Court Opinion

ID: 8297791
Source: CourtListenerOpinion
Date Created: 2022-10-17 11:09:10.187203+00
Date Added: 2024-06-11T16:44:02.656955
License: Public Domain

Cooke, J.,
delivered the following dissenting opinion:
The defendant, the -Workingmen’s Building and Loan Association, was incorporated June 10, 1875, under the-provisions of the act of the Genera] Assembly, passed March 19, 1875, ch. 142, secs. 5 and 14, entitled “An act to provide for the organization of corporations.” Said fourteenth section providing for the incorporation of building associations, among other things, provides “that the funds of said corporation may be loaned out to the stockholders, in such manner, on such terms- and conditions, aud under such regulations as the said corporation by its constitution and by-laws may prescribe ; provided, the same be secured by real estate, and any funds of the said corporation which may' remain after the stockholders have borrowed all they desire, may be loaned out to other persons, the same-being secured by a lien on real estate. , * * The board of directors shall hold stated meetings, at which-the money in the treasury, if over two hundred dollars, shall be offered for loan in open meeting at a *700rate not in conflict with the laws of the . State, and the stockholder who shall bid the highest premium for the preference or priority shall be entitled to receive a loan of two hundred dollars for each share held by such stockholder; provided, that a stockholder may borrow such fractional jrart of' two hundred dollars as the by-laws may provide, and good security shall be given by the borrower to secure the repayment of the loan. In case the borrower shall neglect to offer security, or shall offer security that is not approved, the proposed borrower thus failing to give • security shall be charged with ’ one month's interest, and the money resold at the -next stated meeting. In case of' non-payment of instalments or interest by borrowing members, for a period of six months, payment of principal and interest, without deducting the premiums paid, or interest thereon, may be enforced by proceeding on their securities according to the terms of the contract under which the same were pledged. The premium bid by borrowing stockholders for the preference or priority of loan shall be paid before the loan is consummated, not as part of the loan, not as • interest, but as a means of determining which one of the shareholders shall receive the loan, whenever there are a number of stockholders who may simultaneously desire to effect a loan.' * * Said corporation may determine by an express provision of bylaws" that when each share of stock reaches a certain value, to be specified thereby, not exceeding two hundred dollars, the stockholders shall be paid such value for each share they respectively own, and that upon *701such payment the stock shall revert to the corporation.” Said act also provides that the members of said corporation shall have the power to adopt a constitution, and the constitution adopted, the by-laws and' regulations shall have the force and effect of legal enactments on the members of said corporation. That the by-laws may prescribe the amount of shares and the time of payment thereof by instalments, but the monthly call for payment of said instalment shall not exceed two dollars on each and every share- Every share of stock shall be liable for and subject to a lien for the satisfaction of unpaid instalments, and the by-laws may prescribe the mode, etc., of enforcing said lien. Also that no one person shall hold more than fifty shares.
The charter defines the object and purpose of said Association to be “to raise funds to be used by the members thereof only for the purpose of building houses and securing homesteads for themselves in said (Shelby) county.”
By the constitution adopted by the respondent corporation it is provided, among other things, “ that the stock of this Association may be issued in successive series of two hundred dollars .per share, the number of' shares in each new series to be determined by the board* of directors.” “ On each share of stock there shall be paid an instalment of one dollar per month in advance, and any person wishing to subscribe for stock subsequent to the issue of a series shall pay up all instalments which may have become due in the series in which said stock may be taken or issued, *702■and such premiums as- the board of directors may require.” “In case of non-payment of instalments or interest by borrowing members for the period of six months, it shall be the duty of the board of diTectors to enforce the terms of the deeds of trust ■held as security in accordance with the provisions of the act of the Legislature,” etc., above cited.” “ At the stated monthly meetings of the directors the fund •on hand not otherwise appropriated, if the amount of two hundred dollars or more, shall be offered for loan. Every member shall be entitled to a loan not exceeding the par value of any number of shares held by him or her; provided, however, that no member shall -be entitled to a loan on more than fifteen shares at one bidding. Choice of priority of loan shall be by bid of premium, and the member bidding the highest -premium for priority or privilege shall have the first choice of loan, and the remaining funds, if any, shall be -loaned in like manner. Interest on loans shall be at the legal rate of interest from the time, of making said loans, and shall be paid in monthly in--stalments in advance, and at the same time the regular dues are paid; and such loans shall be for the purpose of enabling the borrower thereof to secure a home, or for the purchase of other real estate, or for the •improvement of the same, and for no other purpose whatever, and the loan shall be secured- by deed of trust on unencumbered real estate. * * Should it ■'be ascertained that members having taken a loan are -using it for any purpose not contemplated in this -.constitution, it shall be discretionary with the directors *703as to. further loans to said members. Whenever the stock of the oldest series shall reach its ultimate or par value, and all losses and- gains adjusted thereto, there shall be paid to each member holding unpledged shares the sum of two hundred dollars per share; and all securities held in trust on stock pledged for loans shall be quit-claimed and- satisfied, and said shares revert to the Association; provided, that all claims ■of whatever kind against the ■ stock or securities of any member must be fully paid up before said stock shall be redeemed or securities canceled.”
Mrs. Julia S. Chester, the ancestor of complainant, -became a member of the defendant corporation and the owner of eight shares of the sixth series of the stock prior to the 5th of February,’ 1878, when the money on hand was offered for loan by the said Association, among its members, at a regular meeting, to determine which of them should have the preference to borrow the sum of $1,200 then on hand, and there were a number of members present who desired simultaneously to borrow the same. Said Julia S. Chester bid for ■such preference or priority the sum of $66 premium on each one of six of the said eight shares so held by her, aggregating $396 for such preference, and her’s being the highest bid, the same was struck off and sold to her at said' sum of $396 pre'mium. Said,premium was •not then paid, but she, having filed her application for said loan of the $1,200, to pay off taxes, incum-brances, etc., such loan was, in pursuance of said bid and application, made to her, and said premium •of $396, bid by her .for such preference, was then *704paid by deducting it, from the $1,200, and she was paid the sum of $804 at the same time, and no other sum was paid her thereon, and on said 5th day of February, 1878, she executed her note to said Association for $1,200, which included the $804 received by her and the $396 bid by her for the preference of said loan, said note being dated of said 5th of February, 1878, payable one day after date, as expressed on its face, and bearing interest at six per cent, from date; and to secure this note executed a deed of trust to respondent, A. Woodruff, as trustee, upon a certain house and lot in the city of Memphis. The terms and conditions of said deed of trust, as recited on its face, are as follows: “ That, whereas, the said Julia S. Chester has become indebted to the Workingmen’s Building and Loan Association in the sum of $1,200, as is evidenced by my promissory note, signed, by her, for said sum of $1,200, and due one day after date, with interest from date at the rate of six per cent, per annum, and the said Julia S. Chester is desirous to secure and make certain the payment of the said note according to the tenor thereof, and the stipulations and conditions hereinafter set forth ; now, then, if the said Julia S. ■ Chester shall pay, or cause to be paid, the full amount of interest on said note monthly, in advance, as ■ required by the rules, regulations and by-laws of said Association, and in addition thereto shall pay all assessments, dues and fines that may be assessed or imposed upon her by virtue of her ownership of stock as aforesaid, regularly and promptly, as required by the rules, regulations, by-laws and *705constitution of said Association, until, the assets of said Association shall reach the par value of al) shares of stock taken and subscribed for, or until she ceases to be a stockholder of said Association, and shall in all other respects fully comply with the rules, regulations, by-laws and constitution of said Association, then, and in that event, this deed is to be void and -of no effect; and to make sure the payment of the amount herein secured in the event of accident, she covenants to keep the premises insured to the amount of two thousand dollars, pay taxes, etc.” The deed then proceeds as follows: “ And if I should fail, for a period of six months, to pay the interest, assessments, monthly dues and fines hereinbefore mentioned, as well as the premiums and taxes aforesaid, pursuant to the provisions of the constitution, by-laws, rules and regulations of said Association and the stipulations and covenants herein made and set forth, the said A. Woodruff, or his successors in office, as trustee, may, after giving thirty days5 notice, etc., expose said lot to public sale, to the highest bidder, for cash, and appropriate the proceeds: First, to the payment of ■ the expenses and costs of sale; second, to the satisfaction of said debt of twelve hundred dollars, with all the interest and accumulated expenses as hereinbefore set forth, whatever they may be, and the balance, if any there be, to me or my legal representative.”
On the 2d of April, 1878,. the said Julia S. Chester made another transaction with said Association precisely similar in all respects to the one above stated, in which she purchased the privilege of a loan of $400 *706upon her two remaining shares of stock at a premium of $68 per share, aggregating $136, and received $264, executing her note for $400, also secured by deed of trust in precisely the same forms as those above stated.
Said Julia S. Chester paid on said six shares on which she made the $1,200 loan one dollar per share per month until the same amounted to $366 dues paid en said stock, and on the two shares she also paid one dollar per share per nionth until $122 of dues on said stock was paid. She paid on said $1,200 loan, at the rate of $6 per month interest until the sum of $354 was paid thereon, and on the $400 note she paid interest at the rate of' $2 per month until the same amounted to the sum of $116, when she ceased to make further payment.
Mrs. Chester having died, the complainant, Margaret Patterson, who is her only child and heir-at-law, filed this bill, alleging that said transactions, as above stated, were usurious, and seeking to have an account of said usury, and the mortgaged premises relieved from the same, etc.
The respondent, by its- answer’, denies that said transactions were usurious, and files its answer as a cross-bill, by which it avers that said property is justly chargeable with said amounts of $1,200 and $400, with interest at the rate of six per cent, from the dates of said notes respectively, less the proper •credits for the amounts so paid, as in said answer -set forth, and seeks to enforce the same.
The chancellor held that said transactions were *707usurious; that said premiums bid by said Julia S. Chester for a preference or priority in making said loans were but devices to evade the usury laws of this State, and were illegal, etc. He further held that the contract for and payment of dues by complainant’s ancestor upon her capital stock were usurious and unlawful, and that all payments made thereunder should be applied as credits upon the original indebtedness, etc., and ordered an account charging complainant with the amount of moneys actually received by Mrs. Chester, and crediting her with the several sums paid into the Association, on the basis of partial payments; and holding said deeds of trust as valid securities for whatever amount might thus be found due the respondent. The respondent has appealed.
It seems to be clear that it was the purpose ‘ of the Legislature, by the provisions of the 14th section of the act above recited, to authorize such transactions as are here complained of, and the principal, if not the only, question to be determined is, had the Legislature such power? and this depends entirely upon the question whether or not these transactions were usurious.
Article XI., section 7, of the Constitution of this State provides that the Legislature shall fix the rate of interest; and the rate so established shall be equal and uniform throughout the State. And section 8 of the article provides that the Legislature shall have no power to suspend any general law for the benefit of any particular individual; nor to pass any law for the benefit of individuals inconsistent with, the general *708laws of the land. The Legislature, under these restrictions, has uo power to authorize a corporation to-charge a higher rate of interest than that fixed by the general law of the State : McKinney et als. v. The Overton Hotel Co., 12 Heis., 104; nor to suspend the general law in . favor of a corporation: Daley v. The State, 13 Lea, 228. No device can be used to protect a transaction by which more than the lawful rate of interest is secured for the loan of money: 5 Hum., 510; 2 Cold., 418; 3 Cold., 31; 1 Heis., 495; 4 Lea, 160.
A transaction identical in its methods with those now under consideration, came before this court in the case of Martin v. The Nashville Building Association, 2 Cold., 419, and was held to be a device to loah money at usurious rates, and declared illegal and void.
The only difference between that case and the one here presented is that the authority to sell the privilege of loans to the highest ■ bidder among the members of the Association in that case was conferred by the constitution and' by-laws of • the corporation, but was not contained in the charter; and in this it is contained in the act of the Legislature which authorizes the incorporation of the defendant, as well as in its constitution. And it has been virtually conceded in' argument that if that case is to stand as authority this must be decided in favor of the complainant. But, it is very earnestly insisted, that case was not well decided and should be overruled; and we have been referred to a great number of cases in which *709transactions very similar to those involved in this case have been sustained by the courts.
A collection of these cases has been compiled and printed in the form of a brief, constituting a book of over two hundred pages, and furnished us. We have examined them, as well as various other cases and authorities, to which we have been referred, with as much care as we have been able. It does appear that such transactions, or transactions apparently similar in most respects, and including this feature of bidding a bonus or premium for the privilege of the loan of money, in addition to paying the lawful rate of interest, have been uniformly upheld in England and in a majority of the United States. Some of these cases have involved transactions of voluntary associations, and others of incorporated companies, and have been sustained upon the idea or assumption that they were partnership transactions, and as dealings between the partners with the partnership funds. The English cases, notably, as well as some of the earlier American cases, seem to have proceeded upon this idea. Others have been based upon the assumption that the transaction was a sale by the member and stockholder of his shares of stock to the company (the actual value of which was uncertain) for the present advance of a sum of money less than their nominal or prospective value; while others have been placed upon the authority of legislative enactments, without regard to the question as to whether they may or may not, without such sanction, have been usurious. All these cases except, perhaps, the class last men*710tioned, have repudiated the idea of an advance or premium for the loan of money. In other States the courts have held such transactions usurious, and declared them void. The principal eases, both English and American, have been cited and commented upon by Mr. Endlich in his .work on Building Associations,, sections 338 to 357 inclusive.
The transactions involved in this casé cannot be considered in the light of partnership transactions, for the simple reason that stockholders in a corporation are not partners, nor is the stock of a corporation partnership property. It does not appear in the cases that have been sustained, upon the authority of legislative enactments, that the State Constitutions under which they were decided contained any such restrictions as those contained in our Constitution of 1870, which we have cited above. Nor do we think the transactions in question can be legitimately treated as a sale of her shares of stock by Mrs. Chester to the corporation. The language of the ■ statute, as well as of the constitution of the Association, which we have quoted, evidently contemplated the transactions which they undertook to authorize as loans, and so designated them. The transaction itself is, that Mrs. Chester, being desirous, to procure a loan of the aggregate sum of these notes _of, say $1,600, gave the Association $532 for the privilege of borrowing that sum, and which was deducted from it, leaving the actual amount received by her in both transactions $1,068, and for which she executed her promissory notes for $1,600, payable one day after date with in*711terest at six per cent, from date, payable monthly in advance, and which she secured by deed of trust, by the conditions of which she was bound to pay said interest monthly in advance, and also pay all assessments, dues and fines which might be imposed «upon her by virtue of her ownership of the stock as aforesaid regularly and promptly, etc., until the assets of said Association should reach the par value of all shares of stock taken and subscribed for, etc. Or, in other words, until the accumulation of her stock in said company should amount to $200 on each share, or $1,600, the amount of the face of said notes, then it was to be so applied, the deed of trust canceled, and the stock revert to the company. But if she failed for six months to pay said interest, assessments, dues, etc., then said deed of trust was to be foreclosed by a sqle of the property, and said notes, with all interest due thereon, paid out of the proceeds. While this transaction has none of the elements of a sale of stock, it has all those of a loan of money, and which was the only consideration for the premium given and deducted from the amount nominally borrowed. • We do not understand, however, that it is seriously controverted by the defendant that this transaction was in fact a loan of money. And it is also frankly admitted by the able counsel of the defendant, that if an individual were to sell the 'privilege of the loan of a sum of money for, say thirty per cent., and take a note for the amount so loaned, bearing interest from' date, the transaction would be usurious. But it is insisted that these transactions involve a *712co-operative principle among the stockholders of the Association, and . the length of time, during, which interest and monthly dues, etc., would have to be paid by the borrower from the date ^ of the loan until the value of the stock reaches par, is unknown and uncertain, depending upon 'the amount of premium, etc.,' paid by other members upon like transactions, and hence it might result that the borrower would in fact have to pay a less amount than six per cent, upon the loan, including the premium paid for it, and consequently, as it was uncertain and incapable of ascertainment at the time of the transaction whether this would be so or not, it could not be usurious.
The vice of this argument, we think, is, that if it is perfectly apparent, as it must be, that the transaction considered by itself is usurious, it cannot be rendered lawful by the fact that the complainant, as a stockholder in the same corporation, may in the meantime derive a benefit from other transactions equally usurious, that will compensate her for the amount of .usury which she has paid upon her individual transactions with the Association. The legality or illegality of a usurious transaction cannot be made to depend upon the success of the party who pays the, usury in other transactions, whether they be usurious or not.
Mrs. Chester received $1,068, for which she executed her note for $1,600. The substance of the transaction was that she was to pay not only six per cent, interest upon this note, monthly in advance, but the principal was also to be paid by her, and with means to which she would otherwise have been en*713titled. Such a transaction does involve the payment of more than six per cent, per annum for the use of money.
If a stockholder in a bank were to make a negotiation with it, by which he agrees to receive $1,000 in cash, and execute, his note for $1,600, bearing six per cent, interest from its date, and to pay the interest monthly in advance until the dividends to be declared upon his stock should amount to a sum sufficient to pay the principal of the note, and that in the meantime said dividends, as they were declared, should remain in the bank to be loaned by it for its own benefit, no one, it seems to me, would contend that such a transaction would not be usurious, although the bank might, by other and greater usurious transactions with other customei’s, by its gains swell his dividends until such a borrower might, in fact, have to pay less interest than six per cent, upon the amount actually borrowed, nor would the transaction be relieved of its usurious character by an arrangement that stockholders of the bank should be entitled to the privilege of. It is difficult to distinguish such a transaction in principle from those now under consideration., If it were not designed to authorize these Associations ' to receive more than legal interest for the use of money under the guise of selling the privilege of the loan „ of it, it would seem that some other mode of determining the right of priority among the members desiring to borrow, free from suspicion of illegality, had not suggested itself. And it cannot matter that the Legislature expressly enacted that this so-called pre*714mium should not be received as part of the loan or as interest, but merely as a mode of determining which one of the applicants should receive it. Every loan of money must necessarily include the 'privilege, of making it, and the attempt here made to resolve the transaction into two separate and distinct elements or purchasable chattels involves a nicety of discrimination which I cannot quite comprehend, and is evidently too subtle for the ordinary transactions of life.
It is said, however, that these Building Associations are benevolent in their design, and the chief object of their formation is to aid the heads of families of small means to purchase or build their own homes. Such objects are eminently worthy of all the aid and encouragement that can lawfully be bestowed upon them. They have sometimes, however, been assailed from a different standpoint. Mr. Justice Lumpkin, in the case of the Bibb County Loan Association v. Richards, 21 Ga., 592, has epitomized what is generally said for and against them as follows: “Their friends and advocates who claim for them an antiquity older than the Christian era, insist that they are peculiarly propitious to the poor, by stimulating them to save small sums from the grog-shop and the gambling house, and to purchase with their hoards and earnings happy homes for themselves and families; and that the terms upon which they procure help for this purpose are such as they could get no where else, and not so hard as those exacted by monied men, who will not give long indulgence to any, especially those in straightened circumstances; that another object which they subserve is to *715supply a place of safe deposit for the savings of the stockholders, in which they are entitled to receive lawful interest, which is not allowed by banking and other corporations.”
“On the other hand it is asked, why so much complication and mystery about a system designed for the benefit of the masses, especially the poor and humble? That it is all for the purpose of concealing the repulsive interest they charge; that nothing can be understood of its workings, except that it produces the most gratifying gains to the capitalist who invests his money in it to accumulate; that the borrowers, once in the web, may, like the little fly, struggle in vain to escape the entanglement; that the roof that he hoped would have sheltered him crumbles beneath the mortgage that overspreads it; that the sooner these institutions are abolised the better.”
But granting for them all the benefits which are claimed in their behalf, we are compelled to administer the law, under the Constitution, as we find it, not as we might wish it to- be; and transactions which are usurious, and therefore illegal, cannot be consecrated by beneficent results, or rendered lawful by advantages, real or imaginary, which may flow from them; and which, if conceded, can only prove that, although generally disastrous, it may, under some circumstances, prove beneficial to people to be enabled to borrow money upon long credits, even • at usurious rates of interest, and might furnish perhaps an argument more or less persuasive in favor of the establishment of a conventional rate of interest in accordance *716with the provisions of the Constitution which permits that to be done. I am, therefore, of opinion that these transactions are usurious, and that the provisions of the act of the Legislature above cited, which undertakes to authorize them, if that is the proper construction to be given to it, is in contravention of sections 7 and 8 of Article XI. of the Constitution above quoted, and therefore void.
The chancellor’s decree should, therefore, be affirmed with costs.