Evening star. [volume] (Washington, D.C.) 1854-1972, 1874-02-12
IMPORTANT To BgILI,fNg AsSoCr.
ArIONS
a Test Case ON Trigai I'm the Dist ri CT
SupReu1e COuYf

l. Ia.
association and Msttingly and Schmidt for abst.
IL will be recollected that this case was before
the Equity Court, Judge Humphreys, the bill
having been fled for an Injunction and account,
and the auditor having stated an account the
complainant filed exceptions thereto, three of
which were sustained, and an appeal was taken.
THE CASE OF THE ASSOCIATION.
The brief of the appellants association and
trustees) states that Pabst was a member Of the
Economical Building association. After several
purchases the result was that he held one hun
dred and twenty shares, making, in the aggre-
gate, SOTO. He gave bonds in the usual form,
conditioned for the payment by him to the trea-
surer of g. per month for every share OF stock
held by him, and fines and forfeitures. until the
association should determine and close, and ex-
ecuted deeds of trust to secure them. He hay-
ing failed to continue MS monthly payments,
der the deeds of trust This bill was iIed for
an injunction against the sale and an account.
Three exceptions were sustained, as follows: Be-
cause, I. The contract is void, because ITS con-
ditioDs are against law and violated the law of
usury. 2. The contract contemplated a loan
ard 9 was not an advance Of partnership funds.
1t further states that the first two present the
question whether the transac tons are the same
In AL building associations were usurious. Such
question could not arise If the transaction
originated after the passage of the act to amend
the usury laws, April %, 1870, for the amount
received by the plaintiff, with interest at 10 per
cent, compounded every six months, exceeds
the amount he was to pay. The whole scheme
Il one OF constant reinvesting and compound
ing. Charging compound interest is not usur-
lous. The larger part of the advances received
were in 1863, but the balance, 81, i2O, was not
received until December, 1870. As to the latter
there can be no question of usury made.
Whether the terms of the first advances made
a case of usury depends upon the scheme of the
associations. The object OF the association is
declared, in its constitution, to be the accumu-
latiOn Of a fund, by the savings of its members,
suffic ient to enable the stockholders to build,
repair, or purchase for the mselves dwelling
houses, &c. Every stakeholder is to pay 2 per
Co.. y ,%ra al.
is to be invested and compounded until the
funds will divide to each stakeholder
500 per share, or twice its nominal amount
The usual mode of dealing is, when a sufficient
fund accumulates to buy out one or more stock
holders, the money is put up al auction, aud
whoever bids the highest premium for il re-
ceives his future dividend of 500 per share az
once, less the premium. In other words. he
discounts his future dividend at its present
market value. He goes on, of course, with his
monthly payments as usual, because the fund
out OF which his dividend W as to come is made
up of his contributions as well Is those of other
members. AS fast as each one is thus paid off
the time for winding up is shortened, because
the association Is then only to continue until the
remaining members are paid. A number of
English and American authorities are cited and
the points are made that the association becomes
bound 10 pay IA future to each stakeholder ON
winding up certain sum which may be law
fully discounted; and the principal sum re-
ceiyed by the advanced stockholders is not to be
returned, but only an annuity during the life of
the association.
The case of Silver against Barnes, (the first
case on the subject decided in Nor tn Carolina
in 1889, is cited. This was the case OF a mu-
tual benefit society, in which the funds were
put up at auction and advanced to the highest
bidder, as in this case. 1t was left to the Jury
to md whether there was bona ide partner
ship, or the whole arrangement was a contri-
vance 10 cover usury. They found the former.
On motion for a new trial, Tindall, Oh. j..
said: 1.-The judge who tried the cause thought
there had been no loan, but merely an advance
OF partnership tends, in which the defendant
was interested in common with the other mem-
bers of the society. The defendant was inter-
ested in the fund when the money was advanced
and when 1t was repaid. The rules of the socie-
" are, in effect, mere ageement of partners
that their joint contributions shall be advanced
for the use of one or the other, as occasion
requires, and the transaction in question
was not a borrowing by the maker of
the note from the pages"
Also the case of Wadley agt. Baker, 10Th Howe
81 in which plaintiff fled bill to redeem on
payment Of the sum advanced with legal wit
ness. Vice Chancellor WIgram said that this
was not the case of a loan, but Was a discount of
the plaintiffs share, or an advance, at its then
present or conventional value, of his interestin
the shares he held at the termination Of the
association, and that plaintiff vas only entitled
TO redee m on payment OF all future subscrip-
tons on his shares until the dissolution of the
association, its probable duration to be ascer-
tanned by calculation and the future payments
to be treated as due.
The appellants further state that in the
United States statutes have been passed in
several states very much in the terms OF the
English statute. Some of them seem to author
ize the transaction under the name of loans,
and some of the societies are called loan asso.
Citations. And some of the decisions seem to
recognize the same features in these dealings,
before adverted to, as at variance with the
theory of usuIy.
A case in 18th Barbour 263, decided in 1851, is
cited, IN which the court say: II the principal
were payable absolutely there could be no
doubt OF the usury. But ii is not so. And even
when the mortgage has been foreclosed, and
the moneys mentioned therein collected, they
are TO be applied only to the satisfaction OF the
dues, fees and fines, and the surplus to be re-
turned TO the mortgagor. And in regard to the
increased monthly payments: 50 Besides the
higher rate OF interest to be paid by each mem
Der OF the association, the shorter will be the
period required TO complete the accumulation
on the completion OF which the association
was to terminate and the payments to cease.
The money collected by the association being
the mutual property of all the members, and
the greater the accumulation the shorter being
the ferlod during which they win have to bear
the burden OF paying the moneys, for the pur-
pose of accumulation, the ordinary objection to
the collection Of interest beyond the fixed rates
Is removed"
Numerous other authorities follow, and the
appellants say: 'fIt will be seen that in most of
the states there are some statutory enactments
which would relieve the cases from the obiec-
ton OF usury, even were they considered cases
OF loan. But the pertinency of the decisions
above referred to is that they declare the trans
actions in question not to be loans, but advances
discounts, and purchases"
AS TO the fines they say: ''It is true that
equity will never interpose actively TO enforce
penalties and forfeitures. On the other hand,
II Will not, except in special cases, interfere to
prevent their enforcement at law. Especially,
where there can be no clear estimate Of the
damages resulting from a breach for which the
penalties are incurred, they refuse to interfere
in either way. The very illustration given of
this in Storys Eq. Jur., sec. 1925 is the case of
failure TO pay installments on stock. In the
case OF Shannon VS.. Howard Mutual Building
Association, SO Md, ii was held that the fines OF
a building association did not come within the
principle which forbids a court OF equity TO
lend It's assistance to enforce the payment of
hnes and forfeitures, and that they ought to be
allowed even where the court were applied TO
10 fOIeclose."
THE CASE OF THE PLAINTIFF.
The complainant (Pabst) states that he re-
ceived sl0,Io0 and paid SlO,25s, leaving a bal.
snce of S512, but defendant claims that he
owed March /, 1872, 81 1910. He asks what
rate OF interest this is. At per cent. for three
years the principal and interest would be
l2,IOS.60, and the amounts paid with interest
Tor Is months (ayersge) would be 81, 1S1.22,
leaving 81 81 .SS due the ASSOCIATION. Accord
TO the claim the assOci afian M To- s5fO Of