State v. Tuscaloosa Building & Loan Ass'n

• Decision Date: 17 January 1935
• Docket Number: 6 Div. 672
• Parties: STATE et al. v. TUSCALOOSA BUILDING & LOAN ASS'N.
• Court: Alabama Supreme Court

161 So. 530

230 Ala. 476

STATE et al. v. TUSCALOOSA BUILDING & LOAN ASS'N.

6 Div. 672

Supreme Court of Alabama

January 17, 1935

Rehearing Denied Feb. 21, 1935

Further Rehearing Denied June 6, 1935

Appeal from Circuit Court, Tuscaloosa County; Henry B. Foster Judge.

Action by the State of Alabama, for the use of itself and others against the Tuscaloosa Building & Loan Association. From a judgment for defendant, plaintiffs appeal.

Reversed and rendered.

A.A Carmichael, Atty. Gen., Frontis H. Moore, Asst. Atty. Gen., Matt H. Murphy, Sp. Asst. Atty. Gen., and Edw. de Graffenried and A.A. Van de Graff, both of Tuscaloosa, for appellants.

Harwood & McQueen, of Tuscaloosa, and Bradley, Baldwin, All & White and Borden Burr, all of Birmingham, for appellee.

Stokely, Scrivner, Dominick & Smith, of Birmingham, amici curiae.

KNIGHT Justice.

The state of Alabama, for the use of itself and of Tuscaloosa county, and of Archie Leland, as license inspector of Tuscaloosa county, brought this suit against the Tuscaloosa Building & Loan Association to collect state and county license taxes, penalties, and fees, for the years 1926, 1927, 1928, 1929, 1930, and 1931. The license tax year began on October 1st, in each of said years, and ended on September 30th of the succeeding year.

No question is presented upon the pleadings, and the cause was tried upon an agreed statement of facts. Included in the agreed statement of facts are the declaration of incorporation of the defendant, and the by-laws and amendments thereto of the association.

The court rendered judgment on the agreed statement of facts in favor of the defendant, and from this judgment the present appeal is prosecuted.

On this appeal but a single question is presented, and that is, Was the defendant, appellee here, during said years engaged in the business of lending money, within the meaning of schedule 122, Revenue Code of Alabama; Gen.Acts 1919, p. 419, § 361, schedule 70?

It appears from the agreed statement of facts that the appellee, during the entire period for which the license or privilege taxes were sought to be recovered, conducted its business "strictly in accordance with the laws of Alabama governing building and loan associations, and in strict accordance with its charter and by-laws."

It appears that appellee made no loans during said period, except to persons "who held, or, at the time of the loan, purchased its stock."

That applications for loans or advances were received from persons not members or stockholders of the association is admitted, but no loans to such persons were made until such applicants subscribed for shares of stock equal in par value to the amount of the loan or advance applied for.

It was further agreed that:

"All loans or advances of money which have ever been made by the defendant (appellee), from the time of its incorporation up to the present time, have been made under the following circumstances and conditions:

"(a) If the applicant for a loan or advance was, at the time of his application, a member of the association and an owner of a share, or shares, which were fully paid up, such member was entitled, as a matter of right, to a loan or advance of a sum of money out of available funds equal to ninety per cent of the par value of such share, or shares, of such paid up stock owned by him, upon the execution and delivery by him to the defendant of his note secured by the hypothecation to the defendant of such paid up share, or shares.

"(b) If an applicant for a loan or advance was, at the time of his application, a member of the association and the owner of, or subscriber for, a share, or shares, of stock which had not been fully paid for, such member was

entitled as a matter of right to have advanced to him, out of available funds, ninety per cent of the amount, if any, which he had paid upon the purchase price of his share, or shares, upon the execution and delivery by him to the defendant of his note secured by the hypothecation by him to the defendant of the share or shares of stock which he owned in the association.

"(c) If an applicant for a loan or advance of money was not a member of the association and the owner of any share, or shares, of stock of the defendant, at the time he applied for his loan or advance, he was not entitled to a loan or advance, and no loan or advance would be made to him unless and until he subscribed for a share, or shares, of stock equal in par value to the amount of the loan or advance applied for, and then only upon his additionally securing the same by an adequate first mortgage upon real estate owned by him, on which there already existed, or on which there was to be constructed by such owner by use of the money loaned or advanced, a dwelling house, together with an instrument hypothecating the stock so purchased, or subscribed for. Such applicant by subscribing for stock, as required, became a member and shareholder of the association and entitled to all the rights and privileges of a stockholder, including the right to vote. A certificate of stock was issued to him for the full amount subscribed for and purchased, which certificate was endorsed in blank and delivered to the defendant as security for the so-called loan or advance.

"In any case in which a loan or advance was secured by stock which had not been fully paid for, and the purchase price of which was payable to the defendant in installments, the member receiving such loan, or advance, paid interest on the unpaid balances of such purchase price and/or loan or advance, and received credit of a dividend out of the earnings of the association, upon installments paid by him, as provided in the by-laws of the defendant."

It was further agreed:

"13. During a period of time commencing prior to October 1st, 1926, and continuing to the present time, the defendant was engaged in the conduct of its business, as hereinabove described, in the City of Tuscaloosa, Alabama, including the making of loans or advances to its members or shareholders in the manner and under the circumstances hereinabove set forth.

"14. The earnings of defendant are derived from interest upon loans or advances due from, and paid by, its members, secured by mortgages on real estate and/or shares of defendant's stock, interest on time deposits in banks, and from the re-sale of real estate. Each member or shareholder who pays interest upon a loan or advance receives, upon the installments paid by him thereon, dividends out of net earnings of defendant in the percentages provided by the defendant's by-laws according to the class or classes of stock such member has subscribed for, and had issued to him.

"15. A major portion of earnings of defendant, excluding proceeds derived from the sale of shares of its stock, not understood to be earnings but paid in capital, in each of the years during the time from January 1st, 1926, to the present, was derived from the collection of interest on sums of money loaned or advanced by defendant to its members and secured by mortgages on real estate, and the hypothecation to defendant of the stock in manner and form as hereinabove set forth. In each of said years money was loaned or advanced to its members, secured by the hypothecation of defendant's stock, on which loans or advances defendant collected interest. If the income derived from the sale of defendant's shares of stock were included as earnings, the interest upon such sums loaned or advanced to its members would not be the major portion of the income or earnings received by defendant.

"16. During none of said years did defendant take out or have any license as a 'corporation whose principal business is lending money.' Revenue Code of Alabama, page 282, Schedule 122. The defendant was cited by Archie Leland, License Inspector for Tuscaloosa County, for non-payment of such license for the license years mentioned in the complaint. During each of said years defendant, through its agents, or officers, solicited persons to buy its stock and become members and thereafter to obtain loans or advances from it, in manner and form above described. Defendant also advertised to such end.

"No building and loan association in Alabama, organized and existing under the laws of Alabama, has ever been called upon to pay, nor has any such association ever paid, the license or tax sued for in this action. The defendant, within the time, and in the manner provided by law, has heretofore paid all fees and charges due to be paid by it as required of building and loan associations under the Act of the Legislature of Alabama approved August 26, 1927, and under the Act of the Legislature of Alabama approved April 9, 1931."

And it fully appears from the agreed statement of facts that, during each of said years, "the defendant, through its agents, or officers, solicited persons to buy its stock and become members and thereafter to obtain loans, or advances from it, in manner and form above described. Defendant also advertised to such end."

From the foregoing, it appears that a major portion of earnings of defendant, excluding proceeds derived from the sale of shares of its stock, not understood to be earnings, but paid-in capital, in each of the years from January 1, 1926, to the present, was derived from the collection of interest on sums of money loaned or advanced by the defendant to its members and secured by mortgages on real estate, and the hypothecation to the defendant of the stock.

Under the head "Loan Fund," sections 3 and 4 of article IX of the defendant's by-laws read:

"Section 3. The funds of this association shall be loaned to its members on such terms and plans and at such rates of interest as may be fixed by the board of directors of this...