Southwest Washington Production Credit Ass'n of Chehalis v. Fender

• Decision Date: 11 August 1944
• Docket Number: 29156.
• Citation: 150 P.2d 983,21 Wn.2d 349
• Court: Washington Supreme Court
• Parties: SOUTHWEST WASHINGTON PRODUCTION CREDIT ASS'N OF CHEHALIS v. FENDER et al.

150 P.2d 983

21 Wn.2d 349

SOUTHWEST WASHINGTON PRODUCTION CREDIT ASS'N OF CHEHALIS v. FENDER et al.

No. 29156.

Supreme Court of Washington, En Banc.

August 11, 1944

Rehearing Denied Sept. 22, 1944.

Action by Southwest Washington Production Credit Association of Chehalis, Washington, against A. G. Fender and Hester E Fender, husband and wife, and others to foreclose a real estate mortgage and a chattel mortgage securing crop production loan. From an adverse judgment, defendants appeal.

Affirmed.

MILLARD and STEINERT, JJ., and SIMPSON, C.J., dissenting.

Appeal from Superior Court, Pacific County; J. M. Phillips, judge.

Fred M Bond, of South Bend, for appellants.

James A. Stinson and Hull & Murray, all of Chehalis, and Henry R Newton and Dana E. Brinck, both of Spokane, for respondent.

Smith Troy, Atty. Gen., and Rudolph Nacarrato, of Olympia, amici curiae.

ROBINSON Justice.

Respondent brought this action seeking foreclosure of a real estate mortgage and a chattel mortgage securing crop production loans, made to defendants, Fender. Appellants are holders of a mortgage on the same property, the lien of which was, by agreement, subordinated to the lien of respondent's mortgages.

The principal contention made by appellants is that the action should have been dismissed, as respondent did not allege or prove compliance with the provisions of Laws of 1937, chapter 70, p. 245, § 12, Rem.Rev.Stat. (1940 Sup.), § 3836-12, requiring plaintiff corporations to allege and prove payment of state corporate license fees. The attorney general has filed a brief as amicus curiae, strongly supporting this contention.

Respondent is a corporation organized under the Farm Credit Act of 1933, § 2 et seq., 12 U.S.C.A. § 1131 et seq. The act provides for the establishment, in each of the twelve Farm Credit Districts of the United States, of a production credit corporation, of which the directors of the local Federal Land Bank shall be ex-officio directors. All of the stock of these twelve corporations is owned by the United States government. The act also authorizes the governor of the Farm Credit Administration to organize, and charter, 'Production Credit Associations.' These associations may be organized by ten or more farmers desiring to borrow money under the provisions of the act. By-laws may be adopted, but are subject to approval by the governor of the Farm Credit Administration. The stock of each such association is divided into two classes, Class A and Class B. Class A shares are subscribed for by the Production Credit Corporation, and may be purchased by investors. Class B shares may be purchased only by borrowers and individuals entitled to become borrowers. Class B stock only is entitled to voting rights. Each holder of such stock is entitled to no more than one vote. Each holder of Class B stock, within two years after he ceases to be a borrower, must exchange his Class B stock for Class A stock, or may transfer it to another borrower or person eligible to become a borrower. All stock shares in dividend distributions without preference, but Class A stock is preferred as to assets on liquidation.

During the time the Production Credit Corporation is a holder of any stock in the association, the appointment or election of directors, the secretary-treasurer, and the loan committee of the association is subject to approval by the president of the Production Credit Corporation, and, during such time, any such director, secretary-treasurer, or other officer of the association may, at any time, be removed by the president of the Production Credit Corporation.

It is provided that each association shall, under the rules and regulations prescribed by the Production Credit Corporation, with the approval of the governor of the Farm Credit Administration, make loans to farmers for general agricultural purposes. Such loans must be made on such terms and conditions, at such rates of interest and with such security as shall be prescribed by the Production Credit Corporation. Borrowers are required to own, at the time the loan is made, Class B stock in an amount equal to $5 per $100 of the amount of the loan. The association may borrow from, and rediscount paper with, the Federal Intermediate Credit Bank, and, except with the approval of the Farm Credit Administration, may not borrow money or rediscount paper with any other bank or agency. Federal Intermediate Credit Banks are authorized, subject to such restrictions, limitations, and conditions as may be imposed by the Farm Credit Administration, to discount for, or purchase from, Production Credit Associations, notes, bills of exchange, and other obligations presented by Production Credit Associations, and to make loans to them secured by such collateral as may be approved by the governor of the Farm Credit Administration. They are also authorized, subject to the approval of the Farm Credit Administration, to borrow money and to issue and sell collateral trust debentures and other similar obligations. All debentures issued by Federal Intermediate Credit Banks are lawful investments and may be accepted as security for all fiduciary, trust or public funds, the investment or deposit of which is under the authority or control of the United States or any officer or officers thereof. The capital stock of the Intermediate Credit Banks is subscribed for by the Secretary of the United States Treasury.

The Farm Credit Act of 1933, 12 U.S.C.A. § 1138c, provides that: 'The Central Bank for Cooperatives, and the Production Credit Corporations, Production Credit Associations, and Banks for Cooperatives, organized under this chapter, and their obligations, shall be deemed to be instrumentalities of the United States, and as such, any and all notes, debentures, bonds and other such obligations issued by such banks, associations, or corporations shall be exempt both as to principal and interest from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or by any State, Territorial, or local taxing authority. Such banks, associations, and corporations, their property, their franchises, capital, reserves, surplus, and other funds, and their income, shall be exempt from all taxation now or hereafter imposed by the United States or by any State, Territorial, or local taxing authority; except that any real property and any tangible personal property of such banks, associations, and corporations shall be subject to Federal, State, Territorial, and local taxation to the same extent as other similar property is taxed. The exemption provided herein shall not apply with respect to any Production Credit Association or its property or income after the stock held in it by the Production Credit Corporation has been retired, or with respect to the Central Bank for Cooperatives, or any Production Credit Corporation or Bank for Cooperatives, or its property or income after the stock held in it by the United States has been retired. (June 16, 1933, c. 98, § 63, 48 Stat. 267.)' (Italics mine.)

At the time of the institution of this suit, the issued and outstanding Class A stock of respondent amounted to $231,900, of which the Production Credit Corporation of Spokane was the owner and holder of stock amounting to $230,000, and the issued and outstanding Class B stock amounted to $29,853, all of which shares were held by borrowers from the institution. It is true that all funds of the Federal Intermediate Credit Banks are funds obtained by sale of debenture bonds, and that none of such funds are funds of the United States government. However, the stock of the twelve Production Credit Corporations, which organize the Production Credit Associations and subscribe for their Class A stock, is owned by the United States.

'The capital stock of each Production Credit Corporation shall be in such amount at the governor determines is required for the purpose of meeting the credit needs of the district to be served by such corporation, and such amount may be increased or decreased from time to time by the governor in accordance with such credit needs. Such capital stock shall be divided into shares of $100 each. The initial capital stock of each such corporation shall be $7,500,000, which shall be subscribed for by the governor and held by him on behalf of the United States. * * *' 12 U.S.C.A. § 1131b.

To contend that this action should have been dismissed because the plaintiff did not allege and prove the payment of state corporate license fees is, of course, to admit that the plaintiff is a corporation. If so, it must be one organized and existing under and by virtue of the laws of the United States, hereinabove quoted in part. Is a Production Credit Association an instrumentality of the United States? As we have already seen, such associations are expressly declared to be so in the statute itself. It is said: 'The Central Bank for Cooperatives, and the Production Credit Corporations, Production Credit Associations, and * * * shall be deemed to be instrumentalities of the United States, * * *.' 12 U.S.C.A. § 1138c. (Italics ours.)

It was held, as early as 1819, in the celebrated case of McCulloch v. Maryland, 17 U.S. 316, 4 Wheat. 316, 4 L.Ed. 579, that the states have no power to tax, impede, or control in any way the operation of laws constitutionally enacted by Congress to carry out the power vested in the national government. This proposition is so familiar that, when it was contended, in First National Bank of Tonasket v. Slagle, 165 Wash. 435, 5 P.2d 1013, 1014, that the plaintiff national bank should have alleged and proved that it had paid its annual license fee, we said, in rejecting that contention and without deeming it necessary to cite sustaining...