Fidelity Building & Loan Ass'n v. Thompson

• Decision Date: 09 June 1932
• Docket Number: Motion No. 10010; No. 1493-5769.
• Citation: 51 S.W.2d 578
• Parties: FIDELITY BUILDING & LOAN ASS'N v. THOMPSON et al.
• Court: Texas Supreme Court

Page 578

51 S.W.2d 578

FIDELITY BUILDING & LOAN ASS'N v. THOMPSON et al.

Motion No. 10010; No. 1493-5769.

Commission of Appeals of Texas, Section A.

June 9, 1932.

Error to Court of Civil Appeals of Fifth Supreme Judicial District.

On motion for rehearing.

Motion overruled.

For former opinion, see 45 S.W.(2d) 167, which reversed 25 S.W.(2d) 247.

M. B. Soloman and Paul T. Doss, both of Dallas, for plaintiff in error.

Turner, Rodgers & Winn and Otis Bowyer, Jr., all of Dallas, for defendants in error.

James V. Allred, Atty. Gen., and Everett L. Looney, Asst. Atty. Gen., and Sylvan Lang and Leslie Byrd, both of San Antonio, as amici curiæ.

CRITZ, J.

Our original opinion is found at 45 S.W. (2d) 167, and we refer thereto for a full statement of the nature and result of this case.

In our original opinion we held that section 40 of the Building and Loan Act of 1929 (Acts 41st Leg., 2d Called Sess., c. 61), as amended by the Building and Loan Act of 1930 (Acts 41st Leg., 5th Called Sess., c. 51; Vernon's Ann. Civ. St. art. 881a—39), could not be given effect to impair contracts made prior to its effective date, because to give that statute such a construction would render it unconstitutional as in contravention of section 16 of article 1 of the Texas Constitution and section 10, article 1, of the Federal Constitution.

In its motion for rehearing the Fidelity Building & Loan Association, plaintiff in error, urgently insists that the above holding is erroneous and that under section 17 of article 1 of the Texas Constitution and article 1318, R. C. S. of Texas 1925, the Legislature had the right to enact the above-mentioned building and loan statute and apply its provisions to contracts already in existence when such act became effective.

Section 40, supra, of the 1930 Building and Loan Act (Vernon's Ann. Civ. St. art. 881a— 39), reads as follows: "Any loan made by a building and loan association may be repaid at any time after three months have elapsed from the time of making such loan, provided the borrower shall pay the principal due thereon (less the withdrawal value of the shares transferred as security therefor), loan expenses, the premium due and the interest accrued at the time of such repayment, and all sums advanced by the association for taxes assessments or insurance premiums, with interest thereon; and in addition thereto interest on the principal repaid for the period of three months after the date of repayment. Any borrower desiring to retain the shares may repay his loan without claiming credit for the withdrawal value of such shares, whereupon such shares shall be retransferred to the borrower and shall be free from any claim by reason of said loan. If any such association is in process of either voluntary or involuntary liquidation, the payments made by such borrower, plus credited dividends, less any lawful fees, fines, penalties or advances owing by such member on his shares of stock, shall be applied on the indebtedness owing by such borrower, who shall have the same time for payment at the same rate of interest as would have been required if said association were not in liquidation."

Section 17, art. 1, of our State Constitution reads as follows: "No irrevocable or uncontrollable grant of special privileges or immunities shall be made; but all privileges and franchises granted by the legislature, or created under its authority, shall be subject to the control thereof."

Article 1318, R. C. S. 1925, reads as follows: "All charters or amendments to charters, under the provisions of this chapter, shall be subject to the power of the Legislature to alter, reform or amend the same."

As shown by our original opinion, both associations here involved were incorporated under the building and loan association statutes of this state as they existed prior to the enactment of section 40, supra, as contained in both the 1929 and 1930 acts. In fact, both the 1929 and 1930 acts here attempted to be applied became effective after these associations became insolvent and after this case was finally tried and disposed of by the district court. The 1930 act became effective after this case was decided by the Court of Civil Appeals.

We have demonstrated in our original opinion that under the law as it existed prior to 1929, the rights and liabilities of all shareholders as such, both borrowing and nonborrowing, were equal, and in case the association suffered losses the stock of the borrowing shareholder shared in such losses just the same as the nonborrowing shareholder. It is contended by the association that under the 1930 act, supra, all this is changed, and under such act, where any association is in either voluntary or involuntary liquidation the borrowing shareholder is entitled to full credit for all payments on stock made by him, plus credited dividends, less lawful fees, etc. In other words, it is contended that the 1930 act relieves the borrowing shareholder of any losses on his stock when the association is in liquidation, and places all such losses on the nonborrowing shareholder, and can be applied to contracts entered into before the act became effective, and that such act so construed can be applied in this case where the association was insolvent and in process of liquidation in the district court under final judgment, when the act became effective.

In connection with the above it is further contended that the right to so apply the 1930 statute so construed to contracts made before its effectiveness exists by reason of the provisions of section 17 of article 1 of our State Constitution and article 1318, R. C. S., supra. In other words, it is contended that since the statute, article 1318, has reserved the power in the state to "alter, reform or amend" charters, the state has the right to enact a, law, the effect of which is to impair or even destroy the value of the nonborrowing shareholder's stock, while that of the borrowing shareholder is left to consume all of the property of the association, if it is necessary to do so, to give full credit for money paid therefor, plus credited dividends, less lawful fees, etc., and that even though at the time the nonborrowing shareholder made his contract he stood equal with the borrowing shareholder. We think to merely state the contention is to refute it. 7 R. C. L. p. 125, § 96; Union Pacific R. R. Co. v. United States, 99 U. S. 700, 718, 25 L. Ed. 496; Greenwood v. Union Freight Co., 105 U. S. 13, 17, 26 L. Ed. 961; Love v. City of Dallas (Tex. Sup.) 40 S.W.(2d) 20. These authorities might be multiplied many times, but we consider them sufficient.

It is certainly the settled law of this state that article 1318, supra, will be given full force and effect in regard to all matters that it has application to; but it certainly has no application whatever to authorize the Legislature to destroy or impair personal or real property rights acquired by the corporation during its lawful existence. Furthermore, property rights, together with contract rights and choses in action, which do not in their nature depend on the general powers conferred by the charter, cannot be destroyed or impaired by the repeal or amendment of the charter. The reserved right in the state to "alter, reform or amend" charters does not give the state the right to destroy or impair the rights of shareholders to their interest in the property of the corporation. If the state can destroy or impair the property rights of nonborrowing shareholders in the instant case by requiring them to suffer all losses when their position was equal with borrowing shareholders under the contract by which they became shareholders, then the state in any instance, and as to any corporation, can impair and destroy the rights of shareholders in the property thereof by legislation enacted after the contract is made.

In connection with the above, we wish to adopt and approve the rule as laid down in 7 R. C. L. p. 125, supra. It is as follows: "Though the constitution of a state declares that the legislature has power to alter, revoke or amend any charter of incorporation, the property which corporations acquire in the exercise of the capacities conferred on them they hold subject to the same guaranties which protect the property of individuals from spoliation. Personal and real property acquired by the corporation during its lawful existence, rights of contract, or choses in action so acquired, and which do not, in their nature, depend on the general powers conferred by the charter, cannot be destroyed or taken away by the repeal or amendment of the charter, and the courts may, if the legislature does not provide some special remedy, enforce such rights by the means within their power. The rights of the shareholders of such a corporation, to their interest in its property, are not annihilated by a repeal or alteration and there must remain in the courts the power to protect those rights. Nor does it give to the legislature the power to destroy or impair the contracts of third persons with such corporations; no executed contract made by the corporation with a third person, or with individual members of the corporation, could be impaired by any alteration of the charter power. But this is quite different from the power to alter or change or repeal the powers themselves so that no such rights could thereafter be acquired and such contract thereafter be made. And where a state has reserved the power by general statute to change, modify, or destroy any corporation at will, such right is not abridged or in any manner affected by executory contracts entered into by a corporation with third persons, or by such persons with their subcontractors, before an act amending such corporation's charter was passed. All parties are bound to take notice of the general law of the state under which the power exercised was reserved. If such contracts cannot be performed consistently with the alteration in the charter...