HALE V. LEWIS, 181 U. S. 473 (1901)

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U.S. Supreme Court

Hale v. Lewis, 181 U.S. 473 (1901)

Hale v. Lewis

No. 151

Argued January 28-29, 1901

Decided May 13, 1901

181 U.S. 473


A statute of Wisconsin required building and loan associations to deposit with the state treasurer securities to a certain amount, to be held in trust for the benefit of local creditors. The receiver of a Minnesota building and loan association, which had made the deposit required by the Wisconsin statute, prayed that such securities might be turned over to him, and the proceeds distributed among all the shareholders of the association, wherever they might reside, upon the ground that the association chanrobles.com-red

Page 181 U. S. 474

had no authority to pledge such securities; that such pledge operated to prefer the Wisconsin shareholders over the other shareholders of the association, and was a violation of the contract clause of the Constitution. The Supreme Court held that the contract clause of the Constitution could not be invoked to release these securities from the operation of the statute, as the stockholders had waived their right to insist upon the constitutional objection by the voluntary act of the board of directors, which was binding upon them, in making the deposit with the state treasurer under the statute. Held: That this was a nonfederal ground broad enough to support the judgment, and the writ of error must be dismissed.

This was a petition filed by Lewis, as subscriber for five shares of stock in the American Building & Loan Association, in the Circuit Court for Dane County, against the American Savings & Loan Association, the treasurer of the State of Wisconsin, and William D. Hale, receiver of the association (subsequently admitted as defendant), to compel the securities of this association, held in trust by the state treasurer, to be sequestrated and distributed among the members and stockholders who are residents of the State of Wisconsin, and for an injunction and receiver as adjuncts to such relief.

The facts of the case as disclosed by the complaint, answer, and counterclaim are substantially as follows:

The American Building & Loan Association was originally incorporated under the laws of Minnesota, April 15, 1887, with its principal office at Minneapolis, where it continued to transact its corporate business until June 26, 1892, when its name was changed to the American Savings & Loan Association, without in any way affecting or altering its corporate rights. The general nature of its business was declared to be

"to assist its members in saving and investing money, and in buying and improving real estate, and in procuring money for other purposes, by loaning or advancing under the mutual building society plan, to such of them as might desire to anticipate the ultimate value of their shares, funds accumulated from the monthly contributions of its stockholders, and also such other funds as may from time to time come into its hands."

The management of its affairs was vested in a board of seven directors, elected by the stockholders. Membership was acquired by taking stock chanrobles.com-red

Page 181 U. S. 475

in the company and paying an admission fee. On July 31, 1888, the association amended its articles by adding thereto that

"the board of directors may sell and dispose of the mortgages held by the corporation whenever they may deem best and as provided by the bylaws."

But no bylaws were ever passed upon this subject, and on July 11, 1889, the articles of incorporation were again amended by declaring that "the board of directors shall not sell or dispose of any of the mortgages held or owned by this corporation."

On April 19, 1889, the Legislature of Wisconsin enacted a law which provided that --

"No foreign building and loan association . . . shall issue its shares, receive moneys, or transact any business in this state unless such association shall have and keep on deposit with the state treasurer of Wisconsin, in trust for the benefit and security of all its members in this state, the securities of the actual cash value of $100,000 of the kind mentioned in section 2 of this act, to be approved and accepted by said state treasurer and held in trust as aforesaid until all shares of such association held by residents of this state shall have been fully redeemed and paid off by such association and until its contracts and obligations to persons and members residing in this state shall have been fully performed and discharged."

Sanborn & Berryman's Stats. sec. 2014a.

At the time the complaint was filed, the association had 246 shareholders in Wisconsin, of whom 162 had become such prior to the enactment of this law, and thereafter, and prior to the appointment of plaintiff in error as receiver, 84 additional residents of the state became shareholders, all under a contract identical with that by which all the shareholders in thirty-four other states became shareholders in the association, and the rights, privileges, immunities, and liabilities of every shareholder, whether residing in Wisconsin or elsewhere, were the same.

A few days after the enactment of the above law, and on May 1, 1889, the board of directors adopted the following resolution:

"Resolved, That the State Treasurer of Wisconsin be made a depository of the association for temporary convenience in complying with the law of Wisconsin in regard to the deposit

Page 181 U. S. 476

of securities, $100,000. Also resolved, That the association comply with the Wisconsin law as soon as possible."

Thereafter, from time to time, without other or additional authority, mortgages taken by the association from its members were delivered to the state treasurer in the aggregate face value of $145,234. The shareholders had no knowledge whatever of the delivery of these mortgages to the state treasurer, nor did they consent or acquiesce in that disposition of them.

On January 14, 1896, the association having become insolvent, the plaintiff in error, William D. Hale, was duly appointed receiver by the District Court of Hennepin County, Minnesota, under the laws of that state.

Subsequent to the appointment of Hale as receiver, and on February 5, 1896, one Melville C. Clarke was appointed receiver for such association for the State of Wisconsin, by the Circuit Court of Dane County, and the state treasurer, who was a party to the proceeding, was ordered by the court to turn over all the mortgages in his possession as treasurer to Clarke as receiver. This was done, and Clarke was proceeding to collect the same for the purpose of distributing the proceeds to the shareholders residing in Wisconsin.

Prior to the appointment of either of these receivers, however, Lewis filed this petition, to which Hale, the Minnesota receiver, was subsequently made a party defendant. He also filed an answer, praying that the Wisconsin receiver, Clarke, turn over to him the mortgages held by him, to be by him, Hale, collected, and the proceeds equitably distributed to all the shareholders of the association, wheresoever they may reside.

Clarke, the Wisconsin receiver, demurred to the counterclaim set up in the answer of Hale, which was sustained, and an appeal was taken from the order sustaining such demurrer to the supreme court, which affirmed the order of the lower court, and remanded the case for further proceedings. Hale, refusing to amend his answer and counterclaim and electing to stand upon the record, judgment was rendered against him for costs, and from this judgment an appeal was taken to the chanrobles.com-red

Page 181 U. S. 477

supreme court, which again affirmed the judgment of the circuit court. Whereupon plaintiff in error sued out this writ.


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