Equitable Loan & Sec. Co v. Waring

• Decision Date: 08 April 1903
• Citation: 44 S.E. 320,117 Ga. 599
• Court: Georgia Supreme Court
• Parties: EQUITABLE LOAN & SECURITY CO. et al. v. WARING et al.

44 S.E. 320

117 Ga. 599

EQUITABLE LOAN & SECURITY CO. et al.

v.WARING et al.

Supreme Court of Georgia.

April 8, 1903.

CONTRACT — VALIDITY — POWERS OF COURT— UNWISE CONTRACTS—INCAPABLE OF PERFORMANCE—FRAUD — FORFEITURES — JOINT TENANCY—ABOLITION — INVESTMENT ASSOCIATION—LOTTERY—MATURITY OF CERTIFICATES—REDEMPTION.

1. The power of the courts to declare a contract void for being in contravention of a sound public policy is a very delicate and undefined power, and, like the power to declare a statute unconstitutional, should be exercised only in cases free from doubt.

2. The authority of the lawmaking power to interfere with the private right of contract has its limits, and the courts should be extremely cautious in exercising the power to supervise private contracts which the lawmaking power has not declared unlawful.

3. The courts are not authorized to declare a contract void merely because it may be unwise, or even foolish. Folly is not in all cases fraud.

4. The people of this state, as parens patriae, have the power, through the courts, to protect persons of unsound mind, or under other disability, from the harmful effects of unwise or foolish contracts; but the power does not extend to such contracts when made by persons of full age, of sound mind, and laboring under no disability.

5. The possibility or probability of performance of many contracts known to the commercial world is dependent upon so many contingencies that it is only in an extreme case that a given contract can be said, as matter of law, to be so incapable of performance as to evidence a purpose to defraud.

6. The courts will always relieve an innocent party from the obligation of a contract which is the result of a fraud; but all contracts which are unreasonable, unwise, or even foolish, are not necessarily fraudulent.

7. The success of many legitimate business schemes, especially those relating to the handling and improving of sums of money, depends largely upon the honesty, wisdom, and business sagacity of those in charge of the scheme; and one who goes into such schemes takes the risks that are always incident to intrusting another with funds for improvement and profit.

8. While forfeitures are not unlawful, the law does not favor them, and all ambiguities in a contract are to be resolved against their existence; but where a contract in unmistakable terms provides for a forfeiture, and is otherwise free from legal infirmity, neither a court of law nor a court of equity will relieve against the forfeiture.

9. Joint tenancy, with its incident of survivorship, as it existed at common law, is abolished. While survivorship is not favored by the law of this state, and will never arise by operation of law, it is not prohibited, and, when a contract provides for it in express terms or by necessary implication, the law will allow the contract to he enforced.

10. An investment association, which applies the principle of survivorship to the investments by subscribers, the survivorship depending upon default of the members, instead of death, is not prohibited by law.

11. The mere fact that an enterprise depends for its success, to some extent, on forfeitures and lapses, is not alone sufficient to render the scheme unlawful.

12. It would seem that, in order to render a scheme unlawful, contrary to public policy, and fraudulent, because it is dependent for success on forfeitures or lapses, it must appear that it is not only largely so dependent, but that it is beyond the range of all reasonable probability that the number of forfeitures or lapses neces sary to effectuate the scheme will occur in the time required.

13. An enterprise dependent for success upon forfeitures or lapses, even many forfeitures or lapses, is not, for this reason alone, inherently fraudulent.

14. In order to constitute a lottery, three ingredients are essentially necessary—consideration, prize, and chance.

15. When a number of persons are entitled, in any event, to a given amount, though it may not be the same amount, and all cannot he paid at one time, the determination by lot of what portion of that number shall be paid at different times would not give the transaction the characteristics of a lottery. It is when the amount to be paid, or the value of the article to be delivered, is itself determined, either in whole or in part, by chance, that the elements of a lottery are present.

16. It is not to be presumed that people intend to violate the law, and the language of their undertakings must, if possible, be so construed as to make the obligation one which the law would recognize as valid. All ambiguities are to be resolved in favor of legality and against illegality. The contract is to be held illegal only when it will admit of no other construction.

17. While the construction placed upon a contract by one of the parties only is not controlling, still where a contract is capable of being construed either as legal or illegal, and either party, and especially the party upon whom the main obligation rests, has uniformly placed that construction upon the contract which would render it legal, this fact may be properly considered in determining the validity of the contract.

18. A corporation had authority under its charter to deal in stocks, bonds, etc., to negotiate loans, to loan money, to purchase, improve, and sell property, both real and personal, to guaranty the payment of obligations, and to issue investment certificates, to be paid for by the investor in monthly installments. A large number of these certificates were issued. The provisions of each certificate were, in substance, as follows: An obligation to pay the holder $500 at the end of 14 years, in consideration of the payment by him of $4 as a membership or initiation fee and installments of $1.25 each month until the end of that period. The $4 was given as compensation to the agent procuring the contract, and 25 cents of each monthly installment went to pay expenses of the company. Fifty per cent. of each monthly installment and all fines made a redemption fund; 30 per cent. a reserve fund. The holder was required to surrender the certificate, whenever called, upon the payment of its redemption value; which was declared to he the full amount paid in, with interest at 8 per cent. per annum, and its "proportionate share of all dividends or accumulations from fines, lapses, and interest earned in excess of eight per cent. per annum." Certificates were to be called for redemption in the order indicated by a multiple table, based on the figure 3, which appeared on the back of each certificate. The redemption fund was to be used to pay off certificates called before maturity, to pay certificates at maturity, to pay estates of deceased certificate holders who were not over 50 years of age at the date of the certificate the amounts paid thereon, with interest at 8 per cent., and its proportionate share of profits earned in excess of 8 per cent. per annum. The reserve fund was to be used and held for the protection of all live, outstanding certificates. The failure to pay an installment subjected the holder to a fine of 50 cents each month. If any installment or fine remained unpaid for six months, all payments were forfeited to the company, provided that the payment of 84 installments would entitle the holder to a paid-up certificate bearing 4 per cent. interest. Legal representatives of cer-tificate holders who were more than 50 years of age at the date of the certificate were permitted to take a paid-up certificate of the character above indicated, or to continue the payment of installments. The entire assets of the company were to be liable for the payment of the certificates. The funds of the company could be loaned to certificate holders upon terms to be fixed by the directors. No part of the reserve or redemption funds could even he loaned to an officer or director. No officer or director or any member of their families could be a certificate holder. It was further provided in the certificate "that no statement made by any one, except as herein set forth, shall be binding on this company." At the time the certificates were offered for sale, the objects, purposes, aims, and expectations of the company were set forth in literature which was circulated by the company, and the statements therein were authorized by the company. Held:

(a) That, properly construed, the certificate does not authorize the redemption of any certificate of a living person until it has earned at least 8 per cent. interest on the amounts paid in.

(b) That the scheme of the company is not a lottery. The fact that the certificates to be called for redemption are determined by reference to a table of numbers, which instead of being in numerical order, has an arbitrary arrangement based on multiples of the figure 3, thus making it possible in some cases for certificates to be redeemed before others of older date, does not give the scheme the characteristics of a lottery, or one in the nature of a lottery. (c) That it cannot be said, as matter of law, that the contract is incapable of performance by legitimate methods, or that its performance is so largely dependent upon forfeitures or lapses as to be fraudulent, or contrary to public policy. (d) That, if any statement in the literature of the company is at variance with what is contained in the certificate, what is stated in the certificate must control until it is reformed, or the contract therein contained is rescinded.

19. If the scheme described in the certificate above referred to was a lottery, or in the nature thereof, or was so impossible of performance as to be fraudulent, or opposed to public policy, as was contended by the defendants in error, the question as to whether a court of equity would, at the instance of those who knowingly went into the scheme, administer the assets for their benefit, is not now decided.

(Syllabus by the Court.)

The company issued certificates ("Class A") by...