United States v. Cambridge Loan Building Co, 46

• Decision Date: 19 November 1928
• Docket Number: No. 46,46
• Citation: 73 L.Ed. 180,49 S.Ct. 39,278 U.S. 55
• Parties: UNITED STATES v. CAMBRIDGE LOAN & BUILDING CO
• Court: U.S. Supreme Court

278 U.S. 55

49 S.Ct. 39

73 L.Ed. 180

UNITED STATES

v CAMBRIDGE LOAN & BUILDING CO.

No. 46.

Argued Oct. 23 and 24, 1928.

Decided Nov. 19, 1928.

The Attorney General and Mr. T. H. Lewis, Jr., of Washington, D. C., for the United States.

Mr. L. L. Hamby, of Washington, D. C., for respondent.

Mr. Justice HOLMES delivered the opinion of the Court.

This is a suit brought by the respondent to recover the amount of taxes for the years 1918 through 1923, paid under duress, from which it says that it was exempt by the Acts under which the taxes were levied. It recovered in the Court of Claims and a writ of certiorari was granted by this Court, April 9, 1928 (276 U. S. 614, 48 S. Ct. 420, 72 L. Ed. 732).

The respondent is incorporated under the laws of Ohio, by which it is recognized as a building and loan association, and it has conducted its business in accordance with the laws of that State. The Revenue Act of 1918, February 24, 1919, c. 18, § 231, 40 Stat. 1057, 1076, exempts from the taxes is question '(4) Domestic building and loan associations and cooperative banks without capital stock organized and operated for mutual purposes and without profit.' The Act of November 23, 1921, c. 136, § 231, 42 Stat. 227, 253, exempts '(4) Domestic building and loan associations substantially all the business of which is confined to making loans to members; and cooperative banks without capital stock organized and operated for mutual purposes and without profit.' These are the statutes concerned. No definition is given of building and loan associations, and the question is what scope is to be given to the words.

The rudimentary form of such associations is supposed to be a society raising by subscription of its members a fund for making advances to members in order to enable them to build or buy houses of their own. A member is entitled to borrow on sufficient security an amount equal to his subscription for shares and when the shares are paid up by the instalment payments required and the profits of the company his indebtedness is cancelled. The Government argues that the essence of these societies, what gives them their quasi public character and the only thing that warrants exempting them from taxes, is that their single purpose is to enable people to get homes of their own. When one of them yields to the temptation to enlarge its operations and to make a little money outside, the Government says, it loses its title to its distinctive name and to the exemption that the statute gives. The respondent received a large proportion of deposits from persons who were not members and it paid interest upon the same, and it also made considerable loans to such persons until the passage of the Act of 1921. Even when the borrower was a stockholder he was required only to subscribe for from one to five shares regardless of the amount of the loan. It is argued that thus the society became a mere money-making institution like an ordinary bank.

But for such an association to start it must have some money to lend, and the typical member does not have it. Long before Congress dealt with loan and building associations, an esteemed writer upon the subject had insisted on the reasonableness of allowing them to issue full paid stock with fixed dividends, both in his book and upon the bench. Endlich, Building Associations, 2d. Ed. (1895), § 462. Folk v. Capital Savings & Loan Association, 214 Pa. 529, 534, 544, 63 A. 1013 (1906). The same author recognized depositors, § 56, and with more or less qualification the right to lend to outsiders, §§ 314, et seq., and to borrow, §§ 297, et seq. Under the Ohio statute the respondent has these powers, and still, as we have said, is called a building and loan association by that State. The same name was commonly used in other States and similar powers were given with more or less restriction. When Congress exempted such associations from the income tax of course it was speaking of existing societies that commonly were known as such, not of ideals that would have been hard to find. And this...