Court Opinion

ID: 7111384
Source: CourtListenerOpinion
Date Created: 2022-07-24 12:26:46.481339+00
Date Added: 2024-06-11T16:13:45.376165
License: Public Domain

Weavee, J.
(dissenting). — 'The statute in unequivocal language, provides that in actions upon building and loan contracts no greater recovery shall be had against the borrower “ than the net amount actually received with interest thereon at a rate not greater than twelve per centum per annum on the amount of loan actually received by and paid to the borrower with statutory attorney’s fees. No evasion of this provision shall be had by means of any dues, membership fees, premiums, fines, forfeitures or other charges, any agreement to the contrary notwithstanding.” Observing its terms, we' have the simple question whether the payments of all kinds made by the borrower to the association equal or exceed a sum which would be sufficient to return to such association the money actually loaned by it, with interest at twelve per cent, per annum. If so, no further recovery' can be had, notwithstanding any stipulation in the contract to the contrary; but if insufficient, the association may recover all the various installments and charges provided for in the contract up ¡to, but not beyond, the limit thus fixed. In short, the statute provides a standard of comparison by which wé may determine when the premiums, dues, fines, forfeitures, and other charges shall be held to be excessive. Creditors in general are by statute prohibited from contracting for more than eight per cent, interest. Code, section 3038. But building and loan associations are permitted to disguise usury under the more attractive garb of “ premiums,” “ dues,” “ fines,” and “ other charges,” and to enforce payment thereof so long as the sum total of the exactions shall not be greater than interest at the rate of *751twelve per cent, per annum. Whenever, then, any question arises whether the demand of the association is greater than it is lawfully entitled to recover, we have only to test it by the standard thus provided. That is, we are to compare the amount which is necessary to discharge -the debt on the contract basis of premiums, dues, fines, and other charges with the sum or result which would have been found had the loan been made at “ twelve per cent, interest per annum,” and all the various contributions to premiums, dues, fines, and other charges had been applied as payments.
The words' “ interest,” “ rate,” and “ per cent, per an-num,” as applied to compensation for the use of money, have long had a fixed and settled meaning in law, and the rule for computing interest is agreed to with practical unanimity by all courts in all the States, including our own. See Smith v. Coopers, 9 Iowa, 387, and the many cases to same effect collected in 29 American Digest, page 230. By this rule the creditor is always and everywhere required to account for all payments as of the date when they are received, and, if such payments at any time exceed the interest then earned, they operate to reduce the principal debt by the amount of such excess, and in the same proportion reduce the burden of interest thereafter accruing. If the Legislature had not intended its language to be interpreted in harmony with the accepted rule of law, which accords as well with common and approved usage, surely we should have-been given some explicit direction to that effect. Under the rule adopted by the majority, the association is permitted to swell the standard of comparison by computing interest on the entire amount of the original loan for the entire time from the date of the contract to the date of settlement, and from the sum of these items the aggregate amount of all partial payments, without interest, is then deducted.- In other words, the debtor is thus made to pay not only the given rate of interest on the unpaid balance of principal, but also upon the very money which he has repaid and of which *752the creditor is enjoying the use and benefit. Applied to cases like the one at bar, it abolishes the statutory provision that no greater recovery shall be allowed than the sum actually loaned, with interest thereon at a rate not greater than twelve per cent, per annum, and substitutes for such limit another, by which the association may increase the sum of its exactions to the amount which shall be the equivalent of .interest at the rate of 15 to 20 per cent: per annum. To illustrate its practical effect, let us suppose that A. owes B. $500, bearing interest at twelve per cent., and he pays each year for four successive years a sum equal to the accrued interest and one-fifth of the principal. If settlement be had at the end of the fifth year, according to the standard rule, it is obvious, without formal statement of the figures, that the utmost sum required of the debtor to cancel his obligation is $112. But applying the rule of the majority opinion, we have an account like- this:
Principal . $500 00
Interest (5 years) 300 00
Total . $800 00
Less Payments: .
First year . .. $160 00
Second year . . 148 00
Third yeár . .. 136 00
Fourth year . . 124 00_
-- 568 00
Balance due (fifth year). $232. 00
By this plan the debtor is compelled to pay $232 to discharge a debt which by the ordinary rule of computation would amount to but $112. Now, by the first method the creditor gets full twelve per cent, interest per annum. There is never an instant .when every dollar lent by him and not *753returned into bis bands is not earning him interest at that rate. By the second method he received his full twelve per cent, interest as above shown, and a bonus or excess of $120. Stated in terms of “ interest,” he receives the equivalent of twenty per cent, per annum on his money for the time it was actually out of his possession. It cannot _ be reasonably supposed that, in restricting building and loan associations to charges which shall not exceed the equivalent of twelve per cent, per annum, the Legislature had any thought that it was legalizing a scheme for the exaction of twenty per cent. Assuming, as we must under the former holdings of this court, that the statute which excuses these associations from obedience to the general law against usury is a valid exercise of legislative power, every consideration of justice and public policy required us to construe this extraordinary and exceptional grant or privilege with strictness, and to confine its exercise within the limits prescribed for it.
To a great extent, building and 'loan associations have ceased to be the simple co-opeiative enterprises by which laborers and others of limited income co-operate in bringing together their modest savings and making them the instrument or means by which homes are built and the general prosperity advanced, and have become devices by which excessive interest is. obtained, with few, if any, counterbalancing advantages. Says the Supreme Court of Pennsylvania: “ It is well known that the design of the Legislature was to encourage the erection of buildings. The motive for the grant of the franchise was public improvement- - But the practical working of the associations formed under the law has not been what was anticipated. Though called £ building-societies,’ they are in truth only agencies by.which greater than legal interest is obtained from the necessitous and unwary.” These obvious truths have led the courts quite generally to construe the statutes authorizing the business with strictness, and to apply to their contracts the ordinary rule for computing interest where .partial payments are to be con*754sidered, unless some other method is clearly authorized. N. A. Building Ass’n v. Sutton, 35 Pa. 463 (78 Am. Dec. 349); Kupfert v. B. & L. Ass’n, 30 Pa. 469; Mills v. B. & L. Ass’n, 75 N. C. 292; Western S. Co. v. Houston, 38 Or. 377 (65 Pac. Pep. 611); Strauss v. Carolina B. & L., 117 N. C.. 308 (23 S. E. Rep. 450; 30 L. R. A. 693; 53 Am. St.. Rep. 585).
It would be profitless to go into a minute computation of the payments in this case. They are made up of numerous small sums paid at monthly intervals covering a period of several years. Considered on the basis for which I here contend, the association has already received the full equivalent of the original loan with interest at twelve per cent, per annum, and is entitled to no more.
In my opinion, there is no merit in the appeal, and the decree of the district court should be affirmed.