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
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
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
Page 181 U. S. 477
supreme court, which again affirmed the judgment of the circuit
court. Whereupon plaintiff in error sued out this writ.
MR. JUSTICE BROWN delivered the opinion of the Court.
While no motion was made to dismiss this case, the question of
jurisdiction arising from the alleged want of a federal question is
elaborately discussed by counsel in their briefs, and has received
our attentive consideration.
The original complaint by Lewis against the Building & Loan
Association and the state treasurer makes no reference to such
question, and merely prays for relief under the state statute and
for a distribution of the local assets among the local
stockholders. The answer of the state treasurer admits the main
allegations of the bill, and apparently accedes to the position of
the plaintiff. The answer and counterclaim of Hale, the Minnesota
receiver, who was subsequently admitted as defendant, sets up no
conflict between the Wisconsin statute and the federal
Constitution, but denies the authority of the association of
pledge, transfer, or dispose of any of its mortgages, which were
delivered to the state treasurer without authority; asserts that
the assets of the association, including the mortgages in the
possession of Clarke, are not sufficient to pay all the
shareholders in full, and that, if Clarke, the Wisconsin receiver,
shall collect the mortgages in his possession and distribute the
same to the Wisconsin shareholders, they will receive their pay in
full, and thereby be constituted a preferred class against equity
and good conscience, and contrary to the purposes of the
association as defined by its articles, and finally,
"that the law under which it is alleged said mortgages were
deposited was intended to protect said Wisconsin shareholders in
all their rights growing out of their membership in said
association, and not for the purpose of extending, altering, or
Page 181 U. S. 478
changing said rights; that the purpose for which any deposit
made by said association with said state treasurer under said law
was made terminated and was at an end when said association became
insolvent and incapable of carrying out its contracts and
effectuating the purpose of its being."
To this answer and counterclaim Clarke, the Wisconsin receiver,
as well as Lewis, the plaintiff, demurred for insufficiency. The
demurrer was sustained, and the defendant Hale given leave to
amend. Instead of amending, Hale took an appeal to the supreme
court from the orders sustaining the demurrer.
Upon this appeal, the supreme court held that the principal
question presented was as to the construction, validity, and effect
of the law of Wisconsin requiring such associations to make a
deposit of securities as a condition to doing business, and decided
first that the mortgages in dispute were deposited with
the state treasurer by the corporation in a
bona fide
attempt to comply with the Wisconsin law; that it was its duty and
within the power of its directors to make such deposits, as a
condition precedent to the right to do business in Wisconsin; that
the recognition of the existence of a corporation by any other than
the state of its creation depends purely upon the comity of such
other state or states; that the power to exclude such corporations
embraces the power to regulate them, and that this doctrine was
conclusive as to the validity of the pledge of the securities in
question under the Wisconsin statute, and was also within the power
of the corporation, and not in violation of the trust reposed in
the board of directors. And
second, that whatever the view
taken of the rights and relations of the entire body of
stockholders as between themselves and the corporation, 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 in making the deposit with the state treasurer under the
statute. Said the court:
"Whatever the practical result of the enforcement of the trust
in favor of Wisconsin shareholders, creditors, and others
sustaining contractual relations with the corporation defendant may
be, it rests, as we think and as we
Page 181 U. S. 479
hold, upon the consent of the corporation and of its
shareholders lawfully given, as it well might be in the present
case, by and through its board of directors, for a valid
consideration received by the corporation to the benefit and
advantage of those now denying its validity."
The orders appealed from were affirmed, and the case sent back
to the circuit court. Hale refusing to amend and electing to stand
on the record, judgment went against him for costs. He appears to
have carried the case again to the supreme court, and for the first
time assigned as error the repugnancy of the statute to the
Constitution of the United States. Judgment was again affirmed.
Passing the question whether a party who failed to set up a
federal question in his original pleadings, or upon his first
appeal to the supreme court, and subsequently declines to amend,
and only sets such question up in an assignment of errors on a
second appeal, after the question had been practically disposed of
by the supreme court, does not lay himself open to the objection so
often sustained by us that a party cannot raise a federal question
for the first time on a motion for a rehearing,
Union Mutual
Life Ins. Co. v. Kirchoff, 169 U. S. 103,
169 U. S. 113;
Yazoo & Mississippi Valley Railway Co. v. Adams,
180 U. S. 1, it is
clear that the supreme court disposed of the case upon a nonfederal
ground broad enough to support the judgment. It held in substance
that, conceding the law to be unconstitutional, the corporation is
estopped to set up its invalidity by the action of the board of
directors in depositing securities with the state treasurer under
the Wisconsin statute, that such action was within the power of the
board, was binding upon the stockholders, and that such deposit,
having been made subject to the condition that the securities shall
be held
"in trust for the benefit and security of all its members in
this state, . . . 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,"
the stockholders as well as the corporation were estopped to
claim that such condition was invalid.
Page 181 U. S. 480
The case is completely covered by that of
Eustis v.
Bolles, 150 U. S. 361.
This was an action to recover the residue of a note, the holder
having received one-half of the amount under certain insolvency
proceedings in Massachusetts. Defendants pleaded the proceedings in
insolvency, an offer of composition, its acceptance by plaintiff
and the receipt of the amount coming to him under the composition.
Plaintiff demurred, and insisted that the statute, which has been
enacted after the note has been executed, impaired the obligation
of his contract. The Supreme Court held that the action of
plaintiff in accepting his dividend under the insolvency
proceedings was a waiver of his right to object to the validity of
the statute. Upon writ of error from this Court, we held that, in
deciding that it was competent for plaintiff to waive his legal
rights, and that accepting his dividend under the insolvency
proceedings was such a waiver, the court did not decide a federal
question, and the writ of error was dismissed, citing
Beaupre
v. Noyes, 138 U. S. 397.
See also Electric Co. v. Dow, 166 U.
S. 489;
Pierce v. Somerset Railway,
171 U. S. 641;
Seneca Nation v. Christy, 162 U.
S. 283.
The case differs from the one under consideration only in the
fact that, in this case, there was a further question whether the
waiver was binding not only upon the corporation, but upon its
stockholders. That question involved the construction of the
Minnesota statute, but no federal right.
See also Moran v.
Horsky, 178 U. S. 205, in
which a defense under the laws of the United States was held by the
Supreme Court of Montana to have been waived by the laches of the
plaintiff. This was also held to be a nonfederal ground sufficient
to support the judgment, and the writ of error was dismissed.
The same result must follow in this case, and the writ of error
is therefore
Dismissed.
