it, and judgment given only for the original principal debt, with interest at the legal rate from the commencement of the suit; and that the forfeiture declared by the statute is not waived or avoided by giving a separate note for the interest, or by giving a renewal note in which is included the usurious interest. It was further held that interest included in a renewal note is not interest paid, since, if it were so, the borrower could, under the second clause of the section, sue the lender and recover back twice the amount of the interest thus paid, when he had not, in fact, paid the debt nor any part of the interest as such. The words, “in case the greater rate of interest has been paid,” in § 5198, refer to interest actually paid, as distinguished from interest included in the note and “agreed to be paid.” The cases under the second clause of the section are more numerous. Barnet v. Muncie Nat. Bank, 98 U. S. 555, 25 L. ed. 212, was an action by a national bank upon a bill of exchange. Defendants set up that the acceptors had been constant borrowers from the bank for several years, and that it had taken from them a large amount of usurious interest; that the bill in suit was the last of eight renewals, and that illegal interest had been taken upon the series to the amount of $1,116, which it was insisted should be applied as a payment upon the bill in question. It was also insisted that illegal interest had been taken upon other bills of exchange to the amount of $6,363.24, and that the defendants were entitled to recover double this amount from the bank. It was held that the state statutes upon the subject of usury should be laid out of view, and that where a statute created a new right or of. fense and provided a specific remedy or punishment, that remedy alone could apply; that the payment of usurious interest bein distinctly averred, it could not be ...;

by way of offset or payment of the bill in suit, and that the same rule applied to the payment of interest upon other bills of exchange which the defendants sought to recover back. The case of Driesbach v. Second Nat. Bank, 104 U. S. 52, 26 L. ed. 658, was a like tsuit by a bank upon a note, upon several re-o: newals of "which usurious interest had been * paid. It was said that, as the claim was not for interest stipulated for and included in the note sued on, but for the application of what had been actually paid as interest to the discharge of principal, there could be no set-off against the face of the notes. In Stephens v. Monongahela Nat. Bank, Ill U. S. 197, 28 L. ed. 399, 4 Sup. Ct. Rep. 336,-a similar case of interest actually paid, the averments of the defense were made under the first clause of the section; that “the bank knowingly took, received, and charged” usurious interest, but as it elsewhere appeared that the interest stipulated had not been included in the note, but that interest had been actually paid at the time of the discount and renewals, which it was sought to apply to the discharge of the principal, the defense was held insufficient. The construction of both clauses of this section having been thus settled by this court, it only remains to determine to which class of cases the one under consideration properly belongs. As to this there can be no room for doubt. The referee finds that there was paid cash discounts on the several renewals of the notes which constitute the $2,240 note, as well as the renewal of said note as executed, down to October 24, 1894, exclusive of the amounts reserved out of the notes at the time they were originally given, the sum of $566.70, which cash discounts were paid in advance at the date of the several renewals. He further found that the “defendants in their answer are only asking credit for the payments down to and including October 29, 1894, which aggregate the sum of $540.40.” Under the rulings last above cited the person making these cash payments can only recover them back by a direct action against the association taking or receiving the same. The supreme court of Missouri was correct in holding that the defendants could not be allowed set-off or credit for the usurious interest thus paid, the remedy provided by the statute being exclusive, and its judgment is therefore affirmed.

(183 U. S. 144) H. L. PINNEY, C. L. Pinney, W. C. Patterson, and Thomas Brooks, Plffs. in Err., *7. R. T. NELSON.

Impairing obligation of contract—law enacted after making of contract—personal liability of stockholder in foreign corporation.

1. The obligation of the contract of the stockholders in a foreign corporation cannot be deemed to be impaired by the provision of

Submitted April 26, 1901.

Cal. Civ. Code, § 322 (which was enacted prior to the incorporation of such corporation), imposing the same personal liability upon stockholders of foreign corporations doing business within the state as upon stockholders in domestic corporations.

2. California stockholders in a Colorado corporation whose charter specified that one purpose of the incorporation was the transaction of business by the corporation in California must be deemed to have contracted with reference to the provisions of Cal. Civ. Code, § 322, imposing the same personal liability upon stockholders of foreign corporations doing business within the state as upon stockholders in domestic corporations, and are bound thereby, so far at least as such liability arises from the corporate business carried on in California.

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Decided December 2, 1901.

N ERROR to the Superior Court of Los Angeles County, State of California, to review a judgment in favor of plaintiff in an action to enforce a personal liability of stockholders. Affirmed.

Statement by Mr. Justice Brewer:

This was an action to enforce a personal liability of stockholders. It was commenced in a justice's court of Los Angeles city, Los Angeles county, California, on September 30, 1898, by the defendant in error against the plaintiffs in error. It was subsequently transferred to the superior court of the

county, where a trial was had on January

17, 1900, before the court without a jury. A stipulation was signed as to the truth of various averments in the complaint and answer, which concluded as follows: “And it is stipulated that the only question in this case is as to whether § 322 of the Civil Code of California is in violation of the provisions of the Constitution of the United States; and if it is in violation of such provisions defendants are entitled to judgment; but if said section is not in vio}. of said provisions, then plaintiff is entitled to judgment as prayed for in his complaint.” Findings of fact, were also made, among which were the following: “2. That the Los Angeles Iron & Steel Company was a corporation organized on the 8th day of March, 1893, and incorporated under the laws of the state of Colorado; that the seventh provision of its articles of incorporation is as follows, to wit: The said company is created for the purpose of carrying on part of its business beyond the limits of the state of Colorado, and the principal office of said company in the state shall be kept at the city of Denver, Arapahoe county, and the Pop. plant and principal operations of said company, beyond the limits of the state, shall in Los Angeles county, state of California, and i. other places in the state of California as may be decided upon by the board of di: rectors. The principal business of said

company in the state of Colorado shall be carried on in Arapahoe county. “3. That the defendants are and were at all times herein mentioned residents and citizens of the state of California. “4. That all the indebtedness of said Los Angeles Iron & Steel Company to plaintiff and to plaintiff’s assignors was created by contracts made, executed, and to be performed in the state of California.” “6. That at the time the said indebtedness was created and incurred by the said company there were issued of the capital stock thereof the number of 1,311 shares, and that the defendants were at said times the owners respectively of the number of said shares as set opposite their respective names, as follows, to wit: , H. L. Pinney, 50 shares; C. L. Pinney, 42 shares; W. C. Patterson, 35 shares; C. W. Damerel, 91 shares; F. E. Little, 22 shares; Thomas Brooks, 38 shares.” Upon the stipulation and findings a judgment was rendered in favor of the plaintiff. A writ of error was subsequently sued out from this to that court, it being the highest court in the state to which the action could be taken. Article 12, § 15, of the Constitution of California, adopted in 1879, reads: “No corporation organized outside the limits of this state shall be allowed to transact business within this state on more favorable conditions than are prescribed by law to similar corporations organized under the e laws of this state.” * Section 322 of the Civil Code of California, as amended March 15, 1876, provides as follows: “Each stockholder of a corporation is individually and personally liable for such proportion of its debts and liabilities as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock or shares of the corporation, and for a like proportion only of each debt or claim against the corporation. Any creditor of the corporation may institute joint or several actions against any of its stockholders, for, the proportion of his claim payable by each, and in such action the court must ascertain the proportion of the claim or debt for which each defendant is liable, and a several judgment must be rendered against each, in conformity therewith. . . . “The liability of each stockholder of a corporation formed under the laws of any other state or territory of the United States, or of any foreign country, and doing business within this state, shall be the same as the liability of a stockholder of a corporation created under the Constitution and laws of this state.” By the stipulation above referred to, the truthfulness of the following averment in the answer was admitted: “Defendants allege that there is no statute of the state of Colorado providing that stockholders shall be liable for any portion of the indebtedness of a corporation, and allege that under the laws of the state of Colorado a stockholder in a corporation is not

liable for any portion of the indebtedness of said corporation.”

Mr. M. L. Graff submitted the cause for plaintiffs in error. Mr. J. W. McKinley was with him on the brief.

Mr. J. A. Anderson submitted the cause for defendant in error. Messrs. W. S. Taylor and Edward W. Forgy were with him on the brief.

Mr. Justice Brewer delivered the opinion of the court: The plaintiffs in error rely upon the propYosition that the liability of a stockholder is F determined by the charter of the corporation and the laws of the state in which the incorporation is had. “If the constitution to which a corporator has agreed does not provide for individual liability to creditors, he cannot be charged with individual liability anywhere.” 2 Morawetz, Priv. Corp. 2d ed. $ 874. They invoke the lea, loci contractus, and say that the stockholders' contract was made in Colorado, that being the state in which the Los Angeles Iron & Steel Company was incorporated; that by the laws of that state there is no personal liability of stockholders; that it is not within the power of California to change the terms of that contract, the Federal Constitution (art. 1, § 10) forbidding a state to pass a law impairing the obligation of contracts; that while California, which prescribes an individual liability of stockholders, may if it sees fit exclude every corporation of another state whose stockholders do not assent to such liability, yet if it fails to do so, and such Colorado corporation actually comes into California to transact business, such coming into the state and the transaction of business therein do not change the terms of the stockholders' contracts, or impose a personal liability; and also that in such a case an attempt to enforce the statutory provisions of California so far as to change the personal liability of corporators in the foreign corporation is in conflict with the due rocess and equal protection clauses of the st section of the 14th Amendment. With reference to the contention that the law of California impairs the obligation of the contract of the stockholders, it is enough to say that that law, both constitutional and statutory, was enacted long before the incorporation of the Los Angeles Iron & Steel Company, and that therefore $ 10 of article 1 of the Federal Constitution has no application. “It is equally clear that the law of the state to which the Constitution refers in that clause must be one enacted after the making of the contract, the obligation of which is claimed to be impaired.” Lehigh Water Co. v. Easton, 121 U. S. 388, 391, 30 L. ed. 1059, 1060, 7 Sup. Ct. Rep. 916, 918. See also Central Land Co. v. Laidley, 159 U. S. 103, 111, 40 L. ed. 91, 94, 16 Sup. Ct. Rep. 80; McCullough v. Virginia, 172 U. S. i. 116, 43 L. ed. 382, 387, 19 Sup. Ct. Rep. 134. Passing to a consideration of the stockholders' contract in the light of the other

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* contention, it may be said that ordinarily"it" is controlled by the law of the state in which the incorporation is had. That is the place of contract, and, generally, the law of the place where a contract is made governs its nature, interpretation, and obligation. While this is so, it is also true that parties in making a contract may have in view some other law than that of the place, and when that is so that other law will control. That the parties have some other law in view and contract with reference to it is shown by an express declaration to that effect. In the absence of such declaration it may be disclosed by the terms of the contract and the purpose with which it is entered into. In Pritchard v. Norton, 106 U. S. 124, 27 L. cd. 104, 1 Sup. Ct. Rep. 104, many cases were cited by Mr. Justice Matthews, delivering the opinion of the court, in which these propositions were illustrated and enforced, and on page 136, L. ed. p. 108, Sup. Ct. Rep. p. 112, it was said: “The law we are in search of, which is to decide upon the nature, interpretation, and validity of the engagement in question, is that which the parties have, either expressly or presumptively, incorporated into their contract as constituting its obligation. It has never been better described than it was incidentally by Mr. Chief Justice Marshall, in Wayman v. Southard, 10 Wheat. 1, 48, 6 L. ed. 253, 264, where he defined it as a principle of universal law, the principle that in every forum a contract is governed by the law with a view to which it was made.” The same idea had been expressed by Lord Mansfield in Robinson v. Bland, 2 Burr. 1077, 1078: “The law of the place,” he said, “can never be the rule where the transaction is entered into with an ea press view to the law of another country as the rule by which it is to be governed.’ And in Lloyd v. Guibert, L. R. 1 Q. B. 115, 120, in the court of exchequer chamber, it was said that “it is necessary to consider by what general law the parties intended that the transaction. should be governed, or, rather, by what general law it is just to presume that they have submitted themselves in the matter.” Le Breton v. Miles, 8 Paige, 261.” The subject was also discussed at length by Mr. Justice Gray in Liverpool & G. W. Steam Co. v. Phenia Ins. Co. 129 U. S. 397, 32 L. ed. 788, 9 Sup. Ct. Rep. 469. In Coghlan v. South Carolina R. Co. 142 U. S. 101, 110, 35 L. ed. 951, 954, 12 Sup. Ct. Rep. 150, 152, Mr. Justice Harlan, referring to 2. these two opinions, observed: “The elab-Y. orate and careful" review of the adjudged" cases, American and English, in the two cases last cited, leaves nothing to be said upon the general subject.” In Bank of Augusta v. Earle, 13 Pet. 519, 588, 10 L. ed. 274, 307, Chief Justice Taney said: “It is very true that a corporation can have no legal existence out of the boundaries of the sovereignty by which it is created. - But although it must live and have its being in that state only, yet it does not. by any means follow that its existence there:

will not be recognized in other places; and its residence in one state creates no insuperable objection to its power of contracting in another. It is indeed a mere artificial being, invisible and intangible, yet it is a person for certain purposes in contemplation of law, and has been recognized as such by the decisions of this court. It was so held in the case of United States v. Amedy, ll Wheat. 412, 6 L. ed. 507, and in Beaston v. Farmers' Bank, 12 Pet. 135, 9 L. ed. 1030. Now, natural persons, through the intervention of agents, are continually making contracts in countries in which they do not reside and where they are not personally present when the contract is made, and nobody has ever doubted the validity of these agreements. And what greater objection can there be to the capacity of an artificial person, by its agents, to make a contract within the scope of its limited powers, in a sov-ereignty in which it does not reside, provided such contracts are permitted to be made by them by the laws of the place?” And then, after discussing the question of comity, added (p. 589, L. ed. p. 308): “Adopting, as we do, the principle here stated, we proceed to inquire whether, by the comity of nations, foreign corporations are permitted to make contracts within their jurisdiction, and we can perceive no sufficient reason for excluding them when they are not contrary to the known policy of the state, or injurious to its interests. “It is nothing more than the admission of the existence of an artificial person created by the law of another state, and clothed with the power of making certain contracts.

3. It is but the usual comity of recognizing the

- law of another state.”

*As, then, a corporation can have no legal existence outside of the state in which it is incorporated, the contract of the stockholders with one another, by which the corporation is created, is presumed to have been made with reference to the laws of that state, nothing being said in the charter to the contrary. But as comity permits a corporation to enter another state and do business therein, it is competent for the stockholders in making their charter to contract with reference to the laws of a state in which they propose the corporation shall do business. And in this case the stockholders in their charter specified that the purpose of the incorporation was partly business beyond the limits of Colorado, and that the principal part of such outside business H. be carried on in California. Not content to rely upon the general authority which by the rules of comity the Colorado corporation would have to enter California and transact business therein, they in terms set forth that a part of the purpose of the incorporation was the transaction of business by the corporation in California. Now, when they in terms specified that they were framing a corporation for the purpose of having that corporation do business in California, is it not clear that they were contracting with reference to the laws of that state? Contracting with reference to

the laws of that state they must be assumed to know the provisions of those laws; that by them a personal liability was cast upon the stockholders in corporations formed under the laws of the state, and that that same liability was also imposed upon the stockholders of corporations formed under the laws of other states and doing business within California. How can it be said that those laws do not enter into the contract and control as to all business done in pursuance of that contract within the limits of California? .*. these same stockholders, in Colorado had formed a partnership with the expressed intent of carrying on business in California, would not that expressed intent be a clear reference to the laws of California and an incorporation of those laws into the liabilities created by the o business in California? And if this rule obtains as to contracts of partners between themselves, why not also as to contracts of stockholders between themselves in r forming a corporation? : * In this case it appears that the business * transactions out of which these liabilities arose were carried on in California. They resulted from business done in California by virtue of an express contract made by the stockholders with reference to such business. It is unnecessary to express an opinion upon the question whether any personal liability would be assumed by the stockholders in reference to business transacted in Colorado. Parties may contract, with special reference to carrying on business in separate states, and when they make an express contract therefor the business transacted in each of the states will be affected by the laws of those states, and may result in a difference of liability. Neither is it necessary to express any opinion upon the question whether the defendants could have been held liable under the California statutes, independently of the provisions of the Colorado charter. All that we here hold is that when a corporation is formed in one state, and by the express terms of its charter it is created for doing business in another state, and business is done in that state, it must be assumed that the charter contract was made with reference to its laws; and the liabilities which those laws impose will attend the transaction of such business.

The judgment of the Superior Court is affirmed.

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