N. Hudson Mut. Bldg. & Loan Ass'n v. First Nat. Bank of Hudson

• Decision Date: 25 November 1890
• Citation: 79 Wis. 31,47 N.W. 300
• Parties: NORTH HUDSON MUT. BLDG. & LOAN ASS'N v. FIRST NAT. BANK OF HUDSON.
• Court: Wisconsin Supreme Court

79 Wis. 31

47 N.W. 300

NORTH HUDSON MUT. BLDG. & LOAN ASS'N

v.FIRST NAT. BANK OF HUDSON.

Supreme Court of Wisconsin.

Nov. 25, 1890.

Appeal from circuit court, St. Croix county; E. B. BUNDY, Judge.Bashford & Disney and R. H. Start, for appellant.

H. L. Humphrey and Ray S. Reid, for respondent.

TAYLOR, J.

This action was commenced by the appellant against the bank to recover the possession of certain bonds and mortgages which had been given to said association upon loans made by said association to different persons. The action was replevin, and the bonds and mortgages were taken from the possession of the bank. The bank claimed the right to the possession of such bonds and mortgages as security for the balance claimed to be due it upon a loan made by said bank to said association. The facts, as clearly established on the trial, are as follows: In 1885, the president, secretary, and one of the directors of said association applied to said bank for a loan of $6,000, agreeing to pledge the mortgages in question as security for said loan. At the time of making the application for said loan, these officers of the association stated that the association had authorized them to make such loan. After considering for some days, the bank concluded to make the loan, and did make it, taking a note for the amount, and paying the money upon the orders of the corporation, within a short time after the loan was made, and the notes and mortgages were assigned to the bank as security for the loan. The evidence satisfactorily shows that the said officers of the company made this loan for the purpose of paying off certain stockholders of the corporation, whose stock was supposed to have been fully paid up at the time, and to whom the money was at the time supposed to be due. The evidence also shows very clearly that the entire sum of $6,000 loaned from the bank was in fact paid to the stockholders of the company, and no part thereof has ever been refunded by them to the bank. It is also shown by the evidence that the money becoming due on said loan has been paid by the officers of the association from time to time, and new notes have been given for balances, and, at the time of the commencement of this action, the amount of said loan and the interest thereon had all been paid, except the sum of about $1,500. The claim made by the plaintiff association is that the officers of the company had no power, under the laws conferring corporate powers upon the association, to borrow said money for the association, or to bind the association to pay the money so borrowed, or to pledge the bonds and mortgages of the association to secure the payment of said loan, or any part thereof. It is also claimed that the officers had no right to borrow the money for the purpose of paying off the stockholders to whom the money was in fact paid, because it is claimed that, at the time the money was borrowed and paid to them, their stock had not yet been fully paid up as required by the articles of association to entitle them to such payment in full. There is no evidence tending to impeach the good faith of the bank in making the loan, or which tends to show that the officers of the bank had any knowledge that the association had not authorized its officers to make said loan at the time the same was made, or at the time the bank paid over the money upon the orders of said association, nor that they had any knowledge that the money paid to the stockholders was not in fact due to them at the time it was paid to them. After hearing the evidence in the case, the learned trial court directed the jury to find a verdict in favor of the bank, and, from the judgment entered in defendant's favor, the plaintiff appeals to this court.

Upon this appeal the learned counsel for the appellant assigns as error: (1) That the court erred in admitting the assignment of the bonds and mortgages in question, and the several notes given to the defendant, in evidence, for the reason that the corporation had no authority or power to make the same, or either of them; the second, third, fourth, and fifth assignments of error go upon the ground that said notes and the assignment of said mortgages were not authorized by the corporation, or its board of directors, or made with its knowledge or consent; the sixth assignment of error was the refusal of the court to permit the witness Nelson, one of the directors, to testify as to how and when he learned of said assignment; the seventh error assigned is the exclusion of the evidence offered by the plaintiff to show that the first series of stock was not due when the holders of it were paid off by the officers of the company with the money borrowed from the defendant; (8) in refusing to permit the plaintiff to show that Harvey's annual report of 1886 was not in fact read at the annual stockholders' meeting in 1886; (9) in refusing to admit in evidence the minutes and memoranda left by Secretary Harvey, as bearing upon the question whether the directors had authorized the loan; (10) in admitting incompetent evidence, etc.; (11) in excluding competent evidence offered by the appellant; (12) in refusing to submit the case to the jury; (13) in directing a verdict for the defendant; and (14) in refusing to set aside the verdict and grant a new trial. One of the important questions involved in this case is whether the plaintiff corporation had the power, under any circumstances, and for any purpose, to make the loan it did in this case; and the next most important question is, if it should be proved that the corporation had no legal authority to borrow money, whether having in fact through its officers borrowed the money, and applied the same to the purposes of the corporation, the corporation is now estopped from setting up its want of power to borrow the money in question so applied to its legitimate purposes; and it seems to us these are the only material questions in the case. If one or both of these questions be determined in favor of the defendant, then it seems to us the other assignments of error by the learned counsel for the appellant become immaterial to a rightful determination of the case.

To determine the first question it becomes necessary to inquire what are the objects and purposes of the corporation, and from such objects and purposes to determine whether it is consistent and reasonably necessary, under certain circumstances, for the corporation to borrow money to accomplish the purposes of the organization; and if it be found that, under some circumstances, the purposes of the corporation can only be conveniently and reasonably carried out by borrowing money, then, under the adjudicated cases, in the absence of any express provision forbidding the corporation from borrowing, the corporation may do so. Madison Plank-Road Co. v. Watertown Plank-Road Co., 5 Wis. 173;Blunt v. Walker, 11 Wis. 334;Rockwell v. Bank, 13 Wis. 653;Insurance Co. v. Dhein, 43 Wis. 420;Union Water Co. v. Fluming Co., 22 Cal. 620; Davis, Bldg. Soc. 183, 184; Wright v. Hughes, 119 Ind. 324, 21 N. E. Rep. 907. In the case of Rockwell v. Bank, supra, Chief Justice DIXON says: “It is a universally accepted principle that corporations organized generally to engage in a particular business have, as incident to such authority, the power to contract debts in the legitimate transaction of such business, unless they are restrained by their charters or by the statute from doing so. It is likewise an equally well acknowledged rule that the right to contract debts carries with it the power to give negotiable notes or bills in payment of or security for such debts, unless the corporations are in like manner prohibited.” The correctnessof the decision of this court in 13 Wis., above cited, has never been questioned; and it is undoubtedly well sustained by the decisions of other courts. If, therefore, it can be shown that the loan association, the plaintiff in this action, in order to properly carry on its business, has the power to contract debts or borrow money as a legitimate way of carrying on such business, then it may do so, and give its notes or other proper security for the money loaned. The law which now controls such associations will be found in sections 2009-2014, Sanb. & B. Ann. St. p. 1204. Section 2009 says: “Any five or more persons may form a mutual savings fund, loan, or building corporation, in the manner prescribed in chapter 86, and thereupon such corporation shall have all the powers and privileges, and be subject to all the liabilities, conferred and prescribed by this chapter, and such other powers conferred on corporations by these statutes as are necessary or proper to accomplish the purposes prescribed by its articles of association.” The section above quoted is the first section of chapter 93, Rev. St. 1878, and the following sections above cited constitute the whole of said chapter as originally contained in the Revision of 1878. It will be seen by an examination of these sections that there is nothing in any of them which in express terms prohibits the association from borrowing money.

Without quoting the other statutes of the state which are referred to in the latter part of said section 2009, we will say generally that there is nothing to be found which necessarily prohibits a corporation organized under chapter 93 from borrowing money for legitimate purposes. The objects of this corporation, as stated in its articles of association, are as follows: “This corporation [giving its name] shall have for its object the accumulation of funds to be loaned to its members to enable them to purchase real estate, build houses, satisfy mortgages, or make such other investments as they may deem proper.” In looking over the other articles and by-laws of the corporation, nothing can be found which prohibits the corporation from borrowing for the purposes of the corporation. We conclude, therefore, that the right of this corporation...