19 W. Va. 676 | W. Va. | 1882
announced the opinion of the Court:
Before the passage of any act for the incorporation of building and homestead associations they could be formed and were formed as voluntary associations of parties desiring by concerted action to raise money by small payments and accumulate it till such time, as enough had been accumulated to enable each member to build himself a dwelling-house and thus acquire a home.
The first thing, which would occur to those engaged in such enterprise, would be, that each member should at stated short intervals, say of a week or month, pay into the common treasury a small fixed sum, which they would call dues ; and the payment of this sum would be continued till such time, as each member upon a division of the funds among them would have accumulated a sum sufficient to purchase or build him a dwelling-house.
The next thing, which would occur to the members of such a voluntary association, would be, that the funds, which they had on hand, should be loaned out at legal interest, and the borrowers should be required to pay the interest on the loans at short intervals, so that such interest paid might be added to the dues paid in by members and be lent out at short intervals in like manner to others, and thus the fund be accumulated as rapidly as possible. And in fixing the time, when the principal of such loans should be paid, the association would naturally fix it at a period, when in their judgment the association would have accumulated sufficient funds to enable each member to buy for himself or build a dwelling-house, that is, that they would fix the time, when the notes given for these loans should be payable, at the time, when they thought the association would terminate and be dissolved.
The next thing, which would naturally occur to the members of such an association, would be, that they would further promote the objects of the association by confining their- loans to the members of the association on their giving to the association good security; and they would, in order to do equal justice to each member, lend to any one member the amount only, which they had fixed upon as the amount,
This lending of money to its own members only would be found very convenient and obviously promotive of the objects of such an association. It would enable the member' borrowing the money to build at once his house instead of waiting till the end of the association to get the funds wherewith to build; and the association would be saved all trouble in collecting the principal of the money, which might be loaned, because when it should become due, they would owe to the member borrowing a sum just sufficient to pay off his loan ; and it would be agreed, that the one claim should offset the other. But as soon as the association determined to loan its funds only to members, a difficulty would at once arise, as a large number of members might and probably would want to borrow
To avoid this the association might wisely conclude, that it would determine, who among its many members should have the preference in taking the money offered to be loaned, by saying, that the member present, who would agree to make the largest abatement, from the amount to be paid each member at the close of the association, should be entitled to the precedence in taking the loan. And this person as well as the amount, which he was willing thus to abate at the time, when the association should end, from what would then be coming to him, would be ascertained by a public bidding; and when ascertained, in order to make the amount coming to him from the association at the time of its close exactly balance the amount, which would then be due from him, they would loan to him an amount equal to the snm to be paid him at the close of the association, less the amount he had agreed at that time to have abated because of this preference given him. They wonld take his note payable, when the association would probably close, for the amount loaned, and would require him to pay the interest on this note at short intervals, say every month ; and in the deed of trust they would secure not only the payment of the note but also the prompt payment of the interest. Of course they would only charge legal interest on the money actually loaned and advanced to him; and even then he would be receiving less from the association than the other members by the amount of the abatement, which he had agreed should be made from what would be coming to him and every other member at the close of the association. Having no English word to express
By whatever name the transaction is called, it seemingly would operate harshly on the borrower; but this hardship arising from his agreement to make this abatement or give this premium for this right of precedence in taking the loan is more seeming than real, as all the other members, when they borrow money loaned, (and all must borrow as no stranger is permitted to do so) must also bid a premium for their precedence, and these premiums will probably average • as much as his; and if so, no injury would have resulted to him. For these premiums lessening the amount the association will have to pay to each member at its close will of course shorten the time, in which the funds can be accumulated by the association to make these payments to its members, and thus it will be brought to a speedier close, and the time, in which the dues to be paid by each member as well as the time, for which interest will be paid by members on the moneys which they have borrowed, will be shortened; and on an average the amount of these premiums paid by the members will be reimbursed to them by this shortening of the time, for which they have to make these payments of dues and interest. It is true, exact justice would not be done each member, because these premiums bid for the precedence in
The members of such voluntary association would naturally meet with another difficulty in carrying out their scheme. In order that the enterprise should be a success, it is necessary, that each member should pay up punctually his dues or amounts to be paid at short stated intervals of say a week or a month. If this be not done, it is obvious, that injustice would be done to those, who make the payments of their dues promptly. To avoid this injustice, the society or association would naturally resort to the imposition of fines on those members, who were delinquent in the payment of their dues promptly. These fines would be made reasonable, just sufficient to make it the interest of each member to make a strenuous effort to pay his dues promptly at. the required times.
As the different members might desire to build dwellings for themselves differing in style according to their several pecuniary abilities, this want would be naturally met by permitting one member to pay a larger sum for his stated dues than another and at the close of the association receive a larger amount in exact proportion to his larger amount of dues paid. Such voluntary societies however, after all they could do to carry out justly and equally their scheme, would still find serious trouble in their way. The taking of these fines and premiums in addition to legal interest on the money loaned, though necessarily incident to their scheme and designed to wrong no one, might still be regarded as exacting money of those, who borrowed from them, and thus render these transactions illegal. Practically, there being many members in such association, they would find it very inconvenient to thus transact their business as a partnership ; and they would therefore naturally desire, that the Legislature would permit them to become a corporation and by law provide, that the “dues, fines and premiums paid by its members, although paid in addition
Chapter 54 of the Code of West Virginia provides as follows :
“ 1. Joint stock companies may be incorporated for establishing homestead and building associations and transacting the business properly pertaining thereto.
“ 25. Homestead and building associations formed under this chapter may be for the purpose of raising money to be used among the members of such corporations in®buying lots or houses or in bnilding or repairing houses; and shall be subject to the provisions of this and the 53d chapter, so far as the same are not inconsistent with the following sections.
“ 26. Such corporations shall not use or direct the funds thereof for or to any other object or purpose than those mentioned in the preceding section ; and in case the said funds shall be so used or directed, the association so using or directing them shall forfeit all the rights and privileges as a corporation.
“ 27. Every such corporation is authorized to levy, assess and collect from its members such sums of money by stated dues, fines, interest on loans advanced, and premiums bid by members for the right of precedence in taking loans, as the corporation by its laws shall provide ; also to acquire, hold, convey and encumber all such real estate and personal property, as may be legitimately pledged to it on such loans, or may be otherwise transferred to it in the due course of its lawful business; Provided, That the dues, fines and premiums*690 paid by the members of such corporation, although paid in addition to the legal rate of interest on loans taken by them, shall not be construed to make the loans so taken usurious.
“ 28. All the stockholders of any such corporation shall be held liable to an amount equal to the stock subscribed by them, or held by them at any time, in addition to said stock, for the purpose of securing the creditors of said association.
“ 29. Every such corporation shall adopt a constitution, which shall be signed by the members thereof, and which shall embrace all the provisions of the four preceding sections, and such articles for its government and the management of its business as it shall deem proper, provided the same are not inconsistent with the provisions of the four preceding sections.”
While this statute and the statute-law of England and other States were beneficial in promoting the objects of incorporated voluntary building associations by removing some of the difficulties and disadvantages, under which they labored, their incorporation was not an unmixed benefit; for it introduced other and serious evils highly prejudicial to the objects in view.- While these societies were unincorporated their members would consist naturally of persons of small means, whose object in uniting with the societies would be to secure homes for themselves by paying at short intervals small sums or dues, which it was in their power to pay. But when these building societies became corporations it would obviously cause to become members of them a large number of persons, who already had homes, and who in taking shares in such corporation would do so, not that they might by borrowing from the association or otherwise get funds, wherewith to build houses for themselves, but that they might make a safe and profitable investment of tbeir spare capital, where it [would produce a large interest. If this sort of stockholders held a majority of the stock, as was often the case, so that they could control the organization, it is obvious, that the constitution and by-laws of the corporation would be apt to be framed not so much with a view of promoting the'professed objects of such corporations, to enable its members wittftheir aidjto procure homes for themselves, as with a view of making the profits of those members, who did not borrow from the association,
Thus the passage of acts of incorporation introduced largely into those societies a new class of members, who have been called accumulators, who never borrowed moneys of the association or redeemed their shares, but who simply met promptly their obligations, and when the association closed received the par value of their stock. Their interest and that of the members who redeemed their shares were obviously diametrically opposed. When the accumulator made a large profit out of his investment, the redeeming members paid larger premiums for their loans and were subjected to many fines. The larger the profits of the accumulators, the harder the terms, on which the association loaned its moneys to the redeeming members. If the accumulators controlled the association, one mode of making their profits large was by inflicting on members, who failed to meet their dues promptly, unreasonable fines, they being of course rarely called on to pay such fines. Another mode was to require the redeeming member to pay interest not on the money actually loaned him and by him received but on the par value of his shares often fully one third more. So that in addition to the premium paid for the right of precedence in taking the loan he also paid often eight per cent, instead of six on the moneys actually loaned to him. Still another mode of making the profits of the accumulators large was to impose often heavy fines on the redeeming member for failure to pay promptly at short intervals the interest on the money loaned him. In many of the building association corporations the combined result of these exactions have been ruinous to many of the redeeming members and the courts, before whom such cases of unjust exactions have come, have condemned them in unmeasured terms.
It may be thought, that the views, which I have expressed of the manner, in which unincorporated building societies would proceed, and the supposed advantages and disadvantages of their becoming incorporated societies is ideal, as no
A general act was passed in 1854 known as the Friendly Society’s act. Though not expressly included in its language, a number of building associations claimed the benefit of this
This act remained in force in England till 1874. In 1846
By the Victoria act a “permanent” society is one, which by its rules does not terminate at any specified time or upon any specified result being attained. These permanent societies were based on the then obvious fact, that in building associations there were two distinct and separate classes, viz : redeeming members and accumulators. This distinction of classes was in a large measure produced, as we have seen, by the incorporation of these societies; and by the year 1846 it had become so apparent, that the plans of many of the building associations in England were based on this then recognized fact. The effect of the English statute of 1836 in introducing into the building associations a new class of stockholders, that is, accumulators, and in promoting exactions, from which they had been practically exempt, was obvious
I have reviewed the history of building associations and pointed out the tendency to the abuse by such corporations of their chartered privileges and the public evils arising therefrom, that'the duty of our Legislature as well as our own duty as a Court might be rendered clear to guard each in its own sphere the true interests of the people of the State against such abuses. I would not have it understood, that building associations in this State are a public evil, so far as I know, and I have had some opportunity of observing, having been the president of such an association for several years. On the contrary lam satisfied, that so far they have very generally been a benefit not only to the communities, in which they were located, but also generally to the members of the association. But I have observed the tendency to the abuse of the corporate franchises oí such associations ; and if this tendency is not checked either by additional legislation or by the courts holding the corporations to a strict compliance with not only the letter but the spirit of their charters, there is great danger, that they will here, as they have elsewhere, degenerate into associations organized to exact from the needy usurious
The first enquiry to be made in interpreting our homestead and building association statute hereinbefore stated at length is, whether under the true construction of this act the transactions between a member and the building association, when a share of stock is redeemed by the member, and the association pays over to him the difference between the par value of his stock and the premium bid by him for his precedence in taking the loan, is to be regarded as really a loan of money to him or only a purchase by the building association of his stock, or as money advanced to him out of his interest in the corporation as one of its stockholders. If it be regarded as a purchase by the building association of his stock or as an advance to him out of the funds of the association on account of his interest as a stockholder, it is claimed, that it cannot be a loan, and therefore the statute against usury can have no application in such a transaction; and no matter what interest the association may require him to pay on the money so ad-, vanced, it could not be guilty of usury. To support this position the counsel for the building association refer to various authorities and among others to Silver v. Barnes, 6 Bing. N. C. 180; (37 E. C. L. R. 338); Burbridge v. Cotton, 8 Eng. Law & Eq. R. 57; Seagrave v. Pope, 15 Eng. L. & Eq. R.
If however the transaction between a stockholder and the building association, when a share is redeemed, is really a loan, then it is admitted, that the statute against usury would apply to it, unless the special provisions in the homestead and building association statute, which we have stated at length, should in this particular case apply and exempt the building association from the penalties imposed by the usury-statute. If therefore on examination we should find, that this transaction is a loan and not a purchase of stock nor an advance out of the funds of the corporation out of his interest in the corporation, it will be unnecessary to determine, whether the above position taken by counsel with reference to the inapplicability of the statute against usury is or is not correct when the transaction is not a loan. We will therefore first consider, whether this transaction of redeeming a share in a building association is or is not under our statute to be regarded as a loan*
The case of Silver v. Barnes, 6 Bing. N. C. 180 (37 E. C. L. R. 338) was a case in which the building society was unincorporated, and the redeeming of a share or his interest by a member was regarded by the court as not a loan but a dealing with the partnership funds; and therefore the agreement to pay the premium for the precedence in getting the money was not regarded as making the transaction usurious.
In Burbridge v. Cotton, 8 Eng. L. & Eq. R. 57, there was a dispute as to whether the building association was incorporated or a partnership. Without deciding this point the court held, that the redemption of a share was an advance of the funds of the association to a member having an interest in the association and not a loan.
In the case of Seagrave v. Pope, 15 Eng. L. & Eq. R. 477, the building association was regularly incorporated under the act of 1836, 6 & 7 Will. IV. ch. 32, which we have already quoted at length. The Lord Chancellor examined this act in detail and pointed out some-blunders in the language
In the case of Merrill et als. v. MeIntire, 13 Gray 157, like Silver v. Barnes, 6 Bing. N. C. 180, (37 Eng. C. L. 338,) the building association was unincorporated, a partnership, and the redemption of a share was regarded not as a loan but as an advance of partnership funds. This case can aid us but little, if at all, in reaching a conclusion, as it is obvious, that when a building association is a corporation, we would be necessarily much influenced by its charter in determining, whether the redemption of a share was to be regarded as a loan or as an advance on the anticipated profits of the member. If the corporation was authorized as by the English statute to make an advance of this [character and not authorized to make a loan, the transaction ought to be interpreted as in England as such advance and not a loan. But if the corporation (as we shall see our corporations of this sort are) was authorized to
The statute of Indiana passed March 5, 1857, see Gavin & Hord’s Statutes of Indiana, vol. 1, p. 275, in the 9th section provides: “A building loan-fund and saving association incorporated under this act in their by-laws may provide for the redemption of the shares of stock by the application of the fuuds arising out of the dues, fines and assessments of the members at any price, that the company and the member relinquishing his stock may agree upon. The company may also provide, that the members, who may relinquish to the company their stock or any part thereof for a stipulated price, shall give bond and security to the company for the payment to the company on such stock, until such association shall terminate, of all future dues, fines and assessments. Each member of the company shall have an equal opportunity to take such loan ; and the member, who shall take the same on the terms most favorable to the company, shall have the preference. The company shall loan no funds except such as arise out of the fees, dues, fines and assessments of its members; and the company shall not loan to any person not being a member.” The Constitution of Indiana forbids the enactment of local or special laws on certain subjects, and among them “ interest on money.” In McLaughlin v. The Citizen’s Building, Loan and Savings Institution, 62 Ind. 264, it was decided, that this act was constitutional, because the bonus, per cent-age or premium named in this ninth section was merely the contract price, agreed upon between the parties for a “preference,” which such association was expressly authorized to sell, and such member authorized to buy, and was not interest on money. The court in their opinion admit, that the redemption of a share by a member under this section was a loan of money and not a purchase of his stock or an advance on his future profits in the company; but they insist, that the pre
This decision seems to me adverse to the appellee in this case, the building association; for Ihe court held the redeeming of a share by a member under the act, which we have quoted, a loan, though they did not consider the bonus strictly speaking “interest on money.” But the enquiry before us is whether a redemption of the stock of a member is a loan? There was more reason for interpreting it as a sale of his stock under this 9th section than under our statute-law.
In the case of Holmes & Montieello Building Association v. Smythe decided by the Illinois Supreme Court September 30, 1881, it was decided, that a redemption of a share of stock of a building association under their law, the substance of which is stated in the opinion, was in the nature of a sale and purchase of the share; and yet their statute provides, “that the money in the treasury shall be offered for loan in open meeting, and the stockholder, who bids the highest premium for the preference or priority of the loan, shall be entitled to receive it.” This is a case directly in point, that though the corporation is expressly authorized to make, what the statute calls a loan, yet the court may look at the whole transaction, and if they regard it in the nature of a sale, they will hold it is not a loan. We will presently see how far this authority is elsewhere sustained.
In the case of Clarksville Building and Loan Association v. Stephens, 26 N. J. Eq. 355, it was decided, that when an incorporated building association redeems a share of stock, the money is not advanced by way of loan but in redemption of the stockholder’s share, and that though it was an incorporated institution, the same principles ought to be applied'to it as to an unincorporated institution, when such a transaction ought
In Virginia there is no statute especially authorizing the incorporation of building associations by name; but they have been incorporated under a general law to be found in chapter 57, section 59 of the Code of Virginia of 1873, which authorizes the circuit courts or the judges thereof to grant charters with certain specified exceptions “for the conduct of any enterprises of business, which may lawfully be undertaken by an individual or by a body politic or corporate. This and some special acts chartering particular building associations is the only statute-law now in force in Virginia, which in any way affects building associations. But there were formerly laws in Virginia regulating specially the chartering of such companies and their mode of doing business. By the act of March 29, 1852, chapter 101 of Acts of 1852, page 81 it was provided : “That any number of persons not less than nine may associate and become, in the manner hereinafter prescribed, an incorporated company for the purpose of accumulating a fund to enable its respective members to purchase houses and lots, erect buildings, improve lands, and to remove incumbrances from real estate and for the further purpose of distributing among the members, who do not receive aid by advances on their shares, their proper dividends of the fund
In the case of White v. The Mechanic’s Building Fund Association of Lexington, 22 Graft. 233, the building association was incorporated under these acts, which constituted its charter; and the court held, that the redemption by the association of a share of stock in the usual manner was a purchase by the association of the stock of the member and not a loan. This decision of the Court appears to be right, as the statute expressly calls such redemption a “ buying in” of the stock. Judge Anderson says, page 243: “ The statute treats them (redeemed shares) as the property of the association, having been paid for in advance, and therefore as assets.” In passing however I would call attention to the fact, that in that case the member, to whom the advance was made, received only $61.90 a share on his stock, while the accumulators received $200.00 (see pages 245 and 246). This shows clearly the tendency to evil results in such corporations.
In the case of Bibb County Loan Association v. Richards, 21 Ga. 592, the building association had, before it became a corporation adopted a constitution and by-laws, and then by a special act of the Legislature they were incorporated according to their constitution and by-laws (see pages 611 and 612). They redeemed shares of a stockholder in strict conformity with their constitution and by-laws, as by their charter they were authorized to do. The court held, that the particular •transaction was not usurious because of such special charter.
“ These building associations number already sixteen in Georgia. That they have improved our towns by leading to a number of new buildings, furnished many families with homes of their own, that could not otherwise have possessed them; given a considerable impulse to mechanical enterprise, and in many other ways promoted the prosperity and welfare of the communities where they exist, is undoubtedly true. But whether they will continue to be entitled to the epithet of the “poor man’s exchanges,” and whether they will, as they promise to do, enable every man to become his own landlord, will depend entirely upon the manner in which they conduct their business. Under existing regulations I have been led seriously to doubt this. The interest of the borrower as well as the accumulator will have to be sedulously regarded and protected; otherwise they will forfeit the public confidence and cease to prosper. If all the members were borrowers, and such was the original idea, on which these associations were founded, the plan would work well. But in every such corporation a large number of the stockholders do not join with a view of taking loans, but for the purpose of investing their money where it will yield a profitable return. These are called accumulators ; while they share in the profits of the association they contribute nothing to produce them; andas a necessary consequence the borrowers have to pay a larger interest to make a given rate of dividends than they would, if they produced these dividends for themselves.” In that case the redeeming member received $975.00 and the accumulators owning the same amount of stock $2,000.00; nor was this an extreme case, for the evidence showed, that in two at least of*705 the Georgia building associations the accumulators on an average received about twice as much as the redeeming members.
In the case of Robertson v. The American Homestead Association, 10 Md. 411, the Court say : “We adopt the views expressed by the Court of Queen’s Bench in Silver v. Barnes, 6 Bing. N. C. 180, and in the Court of Chancery in England in Burbidge v. Cotton, 8 Eng. Law & Eq. 57, and Seagrave v. Pope, 15 Law & Eq. 477.” These decisions held, that a redemption of a share by a building association was not a loan but an advance to a member in anticipation of his interest in the association. The statute-law of Maryland governing in such case was an act passed in 1852. We have no access to it; and its substance even is not stated in the case. We cannot therefore tell, whether this case has any bearing on the question before us or not. If the then law of Maryland was substantially what it now is, this case would be entitled in my judgment to no weight in determining, whether a redemption of stock in a building association in this State is or is not a loan, as the Maryland law now calls such redemption “an advance to the member for such premium, as may be agreed upon, of the sum which he would be entitled to receive upon the dissolution of the corporation.” See Rev. Code of Md. 1878, Art. XL, § 9, p. 329.
We will now review the cases, in which it has been decided, that the redemption by a building association is a loan of money and therefore subject to the usury-law, except so far only, as by its charter or the law, under which it was incorporated, it was exempted from the operation of the usury-laws of the State.
In Pennsylvania by an act passed April 22,1850, the court of common pleas was authorized to grant charters to saving fund and building associations; but the act did not define, what they were, or what modes of doing business should be adopted by them. In Kupfert v. Guitenberg Building Association, 30 Pa. St. 465, the court held, that a redemption of a share of stock by a building association incorporated under this act was a loan of money to the stockholder, and that it was subject to the provisions of the usury-law. The court indulged in, what I think I may properly call, bitter abuse pf these asso
In 1859 the Pennsylvania Legislature passed an act providing for the incorporation of building associations and regulating them in detail. See Brightly’s Purdons’ Digest, 3d ed. p. 183. The fourth section of this act provides: “that the money of the building association shall be offered for loan in open meeting and the stockholder who shall bid the highest premium for the preference or priority of loan shall be entitled to same.” The sixth section provides: “no premiums, fines, or interest on such 'premiums according to the provisions of this act shall be deemed usurious, and the same may be collected as debts of like amount are now collected by law.”
Under this act the court in Wolbach v. The Lehigh Building Associcdion, 84 Pa. St. 211, held still, that the redemption of a share was a loan by the building association, and when the shai’e was held by a married woman though used in erecting a building on her separate estate, as she had no power to become a member of the association, the association had no authority to make such loan to her, and this sixth section therefore did not authorize the collection of the premium, and all that could be enforced was the money actually received and legal interest thereon.
The 8th section of this act declared, that it was the purpose of the act of 1850 to declare, that the taking of premiums of the redemption of shares by building associations should not be usurious. The courts had previously construed the taking of such premiums to be usurious. But the Court in Reiser v. The William Tell Saving Fund Association, held this act, so far as it undertook to construe the previous act, unconstitutional, and that on contracts made by building associ
In the case of Melville v. American Benefit Building Association, 33 Barb. 103, the building association was unincorporated, and it was held, that the redemption of a member’s share was a loan, and the taking of the premium for the preference was usury. This decision and a similar one in 68 Pa. St. 67, Janelt’s ex’r v. Coke, cannot be reconciled with Silver v. Barnes, 6 Bing. N. C. 180 and the cases, which have followed that decision.
In Mills et als. v. Salisbury Building Association, 75 N. C. 292 it was held, that the redemption of a share of stock by a building association was a loan, and the taking of the premium was usury. The company was incorporated, but the act, under which it was incorporated, did not, as is usual in such acts, declare, that the taking of such premium should not be held usurious.
In Herbert v. Kenton Building & Saving Association of Covington, the building association was incorporated under an act, which authorizes it “to assess and collect contributions, dues, fees, &c., from its members and to afford to its members a safe depository for their weekly earnings and to loan its accumulated funds and weekly deposits to its members or others; to afford relief to its members by advancements or otherwise in building and securing houses and homes, and to this end may exercise all such powers, as may be necessary, not contrary to the Constitution of Kentucky. It was decided, that under this act the redemption of a share in the usual way was a loaning of money, and the taking of the premium made the transaction usurious. It will be observed, that the usual provision, that the taking of such premium should not make the transaction usurious, was not in the act.
In the case of C. E. H. Martin v. The Nashville Building Association and others, 2 Cold. 418, it appears that on February 4, 1854, the Legislature of Tennessee passed an act, the object and purpose of which, as expressed in the act, was to form a mutual benefit and stock company, to enable the working men of Nashville to become their own landlords; and all the powers and incidents of a corporation were conferred
In The Mutual Savings Bank and Building Association v. Wilcox et als., 24 Conn. 147, the act, under which the association was chartered, authorized the association to loan money to its members on real or personal security, and to receive for such loans, in addition to the legal rate of interest, such bonus as the parties in each case might agree upon; and if no member needed the money, it might be lent to others at legal interest. In its first constitution the association provided for redeeming shares in the usual way by a bid among the members for a preference in taking the loan; but after-wards they changed it and declared, that the “rate of bonus should not exceed three fourths of one per cent, a month.” It was the former, that Wilcox agreed to pay for this preference in redeeming his stock. It was insisted, that this payment of three fourths of one per cent, a month was not a bonus within the meaning of the law, that the transaction was a loan and a loan at usurious rates; and the court so held. It was further claimed, that as Wilcox had become a member of the association merely to make this illegal contract, and the association had no authority to make such a contract, that the contract ought to be regarded as absolutely null, and no part of the amount loaned ought to be permitted
In Ohio there was passed on February 21, 1867, this act:
“ SectxoN 1. Any number of persons not less than five may associate themselves together and become a corporation as provided by the sixty-third, sixty-fourth and sixty-fifth sections of an act entitled ‘An act to provide for the creation of incorporated companies in the State of Ohio,’ passed May 1, 1852, for the purpose of raising money, to be loaned among the members of such corporation for use in buying lots or houses, or in building or repairing houses, and such corporation shall be authorized and empowered to levy, assess and collect from its members such sums of money by rates of stated dues, fines, interest on loans advanced and premiums bid by members for the right of precedence in taking loans, as the corporation by its laws shall adopt; also to acquire, hold, encumber and convey all such real estate and personal property, as may be legitimately pledged to it in such loan, or may otherwise be transferred to it in due course of its business ; provided, that the dues, fines and premiums so paid by members of such corporation, although paid in addition to the legal rate of interest on loans taken by them, shall not be construed to make the loans so taken usurious; and provided also, that no person shall hold more than ten shares in any such corporation in his own right.
“Sec. 2. Any stockholder of any such association shall be deemed and held liable to an amount equal to their stock subscribed by them or held by them at any time in addition to said stock, for the purpose of securing the creditors of said association.” (See Ohio Statutes, vol. 64, p. 18.)
This Ohio statute seems to have been taken almost verbatim from a law passed by the Legislature of West Virginia only seventeen days before. It is identical in substance and almost in words with the 1st, 2d and' 3d sections of the act passed by the Legislature of West Virginia on February 4, 1867, except that the Ohio Legislature added the proviso, that no one person should hold more than ten shares of stock and omitted some sections of our act. See Session Acts of 1867, ch. 5, p. 5. Those sections of our act, which compared with the Ohio statute were re-enacted in the same words in the
In the case of The Forest City United Land & Building Association v. Gallagher et als., 25 Ohio St. 208, the building association was incorporated under this act of 1867; and the court decided, that the redemption of a share of stock was a loan by the association, and the agreement to take interest on the premium bid under this act for a preference in taking the loan made this loan usurious. In Ohio ex rel. Attorney General v. Greenville Building, &c. Association 29 Ohio 92, the building association was incorporated under an act, the language of which was: “Such corporation shall be authorized and empowered to levy, assess and collect from its members such sums of money by rates of stated dues, fines, interest or loans advance and premiums bid by members or depositors for the right of precedence in taking loans, as the corporation by its by-laws shall adopt.” This language, it will be noticed, is the same, as that used in our statute, except only that depositors as well as members are authorized to take loans and become bidders therefor. It was held, that the redemption of a share of stock was a loan ; and that the premium to be given therefor could not be fixed by the building association but could only bedetermined by (he public bidding, and the association was bound to lend its moneys to the member or depositor, who bid the highest premium and to lend it at legal interest.
From this review of the authorities the conclusions, which I reach, are, that when the building association is unincorporated and therefore a partnership, the weight of authority is perhaps in favor of holding, that a share redeemed by the as
It may be said however, that, as he is not required to pay back the money, it cannot be regarded as a loan. But is he not required to pay it back? The interest is by the arrangement to be paid at short intervals, and the principal, as I understand, at the dissolution of the partnership. By the terms of the co-partnership it is not to be dissolved, till a certain sum has been accumulated so as to make the dividend of this partner a specific sum. So the co-partnership knows, that at the time, when it is agreed, that it shall be dissolved, the co-partnership will owe this member a specified sum; and by this redemption of his share, as it is called, this interest on the money, which he receives, is to be kept paid up, and the principal to be paid out of what may be coming to this re
It seems to me however that the natural and proper construction to place on such a transaction is to regard it as a loan by the co-partnership to one of the partners. We need not however determine this point of controversy, as it does not arise in this case. If however the building association be an incorporated company, and there be nothing in its charter which authorizes it to advance money to its stockholders out of their future profits or to purchase their shares still requiring them to pay tbeir dues, then both by the decided weight of authority as well as of reason a redemption of a share by the building association in the usual manner must be regarded
In addition to the reasons, which we have assigned for so holding, there is this reason, that under the strict construction which the courts apply to the charters of all corporations in construing the powers given to them, which are the only powers they can exercise, it may be regarded as at least doubtful, whether they can purchase their own stock as a general rule, unless it is done bona fide to secure a doubtful debt to them previously contracted. See In re Lowden, &c., Exchange Bank, Law R., ch. 5 App. 444; Johnson v. Bush, 3 Barb. Chy. 207. If so, it may be regarded as doubtful, whether they would have any power in the absence of an express or fairly implied power so to do in their charter or in the law, under which they are incorporated, to advance to a stockholder out of their assets the whole or any portion of the value of his stock as an advancement out of common funds. While the power to lend to its stockholders seems necessarily implied in'the very objects, for which building associations are incorporated, that is, to aid their members to build dwelling houses for themselves, and still more clearly from the declaration of almost all charters and laws on the subject, that the taking of dues, premiums, &e., shall not be regarded as usurious, and as there
But if in addition to an absence in the statute-law or charter of a building association of any expressions that would go to show, that it was intended to confer authority on the corporation to purchase shares of stock or to make advances on them otherwise than as a loan, there are in such statute-law or charter expressions, which clearly indicate, that the Legislature regarded a redemption of a share by the corporation as a loan to the member, whose share is so redeemed, it would seem clear beyond any reasonable doubt, that the courts must regard such redemption as a loan. Our statute is clearly of this character. The 27th section of chapter 54 of Code of West Virginia, page 411, says : “ Every such association is authorized to levy, assess and collect from its members such sums of money by stated dues, fines, \interest on loans advanced, and premiums bid by members for precedence in taking loans, as the corporation by its laws shall provide; provided, the dues, fines and premiums paid by the members of such corporation, although paid in addition to the legal rate of interest on loans taken by them, shall not be construed to make the loans so tajeen usurious.” This language shows clearly, that our Legislature regarded the redemption of shares by a building association as loans, and only authorized the association to loan money to its members by such redemption. Our court could not in view of the wording of this statute hold such redemption to be anything else than a loan. The courts of Ohio have not hesitated to put this construction on this identical law; nor can we hesitate to so construe this statute.
It is unnecessary in this case to define particularly the extent of the exemption of these loans by this act from the operation of the statute against usury. It will be sufficient to decide, whether this exemption from the application of the usury-laws applies to a case, where by redeeming a share of stock of a member of the association it lends him money, and he agrees to pay a premium therefor, but does not use the money so obtained, in the language of our statute (sec. 25, ch. 54 of Code of W. Va. p. 411) “in buying lots or houses, or in building or repairing houses.” That the use of the money so loaned for any other purpose than those named was
- It is argued, that as the 27th section of chapter 54 of the Code of West Virginia gave the corporation implied authority to loan money to its members by a redemption of their shares, it must follow, that when so loaned they cannot longer control it; and that while it is the duty of a member not to seek such loan, unless he intends in good faith to use the money “in buying lots or houses or in building or repairing houses,” yet if acting in bad faith he does so, the corporation ought not to sufíer by his bad faith, and especially he ought not thereby to profit. It may be true, that where the corporation proves affirmatively, that it used all proper care and diligence^ as by this statute it is bound to do, to prevent its funds being “used for any other object or purpose than above mentioned,” but that nevertheless from the active devices of the redeeming member it was despite its diligence misled to loan the money under a well founded belief based on substantial grounds, that the money was to be used only for the legimate ■objects above specified, the borrower might be in a court of equity held to be estopped to deny, that the' money was borrowed for these legitimate objects. But on this point it is un- ■ necessary to express an opinion, whether, if the corporation shuts its eyes and uses no diligence to. prevent its funds being used for other than legitimate purposes, it is blameworthy and has clearly violated its duty, and forfeits its peculiar right and privilege of being allowed to contract for an extra premium, when it makes a loan at legal interest. No other corporation or individual is permitted to receive this extra premium on
But it may be asked : How can they see to the application of the money they have loaned? I answer, with much more facility than purchasers from trustees can see to the application by the trustee of the money paid to him by the purchaser, as in many cases such purchasers are bound to do. The building association frequently lends money on a vacant lot as security, which is not of sufficient value to render the security good, but on which the purchaser is expected out of the funds lent to build a house. When the house is built, the security taken by the association on the lot is ample ; but if the house is not built, the association is in danger of losing its loan. In such cases they never find difficulty, or at least insurmountable difficulty, in seeing, that the money loaned is properly applied in building a house. One very usual mode of seeing to the proper application of this money loaned is to pay it to the borrowing member only from time to time as the building of the house progresses; and no part of it is paid till the lot is procured and the house commenced. If they would use the same diligence, when they were well secured, in seeing that the money loaned by them was used only for legitimate purposes, it would be very rare indeed, that any of their funds would be used for any other object or purpose than those specified as legitimate objects of its use in their charter.
What does our statute mean when it says: “ Such corpor
The general rule seems to be, that where a statute commands an act to be done or omitted, which in the absence of statute-law might have been done or omitted without culpability, ignorance of fact or of the state of things contemplated by the statute will not excuse its violation. See Barnes v. The State,
But it may be said, that intent is of the very essence of usury; and it is certainly true, that all the authorities do hold, that if the lender does not intend to take more on a loan than legal interest, the transaction cannot be held to be usurious. See Childers v. Deane, 4 Rand. 406; Bush v. Buckingham,, 2 Vent. 83; Gibson v. Stearns, 3 N. H. 185, 187; Nevison v. Whitley, Cro. Car. 501; Levy v. Gadsby, 3 Cranch 180; Heath v. Cook, 7 Allen 59, 60; N. Y. Fireman’s Insurance Co. v. Sturges, 2 Cow. 664, 667; Marvine v. Hymers, 12 N. Y. 223, 231, 236. Some of the decisions have gone even further and hold, that a transaction cannot be held to be usurious, unless the borrower intended to pay more than the legal rate of interest, even though the lender did intend to take more, and that there can be no usury, where either of the parties is ignorant, that more than legal interest has been received. See Condit v. Baldwin, 21 N. Y. 219; Aldrich v. Reynolds, 1 Barb. Ch. 43, 44; Haywood v. Le Baron, 4 Fla. 404. But on the other hand the authorities all show, that if more than the legal rate of interest was intended by the parties to be received and was in point of fact received, the transaction will be held to be usurious, though neither of the parties intended to violate the statutes against usury. See Maine Bank v. Butts, 9 Mass. 55; Childers v. Deane, 4 Rand. 406; Levy v. Gadsby, 3 Cranch 180.
There can be no question, that where a member of a building association redeems shares and thus borrows money and bids a premium for the loan at the legal rate of interest, in thus giving or agreeing to give such premium he agrees to give a greater rate of interest, than the law permits to be taken o,n the loan of money, and the transaction is usurious, as both parties intended to reserve more than the legal rate of interest, unless it can be shown, that the statute-law authorized the building association in the particular transaction to take • such premium in addition to the legal rate of interest. The intent of the parties to take and give respectively more
Now, we have seen, the statute-law only authorizes more than the legal rate of interest in such case to be taken, where the money borrowed is used for buying lots or houses or in building or repairing houses; and if used for any other purpose, the transaction is on the same footing as any other.loan, and the parties intending, that more than legal rates of interest should be reserved, the transaction is usurious. I have found no authorities directly on this question, except a single case in Ohio. When the Ohio Legislature copied our homestead and building association act of 1867, they omitted the section above quoted, which declared, that “ such corporation shall not use or direct the funds thereof for any other objects than those specified ” under the penalty of a forfeiture of all its rights and privileges. This omission showed clearly, that the Ohio Legislature did not consider, that it was so important, that the funds should only be applied to the legitimate purposes, as did the Legislature of this State. But this was still more clearly shown next the year. On May 9,1868, see Ohio Laws, ch. 5, page 173, the law was changed so as to read, in stating the purpose of such building associations: “For the purpose of raising moneys to be loaned among the members and depositors of such corporation for use in buying lots or houses or in building or repairing houses or other purposes.” These words or other purposes added to the objects, for which the money was loaned, clearly shows, that the Ohio Legislature intended, that thereafter the money loaned might be used for any legitimate purposes, no matter how foreign its use might be to the original object of building associations. Basing the decision expressly on the words added in 1868 to the Ohio statute-law, their court in Hagerman et al. v. Ohio Building and Savings Association
“ The statute (above quoted sec. 1 of Acts of May 9, 1868) contemplates the loan ol money by such association among its members and depositors to be used in ‘buying lots or houses or in building or repairing houses or other 'purposes’ The borrower may use the money for the payment of debts generally or in his general business or for any other lawful purpose. There is no duty imposed upon building associations to en-quire as to the intended use of the loan.”
This was obviously the effect intended to be produced by the addition of these words or other purposes not found in our act; and it would have been difficult if not impossible for the court to give them any other construction, though this was to destroy the distinctive characteristic of a building association. In Ohio ex rel. Attorney General v. Building &c. Association, 29 Ohio 97. The Court seems to think, that all the distinctive characteristics of a building association are not thereby obliterated “by the latent powers that may repose in this phrase ‘or other purposes,’ with which the enumeration closes.” We conclude, that under our statute it is the duty of a building association, wheu by redeeming shares for a member it loans him money, to see, that this money loaned is applied “ to buying lots or houses or in building or repairing houses.”
What then is the consequence of the neglect of this duty and of permitting the money loaned to be applied “to any other object or purpose? It is insisted by the counsel of the appellant, that it renders null the whole transaction. This position is untenable. In the case of the Mutual Savings Bank & Building Association v. Wilcox et als., 24 Conn. 137, the building association for a loan of money to a member took a bonus, which under the law it had no right to take, and which in the judgment of the court rendered the contract usurious; but as the building association had authority to make a loan to one of its members, though in making the loan it did so on terms not within ils authority as violating the usury-law, yet the court held, this only put the association in the same situation, as a bank would be or any natural person, who violated the usury-law, and did not render null the whole con
As to the question, whether it is or is not a breach of good morals for the redeemed member or borrower to take advantage of his own wrong in such case, it is as applicable to any other case of usury. It would unquestionably be immoral in many cases for the borrower to take advantage of the usury law, and accordingly the courts never apply the law, unless asked to do so by the borrower.; but if asked to do so, acknowledging it as his legal right the court gives him the benefit of the usury-law, leaving it to him to determine for himself, whether it be moral or immoral in the particular case.
It remains but to apply the principles of law, as we have laid them down, to the facts of this case. Franciska Conrad was a member of the Wheeling Building Association, a corporation chartered under chapter 54 of the Code of West "Virginia. As such she redeemed her four shares of stock, the par value of which was $150.00 a share, immediately on becoming a member of the association. This redemption was made on April 10,1868, she being the highest bidder for the preference for the loan then offered to be made by the association. Her bid was thirty-one per cent, on the value of her stock. This was deducted from the par value of the stock, $600.00; and the balance, $414.00, was paid her in cash. She gave her note for $600.00, with interest from date, paya
The association closed August 24, 1874. She then owed to it dues of twenty-five cents on each of her four shares for two hundred and sixty-five weeks or $265.00, and fines for all this time at ten cents per share, amounting to $105.20. The association claimed, that she also owed sixty-three and one third month’s interest on her $600.00 note, amounting to $190.00 and fines for the non-payment of this interest each month promptly at ten cents for each share redeemed, amounting to $24.40, in all $584.60, as claimed by the association. On April 9, 1875, the trustee advertised this forty-nine acres of land and the tract of one hundred and thirty three acres, or so much thereof as was necessary, for sale to pay the amount secured by the deed of trust, which the association claimed was this $584.60 with interest from August 24, 1874. Pfeister, the grantor in this deed, got an injunction on the grounds alleged in his bill, the substance of which has been given in the statement of this case. The court by its decree of March 14,1877, ascertained, that the balance due from her, so far as the same was secured by this deed of trust securing her $600.00 note, was $455.00 with interest from August 24, 1874. This was the amount claimed by the association excluding the $105.20 fines for non-payment of dues and $24.40 fines for non-payment of interest, wh ich fines the court con sidered were not secured by the deed of trust.
Many objections are urged to the determination of the court, that this sum of $455.00 with interest from August 29, 1874, was secured by this deed of trust. One objection
The second objection is, that the deed of trust to secure this note cannot be enforced, because the money loaned was not used to purchase a lot or house or to build or repair a house, but for entirely- different purposes. This, as we have seen, does not render the note void, but prevents the enforcement by the association of any more of it than the actual amount loaned, $414.00 and legal interest thereon, calculated at simple interest. The association for this reason having no right to enforce the premium, which she agreed to give for this loan, $186.00, included in this note.
It is also claimed, that it was the duty of the association to notify Pfeister of the defaults of Franeiska Conrad, the maker of this note. There is proof of such notification; but it was unnecessary, I know of no reaaon, why the party, who secured the payment of this note by a deed of trust, can claim to throw on others the obligation of watching his interest and seeing, that he was not injured by the default of his sister in meeting her obligations.
It is insisted, that the association had no right to take this security for this note from a party not a member of the association. The association is expressly authorized by section 27 of chapter 54 “to acquire such property as is legitimately pledged to it in the due course of business.” This was the exact mode, in which this property was pledged; and there is nothing in this objection.
The fines imposed on her by the Assaciation for the nonpayment of her dues can be legally enforced according to the decision of this Court in the case of James McGannon v. The Central Building Association No. 2 & J. W. Cowden, trustee, if they were i’easonable, for the reasons therein stated, which need not be here repeated. The fines were reasonable. They were ten cents in advance on each share, which, as the dues were only twenty-five cents a week, at first sight seems to be a heavy fine, being forty percent on the amount of the dues to be paid on which default is made. But when we consider, that no interest was charged on these dues, and the large profits, to which she was entitled as a member of the association, it will appear, that these fines were reasonable. She paid in to the association as the evidence shows, only $94.00 as a member excluding the $38.00 of interest paid and including the $11.00 of expenses in connection with the giving of the deed of trust, and yet at its close she was after paying all her fines entitled to receive $229.80, as the money she paid out, $94.00, had been paid out at the close of the association on an average of only about five years and ten months, the interest she received as such member was about forty per cent per annum. Had she paid up her dues regularly so as to have been subjected to no fines she would have paid in to the association $348.00 and received from it $600.00 or made a profit of $252.00 and her $348.00 would have been paid ont on an average of about three years and eight months or about thirty-three per cent per annum. It thus appears that she made after paying her fines a somewhat larger per cent as a member of the association on the money she invested than the accumulators in this association. They made about thirty-three per cent per annum, while she made forty per cent per annum. This demonstrates that in this operation the fine of ten cents per week for the non-payment of dues was scarce enough to make it the interest of members to pay their dues promptly. This it seems to me must however be an exceptional case. The profits of building associations generally cannot be to the accumulators as much as thirty-three per cent per annnm. If they are, these institutions
For the reasons we have stated the decree of the circuit court of Brooke county of March 14,1877, must be set aside, reversed and annulled; and the appellant must recover of the appellee, The Wheeling Building Association, its costsinthis Court expended; and this Court proceeding to render such decree, as the circuit court of Brooke county should have rendered, must find, that there is due upon the note secured by the deed of trust executed by John Pfeister to J. L. Stroeh-lein, trustee in the bill and proceedings mentioned, $303.55 with interest thereon at the rate of six per cent, per annum from August 24, 1874; and unless the same be paid within sixty days from this time, that R. G. Barr, who is hereby appointed a special commissioner for that purpose, do sell the forty-nine acres of land mentioned in said deed of trust, or so much thereof, as may be necessary, said sale tobe made on the terms, in the manner and after the advertisement named in the said decree of March 14, 187'7, and upon his executing the bond prescribed in said decree ; and this cause is remanded to the circuit court of Brooke county to be proceeded with according to the principles governing courts of equity.
Decree Reversed. Cause Remanded.