Case ID: ky_100/html/0295-01.html
Source: Caselaw Access Project
Author: {"author": "JUDGE Du RELLE", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

. Case 43 — PETITION EQUITY
    December 17.
    Rogers, Receiver v. Rains.
    APPEAL FROM MARION CIRCUIT COURT.
    1. Contract for Attorney’s Fee — Comity Between States. — The general rule of comity between States, which gives effect to contracts beyond the limits of the State where they are made, does ■not embrace or apply to contracts which are immoral or unjust, or to such as the enforcement of which in another State would be ■injurious to the rights, interests, or convenience of that State or its citizens, 'in this case it is held that a contract in a note
    which was payable in Tennessee, to pay an attorney’s fee if suit had to he ¡brought on it, is not enforceable in the courts of this State, although it was authorized by and enforceable under the laws of Tennessee.
    2._ Insolvent Building And Loan Association — Debtor Who is Stockholder Therein — Set-off.—In a suit by a receiver of an insolvent building and loan association against a debtor of the association who is also a stockholder therein, the defendant is not entitled to have set-off against his debt the amount of the dues which he has paid on his stock.
    JESSE L. ROGERS fob appellant.
    1. The law of the place of the performance of the contract will govern the courts in giving the remedy upon the contract, even though the security for the debt may be located in a State other than the one in which the debt is to be paid. The note was payable in Tennessee and the agreement to pay an attorney’s fee ■is enforceable in that 'State, ^orawetz on Private Corporations, sec. 988; De Wolf v. Johnson, 10 Wheaton, 367; 14 Lea, 677.)
    2. In the winding up of an insolvent building and loan association, a debtor to 'the corporation who is also a stockholder therein, can not off-set the amount paid in by him on his stock against his debt. (Rogers v. Hargo, 92 Tenn., 35.)
    H. P. COOPER FOB APPELLEE.
    I. The agreed facts show that the money borrowed was not to be paid in any other way than by the stock when it matured; and that the defendant had the right to retain the loan until the same 'was cancelled by the monthly payments and the profits of the association.
   JUDGE Du RELLE

delivered toe opinion of the court.

The New South Building and Loan Association was 'a Tennessee corporation, having its place of business at Cumberland Gap, Tennessee. In October, 1891, the appellant was, by the Chancery Court of Claiborne county, Tennessee, appointed Receiver of the business and property of the Company and qualified as. such. By decree in the cause in which appellant was appointed, entered in March 1892, the Corporation was dissolved upon the ground that it was insolvent, and its business was directed to be wound up and settled. It appears that all Stockholders in the company were either parties plaintiff or defendant in the cause.

The appellant thereupon instituted suit upon a note ■executed by appellee to the Company, which came into his'hands among the assets of the Corporation, dated June 1st, 1890, for one thousand dollars, with five per cent, interest and five per cent, premiums per annum .and payable on or before seven years from date, with a proviso precipitating the maturity of the princijial upon •default for six months in payment of interest or premium. The note was secured by mortgage on appellee’s land in Marion County and by pledge of stock held by hiña in the Company. The mortgage provided further for the payment of a reasonable attorney’s fee in the event the indebtedness should be collected by suit The appellee had subscribed May 1st, 1890, for fourteen shares of the stock of tké Company, the subscription being for monthly payments of eighty cents per share until the stock should be paid up and matured, and on the maturity of the stock, which, it was estimated would occur in about seven years, the shareholder, who was a borrower, would be entitled to have the amount of his loan deducted from the face value of the stock, .and be paid the difference in cash. Appellee had paid dues on his stock up to June 16th, 1891, and interest .and premium on his loan to the same date. The petition sought the recovery of the thousand dollars, subject to credits by the amounts paid as interest and premium on the loan, and of an attorney’s fee of ten per •cent, on the amount due.

By amended petition it was averred that the Company was a Tennessee Corporation having its principal place of business in that State, that the note was payable-there, the note and mortgage were there delivered and accepted, and that the laws of that State allowed the-collection of an attorney’s fee when contracted for. Appellee pleaded a set off of the value of certain paid up stock held by him, mistake in the drawing of the mortgage, and that the contract entered into- by him was that the note was to be paid by the maturing of the-stock and in no other way, and prayed that the note be credited by the dues paid on his' stock as well as the interest and premium and for damages for breach of' contract.

By an agreement filed in the cause, it is established that the note and mortgage were executed at Lebanon,. Kentucky, but the note was payable in Tennessee, that the laws of Tennessee authorize and enforce contracts; for the payment of reasonable attorney’s fees in such cases, that appellee subscribed for his stock for the sole-purpose of securing a loan of a thousand dollars from the Company, and having secured it executed the note- and mortgage sued on, that at the time he secured the-loan it was estimated that his stock would mature and be worth par in seven years, at which time the Company would owe him fourteen hundred dollars on his stock,, which would cancel his loan and entitle him to four hundred dollars in cash; and that he contracted to pay eleven dollars and twenty cents per month on his stock, and the interest and premium on his loan until his pay-. rnents-, with the profits of the Company, should make' his stock worth par, whether this was for a longer or shorter period than seven years; that he “had a right to retain the loan until the same was cancelled by the said monthly payments and profits of the association”; that the dues payable on the stock were $11.20 per month and the interest and premium were $8.34 per month. The amount of payments by appellee on each account was agreed, and that he had not been in default in payment for a period of six months before either the insolvency of the Association or the appointment of the receiver, but had been in default for more than six' months at the time,of the decree of dissolution; and that he ceased payment because he believed in July 1891 that the Association was insolvent and was misappropriating the funds.

The Circuit Court decreed a reformation of the note and mortgage as prayed for in the answer. This is immaterial, as there seems to be a general consensus of authority “that upon .premature dissolution of the association, the advanced members may be compelled to pay forthwith the balances due from them on their securities, although the latter be given in terms only for the payment of installments.” Endlich on Building Associations, 2nd. Ed. No. 523.

The Circuit Court gave judgment foreclosing the mortgage, allowing credits on the note not only for the amount paid as interest and premiums, but also for the amounts paid as dues on the stock. The judgment de nied the attorney’s fees prayed by appellant

Although appellee prayed a cross appeal, he appears in this court asking an affirmance. The appeal therefore presents but two questions for decision. First, whether the contract for attorneys fee, which was valid according to the laws of the State where contract was by its terms to be performed, is enforcible in this state. This question has been recently decided by this court in the negative.

It was held in the case of Clark v. Tanner, ante, 275, that the general rule of comity giving effect to contracts beyond the limits of the State where made, does not embrace contracts like the one in question. Such contracts come within recognized exceptions to the general doctrine. Those exceptions, as said by Justice Martin in Whitson vs. Stodder, 8 Mart. (La.) 95 apply to cases in which the contract is immoral, or unjust, or in which the enforcing of it in a State would be injurious to the rights, the interest or convenience of such State or its citizens”. And as said by this court in Witherspoon vs. Musselman, 14 Bush 214, of such contracts for the payment of attorney’s fees: “They are agreements to pay penalties, tend to oppression of the debtor and to encourage litigation.” There was therefore no error by the lower court upon this point.

The second question is whether the sums paid as dues on stock subscriptions are proper credits upon the mortgage debt, or whether those payments should stand to his credit until time for final settlement, when all share holders, borrowers as well as non-borrowers, will be paid pro rata from the fund for distribution, it being conceded that the payments of interest and premiums were properly credited upon the debt. Mr. Endlich in his work on Building Associations, in the latter part of section 523 (2nd. Ed.) thus states the doctrine contended for by appellee. “In one class of decisions it has been declared that the borrower is to be charged only with the amount he has actually received, with legal interest and credited with all his payments, upon stock and interest upon the principal of partial payments.” Quite a number of authorities sustain this view,but on this question we concur with the courts of Pennsylvania and Tennessee, and Mr. Endlich in summing up the effect of the authorities, in section 531, concurs in the reasoning of those courts, while he contends for a qualified application of it. He says (p. 530) “It must be true therefore that the basis of the borrower’s indebtedness is to be taken to be the amount of money actually passing into his hands, with legal interest thereon. But it can not he true that he is to he alloioed as deductions therefrom all that he has paid into the society. That would be overlooking his duty as a member to contribute to the losses and expenses of the common enterprise. What he has paid as interest is to be allowed him as paid upon interest If he has paid interest upon the premium bid by him, he has overpaid his interest, and the excess ought to go in reduction of his debt. And upon it he is entitled (by reason of his right to apply, if he chooses, his stock payments to the reduction of his debt) to a further credit for whatever his shares are worth, i. e. for his proportion of the assets of the association at the same rate per share as the shares of unadvanced members. The balance remaining upon his indebtedness he is bound to discharge in cash.” Mr. Endlich then goes on to argue that the value of the stock of such an association, when in the hands of a receiver, under the supervision and control of a court of Equity, can be readily ascertained, or at least approximated, and the advanced share holder given the benefit immediately by way of credit on his debt, of a part at least, of the value of his stock, an estimated proportion thereof being reserved to cover losses and expense of liquidation, and the surplus if any remaining- to be paid him on final distribution. But we apprehend that the procedure suggested by Mr. Endlich, and which does not appear to have been approved by the Courts, would prove dangerous in actual practice. Oversanguine receivers would put too high an estimate upon the value of the Association’s assets and too low an estimate on the probable losses and expenses, with the result of a loss to the unadvanced members, and a proportionate gain to the advanced members: Moreover it would be extremely difficult of application in a case like the one at bar, where the member’s debt is collected through the forums of a different sovereignty from that under which the receiver was appointed. We are of opinion that the true rule is laid down in the case of Rogers vs. Hargo, decided by the Supreme Court of Tennessee, in considering a question arising out of the same receivership involved in this case. The court in that case (92 Tenn. 38) quoted as follows from Stroken vs. Franklin Saving Fund and Loan Association, decided by the Su-. preme Court of Pennsylvania in 1887 (Atlantic Reporter, vol. 8 p. 843): “Tlie insolvency of the Company as before observed, puts an end to its operations as a building association. To a certain extent it also ends the contract between it and its members respectively, and nothing remains but to wind it up in such a manner ns to do equity to creditors and between the members themselves. As regards the latter, care should be taken to adjust the burdens equally and not to throw upon either borrower or non-borrower more than their respective share. That result may be reached by requiring the borrower to re-pay what he actually received with interest. He would then be entitled, after the debts of the Corporation are paid, to a pro rata dividend with the non-borrower for what ■ he had paid on his stock. He will thus be obliged to bear his proper share of the losses. To allow him to credit upon his mortgage his payments on his stock would enable him to escape responsibility for his share of the losses, and throw them wholly upon the non-borrower. In other words, the borrower would escape without loss. It will not do to administer the affairs of an insolvent Corporation in this manner.”

The Tennessee Court commenting upon the opinion quoted, said, “The reasoning of the court, as there given fully indicated the conclusion reached. To our minds It seems unanswerable. Without further discussion or elaboration, we are content to adopt and follow the decision of the Pennsylvania Court. Charge defendant with money actually received by him, treating same as due and' drawing interest from time received: and credit him thereon by payments of interest and premiums; when made. Ascertain balance due, making calculation upon the principle of partial payments, and give recovery for such balance. Let amount paid by defendant as dues on stock stand to his credit on the books of the Corporation until time for final adjustment, when he and all other stockholders, borrowers and non-borrowers, will be paid pro rata from the fund for ultimate-distribution;. Thus the loss will be apportioned equally.”

In this conclusion we fully concur.

Wherefore the judgment is affirmed on the cross appeal and reversed on the original appeal with directions-to enter a judgment in accordance with the principles-of this opinion.