Fidelity Savings Ass'n v. Shea

QUARLES, J. (After Stating the Facts.) — Owing to the importance of this case, we have given the lengthy and very able argument of the appellant more than ordinary attention. But, after a careful and studious consideration in the record before us, we have arrived at the conclusion that it is to be regarded: as coming within the rule laid down in the following cases, to wit: Stevens v. Association, 5 Idaho, 739, 51 Pac. 779; Mills v. Association, 75 N. C. 292; Association v. Wilcox, 24 Conn. 147; Association v. Blackburn, 48 Iowa, 385; Gordon v. Associaiton, 12 Bush, 110, 23 Am. Rep. 713; Association v. Graham, 7 Neb. 173. A careful consideration of the contract of loan, in connection with the entire record in this case, convinces us that the entire transaction is one of loan, that the issuance of shares to the borrower is a matter of fiction, and that part of the monthly payment which is called “monthly payments upon shares” is merely a trick, artifice, or subterfuge for the purpose of extorting from the debtor a usurious rate — 413 — of interest. As evidence of the correctness of onr conclusion, we quote from the brief of appellant the following language: “In the case at bar, P. E. Shea was carrying twelve shares of stock, but had a loan of only $650. Had respondent, P. E. Shea, carried out his contract, by continuing payment until the stock was fully paid, there would have been with appellant association, .to the credit of P. E. Shea, $1,200. He would have been indebted to the association, on his note, $650. Of the $1,200 to his credit, $650 would have been applied to the cancellation of his indebtedness, and the balance of $550 would have been paid to him in cash, or, if noit drawn by him, as he had the right to do, would have remained with the association, and continued to draw dividends.” In other words, the borrower, although paying for the stock, does not become the owner of it, but, after paying the face value of it, he is entitled to what? The cancellation of his note, and the return to himself of $550. The object of the respondents was solely to obtain a loan of $650. To do this they would, in the event suggested by the appellant, have made two hundred payments of thirteen dollars and fifteen cents each, amounting to the sum of $2,630, of which the appellant would have appropriated $1,430 as interest and “premiums” on the loan, and out of which the debtor, a fictitious shareholder (but who was never in fact a shareholder), would be entitled to the return of $550. Viewed in the light of appellant’s construction, the contract is unconscionable. It is conceded by the appellant ¡that the three dollars and ninety cents monthly premium is purely interest, but appellant claims that the interest collected monthly, seven dollars and fifteen cents, amounts to the rate of thirteen and one-fifth per cent per annum on the loan, and is lawful interest; being less than the rate authorized by statute at the time of making the contract, and which might have been contracted for by stipulation. We would agree with this contention if the monthly payment consisted of the interest only, but it does not. In addition to collecting the interest on the entire amount of the loan, the appellant has exacted a monthly payment of six dollars upon the principal of the loan itself, so that the — 414 — amount of the principal debt is being reduced monthly, but the creditor, notwithstanding, is- collecting interest on the entire amount. The subterfuge of calling payment of the principal of the loan by the term “maturing stock” does not change the nature of the payment. So long as the debtor does not become the owner of the stock, but the “maturity of the stock” extinguishes the debt, whereupon the lender cancels the stock, courts are not justified in holding that the transaction is other than that of loan; but it is the duty of the court to hold such transaction to be one of loan, and subject to the usury laws of the state. Now, suppose -the certificate had called for six and one-half shares of stock, no other change being in the contract. To satisfy his note, the defendant would be compelled, if he did so entirely by the monthly payments therein stipulated to be made, to make one hundred and eight payments of thirteen dollars and fifteen cents each, and one of four dollars and thirty-eight and one-third cents; requiring, say for convenience, nine years. His debt would then be paid. But he would be paying in the principal from time to time, and, while continually returning the sum borrowed, he would be paying thirteen and one-fifth per cent interest per annum on the whole sum. He would not have the use of the $650 borrowed during the nine years. In fact, the average time that he would have it would only be four and one-half years; and, instead of paying thirteen and one-fifth per cent per annum, he would in fact have paid twenty-six and two-fifths per cent per annum. Or, instead of averaging the time that he would have the use of the money, average the amount that he would have during the entire time, and it would be $325 for nine years. He would have paid one hundred and eight and one-third interest payments of seven dollars and fifteen cents each, or in all $774.58, or interest at. the rate of twenty-six and two-fifths per cent per annum — a usurious rate of interest. Hnder the guise of collecting “dues” on “stock,” the appellant would have collected the amount of the loan and interest thereon at the rate of twenty-six and two-fifths per cent per annum. If the interest should be computed by the rule of partial payments that obtains, the rate would be found to be more than twenty-six and two:fifths per cent — 415 — per annum. It seems strange that men will resort to so many schemes to oppress and extort unconscionable gains from their fellow-men, who by reason of poverty or misfortune are compelled to borrow money. We are told in Holy Writ: “For whosoever hath, to him shall be given; and whosoever hath not, from him shall be taken even that which he seemeth to have.” The record of this case shows that the appellant association has acted upon this idea. It requires a great degree of intelligence, much sharpness, and keen shrewdness, to devise means and schemes to rob the unwary and unsuspecting debtor by extorting from him high rates of usurious interest under the semblance of living without the usury laws; yet such shrewdness is always accompanied by an absence of moral integrity or common honesty which does not appeal very strongly to the judge who is sitting in the capacity of chancellor, and whose duty it is to follow the law in administering equity. There is no provision in chapter 11 of title 4 of our Civil Code that authorizes a building and loan association to extort from its debtors usurious rates of interest. It is contended by the appellant that in the contract in this case are to be found two distinct contracts; i. e., one subscribing for stock, and one borrowing money, resulting in two relations between the parties; that is, corporation and stockholder in one instance, and debtor and creditor in the other. We do not concede this contention, but we do concede that the relation between the corporation and its stockholders is distinct from that between it and its debtors, be they stockholders or not. In the case at bar, we construe the entire contract to be one of loan; that it was entered into for the purpose solely of borrowing money by one of the parties, and lending by the other; that the relation of corporation and stockholder exists, not in fact, but purely in fiction; and that the object of the plaintiff in entering into the contract was purely for the purpose of increasing its capital by obtaining large returns for the use of its money. In no case where the two relations are blended together, as in this case, and the stock and debt are both contemporaneously extinguished by monthly payments upon the debt or upon the so-called stock, will the contract be — 416 — treated by this court other than a contract of loan. We reaffirm the rules enunciated by this court in Stevens v. Association, 5 Idaho 139, 51 Pac. 779, and heartily commend what was said by the supreme court of North Carolina in Mills v. Association, 75 N. C. 292. But it is contended by the appellant that the contract before us is a Colorado contract, and to be construed under, and its validity determined by, the laws of Colorado, it being so stipulated in the contract. It is true that under the statutes of Colorado which are set forth in the complaint, and tested, by such statutes, the contract in question is not usurious. But under our statutes it is usurious. The by-laws of the plaintiff provide that no loan shall be made, except upon real estate security, and that the loan shall not exceed fifty per cent of the value of the security. If the appellant desires the contract in question enforced under and by the provisions of the statutes of Colorado, it must proceed to do so in Colorado. That stipulation in the contract relating to the Colorado statutes is not binding upon the respondents, nor upon the state, nor npon the courts of this state. If this was an action in personam, the rule might be different. But, to foreclose the mortgage in question, resort must be had to the courts of this state. Inserting the provision in the contract that the contract should be construed by the statutes of Colorado is mere subterfuge, resorted to for the purpose of evading and defeating the usury laws of this state, and such as this court will not enforce, it being contrary to public policy. When parties come into this state, whether artificial or natural persons, and loan money to a citizen of this state upon real estate security situated here, they must expect to have the validity of the contract determined by the laws of this state. (See Trust Co. v. Hoffman (decided by this court), 5 Idaho, 376, 49 Pac. 314.) The trial court erred in allowing an attorney fee to plaintiff, as such fee is no part of the debt, but extraordinary costs, and as such cannot be recovered, under the provisions of section 1266 of the Revised Statutes. The respondents contend that the principal debt was not due when this action was commenced, and that the judgment should — 417 — be reversed on that ground. There is nothing in this contention. The distinction between this case and the case of Trust Co. v. Hoffman, supra, in this respect, is marked. In the latter case, coupon notes were given for the interest falling due annually, while the principal debt fell due five years after date; and the provision in the mortgage as to maturity was that, if either of the interest notes should not be paid at maturity, the debt should become due. We held that, as the interest coupon notes by their terms provided for compound interest in advance, the said coupon interest notes were void. Those notes, being void, could not mature, and the principal notes by their terms were not due. In the case at bar, the contract provides for monthly payments of thirteen dollars and fifteen cents. The stipulation as to said payments is not void, the true question being as to their application. We hold that they must be applied upon the principal debt. Notwithstanding that, the appellant was entitled to said monthly payments; and, under the terms of the contract, it might elect to treat the entire debt as due, if the respondents should fail to make any of such monthly payments for sixty days. Respondents failed for more than sixty days to make one of such payments, and the appellant treated the debt as due. The action was not prematurely brought. (February 2, 1899.) The judgment appealed from is modified by deducting therefrom the attorney fee of fifty-nine dollars allowed by the trial court, which sum the district court is directed to have credited upon the said judgment as of the date of the entry thereof, and the said judgment as so modified is affirmed. Costs of this appeal awarded to the respondents. Huston, C. Jv and Sullivan, J., concur.