State ex rel. Prout v. Nebraska Home Company

• Decision Date: 19 November 1902
• Docket Number: 12,613
• Citation: 92 N.W. 763,66 Neb. 349
• Parties: STATE OF NEBRASKA, EX REL. FRANK N. PROUT, ATTORNEY GENERAL, v. NEBRASKA HOME COMPANY
• Court: Nebraska Supreme Court

92 N.W. 763

66 Neb. 349

STATE OF NEBRASKA, EX REL. FRANK N. PROUT, ATTORNEY GENERAL,
v.
NEBRASKA HOME COMPANY

No. 12,613

Supreme Court of Nebraska

November 19, 1902

ORIGINAL action in the nature of quo warranto to annul the corporate existence of the defendant for misuse and abuse of its corporate franchise, the abuse complained of being, as is alleged, the soliciting, selling and executing unlawful contracts for the ostensible purpose of assisting the purchasers thereof in procuring homes. The petition set out a contract. The answer denied the issuance of any such contract, but set out three other forms which it alleged were issued; and alleged the lawfulness of these and all other contracts issued. Writ allowed.

Demurrer sustained, and judgment of ouster entered.

Frank N. Prout, Attorney General, Norris Brown and William B. Rose, for relator:

The following provision is common to all the contracts:

Nebraska Home Company hereby agrees and undertakes to assist the said holder of this contract in purchasing and paying for a home.

Each of the contracts pleaded by defendant discloses the following scheme:

Contracts are numbered numerically as applications are received at the home office in Omaha. Each applicant must pay the company $ 3 for its services in registering and issuing the application and contract. Each holder is required to pay to the company at Omaha $ 1.35 a month until the contract matures. Out of each instalment of $ 1.35 the company retains 35 cents for its services and deposits $ 1 "in a fund to be known as a home fund." After maturity of a contract the holder is required to pay to the company $ 5.35 a month until his payments to the home fund amount to $ 1.000. Out of each monthly instalment of $ 5.35 the company retains 35 cents for its services, and deposits $ 5 in the home fund. All contracts pleaded in the answer contain the following provisions relating to maturity:

Sixth. This contract shall be deemed to be matured within the meaning hereof when there shall be, over and above what is required to be paid out on the contracts of lower serial number than this contract, either, first, an income of $ 50 per month due said home fund from contract-holders; or, second, an amount of money in said home fund which, when added to the income so due from contract-holders for a period of twenty months, will equal $ 1,000.

Seventh. When this contract matures, the company agrees on each and every month thereafter, for twenty months, to pay out of the said home fund the sum of $ 50, in assisting the holder to purchase a home, to pay off a mortgage on a home owned by the holder, or to erect a dwelling-house on a lot belonging to the holder, as said holder may prefer.

It is understood and agreed that the holder shall select property of the value of $ 1,000, on the basis of said payments thereon of $ 50 per month, and thereupon the company shall immediately proceed to investigate title, and value of the property, and, as soon as possible, notify the holder of its approval or disapproval of the holder's selection.

An examination of the contracts discloses the fact that the company does not devote any capital to the enterprise. Whatever it undertakes to do must be accomplished with the funds invested by contract-holders. In substance, it is a concern without any capital, except the monthly payments of $ 1.35 or $ 5.35, where all the contract-holders are borrowers to the extent of $ 1,000 each, and where the promoters of the enterprise take for their services twenty-five per cent. of $ 1.35-instalments and six per cent. of $ 5.35-instalments. The plan requires the company to keep its treasury empty, and, with the exception of the holder of contract number one, no holder has any interest in the home fund until the holders of earlier contracts have been paid in full.

The results of investments are affected by the number of persons who purchase contracts and by the number of holders who violate the contracts already made. No person can make in advance an intelligent estimate of the number that will be found in either class. The practical results of the plan, therefore, can not be determined by the rules and principles applicable to ordinary business enterprises. No one can tell when a contract will mature. The scheme of the company is such that the reason, foresight, and sagacity of man will not enable him to ascertain when a holder will get a return for the definite instalments he is required to pay with scrupulous punctuality at exact periods of time. The practical workings of the plan, therefore, can only be ascertained by assuming a basis for computation.

No. of	No. of	No. of	Home fund	Per cent	Total home	Profit to
20-month	months	contracts	for	of	fund	Home Co.
period.	period	matured	distribution	contracts	collections	each
ends from	each	each	called	to date.	period.
inception	period.	period.	and
of	to date.
company.
1	20	22	$ 21760.00	2.2	$ 10000.00
2	40	23	23600.00	4.5	7000.00
3	60	26	25680.00	7.1	7000.00
4	80	28	27920.00	9.9	7000.00
5	100	30	30320.00	12.9	7000.00
6	120	33	32960.00	16.2	7000.00
7	140	36	35840.00	19.8	7000.00
8	160	39	38960.00	23.7	7000.00
9	180	42	42320.00	27.9	7000.00
10	200	46	46000.00	32.5	$ 325360.00	7000.00
11	220	48	47180.00	36.2
12	240	48	48140.00	42.1
13	260	49	48820.00	46.9
14	280	49	49220.00	51.9
15	300	48	48440.00	56.7
16	320	48	47840.00	61.5	Total profits
17	340	47	46740.00	66.2	to Home
18	360	45	44980.00	70.7	Co.
19	380	41	41580.00	74.8
20	400	39	38900.00	78.7	787200.00	73000.00
21	420	36	35900.00	82.3
22	440	33	32740.00	85.6
23	460	28	28280.00	88.4
24	480	25	24720.00	90.9
25	500	21	21240.00	93.0
26	520	18	17920.00	94.8
27	540	14	14000.00	96.2
28	560	11	11120.00	97.3
29	580	9	8660.00	98.2
30	600	6	6460.00	98.8	988240.00	73000.00
31	620	4	4280.00	99.2
32	640	3	2960.00	99.5
33	660	2	1920.00	99.7
34	680	1	1160.00	99.8
35	700	1	660.00	99.9
36	720	0	560.00	99.9
37	740	0	720.00	99.9
38	760	0	760.00	99.9	999760.00
39	761	0	900.00	99.9
to	to
45	900
46	920	1	1000.00	100.0	1000000.00	73000.00

No. of	Per cent.
20-month	which
period.	money
received
by Home
Co. bears
to total
collections.
1	32.
2	27.
3	25.
4	24.
5	22.7
6	21.7
7	21.5
8	20.
9	19.1
10	18.
11
12
13
14
15
16
17
18
19
20	8.4
21
22
23
24
25
26
27
28
29
30	6.9
31
32
33
34
35
36
37
38
39
to
45
46	6.8

The company in its answer admits that it has issued 743 contracts, and it will be fair to show how its contracts will mature on the basis of a membership of 1,000, all bearing the same date, and each member paying his instalments according to his agreement. This basis has been selected because it affords an easy means of computation. For assistance of the court in determining the practical results of defendant's scheme,--on the basis assumed only, if it were possible to carry it out according to the plan disclosed by the contracts,--an expert's table, based on a membership of 1,000, is inserted herein. The table is applicable to all contracts, but, under the first contract set out in the answer, the company's profit would be greater than that...