Amicus Curiae Brief — United States v. Cambridge Loan & Building Co.

In THE

Supreme Court of the United States

THE UNITED STATES &

PEER, © NMESEEEMIE PeeaN GN te nee eu

eeruUrrany

MOTION FOR LEAVE TO FILE BRIEF asict

CURIAE AND BRIEF

The titole tong of lew eles t iv 6 @.ume ated ve. wh, »

Ww Nat. shure te th, wr? Chue? thet ate « hee! @..6 #8

Spqetiant~ mm the emeee off The Jicem Sersmae aon Ga

Ca ‘ Come ove Jelvomd Revcoe out Pa

Be. Otter mw Sas ve Tt lute € ‘ -m- —

Jat. 0 gl . “- ee fe woelee ff tie r fot @ "wu <

OC premst eager? of Vs Pome fut the Meet © naw »° ~ pe

freon foe Setiow@ of the cleeveneme of Phy 0 as@e.t OP ou

>

eared of Tax Appeals; that those cases present issues

mivelving the construction of Sections 23114) of the

Rev etiae Acts of 1918 and 21, the decision of whiect

will probally tbe ruled by the decision of this court in

thee ener; that counsel for both parties have consented

in @riting te the Gling by the andersigned of a brict

ame carver, aml thar consents have been filed with 1).

clerk of thie court

Wherefore, the «aid Cleaveland BR. Cross and I.

tert Wo Neute pray leave te file hereim and sulanit {

outemberatoen the fedlewing brief amet curtae

ARGUMENT

The Term “Domestic Building and Loan Associations

as Emploved in the Revenue Act of 1918, Include:

Every Association Designated or Known as a Bui)

ing and Loan Association by State Laws

The Revenge Act of 1918, Tith I, lart itl, peter

ime for cofpetateet: inetne tatation, contains the 1

ee@ina

‘*Mow FT) That the Qkllowinge or@anita

sha lw etetnge itetm tata stoebert

. . .

4) Ihapeetie feplkling amd lean aewrwant

aie “er » ’ shake wet? it entata oto

ganites! atel eget steel for meutual purperer= ate

foot gereetit

The eftatut« he fest theme theet ber tite **hapsklitw :

Lewet geecartal pertse In formulating a cefinition, if oe 0

pertant atel even contr dime te knew ehat were get

ally recognized as building and loan associations at the

time of the enactment of the statute in question. The

mest fertile seuree of such information is found in the

statutes of the several states providing for the organi-

cation and regulation of building and loan associations.

An examination of the state laws in foree at the time

of the enactment of the Revenue Act of ISIS, and for

~ome Years previews thereto shows that building and

loan associations were recognized as a special class ot

corporations in all the states. (Note 1.)

Ala. th o%, Ave 17. code 1907

\rk sec 7S St 21.

Ares Title IN. th 3. cole 1913

Calt, See O48 Cw conde 1925

‘ th NLINV. Comp Laws

t omen lew ‘ WNATV th Ji”, tren ™“t 1v1s

bet Gh oS Ave 3. camfe 9998

Fla Sexes 6.2157.-4342 Kew tren Se

tea Seve JR7R JAR? conte POT)

Itahe, Ch BM ¢ ons yp St 19)9

th 32 See 78 Kew St J91

th 27. Act 1. Borne’ Ann St 1920

». Tele SX. Comp cote 1999

han th WV, Rew St $025

+ > B*4 tuarrells Se

le Seve Fear Tae Marrs Neon Kew St

“ ‘? " Kes St W940

Med Sew 96 Are 23) Ann code 1911

Mase th 170 A LL 192)

Meh th 1912. Comp I

Mf one Sees 774877700 tren Se (pelt

Mine ‘? *? Herne gears Ane cule Wi?

Ve th Ace IN. RK S foe

Vent. Pare 111. Oh 24. R «. $921

“ve Tete V Let NN Cem Se fol)

Nes. Act of Mar 24, 3955

x hl at Je he ’ | ad

.

\S ¢ th GF Ave 18 Se Jono

‘ ole Comp 1. pops

eo Tele 1% I Pew \ ‘> ! Cow conte

‘Yhle th 36 Ave 7. Comp Se 1929

firegem Tele XXNIN Ch VE feo

Peon. See 2496 Se JOD

t 47 ‘we

4

In all states but two they were classified as busines.

corporations or corporations for profit, having a capital

stock divided inte shares. In the two states referred to,

ldahe amd California, they apparently might be orga:

text with or without capital steck, (Note 2)

By the statutes of 43 of the states building and

Wssociations were expressly denominated as such

Arizona and New York thev were elassified with and

nominated savings and loan associations. Tn Massa

setis tlie Were cero ited Co-operative haniks

Ledahies they were che thi steed Laid ard hurling « |

hens | Verm tt? Mere cletiotthuated ye

sil ws tied i issemciatiotis

Dri cacdedat stallment or running ste ’

t Vs sultrrize t ssuie | it? pre i

i stittes Not ’

‘

‘

In twelve states associations were expressly author-

ized to issue Various other classes of stock, including per-

manent, preferred and guaranteed stock. (Note 4.)

Associations had the unrestricted power to borrow

money in fourteen states. (Note 5.)

Ky. See 850 (4), Carroll's St;

La, Sec 763, Ann. St;

Md, See 137, Ann. code 1911:

Mass. Sec. 12, A. L. 1921.

Minn, See 7751. Gen St 1923:

Miss. Sec. 3916, Ann. code 1917:

Mo. Sec M201, R S. 1919,

N. Y., See. 383, Cons. L-

N ©, Sec. $177, St 19]9.

Oho Sec Goay (sen. code:

Oregon, See 6o935) LL 1920

K. 1. Sec 3803, Gen. L. 1923:

=. Sec #16, Cw cade 1922 -

S D. See 9071, code 1919

Ark. Sec 1703

( als Nex $23 (ow code 1923

Del Sec. 1927, code 1918

a. Sec JR code 19])}.

lah« Sex 4782 { omp St 19}9.

van See 2214. Rev St 1923

vy. Sec. 88614}, Carroll's Se

“ Sec Fos Mart s Ann A

} 1. Sec 3903. Gen L 1V23

S ID Sex waist Kes code 1919

Tenn. Sec AWStia) 1. Ann code 1917

4

Ark Sec 1717. St 192)

(alt. Sec. 325, Civ. code 123

Ihe sec 2. Ch. 2S Are J code YS

tea Sec 2823 Conte 19} j

telah Sec $17 Comp Se 1919

ind Sec SOU} Burns’ Ann S¢ 1926,

ba. Sec 762. Marr's Ann Rev St

Md. See 7. Art. 28 code 19}}

Mass Sex It, Ch Wa A I 1921;

Miss Sec 4074 Hemingways code 1917

N DPD. See $131, Comp L. 1913

(repwon, Sec 6926 1 1920

Ro 1. Sec M704, Gen I 1023

le: Sec QUS4 Ann oom c 1917

In eleven states the amount of money which might

be borrowed was limited to a specified proportion of the

assets, Varving from 10% to BOS. (Note 6.)

In two states the amount of money which might be

borrowed was limited to a specified proportion of th

pariin capital (Note 7.)

In four states the amount borrowed was limited t«

AY specified proportion of the dues, installments or inte:

est paid in, (Note 8.)

In Washington the amount of borrowed money was Eo

limited to a Proportion of the loans made, (Note 0) S

In Pennssivania an association might) borrow a }

amount not exeeeding 25°° of ite withdrawals. (Note 10.) :

Pe

fa

‘ ‘ ‘ sis

4

NN .

MI {

4

4\4 « 1919

7

Associations are expressly given the power to re-

ceive deposits in seven states, (Note 11.)

Ten states permit associations without limitation to

make loans to persons who are not members or stock-

holders. (Note 12.

In nineteen states associations might loan to non-

members funds which were not required by members.

(Note 13.)

Note 1]

Ariz, Sec. 2122, code 1973,

Calt., See. 033, Civ. code 1923;

Minn. Sec 7751, Gen St 1923,

Ohio, Sec. 9048, Gen code;

Oregon, See 6952. 1 1920,

DS C, Sec. 4004. Civ. code 1922;

S DD, Sec 9067. Rey code 19]9

Vote 12

Arie Sec. 2120, code 1933

Ark,, Sec. 1737. Se 192},

Calif. Se otk Cw code.

(oa Sex JRTR. code JOD].

Idaho, Sec 49}).

Md, Art. 23. code 1911;

Miss, Sec 3922. Hemingway's code 1917

Mo. Sec. 10202. R S 1919.

Oho Sec, 9643, Gen code

Wash. See 4508 code 1939

Colo Sec 2794 Comp L

Del Sec 2U1S key code 19}

Fla, Sec 4218 Rey (cen. St. -

Ine Sec SOR7, Burne’ Ann St 1926

Mass, Sex 2a, % 1760, A. 3. 192}

Mont, Sec. 6388 ROC 1921;

N. H Sec. 8, Ch 166 I. 1904

N. 1. Sec 24 \ Comp Stop 333

N M., See. $27, Se 1915.

N. ¥., See, 388 Cons ha?

NOD. Sec S120. Comp LL. 1973.

(rkla Sec $399 Comp St. 192}

Penna, Sec 2486 St. 1920;

S ¢ Sec R24, Cw code

SD, Sec. 9075, Rev code 1919

Tenn, See 2144. Ann code 1917,

Texas, Sec D393 ex St 1920

Va. Sec 4148 code 1919

Wye Sec. S217, St J9]9

8

From the foregoing at will be seen that under Ui

statutes of the several states regulating the organization

and operation of building and loan ussociations the HW

powers and practices vars considerably,

Their primary purpose is the same, to furnish th

financial means t

o enable people to acquire homes. Their

purpose is accomplished by accumulating from various

sources funds which are lent te borrowers, in amounts

comparatively large in proportion to the

hotties deapuirecd,

Thetr

r funetion could not be efficiently performed by

woks or offer fin

cost of Ulie

for long terms at a reasonable cost

‘

natnerdl institutions because of the lin

(tations on the amounts which such institutions may

est for long periods on real estate security and beeaus«

other anstitutions wall net unvest their funds in hom

loans at times when if

it is more profitabl

te to use them

therwise

For those reasons building and loan associat

offer an advantageous

ti

and dependable means of fina:

ing heme ownership whieh without them would not exis!

It was because they so encouraged home owns rehiipe this!

they were given the tax exemption benefit, and for

ther reasat

This ch arls Ap peda rs from the remarks of the s:

ators who participated in the debate upon Seetion 20]

“ hen it

.

ik came uy oat thy Senate on Oetober U7, 102]

Cong. Ree, Vol ol, Part 7, pp. OS68.G872 )

Nuthortties genera have agreed that the pul

welfare is concerted with and promoted by citizens ox

g them own homes Legislative enactments have «

sesptinet tiv 1 man’s states wrante aj fiy the ial rredteerns

slenlate] to 3

ome ownership Such ondu

em.

ments have been vecasionally provided directly for the

home owner or builder. More frequently they have been

granted directly to building and loan associations which

Were recognized as the most ficient agents for increas.

ig home ownership. In MANY states associations have

been favored over other corporations by whole or partial

lax exemption. They have heen Kenerally exempted

from the operation of usury laws, Frequently their in

corporation fees or annual franchise fees have been

reduced below the amounts paid by other Corporations

Sometimes their shares have been exempted from tana

tion in the hands of the oWhers, and in some states the

shares are exempt from execution, We have been able

to find no reported case Where a building and loan wssu

chition hus breven denied any such privilege becuse of its

spocual methods af operation, prior to the time the ques

hen Was raised by the Treasury Department with respect

fo the federal ineome tay exemption. The privileges

have bron considered iis categorical, and net subject to

the special fucts of ene couse,

Methods emploaxed bn “ssociations iti carrving ou’

their purpose of assisting in the financing of homes will

necessarily diter according to local real estate condi

trons, wenlth and ieaome of home purchasers, building

conditions, eney market, and other eonditions. In addi

tion to the simple lending of money to enable borrowers

fo aequire homes an association must Incidentally engage

nother activities, It must first of all obtain the funds

with which to make its loans and Which, obviously, must

come largely from sourees other than its horrowers,

The association must offer to people with Money to unvest

terms whieh will induce them te place their money with

10

the association rather than elsew here, Funds may be

ratsed by the sale of capital stock, Additional funds may

be raised by accepting deposits from those who do not

desire to become stockholders.

Methods of operation, depending largely oh local

conditions, are properly the subject of regulation by

state laws. We do not believe that Congress was inte:

ested ino such methods so long as they were consistent

With the subject in Which Congress was nterested,

namely, the « neouragement of hoame ownership,

Itis neton the principle of mutuality that they wer

exempted, or Congress would have expressly qualified

them by that term, just as at did, in facet, in qualify:

‘“mutual’’ savings banks, and ‘‘mutual’’ hail, cevelone,

fire insurance companies, diteh or irrigation compu

ated telephene compaties, all of which were likewise ox

empted by paragraphs (2) and (10) of Section 251

Strict mutuality, in the sense that the term appl

to a mutual insurance company, for instance, is unpeos

‘ i | :

' he

sible in the operation of a building and loan associat:

A mutual insuranee companys provides insurance te

its members and simply divides the cost among them It

does no business other than with ats beneflelaries, w

are ite policy helders. A busiding and im assectal

0 the contrary, must secure most of ats funds fr

ifthers than els bene fcsaries, whe are tts borrowers, and

whe ohberously could wot furnmesh the funds ¢ wry

Ss biugseme ss t they wu add wot he borrowers Lonlike t!

mutual pmasuranes mpansy, Which bears the same rela

thon to all with whom ait does business, the building and

earl a@sscmiaAtion © the creahitor of one elass with Wii

1]

The only degree of mutuality which can be required

of a building and loan association is that which will fur

ther its purpose. It exists When its borrowers partici.

pate equally in its benefits and when its transactions ar

with others to the advantage of its borrowers, to the

extent possible under existing business conditions,

The government's contention that) transactions by

lnnlding and loan dssociations with non stockholders are

subversive of their purpose disregards the idea that

lows to non stockholders constitute an extension of that

purpose and not a departure from it. That is, if it be in

the interest of the public welfare that stockholders own

their homes, it is difficult to perceive w hy the public wel

fare is not equally coneerned that non stockholders own

thar own homes, other conditions being equal,

II

If the Exemption Granted by Section 231 (4) of the

Revenue Act of 1921 Be Construed in a More Limited

Sense Than the Exemption Granted by the Corre.

sponding Section of the 1918 Act. the More Limited

Exemption Should Not Be Given Retrospective

Effect.

The argument set forth above, in regard to the con

struction of Section 231 (4) of the Revenue Act of 19]8

ison the main, applicable to the corresponding section

of the 1921 Act. However, if the exemption provided by

he 1921 Act should be held to he of narrower application

han that of the 1918 Net. we submit that the status of

hie nesociations for the period between January a 1921,

12

and November 23, 1921, is determined by the 1918 Act

and not by the 192) Act, as contended by the govern.

ment. The relations between the associations and their

borroWers in cases Where loans were made during the

period between the two dates mentioned were fixed by

their contracts, and the associations had no control over

such relations after the contracts were entered into,

An association had no power to compel a borrower

to become a stockholder after it had made him a loan

as a non-stockholder.

Congress must have had this situation in view at the

time the 1421 Act was adopted From the debates in the

Senate relating the Seetron 251 (4) of the 1921 Act, here-

tofore referred to. it ts apparent that there existed ne

intention to make the change, if any change were con-

templated, retrospective to the first of the vear

The language of Section 251 (4) as finally enacted

Was that contained in the committee amendment to the

bill reeenved from the House, which, after attempts to

change itn the Senate, was finally passed in the torm

reported by the finance committee,

Respectfully submitted,

Crraveraxy Ro Cross,

Hennext W. Nats,