97 Tenn. 421 | Tenn. | 1896
The original bill was filed to enjoin the sale of a house and lot under a trust deed, executed by complainant and her husband, to secure a debt due to the defendant building association. The Chancellor refused to grant the injunction. The lot was sold and purchased by the City National Bank, which held a second mortgage on the lot, subordinate to that of the association. Complainant thereupon filed a supplemental bill, bringing that bank before the Court, seeking to recover $340.72, claimed to be usury exacted on the loan by the defendant building and saving association, of complainant. On the trial upon the merits, the Chancellor refused any relief, and dismissed complainant’s bill, and the complainant appealed and assigned errors. ^ The Court of Chancery Appeals reversed the holding of the Chancellor, and granted the complainant the relief asked, and defendants have appealed to this Court and assigned errors. It appears from the finding of fact by the Court of Chancery Appeals that the complainant was a subscriber to the stock of the defendant company in an aggregate amount of $1,600. She borrowed money from the association, and gave her note therefor for $1,600, bearing interest. She received upon this note $1,120, and the remainder, $480, was claimed by the association as premium or bonus required for the loan. The char
“The funds of the association, as they accumulate in the treasury, shall be offered and loaned by the board of directors to the best use and application among the stockholders entitled to borrow the same. The number of shares shall be regulated by the board of directors.
£ cWhen two or more bids at the same rate- of premium are offered, the preference may be given to the borrower whose application has priority of date, or whose property, in the opinion of the committee of examination, appears to be the best security for the loan, other things being equal. Applications for loans may be made to the secretary, at any time before the weekly meeting, accompanied by the necessary papers, who shall note thereon the date of the reception. No money shall be loaned at a greater premium than thirty per cent., nor less than twenty-nine and seven-eighths per cent. The successful applicant at the time of receiving the amount loaned., shall pay a premium of thirty per cent, or amount bid for the same, and shall secure the repayment of said loan, with legal interest, by satisfactory bond or mortgage upon real estate, and interest on all loans taken by stockholders shall be paid weekly from the time of bidding for the same.
“In case the funds of the association shall not be called for by any stockholder furnishing satisfac*424 tory security, and should remain unproductive for one month, the board of directors may lend to others than members of the association, provided such loans are secured by a lien on real estate, and, provided further, that such loan shall not be made if as many as two directors object.”
There are other provisions regulating the payment of fines, dues, etc., and providing for steps to collect the loans when interest is in arrears for six. months. It appears that the purchasing bank had a second mortgage on the property, and that it bought the house and . lot under foreclosure of the trust deed, and paid therefor to the association $1,258. The Court of Chancery Appeals find as a fact that the by-laws above copied were in force when the loan was made, and the loan was made to complainant under the operation of the rule and in conformity to it. The contention in this case is narrowed down to the question whether there was usury in this transaction, and whether the premium was a fixed premium, and, if' so, whether it made the contract unlawful. It is insisted that it is not a case of fixed premium, and not a case of usury, and not contrary to the laws governing building associations.
The Court of Chancery Appeals find that it is a case of fixed premium; that the margin of one-eighth of one per cent, between the. highest and lowest rate is a mere device to evade any trouble arising out of an absolutely fixed premium, and is too small and inconsiderable to be considered, except
It has been well said: “A building and loan association is an organization created for the purpose of accumulating a fund by the monthly subscriptions and savings of its members, to assist them in building or purchasing for themselves dwellings or real estate by loaning to them the requisite money from the funds of the society, upon good security.” 2 Am. & Eng. Ene. L., 604.
And again: [iTo all practical intents it may be said they enable a number of associates to combine and invest their savings to mutual advantage, so that from time to time any individual among them may receive, out of the accumulation of the pittances which each contributes periodically, a sum by way
And again: “If a building association invests its money in the purchase of real estate (and, it may be added, in any other way), looking forward to an increase in its value for the realization of a great gain, to the exclusion of a member who desires the whole or a portion of. that money, to enable him to acquire and improve real estate of his own, and who offers acceptable security for the loan, it is doing precisely what it was not created for. It is tying up money, whilst its business is to let it circulate; it is making large gains, which enrich the wealthy, who can afford to wait, and confers but little benefit on the poor, who stand in need of immediate accommodation; it is incurring great hazards when its business is intended to be conducted on slight risk and moderate profits; it is denying its assistance to those for whose benefit it was endowed with liberal powers by statute; it is making membership with its continual payments an oppres
As originally designed, their object was in the highest degree laudable, and consonant with the broadest public policy. It was these features that commended them to public favor and to the special consideration of Legislatures to such an unusual degree. But building and loan associations, when used as mere depositories for the idle money of the capitalist, large or small, to be used in loans to enrich the depositor, at the expense of the needy borrower, would never have acquired the unusual rights and powers given them by the different Legislatures. It has been well said that the desirableness of augmenting the proportion of landowners, and to add houses among the working classes, was such a weighty consideration that Legislatures were willing, in order to effect it, to make exceptions to many of the best settled rules of policy applicable to dealings between man and man. But many of these associations have gone astray from their real purpose, and made themselves mere money lending devices: and scheme after scheme has been added to the
In the case of Stiles' Appeal, 9 W. N. C., 83 (92 Pa., 123), it is said: “Building associations are bound to offer all the money in their treasury
“ Strict mutuality and equality of benefits and obligations must be kept the groundwork and basis of these associations, and if they are not so founded they are not truly building and loan associations, entitled to the protection given such associations by the statute. If one man should loan another $800 upon the agreement that the other would repay him $1,000 in monthly installments of $20, or other amounts in addition to legal interest upon the amount received, the contract would be clearly usurious. Still less inviting would the arrangement appear if the obligation of the borrower was enforced by an elaborate system of fines and forfeitures. There must, therefore, be something peculiar to the building association loan by which the debtor receives some quid pro quo in return for the onerous liabilities which he assumes, and by which the transaction, though apparently usurious and oppressive, is rendered really equitable and mutual. The mutuality lies in the fact that, after the loan, the borrower still retains his membership in the association and all the rights and privileges belonging thereto, and stands to the association in the twofold relation of debtor and member. As a debtor, he is
Coming to a consideration of our own statutes, it is worthy of remark that the Act of 1875, Ch. 142, Sec. 14, providing for chartering these institutions, refers to them and incorporates them as “building associations,” not using the word loan, showing the primary object of their creation. Code (M. & V.), § 1742.
Section 1744 provides that the funds of such corporation may be loaned to the stockholders in such manner and on such terms and conditions and under such regulations as the corporation, by its constitution and by-laws, may prescribe, giving preference to stockholders.
Section 1751 provides that the loan shall be. made at stated meetings, in open meeting, to the highest bidder.
Section 1754 provides • that the premium thus bid shall be paid before the loan is consummated, not as part of the loan, nor as interest, but as a
By the Act of 1893, Ch. 12, it is provided that loans may be made either in open meeting or on written application and bids. The idea of competition in such loans is carefully kept up • and preserved in all the Acts. It was this feature of free and open competition in securing the loans that induced this Court, in the leading case of Patterson v. The Workingman’s Building Association, 14 Lea, 677, to uphold such loans as not usurious and unlawful.
It is said in Endlich on B. & L. Associations, Sec. 409: <£A premium, in order to be lawful, must be one that is bid for the right of precedence in taking a loan at a competitive sale, and when there was no such sale and no bid, there can be no lawful premium. In other words, when it was simply agreed between a borrower and an association that he was to have a loan at a certain premium, not the result of any competitive 'sale, but of mere consent between the parties, it was held that the loan was usurious. The so-called premiums, said the Court, was, in fact, a part of the price named by the lender to be paid by the borrower for the use of the money loaned. The assent of the borrower to pay the price required did not make him a bidder within the meaning of the statute, and calling the rate a premium does not change the na-
But the Court of Chancery Appeals find as a fact that it was operative in this case, and that the loan was made under and in compliance with the rule. It is said that it cannot be ascertained until the stock matures whether the complainant will pay more or less than legal interest, and, hence, the question of usury, and amount of same, cannot now be ascertained. It is also said that if the scheme is carried through as designed there will not only be no usury in the transaction, but that the borrower will have had the use of the money borrowed at a less rate than six per cent., the legal rate of interest. This, of course, contemplates the entire-execution of the contract for a term of years, and makes no allowance for mismanagement, unfortunate investments, and the hundred and one contingencies that attach to all business transactions extending over a series of ' years. The contract, upon its face, being unauthorized, illegal, and not warranted by law, the Court will not compel the borrower to continue it for years, meeting its exactions of fines and dues and interest, upon a possibility that, perchance, in the final windup, the borrower may be
The contract upon its face appears to be usurious; whether it will prove so may not perhaps be proven until the scheme closes, but we can see that some of the compensating features, which would, under the statute, uphold it, are entirely wanting, to wit, the right to bid in open competition for the money to be loaned, and the right of mutuality of benefits and advantages with all other members arising out of the loans and operations of the corporation. In such
The scheme of the company, which is a Tennessee corporation, is not in harmony with the statutes creating it, and is unlawful and usurious. We see no error in the decree of the Court of Chancery Appeals, and it is affirmed.