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U.S. Supreme Court

Bedford v. Eastern Building & Loan Ass'n, 181 U.S. 227 (1901)

Bedford v. Eastern Building and Loan Association

No. 163

Argued January 30-31, 1901

Decided April 22, 1901

181 U.S. 227


The Building Association, a corporation organized under the laws of New York, was authorized by law to make advances to its members. The statutory provisions regarding such advances and the securing of the same are stated in the opinion of the Court. Bedford, a resident in Tennessee, became a shareholder by subscription to the stock, and by payment therefor. The statutes of Tennessee authorized the corporation to do business in that state. Bedford, after subscribing to the stock, paid his subscription, and on his application secured a loan from the corporation and mortgaged his property to secure it. All this was authorized by the statutes of Tennessee at the time when it was done. Subsequently a new statute was enacted, the provisions in which are set forth in the opinion of the Court, and an act was passed concerning building associations, the parts of which thereof, relating to foreign building associations, are also set forth in the opinion of the Court. The Building Association subsequently filed its charter with the Secretary of State of Tennessee, and an abstract of the same in the office of the Register of Shelby County, but it did not comply with the building association laws. Bedford defaulted in his payments on the notes, and the association filed a bill in equity in the United States circuit court to foreclose the mortgage, and

collect the amount due under his contract. Bedford answered that chanrobles.com-red

Page 181 U. S. 228

the notes and mortgage violated the laws of Tennessee, and were void.


(1) That Bedford's subscription to the stock of the association, its issuance, and the application of a loan in pursuance of it constituted a contract, which is inviolable by the state legislature.

(2) That by his subscription to the stock of the association, Bedford became a member of it, bound to the performance of what its bylaws and charter required of him, and entitled to exact the performance of what the bylaws and charter required of the association.

This Court recognizes the power of a state to impose conditions upon foreign corporations doing business within the state, but that cannot be exercised to discharge the citizens of the state from their contract obligations.

This suit was brought in the Circuit Court of the United States for the Western District of Tennessee by respondent to foreclose a mortgage executed by petitioners. A decree was entered in favor of the respondent. 88 F. 7. There was an appeal taken to the United States Circuit Court of Appeals for the Sixth Circuit. From that court the case came here on certificate. Subsequently a writ of certiorari was issued.

The following are some of the material facts contained in the statement of the circuit court of appeals. Other facts will be stated in the opinion:

"The Eastern Building & Loan Association of Syracuse, New York, is a corporation organized under the laws of the State of New York for the purpose and with the power of conducting a general building association business in New York and other states. Its plan of organization is similar to that generally adopted by such associations. Subscribers to its stock pay $1 initiation fee for each share of $100, and seventy-five cents per month as dues on each share, and certain fines on default, and when the whole amount of dues and dividends paid in amounts to $100, the holder is entitled to withdraw the same. Borrowing members receive par value of their shares in advance, and secure their compliance with requirements as to dues, fines, and interest by mortgage or otherwise. Prior to March 26, 1891, the association had a soliciting agent in Memphis, Tennessee, whose duty it was to solicit persons to become members of the association and to subscribe to its stock. The agent had no authority

Page 181 U. S. 229

to accept applications for membership or subscriptions for stock, but only the authority to transmit them by mail to the office of the company in Syracuse, New York, where they were accepted or rejected by the board of directors of the association. Three months after a person had subscribed for stock and the stock had been issued to him, he was, by the bylaws of the association, permitted to apply for an advance of the nominal par value of his shares, or, in effect, a loan. This application was forwarded through the soliciting agent to the company at Syracuse, together with the certificate of stock, already issued, as a pledge and a statement of the value of the property which it was proposed to mortgage to secure the loan. The application was accompanied by a recommendation of what was called 'the local board' in regard to the wisdom of the loan. The local board consisted of certain stockholders of the association living at the applicant's place of residence, who had been elected by all the resident stockholders, and whose duty it was to advise the association at Syracuse concerning the value of the property offered and the character of the applicant. The local board had officers, one of whom was a treasurer, through whom members might, if they desired, forward payments due to the association at Syracuse; but the bylaws stated that in so doing the local treasurer was acting as agent for the stockholders, and not for the association. Another bylaw provided that all payments should be made to the secretary of the association at the home office, in registered letter, express or money order, or drafts."

On the second day of January, 1891, H.L. Bedford, one of the petitioners, then being a resident of Shelby County, Tennessee, made application, in due form and under seal, to become a member of the association, and subscribed for forty-six shares of installment stock. He delivered the application to the soliciting agent of the association at Memphis, to be forwarded to Syracuse. He agreed in the application "to abide by all the terms, conditions, and bylaws contained or referred to in the certificate of shares," and to comply with the rules and regulations of the association, and he appointed the secretary of the association as proxy to appear and vote on his shares. chanrobles.com-red

Page 181 U. S. 230

On the second of February, 1891, the certificate of stock was issued by the association and sent to its soliciting agent at Memphis, who, a few days later, handed it to Bedford. The certificate was numbered 4,773, and stated the number of shares to be forty-six, and the amount $4,600; date of maturity, August 1, 1897. It certified that Bedford was thereby constituted a member of the association and holder of forty-six shares therein of $100 each. "The terms, conditions, and bylaws printed on the front and back" of the certificate were made part of the contract, and it was stated "that this certificate of shares is issued to and accepted by the holder thereof upon the following express terms and conditions."

These conditions were substantially as follows:

The payments of a monthly installment of seventy-five cents on each share until it matures or is withdrawn; a fine of ten cents per share per month for each month if the payment of the installment shall be in arrears; declaring the stock nonforfeitable; providing for its sale at auction if the monthly installments due thereon be in arrears for six months or more, and providing for the application of the proceeds of the sale to the payment of such installments and accrued fines; the balance remaining, if any, to be paid to the member in whose name the stock stands at the time of sale.

"If the stock brings no more than enough to pay the accrued fines and monthly payments, it shall be bid in by the association and cancelled, and the amount standing to the credit thereof in the loan fund shall be divided among the other shares as profits."

Further conditions of the stock were

"(4) that members could withdraw their monthly installments at any time by giving thirty days' notice, and to receive six percent annual interest on all shares of six months' standing and up to two years; the third year, seven percent; any time after the third year and before maturity, eight percent; (5) if a shareholder died, his personal representative could continue or withdraw his share; (6) at stated periods, the profits arising from interest, premiums, fines, and other sources shall be apportioned among the shares in good standing; (7) all payments were required to be paid to an authorized agent, or sent to the secretary at the home office;

Page 181 U. S. 231

(8) reservation of a right in the association to make investigation prior to approval of claims; '(9) 'the bylaws of this association, which are attached to and indorsed hereon, are a part of this contract, and such bylaws and this certificate are to be construed together as part of the contract between the association and the shareholder;' (12) no shareholder to have an interest in the affairs, assets, or funds of the association except as above stated, or to assume liability except as hereafter described; (13) upon the cessation or determination of the contract, all payments made thereon shall become forfeited to the association; (14) actions to be brought within six months after filing proofs in the County of Onondaga, in the State of New York; (15) 'no agent has authority to change this contract, and the association assumes no liability for any statements not contained in its printed literature."

The certificate concluded as follows:

"Given under the seal of said association at Syracuse, New York, the second day of Feby., A.D. 1891."

"H. H. Loomis, President"

"[L. S.] Jno. W. Reynolds"

"Secretary and Gen'l Manager"

On the 20th of March, 1891, Bedford made an application for a preference for an advance, which was forwarded through the same soliciting agent to Syracuse. Bedford described in detail the real estate upon which he proposed to give the association a mortgage. This application was approved May 18, 1891, by the board of directors at Syracuse. Bedford then applied on June 20 for the loan in the letter following:

"Application for an Advance"

"To the Board of Directors of the Eastern Building & Loan Association of Syracuse, N.Y."

"Gentlemen: At a regular meeting of your board held May 18, 1891, having obtained the preference for an advance on forty-six shares of No. 4,773 of your association at a premium of ten percent, I now respectfully request the advance be granted. I hereby agree to comply with the charter and

Page 181 U. S. 232

bylaws of your association and all requirements defined by your committee of the board of directors."

"H.L. Bedford, Applicant"

"Witness: J. H. T. Martin"

This letter was accompanied by a mortgage to the association, duly executed and acknowledged by Bedford and wife before a notary in Shelby County, Tennessee, of the land in that county previously tendered as security. The mortgage had been duly recorded in Shelby County.

The defeasance clause of the mortgage recited, among other things, that the

"grant is intended as security for the payment of the sum of fifty-six hundred eighty-three and 8/100 dollars, the same being the principal, interest, and premium of a loan from said association, which said loan was made pursuant to and accepted under the provisions of the bylaws of said association, and which said bylaws have been read by the mortgagor, H.L. Bedford, and are made a part of this contract, which said loan is evidenced and secured to be paid by seventy-eight (78) certain promissory notes of even date herewith, executed by the said H.L. Bedford, payable to the said association at its office in Syracuse as follows: one of each of said notes to be paid on or before the last Saturday of each and every month until all of said seventy-eight notes are fully paid, together with the interest, and each of said notes after maturity at the rate of six (6) percent per annum, payable semiannually, until said notes are fully paid. And the said mortgagor, H.L. Bedford, for himself and his heirs, executors, administrators, and assigns, hereby covenants and agrees with the party of the second part, its successors and assigns, to pay said principal, interest, and premiums at maturity and the interest accruing on said notes after maturity, and all fines and penalties that may be imposed pursuant to the provisions of the constitution and bylaws of said association, and also to keep and perform all promises and engagements made and entered into with said association according to the true intent and meaning of its bylaws and articles of association. . . . "

Page 181 U. S. 233

The seventy-eight notes were all of the same tenor, mutatis mutandis, as the following:

"On or before the last Saturday of June, 1893, I promise to pay seventy-two and 86-100 dollars ($72 86/100) to the order of the Eastern Building & Loan Association at its office in Syracuse, N.Y. Value received."

"Bailey, Tenn. May 1, 1891 H.L. Bedford"

The business of the association in Tennessee had been lawful down to March 26, 1891, when the following act passed by the Legislature of Tennessee went into effect:


"An Act to Amend Chapter 31 of the Acts of 1877, Declaring the Terms on Which Foreign Corporations Organized for Mining or Manufacturing Purposes May Carry on their Business and Purchase, Hold, and Convey Real and Personal Property in this state, So as to Make the Provisions of Said Act Apply to all Foreign Corporations that May Desire to Own Property or to Do Business in this state."

"SEC. 1. Be it enacted by the General Assembly of the State of Tennessee, That chapter 31 of the Acts of 1877 be so amended and enlarged as that the provisions of said act shall apply to all corporations chartered or organized under the laws of other states or countries for any purpose whatsoever, which may desire to do any kind of business in this state."

"SEC. 2. Be it further enacted that each and every corporation created or organized under or by virtue of any government other than that of this state, for any purpose whatever, desiring to own property or carry on business in this state, of any kind or character, shall first file in the office of the secretary of the state a copy of its charter, and cause an abstract of same to be recorded in the office of the register in each county in which such corporation desires or proposes to carry on its business or to acquire or own property, as now required by section 2 of chapter 31 of Acts of 1877."

"SEC. 3. Be it further enacted that it shall be unlawful for any foreign corporation to do or attempt to do any business, or

Page 181 U. S. 234

to own or acquire any property in this state, without having first complied with the provisions of this act, and a violation of this statute shall subject the offender to a fine of not less than $100 nor more than $500 at the discretion of the jury trying the case."

"SEC. 4. Be it further enacted that when a corporation complies with the provisions of this act, it shall then be, to all intents and purposes, a domestic corporation, and may sue and be sued in the courts of this state, and subject to the jurisdiction of the courts of this state, just as though it were created under the laws of this state."

"SEC. 5. Be it further enacted that when such corporation has no agent in this state upon whom process may be served by any person bringing suit against such corporation, then it may be proceeded against by an attachment to be levied upon any property owned by the corporation, and publication, as in other attachment cases. But for the plaintiff to obtain an attachment, he, his agent, or attorney, need only make oath of the justness of his claim, that the defendant is a corporation organized under this act, and that it has no agent in the county where the property sought to be attached is situated upon whom process can be served."

"SEC. 6. Be it further enacted that said chapter 31 of the Acts of 1877, except insofar as the same is amended, enlarged, and extended by this act, be and the same is declared to be in full force."

"SEC. 7. Be it further enacted that this act take effect from and after its passage, the public welfare requiring it."

"Passed March 21, 1891."

Upon the same date, an act was passed concerning building associations. The part thereof relating to foreign building associations was as follows (Chapter 2 of the Acts of 1891):

"SEC. 3. Be it further enacted that no building and loan association organized under the laws of any other state, territory, or foreign government shall do business in this state unless said association shall (deposit and continually thereafter) keep deposited in trust for all of its members and creditors, with some responsible trust company, or with some state officer of

Page 181 U. S. 235

this or some other State of the United States, mortgages (or other securities) received by it in the usual course of its business amounting to not less than twenty-five thousand ($25,000) dollars nor more than fifty thousand ($50,000) dollars at the discretion of the state treasurer. All of the personal obligations of its members taken in the ordinary course of business of such association and secured on first mortgage on real estate, all dividends and interest which may accrue on securities held in trust, as aforesaid, by the trust company or the state, as provided herein, and all dues or monthly payments which may become payable on stock pledged as security for loans, the mortgages for which are on deposit in accordance with the provisions of this act, may be collected and retained by the association depositing such securities or mortgages so long as such association remains solvent and faithfully performs all contracts with its members. Any securities on deposit, as provided herein, may from time to time be withdrawn if others of equal value are substituted therefor. Every building and loan association organized under the laws of any state, territory, or foreign government shall, before commencing to do business in this state --"

"First. File with the treasurer of this state a duly authenticated copy of its charter or articles of corporation."

"Second. File with the treasurer of this state the certificate of the proper state officer of another state or the president and treasurer of some responsible trust company, certifying that it has on deposit securities, not less than $25,000, taken in the regular course of business as mentioned in this act, in trust for all the members and creditors of such building and loan association."

"Third. File with the state treasurer a duly authenticated copy of a resolution adopted by the board of directors of such association stipulating and agreeing that, if any legal process affecting such association be served on said state treasurer, and a copy thereof be mailed, postage prepaid, by the party procuring the issuing of the same, or his attorney, to said association, addressed to its home office, then such service and mailing of such process shall have the same effect as personal service on said association of this state. "

Page 181 U. S. 236

"Fourth. Pay the state treasurer twenty-five ($25) dollars as fees for filing the papers mentioned in this section."

"SEC. 7. Be it further enacted, no officer, director, or agent of any foreign building and loan association shall, in this state, solicit subscriptions to the stock of such association, or sell, or knowingly cause to be sold or issued, to a resident of this state, any stock of an association while said association has not on deposit securities as required by section 3 of this act, or before said association has complied with all the provisions of this act. License to agents of such companies or associations shall be issued by the treasurer annually, on the first of January, and said treasurer is authorized to collect from each agent for said license $2 fee. Any violation hereof shall be deemed a misdemeanor, and upon conviction shall be punished by a fine of not less than ten dollars or more than fifty dollars."

The association filed its charter with the Secretary of State of Tennessee on the 11th day of August, 1893, and filed an abstract of the same in the office of the register of Shelby County on August 15, 1893. The association did not comply with the building association laws quoted above in any respect.

There is no evidence that the association solicited stock subscriptions after March 26, 1891, but it does appear that it made several loans of the same kind as the Bedford loan upon stock already subscribed for after that date.

The Supreme Court of Tennessee has decided that notes and a mortgage executed under similar circumstances and made payable in Minnesota are Minnesota contracts, but that they are nevertheless void in Tennessee, and cannot be enforced in the courts of Tennessee. United States Savings and Loan Company v. Miller, 47 S.W. 17, affirmed on appeal by the Supreme Court of Tennessee, December 18, 1897, without written opinion.

Bedford defaulted in his payments on the notes, and the association filed a bill in equity in the Circuit Court of the United States for the Western District of Tennessee to foreclose the mortgage and collect the amount due under his contract. The defendant Bedford answered, averring that the notes and mortgage chanrobles.com-red

Page 181 U. S. 237

were in violation of the above-quoted laws of Tennessee, and were void, and could not be enforced.


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