
    Ewing v. Toledo Savings Bank.
    
      Savings and loan associations — Usurious contract made out of state — Statutory sanction as to interest exclusive — Forfeiture of usurious interest a penalty — Contract for usurious interest not void in toto.
    
    1. A corporation organized under the act of February 26, 1873, entitled “An act to 'incorporate savings and loan associations,” as amended March 3, 1875, can not enforce, in this state, a usurious contract for the loan of money, to the extent of the usury stipulated for therein, although the contract was made in another state, where the laws authorize contracts for interest at the rate stipulated for in the contract sued on.
    2. A corporation can make no contracts, and do no acts, either within or without the state which creates it, except such as are authorized by its charter. Bank of Augusta v. Earle, 13 Peters, 519.
    3. Savings and loan associations organized under the act of February 26, 1873, as amended March 3, 1875, are authorized, on the loan of money; to contract for “interest at the rate allowed or that may be allowed by the laws of Ohio, and shall be subject for the violation thereof to the same penalties as natural persons.” Seld: 1. That the sanction named by the statute is exclusive. 2. The forfeiture of usurious interest must be regarded as a penalty. 3. That in contracting for usury in such case, the common law rule, that the contract, in toto, is void for want of power to make it, does not apply. Bank of Columbus v. Carling house, 22 Ohio St. 492, approved and followed.
    Error. Reserved in the District Court of Lucas county.
    The original action was brought by the Toledo Savings Bank and Trust Company, a corporation of the state of Ohio, organized under the act of February 26, 1878, entitled, “An act to incorporate savings and loan associations” as amended March 3, 1875, against Alexander H. Ewing and others, in the court of common pleas of Lucas county.
    The first cause of action stated in the petition was for the recovery of $10,000 and interest on .three promissory notes, payable in three, four, and five years from date, and dated February 5,1876.
    The following is a copy of the note payable in three years:
    “$3,333.00. Chicago, III., February 5, 1876.
    On or before three years after date, I promise to pay to the order of the Toledo Savings Bank and Trust Company three thousand three hundred and thirty-three dollars, with interest at ten (10) per cent, per annum, payable annually, at the First National Bank, Chicago, 111. Value received. ' Albs. H. Ewing.”
    The notes payable in four and five years are of like tenor and effect, except that the last note is for the payment of $3,334.00.
    ■ The second cause of action is to foreclose a mortgage on certain real estate situate in Lucas county, given on February 5, 1876, to secure the payment of the above described promissory notes.
    The mortgage contained the following stipulation :
    “ That if said Alexander IT. Ewing should fail to pay any of said notes, either principal or interest, within six months after the same becomes due, the whole sum of money herein secured may become due and payable at once, at the election of said mortgagee, its successors or assigns; and this mortgage may, thereupon, be foreclosed immediately for the whole of said money, interest, and costs.”
    The defendant, Alexander II. Ewing, among other things, by way of defense, alleged that said contract was usurious, and wholly void.
    It appears from the record that the notes and mortgage upon which suit was brought, were given for a loan of money, and although negotiations for the loan were made in Toledo, in the state of Ohio, where the plaintiff had its principal office, the notes and mortgage were in fact executed in the state of Illinois, by the laws of which state it is lawful to contract for interest at the rate of ten per. cent., as stipulated in said notes.
    In the court of common pleas judgment was rendered for the plaintiff for the full amount claimed. To reverse this-judgment a petition in error was filed in the district court, where the case was reserved for decision in this court.
    
      Haynes ‡ Potter, for plaintiff in error.
    The Trust Company had no authority to make the contract. Straus v. Ins. Co., 5 Ohio St. 59; Creed v. Bank, 11 Ohio, 489, 493; and the contract was ultra vires. Bank of Chillicothe v. Swayne, 8 Ohio, 257; Spalding v. Bank, 12 Ohio, 544; Miami Exporting Company v. Clark, 13 Ohio, 1; Bank v. Stevens, 1 Ohio St. 233 ; Preble Bank v. Russell, 1 Ohio St. 313; Vanatta v. State Bank, 9 Ohio St. 27 ; Union Bank v. Bell, 14 Ohio St. 200; Kilbreth v. Bates, 38 Ohio St. 187.
    Then the question arises at once, does the clause- in the act (72 Ohio L. 186, § 16), “ and shall be subject for the violations thereof to the same penalties as natural persons ” invest or confer the power and make valid a contract which it had no power to make.
    And unless this clause is to be given such construction and force (and which the Trust Company must claim for it), this case falls directly within the rule established by the cases cited above.
    1. We say the imposition of a fine or penalty never did and never can confer corporate power.
    2. As the law stood in this state at the time of the passage of this act and as it now is, there was and is no penalty imposed upon natural persons for violations of the usury law; neither to the borrower nor lender — hence no penalty upon the Trust Company.
    The term penalty as used in this statute must be construed to mean no more and no less than as it is used in its proper legal signification.
    There is no grant of power to the Trust Company to loan its money at a rate of interest in excess of the legal rate, but on the contrary such institutions are expressly prohibited from so doing. 1. S. & C. 149, section 3 of the act of March 19, 1850. ■
    By section 5 of the same act, 1 S. & C. 150, this contract of loan is declared usurious and unlawful.
    
    To hold as the bank people claim, is to permit it to make any contract it may see fit to make (perhaps taking advantage of necessities) as to the rate of interest, and then in any action to enforce the contract (if defense is made) it shall recover what in law it was permitted to contract for. If this is to be the holding, what penalty or forfeiture in law is imposed upon the Bank and Trust Company for violation of law? None whatever, for in law it loses and forfeits nothing.
    That the contract was made in another state where a rate of intei-est is allowed, in excess of the rate allowed in this state, does not deprive the contract of its usurious nature. Story on Conflict of Laws (7th ed.), §§293a, 293b.; Andrews v. Pond, 13 Peters, 65 (see opinion); Chapman v. Robertson, 6 Paige, 627; De Wolf v. Johnson, 10 Wheat. 367.
    
      T. J. McDonnell and B. § E. T. Waite, for defendant in error.
    The bank had authority to make the contract. If any illegality attended it, it was only as to the usurious interest. The case is not governed by Bank of Chillicothe v. Swayne, 8 Ohio, 257, and kindred cases, but is controlled by Bank v. Garlinghouse, 22 Ohio St. 492 ; Bank v. Slemmons, 34 Ohio St. 146; Kilbreth v. Bates, 38 Ohio St. 187; Ohio ex rel. v. Board of Education, 35 Ohio St. 525.
    
      The record shows that the notes and 'mortgage were all issued and the debt made payable at Chicago, where it was lawful to contract for interest at the rate of ten per cent, per annum; and that it was the intention of these parties to put themselves under and to contract with reference to the laws of Illinois. We submit that this .transaction was legal, and the stipulated rate of interest will be enforced by the courts of Ohio. And for authority we refer the court to Kilgore v. Dempsey, 25 Ohio St. 413; Scott v. Perlee, 4 Cin. Law Bull. 275 ; Hunt v. Jones, 19 Albany L. J. 387; Bank of Augusta v. Earle, 13 Pet. 519.
    The fact that the notes were made payable out of the state of Ohio can have no effect upon the rights of the defendant in error, for the act under which it is incorporated authorizes it to invest its funds in securities notoriously payable in money centers outside of the state.
   McIlvaine, C. J.

If the contract sued on had been made by a natural person, and in the ’state of Ohio, instead of a corporation, it would not be denied that under the laws of the state of Ohio it would be usurious, and that the plaintiff could recover thereon only the principal actually advanced, with interest at the rate of six per cent, per annum.

The plaintiff, however, being a corporation of this state, we must look to the general statute under which it was incorporated for its power to contract, and for the consequences which follow an abuse of its franchise in this respect.

Section 16 of the act of February 26, 1873, as amended March 3, 1875 (72 Ohio L. 186, § 16), provides: “ Such association may discount notes and bills of exchange, and may take, receive, reserve, and charge upon any loan or discount made upon note, bill of exchange, or other evidence of debt, interest at the rate allowed, or that may be allowed by the laws of Ohio, and shall be subject for the violation thereof to the same penalties as natural persons.”

It must be conceded that the rate of interest stipulated for in this contract exceeded the rate allowed by the laws of Ohio, and therefore it is contended that the contract is void in toto, for want of legal capacity in the corporation to make it. Bank of Chillicothe v. Swayne, 8 Ohio, 257. And subsequent cases approving the same doctrine are i’e-lied on as sustaining this proposition. We do not controvert the doctrine of the common law as laid down in these cases. But we. do claim that the legislature has ample power to change the rule, and where the statute has declared the consequences that follow a violation of chartered power, the statutory rule-must prevail, and the doctrine of Bank of Chillicothe v. Sioayne does not apply. See Bank of Columbus v. Garlinghouse, 22 Ohio St. 492. In the case before us the statute declares that savings and loan associations, for contracting for a greater rate of interest than is allowed by the laws of Ohio, “shall be subject to the same penalties as natural persons.” This rule of liability is exclusive.

But it is said that the laws of Ohio do not subject natural persons to any penalty for violating the usury laws of the state. This brings us to consider the meaning of the word “penalties” as used in this statute. It must be assumed that the general assembly was cognizant of the state of the law. It is true that no corporal punishment was inflicted in Ohio for usury. It is true also that usury in this state was not declared an offense for which punishment by fine was inflicted. But it is true, at the time this statute was passed, that bythe laws of Ohio a contract for usury could not be enforced to the extent of the usury. To that extent the contract was forfeited. This forfeiture was a penalty within the meaning of the statute. This construction is necessary to give the provision any operation at the time it was enacted, and we think it should be_ adopted.

Again, it is claimed by defendant in error, that the contract sued on was made in the state of Illinois, and that by the law of the place where it was made the rate of interest contracted- for was authorized. Heuco it is contended that th,e validity of the contract should be determined by the law of Illinois and not by the law of Ohio. If the contracting parties were natural persons, the rule thus contended for should, no doubt, prevail.

But the defendant in error, which contracted for interest at the rate of ten per cent, per annum in the state of Illinois, was an Ohio corporation, whose power to contract for interest was limited by its charter “ to the rate allowed by the laws of Ohio,” which was a less rate than that contracted for. In Bank of Augusta v. Earle, 13 Peters, 519, it was said: “It may be safely assumed that corporations can make no contract or do no act, either within or without the state that creates it, except such as are authorized by its charter.” The reasoning which leads to this conclusion is unanswerable, and need not be re-stated here, as the proposition is very plain.

We admit that by the rule of comity existing between states of this Union, it may be assumed that the existence of the plaintiff below as a corporation of the state of Ohio, with such powers as were conferred by its charter, was recognized by the state of Illinois, so that a contract which it might make, within its charter, would be valid, though made in another state. But this rule of comity does not extend so far as to legalize a contract in excess of its chartered privileges made by a foreign corporation in another state, although such contract be authorized by the state where made as a legitimate exercise of power by its own citizens, whether natural or incorporated.

Neither does this rule of comity exist in a state whose policy is violated by the exercise of powers conferred by the charter of a foreign corporation. In other words, powers conferred by a charter can not be exercised in a foreign state whose policy is thereby violated. So that, if it were shown that the laws of Illinois expressly authorized a foreign banking corporation to contract for interest at the rate of ten per cent, per annum, within the State of Illinois, the state of Ohio would not enforce a contract so made by one of its own corporations in violation of its policy as expressed in the charter of the corporation.

Judgment reversed for error in including usurious interest, and cause remanded to the common pleas court for further proceedings.  