#### The Forrest City United Land and Building Association *v.*Farrell Gallagher et al.

1. The act of February 21, 1867, authorizing building associations to become incorporated, as provided in certain sections of the “ act to provide for the creation and regulation of incorporated companies, passed May 1, 1852,” has reference to the sections named which were then in force, and not to the original sections which had been repealed.

2. The sections in the act of 1852, are referred to as prescribing the course to be pursued by persons desiring to become incorporated for the purpose of availing themselves of the privileges of the act of February 21, 18G7; and the last-named act is not an amendment of such sections, within the meaning of section 16, article 2, of the constitution.

8. The advancing of money by a building association to its members, as provided in the act of February 21, 1867, is not the exercise of banking powers.

*4.*Building associations are not authorized to charge interest on the premiums allowed for precedence in taking loans. The money actually advanced is the basis for the computation of interest.

6. Fines can not be imposed for default in the payment of interest on loans; nor can more than one fine be assessed in respect to the same installment of stated dues.

Error to the Superior Court of Cleveland.

*8. Burke,*with whom was *E. J. Estep*and *W. S. Kerruish,*for plaintiff in error :

"We claim that, under no circumstances, should the defendant in error be credited with payments on account of stated dues or fines for the non-payment of stated dues, upon a loan. In other words, if h,e borrowed so much money of the company, which he is bound to refund, he must refund that as a loan, and payments made by him for fines upon stated dues, should not be credited to him upon account of his loan.

The statute under which this association was organized clearly authorizes the company to make by-laws, and clearly provides that the association may levy, assess, and collect from its members stated dues, fines, and interest upon loans-*209advanced. The company may also demand and receive such premiums for the right of precedence, in taking loan, as the company, by its by-laws, may adopt; and certainly no premium can be fairer to all parties, than a premium which is fixed by competition among the members. These powers are clearly conferred upon the association by statute, and the association in this case never went beyond the express powers conferred by this statute, inasmuch as associations organized under this act are to be conducted strictly on the mutual plan, and all members are to stand on a perfect equality, and the holding of large amounts of stock is utterly prohibited. The somewhat extraordinary powers granted, it was supposed by the legislature, could not result in harm or oppression. In the construction of this statute, the coui't will consider the purpose of the legislature in enacting it; that purpose is well expressed in the act itself.

The interest to.be collected by these associations does not in any respect depend upon the interest laws of the state, but depends upon the by-laws of the association. "Under these by-laws, under the rules and regulations adopted by this association, it is very clear that the interest to be paid was six per cent, upon the par value of the stock, and not six per cent, upon the money actually advanced. That this is legal is, as we understand it, already settled by this court.

Again, as to fines. If there is any subject which is entirely within the jurisdiction and powers of the association, it is the subject of fines, whether any fines shall be collected ; if so, for what, and upon account of what, they shall be collected. All this, by the statute, is submitted ta the judgment of the association. It is a subject governed solely by its by-laws.

The chartering of banks by the legislature authorizing them to issue their notes intended to circulate as money, and the phrase “banking powers,” as employed in the constitution, includes not only the power to issue bills intended to circulate as money, but also the power to discount notes, *210buy and sell, exchange and loan money, and transact such other business pertaining to the carrying on of banking as were usually embraced in the phrase “banking powers.” It will be noted that the constitution does not prohibit the legislature from conferring the power upon any corporation to receive and pay out money, upon deposit, nor to loan money, nor indeed does it prohibit the legislature from clothing a corporation with any of these distinctive powers. The thing which the legislature is prohibited from doing *is the conferring of “banking powers*” *in the aggregate, not a hanking power;*not some particular banking power, but the conferring upon any corporation banking powers as understood by the people of this state, at the time of the adoption of the constitution. That this act does not confer banking powers in the sense in which it was then and is now understood is too plain for argument.

Undoubtedly, it is perfectly competent for the legislature to prescribe what steps are necessary to be taken by any association in order to obtain corporate rights and powers, and whether, in doing so, an existing law or a lawthat has been repealed is referred to, is a matter of no sort of consequence. There certainly is nothing in the constitution which prohibits the legislature from prescribing the mode in which an association may be incorporated. That is all that is done in this act. Indeed, we do not deem the question of the constitutionality of this law to be an open question in this state. See 22 Ohio St. 339; 1 Cin. Sup. Ot. Eep. 468.

*Slutz § Lavan,*for defendants in error:

I. The laws under which these associations are organized are unconstitutional, because:

1. They are contrary to article 2, section 13, of the state constitution, which provides that “no bill shall contain more than one subject, which shall be clearly expressed in its. title; and no law shall be revised or amended unless the new act contains the entire act revised, or the section tor *211sections amended; and the section or sections so amended shall be repealed.”

The sections 63 and 65 of the act of May 1, 1852, referred to in the statutes, authorizing these associations, were repealed May 1,1858 (see 55 Ohio L. 145), and were not in existence when the law of 1867 (64 Ohio L. 18), was passed ; so that the law of 1867 was based upon and refers to a statute, the principal part of which was not then- in force, is therefore void; but even if the law of May 1, 1852, was in force when the law of 1867 was passed, the latter bill is contrary to and in contravention of section 16, article 2, of the state constitution, as before referred to, because the new act did not contain the section or sections amended, and because the section or sections so amended were not repealed by the act of 1867. *Work et al.*v. *Detroit Building and Savings Association,*Central Law Journal of St. Louis, for January, 1875.

2. On the ground that it is a special act conferring corporate powers in opposition to article 13, section 1, of the constitution.

3. That it authorizes an association, with banking powers, contrary, to section 7, article 13, of the constitution of the state.

The associations were not formed for manufacturing purposes, and can not be said to be incorporated under the provisions of the act of May 1, 1852, with sections referred to, and can be considered in no other light than as special acts conferring corporate powers.

II. There is no power conferred upon these corporations.

1. To charge and collect a greater rate of interest than is allowed by law to other parties.

2. To charge and collect interest on the premium bid by the members for right of precedence in taking loans so advanced.

3. To discount their loans, or to deduct the premium bid for the right of precedence in taking loans from the loans so advanced.

*2124. To collect interest on money withheld after it becomes' due, under the name of fine or penalty.

III. When the plaintiff took from the defendant his stock and canceled it, the" defendant ceased to be a member, and the only relation existing between them was that of debtor and creditor; and the only amount which the plaintiff' could claim from the defendant, was the amount actually loaned, and legal interest thereon. 2 Casey, 463; 6 Casey, 465; 5 Wright, 478; 14 Wright, 32; 33 Barb. 103.

*D. M. Wilson,*also for defendants in error.

White, J.

This is a proceeding in error instituted to-obtain the reversal of the judgment of the Superior Court of Cleveland. The original petition was filed to foreclose a mortgage executed by the defendant in error to the-plaintiff-in error. On the trial the court found there was nothing due on the mortgage and dismissed the petition.

The plaintiff is claimed to be a corporation under the act of February 21,1867, entitled “ an act to enable associations of persons for raising funds to be loaned among their members for building them homesteads and other purposes,, to become bodies corporate.”

The first section of the act provides that, for the purposes therein declared, “ any number of persons, not less-than five, may associate themselves together and become a corporation, as provided in sections 68, 64, and 65 of the act entitled ‘an act to provide for the creation and regulation of incorporated companies in the State of Ohio,’ passed May 1, 1852.” The original sections 63 and 65 of the last-named act were repealed May 1,1858, and amended, sections substituted.

It is contended that the act of February 21, 1867, under which the plaintiff claims to be incorporated, refers to the-original repealed sections of the act of 1852, and that it is, for this reason, invalid. But we think it clear that the-reference is to the amended and not to the original sections. It is therefore unnecessary to inquire as to what would. *213have been the effect if the reference had been to the repealed sections. The reference in the act of February 21, 1867, is to the sections named in the act of 1852, as the act was then in force.

It is also claimed that the act of 1867 undertakes to amend sections 63, 64, and 65 of the act of 1852, and thus is in conflict with section 16, article 2, of the constitution, which declares that “ no law shall be revived or amended, unless the new act contain the entire act revived, or the section or sections amended ; and the section or sections so amended shall be repealed.”

The act in question does not purport to be, nor is it, as seems to us, an amendment of the act of 1852. True, certain sections of the last-named act are referred *to*as prescribing the course to be pursued by persons desiring to become incorporated, in order to avail themselves of the privileges of the act of 1867. The effect would have been the same if these corporations had been authorized by the original incorporation act of 1852. That act provides for the creation of various classes of corporations with powers distinct and appropriate to their several objects; yet persons desiring to form a corporation of either description, are referred to the saíne sections for the mode of organization. In principle, it does not seem to make any difference whether these various corporations are authorized by the same or by different statutes.

The purpose for which these corporations are authorized, as declared by the act, is, the “ raising of moneys to be loaned among the members for use in buying lots or houses, or in building or repairing houses.” Under the original act of February 21, 1867, the fund from which the loans were to be made was contributed by the members; but by the subsequent acts of May 5, and May 9, 1868, the associations were authorized to receive deposits, and to loan to depositors as well as members. The original act was repealed, but no rights acquired under it were to be affected by the repeal. The loan to the defendant, Gallagher, was made under the original act.

*214It is claimed that these acts assume to authorize the exercise of banking powers, and are thus in conflict with section 7, article 13, of the constitution, which declares that, no act “ authorizing associations with banking powers, shall take effect until it shall be submitted to the people,” and be approved by a majority of the electors.

Whether a general authority to receive deposits and make loans comes within the meaning of “banking powers,” as these terms are. used in the constitutional provision, or whether the restriction has reference only to the power of issuing paper to circulate as money, we are not called on in the case before us to determine. However this may be, it is quite clear that the collection of money from'the members, and the loaning of it among them for the purposes and in the manner provided for in the act in question, is not the exercise of banking powers. As to the effect of the subsequent provisions authorizing the receiving of deposits and the loaning to depositors, we express no opinion.

The mode prescribed by the statute by which the association was authorized to raise money and carry on its business, is as follows: “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 by-laws shall adopt; also, to acquire, hold, incumber, and convey all such real estate and personal property as may be legitimately pledged to it on such loans, or may otherwise be transferred to it in the due course of its business ; provided, that the dues, fines, and premiums so paid by members of such corporation, although paid in addition to legal interest on loans taken by them, shall not be construed to make the loans so taken usurious,” etc.

By the rules under which the plaintiff was organized and its business conducted, the' stock was divided into shares of two hundred dollars each. The shareholders were required to pay monthly dues of one dollar on each share of stock by them respectively held, until the aecumula*215tions of the association should be sufficient to divide to each share of stock two hundred dollars. The payments were then to cease; and as soon as the shareholders had all received the sum of two hundred dollars, or its equivalent, the association was also to cease.

On the 9th day of July, 1867, the defendant being the owner of three shares of stock, obtained a loan from the plaintiff of $803, the difference between that sum and the par value of his stock, namely, $297, being the amount of premium. On this transaction he gave to the association hie secured note for $600, on which he was to pay monthly six dollars. These monthly installments consisted of three dollars, as monthly dues on the three shares of stock, and three dollars as interest on the loan, the interest being computed on the premium as well as on the money advanced. The object of this note, as we understand from the record,, was to secure the payment of the monthly dues on the three shares of stock, the interest that might become due, and the fines that might be assessed against the defendant.

The defendant paid his monthly dues and interest up to-June 9, 1872, when he ceased paying. On the 27th of November, 1872, the note and mortgage in suit was given in exchange for the securities above referred to. This note is for $600, payable to the plaintiff' in four months, with interest payable monthly. This note, like the former, includes in the monthly installments of interest the monthly dues, and interest on both the premium and loan advanced.

The statute does not authorize the exaction of interest on the premium. The exteut of the plaintiff’s demand, exclusive of fines, is to require the payment of the stated dues, and interest on the money advanced, until the time arrives for winding up the affairs of the association. The premium .is then to be accounted for by the borrower as so much advanced toward the redemption or payment of his stock.. Interest is intended by the statute as a compensation for the use of the money the borrower receives. The higher the premiums, the less money the borrower gets, and, if interest can also be charged on the premium, the less *216money he has to use, the higher the rate of interest he will have to pay for it. A declared object of the statute, as expressed in its title, in authorizing the associations, is to enable their members to obtain for themselves homesteads To justify an exaction so well calculated in its practical results to defeat this object, as this exorbitant demand for interest, the authority for it ought to be unequivocally expressed.

But it may be said that, as there is no limit to the premium that may be allowed, the question as to interest is immaterial; that whether the premium be high and the rate of interest low, or the interest high and the premium low, the result is practically the same.

The borrower is more likely to be imposed on by confounding the interest and the premium. Besides, the statute distinguishes between premiums and loans, and only authorizes interest on the “ loans advanced.” And while it is our duty to enforce the statute according to its true meaning, yet we are also bound to see that it is not made to subserve the purposes of extortion and oppression beyond what its terms require.

The plaintiff* by its by-laws, claims the right to assess a fine for each default in the payment of monthly dues; also for like default in the payment of installments of interest; and, furthermore, it claims the right to repeat this fine monthly so long as the default continues.

A proper construction of the statute does not justify this extraordinary claim. The views of the' members of the court have not been entirely harmonious as to whether an y fine can be assessed for default in payment of dues. But all are agreed that it can not be imposed for default in the payment of interest, and that it can not be imposed more than once in respect to an installment of monthly dues. The ground of this distinction is stated in the opinion in *Hagerman et al.*v. *Ohio Building and Savings Association.*

In stating the account between the parties, the court excluded all fines assessed on account of monthly dues. The account was stated by charging the defendant with simple *217interest on the money advanced, and with the monthly dues on his stock, and by crediting him with the amount paid. By adding to the charges against the defendant the fines legally assessed for defaults in the payment of dues, and by making proper allowances by way of interest, we see no objection to this mode of stating the account.

The court found the defendant had overpaid the amount due, in the sum of $15.28, which was ordered to be applied upon future dues and interest. Eor the reason already stated, this finding was incorrect. . The judgment must therefore be reversed, and the cause remanded for a restatement of the account.

McIlvaine, C. J., Welch, Rex, and Gilmore, «JJ., concurred.