Nat'l Home Bldg. & Loan Ass'n v. Home Sav. Bank

• Citation: 54 N.E. 619,181 Ill. 35
• Court: Supreme Court of Illinois
• Decision Date: 20 June 1899
• Parties: NATIONAL HOME BUILDING & LOAN ASS'N v. HOME SAV. BANK et al.

181 Ill. 35

54 N.E. 619

NATIONAL HOME BUILDING & LOAN ASS'N

v.HOME SAV. BANK et al.¹

Supreme Court of Illinois.

June 20, 1899.

Appeal from appellate court First district.

Bill by the Home Savings Bank against the National Home Building & Loan Association and others to foreclose a mortgage. From a decision of the appellate court (79 Ill. App. 303) affirming a decree for complainant, defendant association appeals. Reversed.

Carter, J., dissenting.

Cutting, Castle & Williams and Wagner, Bingham & Long, for appellant.

Winston & Meagher, for appellee Home Sav. Bank.

Alexander L. Whitehall, for appellees Flora D. Bishopp and Jonathan D. Bishopp.

Ralph Martin Shaw, of counsel for appellees.

CARTWRIGHT, J.

In November, 1893, Flora D. Bishopp made a trade of lots in the city of Chicago with the National Home Building & Loan Association, appellant, in pursuance of which appellant conveyed to her lot 10 in Lee Bros,' addition to Englewood, lots 15 and 16 in block 60 in Chicago University subdivision, and lot 36 in block 2 in Herring's subdivision. In exchange for these lots said Flora D. Bishopp and Jonathan D. Bishopp, her husband, conveyed to the building and loan association lots 5 and 6 in block 2 in Johnson & Clement's subdivision, and in the deed of the same it was agreed that the building and loan association should assume and pay an incumbrance on said lot 5 in the form of a trust deed executed by said Flora D. Bishopp and husband to Charles T. Page, trustee, to secure a note for $3,000 and interest. The trade was negotiated and carried out on the part of the association through J. O. Duncan, agent, who was employed by the association to negotiate loans and examine abstracts for it in Chicago, and he acted under the direction of the secretary of the association. After the exchange the association paid a mortgage of $600 on said lot 5, and the delinquent interest on the mortgage assumed in the conveyance. On May 14, 1895, the board of directors passed a resolution that the assumption clause in the deed was made without authority of the association, and directed the execution and tender of a quitclaim deed of the lot to Flora D. Bishopp. The deed was made and tendered unconditionally, and the association thereby offered the lot to her without a return of the consideration, or any other condition. The note for $3,000 secured by the trust deed was transferred to the Home Savings Bank, one of the appellees; and it filed its bill in the superior court of Cook county to foreclose the same, asking for a decree against Flora D. Bishopp, a sale of the mortgaged premises, and a decree against the building and loan associationfor such deficiency as might exist. The building and loan association answered that the trade was consummated by direction of its president and secretary, but the clause assuming the mortgage was inserted without their knowledge or authority, and without the knowledge and authority of its board of directors, that such an agreement was ultra vires the corporation, and that it had tendered a quitclaim deed of the lot to the said Flora D. Bishopp. The bill was answered by Flora D. Bishopp and her husband, who admitted its material allegations, and filed their cross bill, alleging the agreement for an exchange of the properties and the conveyances, and asking for a deficiency decree against the association. The building and loan association answered the cross bill, setting up the same defense as before, and the cause was referred to a master, who reported in favor of a foreclosure and sale, and a decree against the building and loan association for any deficiency in the payment of the debt, interest, fees, and costs. Exceptions to the report were overruled, and a decree was entered in accordance with it, which has been affirmed by the appellate court.

No objection is made to the foreclosure of the trust deed, or the sale of the premises; and the only question involved in this appeal is whether the contract inserted in the deed, by which the defendant, the National Home Building & Loan Association, agreed to assume and pay the debt, is binding upon it. This defendant, which denied the binding force of the agreement, is a corporation organized under the provisions of an act entitled ‘An act to enable associations of persons to become a body corporate to raise funds to be loaned only among the members of such association,’ in force July 1, 1879. Laws 1879, p. 83. As a corporation, it is a creature of the law, having no powers but those which the law has conferred upon it. A corporation has no natural rights or capacities, such as an individual or an ordinary partnership; and, if a power is claimed for it, the words giving the power, or from which it is necessarily implied, must be found in the charter, or it does not exist. The law on this subject is stated by the supreme court of the United States in Central Transp. Co. v. Pullman's Palace-Car Co., 139 U. S. 24, 11 Sup. Ct. 478, as follows: ‘The charter of a corporation read in the light of any general laws which are applicable, is the measure of its powers, and the enumeration of those powers implies the exclusion of all others not fairly incidental.’ The purpose of this corporation is the raising of funds to be loaned to its members upon the security of its stock and unincumbered real estate. Manifestly, the business of trading in real estate or acquiring the same, except as incidental to their legitimate business, is wholly foreign to the purpose for which the state has created such corporations, and conferred upon them corporate powers. They have no power to take and hold real estate, and contracts made for the purchase of it are not enforceable. End. Bldg. Ass'ns, §§ 305-308. But for the purpose of collecting debts it is essential that they should have some power with respect to the real estate mortgaged to them, and for that purpose section 13 of the act for their incorporation provides as follows: ‘Any loan or building association incorporated by or under this act is hereby authorized and empowered to purchase at any sheriff's or other judicial sale, or at any other sale, public or private, any real estate upon which such association may have or hold any mortgage, lien or other encumbrance, or in which said association may have an interest, and the real estate so purchased, to sell, convey, lease or mortgage at pleasure to any person or persons whatsoever.’ Such corporations are not authorized, either by their charters or as an incident to their existence, to acquire or hold any real estate except such as has been mortgaged to them, or which they may have an interest in. Not only is this the rule to be derived from the act of the legislature authorizing their incorporation, under the general principles of law, but it is, and always has been, against the policy of the state to permit corporations to accumulate landed estates, or to own real estate beyond what is necessary for their corporate business, or such as is acquired in the collection of debts. Carroll v. City of East St. Louis, 67 Ill. 568;Trust Co. v. Lee, 73 Ill. 142;People v. Car Co., 175 Ill. 125, 51 N. E. 664;First M. E. Church v. Dixon, 178 Ill. 260, 52 N. E. 887. It is also a settled principle of American jurisprudence. 5 Thomp. Corp. § 5772. If a building and loan association were permitted to invest its money in the purchase of real estate, or to traffic or trade in such property, instead of keeping within the powers conferred upon it, by loaning such money and collecting it, it would not only be exercising powers not granted, but it would be carrying on a business inconsistent with the purpose of its creation, and against the fixed and uniform policy of the state. In People v. Trust Co., 130 Ill. 268, 22 N. E. 798, it was said (page 292, 130 Ill., and page 803, 22 N. E.): ‘The word ‘unlawful,’ as applied to corporations, is not used exclusively in the sense of malum in se or malum prohibitum. It is also used to designate powers which corporations are not authorized to exercise, or contracts which they are not authorized to make, or acts which they are not authorized to do, or, in other words, such acts, powers, and contracts as are ultra vires.' In Central Transp. Co. v. Pullman's Palace-Car Co., supra, the result of the decisions as to the exercise of powers not granted is summed up as follows: ‘All contracts made by a corporation beyond the scope of those powers are unlawful and void, and no action can be maintained upon them in the courts; and this upon three distinct grounds: The obligation of every one contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders not to be subjected to risks which they have never undertaken; and, above all, the interest of the public, that the corporation shall not transcend the powers conferred upon it by law.’

It is first contended, in support of the decree, that the contract by which the corporation assumed and agreed to pay the mortgage on lot 5, as a part of the consideration, was within its powers. The ground of this claim is that the corporation had a mortgage on lot 6 (the other lot which was conveyed to it), and the acquisition of that lot was a legitimate exercise of power. We do not see how the fact that it had power to purchase one lot would operate to give it power to purchase another. The right to acquire property in which it had an interest could not be extended to other property in which it had no interest. If it could make a loan on a lot, and buy other property in the vicinity or adjoining it by merely including in the deed the mortgaged lot, the law would be evaded, and the policy of the state subverted. The law has given such a corporation power...