Jackson Loan & Trust Co. v. State ex rel. Hudson

Smith, J.,

delivered the opinion of the court.

Appellant, a loan company, by means of attractively worded literature and by representations made by its soliciting agents, seeks to induce the public generally, and prospective customers particularly, to believe that all purchasers of what it 'styles its “investment, home purchasing contract” will receive loans from the company upon easy terms with which to purchase homes. (The reporter in reporting this case is directed to set out this contract, together with sections 5, 7, and 8 of the “Benefits, Provisions, and Requirements” .printed on the back thereof.) While this contract ostensibly has an investment feature. of a. vague and indefinite character, contained in section 7 of the “Provisions, Benefits, and Requirements,” the loan feature thereof is the principal inducement held out to the public and because of which these contracts are purchased. The funds out of which loans are to be made, and from which only the company is required to make them, consists of eighty per cent, of the monthly payments made by the purchasers of contracts, excluding the first three payments, plus transfer fees, interest, and return payments on loans. The first dollar which the purchaser pays goes to the company’s agent, who solicits the contract, as his commission. The next three monthly payments of one dollar each and twenty per cent, of all payments made thereafter go to the company and become its property absolutely. When a loan is made to the purchaser of a contract, he ceases to make any further payments thereon, and thereafter his payments are in return of the money borrowed, with interest. The addition by the borrowers to the loan fund consists of only the interest on the money borrowed. It is utterly impossible, therefore, for the company to comply with its promise to make loans to all purchasers of its contracts. The language in which the opinion in the case of Fidelity Funding Company v. Vaughn, 18 Okl. 13, 90 Pac. 34, 10 L. R. A. (N. S.) 1123, is couched, is strikingly applicable here, although the case itself can be distinguished from the case at bar. Changing this language slightly the ability of appellant to make loans depends almost entirely upon the number of contracts sold; the monthly payments made on the new contracts being used to make loans to holders of earlier contracts. The sale of new contracts must constantly increase at a high progressive rate in order that such loans may be made, and, it being impossible to continue this indefinitely, the end must come sooner or later, and, when it does come, the more successful the business up to that time, the greater the number of contracts to make loans which the company will be unable to fulfill. In the language of Public Clearing House v. Coyne (C. C.), 121 Fed. 929, it is a literal demonstration of the old saying, ‘‘ The devil takes the hindermost.” Since appellant’s organization in 1906 up to October, 1910, eleven thousand, one hundred and sixty persons have applied to it for ninety-six thousand, six hundred and thirty-two contracts. Most of these applications have fallen by the wayside, there being now outstanding eight thousand contracts, owned ■ by one thousand, two hundred and thirty-three persons. The number of loans made by the company in this time is one hundred and seventy, and of the one thousand, two hundred and thirty-three owners of contracts, three hundred and eight only are eligible. Truly, “Many are called, but few are chosen.”

It being impossible for the company to make loans to all purchasers of its contracts, its promise so to do evidences an' intention to defraud, and consequently the whole course of its business constitutes such a systematic violation and abuse of the rights and privileges conferred upon it by its charter as to justify either the revocation of its charter, or the issuance of a writ of injunction, enjoining the further prosecution of such business. The court therefore committed no error in granting the injunction.

The court did err, however, in appointing a receiver; for, unless there is a statute so providing, the court, in proceedings of this character, is without power to appoint a receiver or trustee to wind up the affairs of a corporation. 5 Thompson on Corporations, Sec. 6353; 2 Clark & Marshall on Private Corporation, Sec. 334, subd. “h;” 3 Cook on Corporations (6 Ed.), Sec. 863. Section 4029 of the Code of 1906 provides for the appointment of such a trustee, but only after judgment of forfeiture and ouster.

Reversed and remanded.