Chattanooga Nat’l Bldg. & Loan Ass’n v. Denson, 189 U.S. 408 (1903)

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Chattanooga National Building and Loan Association v. Denson

No. 206

Submitted March 12, 1903
Decided April 27, 1903
189 U.S. 408

CERTIORARI TO THE CIRCUIT COURT OF

APPEALS FOR THE FIFTH CIRCUIT

Syllabus

The highest court of Alabama has held that, under the constitutional and statutory provisions of that state, any act in the exercise of its corporate functions is forbidden to a foreign corporation which has not complied with the constitution and the statute in regard to filing instrument designating agent and place of business, and that contracts resulting from such acts are illegal, and cannot be enforced in the courts.

Held that this applied to a building and loan association of Tennessee making a loan in Tennessee secured by certain shares of its own stock and also by mortgage on certain real estate in Alabama, and that, although the association bad complied with certain provisions of the law, the fact that it had not designated an agent as required by the constitution and statutes was a bar to the foreclosure of the mortgage in the courts of Alabama.

Suit to foreclose a mortgage given by the respondents to the petitioner to secure a note for the sum of $5,000, given as evidence of a loan made by petitioner to respondents. The petitioner is a building and loan association, and a corporation of the State of Tennessee; the respondents are citizens of Alabama. One of the defenses of respondents is that the transactions were illegal because petitioner had not complied with the laws of Alabama in regard to foreign corporations doing business in the state. This is the only defense with which we are concerned. The circuit court rendered a decree foreclosing the mortgage, which was reversed by the circuit court of appeals, and the bill was directed to be dismissed. 107 F. 777. The case was then brought here by certiorari.

The Constitution of the State of Alabama provides as follows:

4. No foreign corporation shall do any business in this state without having at least one known place of business, and an authorized agent or agents therein, and such corporation may be sued in any county where it does business by service of process upon an agent anywhere in this state.

Constitution Alabama, Art. XIV.

The material parts of the Code of the state, passed in execution of the Constitution, are as follows:

1316. Foreign corporation must file instrument of writing designating agent and place of business in this state. -- Every corporation not organized under the laws of this state shall, before engaging in or transacting any business in this state, file an instrument of writing, under the seal of the corporation and signed officially by the president and secretary thereof, designating at least one known place of business in this state and an authorized agent or agents residing thereat, and when any such corporation shall abandon or change its place of business as designated in such instrument, or shall substitute another agent or agents for the agent or agents designated in such instrument of writing, such corporation shall file a new instrument of writing as herein provided, before transacting any further business in this state.

Code Alabama, 1896.

1318. Unlawful for foreign corporation to transact business in this state before declaration filed; penalty. -- It is unlawful for any foreign corporation to engage in or transact any business in this state before filing the written instrument provided for in the two preceding sections, and any such corporation that engages in or transacts any business in this state without complying with the provisions of the two preceding sections shall, for each offense, forfeit and pay to the state the sum of one thousand dollars.

1319. Unlawful to act as agent of foreign corporation before such declaration is filed; penalty. -- It is unlawful for any person to act as agent or transact any business, directly or indirectly, in this state, for or on behalf of any foreign corporation which has not designated a known place of business in this state and an authorized agent or agents residing thereat, as required in this article, and any person so doing shall, for each offense, forfeit and pay to the state the sum of five hundred dollars.

There was no point made on the bylaws of the association, and by agreement they were omitted from the record on appeal to the circuit court of appeals, and are also omitted here. And it was also stipulated

that the complainant is a corporation chartered and organized under and in accordance with the public statutes of the State of Tennessee, authorizing the creation of corporations for carrying on the business of building and loan associations; that its principal office and place of business is, and was at the time the loan involved in this case was made, and has ever since continuously been, in the City of Chattanooga, State of Tennessee, and that the loan to defendant, William H. Denson, involved in this case was made in accordance with the power and authority conferred on complainant by its charter, and in the manner prescribed by its bylaws.

The note executed by respondents was as follows:

$5,000.00 Chattanooga, Tennessee, June 10, 1895

On or before nine years from date, I promise to pay the Chattanooga National Building and Loan Association at its home office, Chattanooga, Tennessee, five thousand dollars with interest on the sum of twenty-five hundred dollars at the rate of six percent per annum, payable monthly.

* * * *

It is further understood that this note is made with reference to and under the laws of the State of Tennessee, and if paid before seven years from this date, such rebate from the premium included herein will be allowed as the board of directors of said association shall deem equitable.

The omitted part recited that the note was for money borrowed on fifty shares of stock, and expressed certain conditions of the nonpayment of the note when due, or the nonpayment of premiums or assessments, and also expressed the right of petitioner, in case of such nonpayments, to collect the debt, though not due, and to foreclose the mortgage. The mortgage covered lots in the City of Gadsden, Elowah County, State of Alabama. It repeated the note and its conditions, and contained others. The facts connected with the execution of the note and mortgage are stated by the circuit court of appeals as follows:

The complainant below, the Chattanooga National Building & Loan Association, is, and was at the time the loan to Mr. Denson was made, a corporation under the laws of the State of Tennessee, with its principal office in the City of Chattanooga in that state. Among its corporate functions was the authorization, and, so far as we are advised, its sole business was, to loan its funds to its stockholders on real estate security. It had no local office or agent in Alabama, but it had a traveling agent whose business it was to solicit subscriptions to its stock, and to obtain applications for loans and submit the same to the home office of the association at Chattanooga.

On the 25th of April, 1895, appellant, Denson, who was a resident of Gadsden, Alabama, on the suggestion and at the solicitation of the agent, signed at that place a written application for fifty shares of stock in the association, complainant below, appellee in this Court. This application was forwarded by the agent, to whom Mr. Denson delivered it, to the home office, where the stock was issued and returned to the agent, to be by him delivered to Mr. Denson. On the same day on which he applied for his stock, Mr. Denson signed a written application to the association for a loan of $2,500 on the fifty shares of stock he had applied for. He offered a premium of $2,500 for the loan, and proposed to secure the loan and premium, if his application should be granted, by a mortgage on certain real estate in Gadsden, Alabama, which he represented to be of the value, in all, of about $9,000. This application was accompanied by the report of two parties, selected by the association, fixing the value of the property which Denson proposed to mortgage at $8,000, and the certificate of an attorney, also selected by the association, with reference to the condition of the title. This application was forwarded by the agent to the home office in Chattanooga, where it was submitted, along with other applications, to the board of directors, by whom the application was granted and the loan directed to be made in accordance with the charter and bylaws of the association. Thereupon a note and deed of trust were prepared at the home office and were sent to the agent by whom Mr. Denson’s application had been taken and forwarded, and at the same time the check of the association of the Chattanooga National Bank of Chattanooga, Tennessee, in favor of W. H. Denson for the sum of $2,367.50 was sent to one D. P. Goodhue, of Gadsden, with instructions to him to deliver said check to Mr. Denson when he should have executed and delivered the note and deed of trust. Upon the execution of the note and deed of trust by Denson and wife, and the delivery of the same to the agent, all at Gadsden, Alabama, the agent delivered to Denson the check for $2,367.50, directing him to present the same to the First National Bank of Gadsden, which would pay the same. The check was presented to the said bank, and the face thereof paid over to Denson, as the cashier said,

under an understanding with the said building and loan association and that the Chattanooga National Bank, on which the check was drawn, would pay the same on presentation.

And the following testimony of the secretary of the association was quoted:

At the time the loan to defendant Denson was made, complainant association had been for some time soliciting subscriptions to stock, and receiving applications for loans, in the State of Alabama, and had paid a tax, or license fee, required under the laws of the State of Alabama, for foreign corporations proposing to do business in that state, and complainant’s officers supposed and understood that the payment of this fee or tax was the only condition with which it was necessary for them to comply in order to be entitled to do business in that state. Subsequently, however, and some months after the loan to defendant Denson was made, complainant was informed by an attorney in the State of Alabama that the Alabama statutes required foreign corporations doing business in Alabama to designate a local agent, on whom process against the association could be served, and also a local place of business in that state. Thereupon complainant promptly designated such local agent and place of business, and continued up to the second of October, 1899, to pay the license tax, or fee, required of nonresident corporations doing business in Alabama, and to keep a local agent and place of business in that state.