American Homestead Company v. Linigan

• Decision Date: 01 May 1894
• Docket Number: 11,192
• Citation: 15 So. 369,46 La.Ann. 1118
• Court: Louisiana Supreme Court
• Parties: AMERICAN HOMESTEAD COMPANY v. MRS. MARY ELLEN LINIGAN

15 So. 369

46 La.Ann. 1118

AMERICAN HOMESTEAD COMPANY v. MRS. MARY ELLEN LINIGAN

No. 11,192

Supreme Court of Louisiana

May 1, 1894

Rehearing refused.

APPEAL from the Civil District Court, Parish of Orleans. King J.

E. D Lebreton and Henry Chiappella, Attorneys for Plaintiffs and Appellants cite.

Dinkelspiel & Hart, Attorneys for Defendant and Appellee.

OPINION

BREAUX, J.

In 1883, the "American Homestead Company" was organized.

The charter sets forth that the association shall have authority to loan money on security and to sue and be sued; that the shares shall be paid in weekly instalments.

It was agreed that each stockholder, not in arrears, should be entitled to receive a loan of two hundred dollars for each share of stock held by him (less premiums), when the funds in the treasury justified; the interest on the loans was fixed at the rate of six per cent. per annum, in weekly instalments; fines were provided for non-payment and forfeiture of stock.

The stock pledged, whenever it should become equal in value to the indebtedness for which pledged, should be canceled.

It was stipulated, under the terms of the charter, to divide annually the net earned profits, pro rata among the shares of stock not in default.

By act dated December 26, 1887, plaintiff made a loan to the defendant stockholder of five thousand and two hundred dollars, including therein the premium bid for the loan, for which she signed her note -- authorized by her husband -- to the order of plaintiff, on its face payable six years after date; subject to the terms and conditions of the association; bearing six per cent. per annum from date, and secured as to its payment by a special mortgage and vendor's lien.

This sale was preceded, about six months previous, by a sale from the defendant to the plaintiff for the sum of three thousand seven hundred and forty-four dollars.

The property being encumbered with mortgages accounts for the delay which elapsed between the two sales.

The object of these two sales was to secure a loan, and the difference in price between the sale by the defendant to the plaintiff and by the plaintiff of the same property to the defendant was the amount of the premium or bonus for the loan.

The conditions were, if the maker of the note, the defendant, paid the interest on the note weekly and the instalments on her stock punctually, the amount was to remain subject to a settlement and payment at the termination of the affairs of the association; but in case the purchaser failed to pay as agreed, the note became due. The plaintiff sues to recover the note and interest, also taxes, insurance premiums paid for her on the property mortgaged, attorney's fees and costs, and claims a mortgage and vendor's lien on the property conveyed by it to the defendant.

The defendant has not paid interest and other charges as alleged.

The defendant interposed an exception, and therein alleged that the plaintiff is not a legal corporation, and that it is absolutely without capacity to prosecute this suit in its corporate name.

the defendant also excepted on the ground "if the plaintiff can sue at all that the suit was not authorized by a resolution of the Board of Directors."

These exceptions were overruled.

In her answer the defendant denies plaintiff's allegations, says that plaintiff had no right to forfeit her stock, and that the value should be credited to the note upon which suit is brought; that she was charged interest on the amount of the note of five thousand two hundred dollars, when she should have been charged with interest only on the actual amount received by her, and that the interest actually charged should be credited to the amount actually due by her. She charges usury. She admits the payment of the taxes and insurance by the plaintiff as alleged, and her liability therefor.

She prays that plaintiff's demand be rejected, with costs, or if any judgment be rendered against her that it should be for the amount received by her on December 26, 1887, with six per cent. interest on that amount only, and that she should be credited with interest illegally paid, with the value of the stock pledged, and that the five per cent. attorney's fees be limited to the amount actually due.

After the answer had been filed and part of the evidence heard, the defendant interposed the exception of no cause of action.

The District Court pronounced judgment in favor of the plaintiff for the sum of three thousand seven hundred and forty-four dollars, with six per cent. interest from August 26, 1887, subject to a credit of one thousand five hundred and seventy-one dollars and ninety-six cents, the amount the court decided due to her by the plaintiff on twenty-six shares of her capital stock on March 29, 1892, and subject to a second credit of one hundred and forty-three dollars interest paid on the three thousand seven hundred and forty-four dollars, part of which the court held extinguished the interest due on the last mentioned amount on February 12, 1888, and the remainder was credited and applied as partial payments on the interest due on this date.

Interest and taxes paid were allowed, and five per cent. attorney's fees on the three thousand seven hundred and forty-four dollars, with conventional mortgage and lien on the property ordered to be sold.

From this judgment the plaintiff appeals.

ILLEGALITY OF THE CORPORATION AND THE WANT OF AUTHORITY TO SUE IN THE NAME OF THE AMERICAN HOMESTEAD COMPANY.

This company was organized under Art. 683 of the Revised Statutes of 1870, in which there is no reference specially made to building associations. The defendant alleges and argues that it was not the object in adopting the statute to authorize the forming of such companies.

Her counsel correctly concede that if she has been benefited she can not plead the want of capacity in plaintiff to make the loan and contract, as was entered into in this case.

They argue, however, that the act of incorporation being an absolute nullity, because unauthorized by law, the persons thus organized have the right to sue only in their individual names for whatever money be due and not as a corporate body.

We are referred to Art. 446 of the Revised Civil Code as the only article under which plaintiff can proceed. The defendant in her dealings with plaintiff does not charge fraud or error. She treated with it in all respects as being a legal corporation. She became one of its stockholders and sought thereby the benefits it offered to incorporators.

Her taxes were paid by it, premiums of insurance and an amount borrowed, and she fully recognized the legal existence of the corporation. She participated in the annual dividends. She can not be heard to impeach the existence and capacity of the corporation of which she was a member.

The illegalities on which the appellee relies might, perhaps, have been sufficient cause for defence on the part of third persons injuriously affected by such transactions, but she is estopped from denying the existence of a corporation from which she as a stockholder and on account of her shares has received benefits.

The subscriber is under obligation to perform the promise distinctly made and pay all that is legally exigible. Having voluntarily acted as a corporator and exercised privileges which belong to that capacity, there is reason estopping her from denying the validity of the charter.

The question was decided in Casey vs. Galli, 94 U.S. 680.

The court said: "Where a shareholder of a corporation is called upon to respond to a liability as such, and where a party has contracted with a corporation, and is sued upon the contract, neither is permitted to deny the existence or the legal validity of such corporation. To hold otherwise would be contrary to the plainest principles of reason and of good faith, and involve a mockery of justice. Parties must take the consequences of the position they assume. They are estopped to deny the reality of the state of things which they have made appear to exist, and upon which others have been led to rely. Sound ethics require that the apparent in its effect and consequence should be as if it were real, and the law properly so regards it."

In Eaton et al. vs. Aspinwall, 19 N.Y. Court of Appeals, p. 119: "A defect in the proceedings to organize a corporation is no defence to a stockholder sued to enforce his personal liability, who has participated in its acts of user as a corporation de facto, and appeared as a shareholder upon its books when the debts for which he is sued was contracted." See also Rice on Ev. 891, 1st Ed.

In Liverpool and London Fire and Life Insurance Company vs. E. C. Hunt, 11 An. 623, a similar principle was laid down, and the court sustained a suit for the restitution of money paid to the defendant, who denied the existence of the company.

In East Pascagoula Hotel Company vs. James West, 13 An. 545, the stockholder was not permitted to set up, by way of defence, any illegality in the charter, or any informality in the organization.

It is true that the case of Workingmen's Accomodation Bank vs. Converse, 29 An. 370, is not absolutely in line with these and other State and United States decisions upon the subject. Article 446 of the Civil Code is given in this case the effect of a prohibitory law. The authority to stand in judgment is one of the rights to which the defendant consented in becoming a stockholder. She is as much precluded from denying these rights as she is from denying the validity of the charter. The clause of the act of incorporation granting the authority is not in contravention of laws made for the preservation of public order or good morals.

It is not of such a prohibitory character as that it may...