Mutual Benefit Loan & Building Co. v. Lynch

Goodrich, P. J.: The plaintiff is the holder of a bond and mortgage of $500, executed by the defendant Mrs. Lynch upon a house and lot in Brooklyn. This action is brought to foreclose the mortgage, and the answer states that the bond and mortgage are void for usury. The court dismissed the complaint on that ground, and the plaintiff appeals. ■ : The plaintiff was incorporated in 1893,, under article 5. of the Banking Law (Chap. 689, Laws of 1892). There have been amendments of this article but they do not affect the present controversy. Article 5 provides for the incorporation of building and mutual loan associations by a certificate to be approved by the Superintendent of Banks and filed in the .county clerk’s office and a certified — 560 — copy in the office of the Superintendent of Banks. This provision was complied with and the company became a corporation. The certificate provided for several classes of stock income, prepaid and installment. We are not concerned with any question as to the power of the company to issue any kind other than the installment-stock which was issued to Mrs. Lynch. It may be said, however, in passing that the Court of Appeals, in People ex rel. Fairchild v. Preston (140 N. Y. 549), expressly held that such -a company, under its certificate of incorporation, might issue all three kinds of stock. The par value of each installment share was to be two hundred dollars, the dues to be paid by each member to be fifty cents per month in class B shares and a premium of not to exceed fifty cents per share monthly for priority of advánce and for the liabilities assumed by the company ; members not paying their dues promptly were, to be subject to a fine of five cents per month on each dollar of arrears, and in case of a shareholder falling in arrears for six months the directors' might declare the shares forfeited together with.all previous-payments and profits thereon. Section 173 of the act provides : ■“ Nor shall tlie imposition of fines for non-payment of dues * * * or other violation of the certificate of incorporation, nor the making of any monthly payment required by the certificate of incorporation, or of any premiums for loans made to members be deemed a violation of the. provisions of any statute against usury.” _ The section exempts from usury : Fwst,, imposition of fines for non-payment of dues or fees or other violation of the certificate of incorporation ; second, making monthly payments required by the certificate of incorporation ; third, premiums for loans made to members. The question to be decided is whether the agreement made' and the transactions occurring at the time of the execution of the mortgage fall within one of these classes. If they do, there is no usury. The facts are not seriously in dispute. Mrs. Lynch was the- owner of a house and lot mortgaged for $2,500 to Mrs. Sckroeder, the interest upon which was past due. There was also a small second mortgage on the property and some arrears of taxes. Mrs. Lynch applied to Duckworth, a broker, for a loan of $3,000- to pay off the mortgages and taxes. Duckworth arranged a loan with the plaintiff, and Mrs. Lynch went to the company’s office on May 20, 1897, — 561 — to close the transaction. There is some evidence tending to show that Mrs. Lynch was not fully aware of What the transaction was or of the full meaning of the papers which she executed, but in the view we take of the matter it is not necessary to take that subject into special consideration. Mrs. Lynch signed a written application for a loan of $3,000 and • for membership, subscribing for fifteen shares of class B stock of the company. • In this application she agreed to pay the sum of $7.50 each month during the continuance of membership and to ■abide by all the terms and conditions contained in the articles of association and incorporation. One of the conditions was that each borrowing shareholder should pay a monthly premium of not less than fifty cents on each share until the loan was canceled, and that for failure to pay the monthly dues of one dollar per share, or interest or premium, the member should be fined five per cent per month on each dollar in arrears, and that each borrowing shareholder should pay six per cent interest on his loan. The ultimate value of each share was to be $200, and when the dividends and payments on 'each share equalled -that sum the shares should be matured and the shareholder entitled to withdraw $200 for each share held by her. Mrs. Lynch also executed a bond and mortgage for $3,000, •dated May twentieth. The bond was conditioned upon the payment by her of $30 in advance on June fifteenth, that is, $2 upon ■each share, and a like amount on the fifteenth of each month till the fifteen shares should be worth $200 per share, and compliance with the conditions indorsed upon the certificate and the rules and by-laws of the company. The mortgage provided that it was subject to the Schroeder mortgage, which the plaintiff assumed and •agreed to pay at maturity, and that such assumption should be void upon default in the performance of the conditions of the bond. Class B stock is installment stock, the par value being stated at $200. Any holder of such stock for a period of six months could become a borrower of a sum equal to the par value of his stock. There was a rule of the company that the payment of six months’ •dues in advance was the equivalent of a holding for six months. A memorandum in evidence shows the method of closing the "transaction. — 562 — “Certificate No. 2425. Class B. 15 Shares. Total amount of Loan, $3,000.00. Amount 1st Mortgage ........................................ $2,500 00 Amount 2nd Mort- ■ gage ........................................ 500 00' • 6 months’ dues at $7.50 per month...... $45 00 1 month’s dues, interest premium (7th payment)........................ 30 00 Drawing Bond and Mortgage......... 10 00 Accrued interest on 1st Mortgage from Jany 26/97 to May 15/97...... 46 25 Satisfaction 2nd mtg...................■ • 190 18 Recording Duckworth mtg............ 150 “ satisfaction............... 1 00 Attorney’s Fee, Search and Disbursements ............................. 30 00 Recording Mortgage................. 2 50 ( $78 20 ) Taxes.................... 1 53 24 } 147 94 ( 16 50 ) $504 37” Mrs. Lynch was thus shown to be indebted to the company for the balance of $4.37. There is no question that under section 173 the company was justified in fixing the amount of dues aud premiums named in this, memorandum. There is some question whether it had the. right, under its rules, to require the payment of the six months’ dues to. qualify Mrs.. Lynch as the holder of a certificate of stock for that period, but we cannot hold this act ultra, vires, as that was her agreement and she accepted the benefit of the transaction. The charging of the other items in the account to Mrs. Lynch seems to have been acquiesced in by her, and we cannot decide that they were improper. The question, however, is whether the transaction, while fair upon its' face, was in fact a cover for usury. "We cannot discover any such intent. It may be that Mrs. Lynch has made an improvident contract authorized by the. statute. We had occasion in Eagle Sav — 563 — ings & Loan Co. v. Samuels (43 App. Div. 386) to consider the general subject here involved. The remarks of Hr. Justice Cullen in that case are equally applicable to the case at bar. He said that thé burden of the argument of counsel for the mortgagor was to show the unfairness of-the conditions of the loan, the extravagant rate of interest which the borrower agreed to pay, and the illusory character of the expectations held out to him, but said that this was simply an argument against the economic character of such associations. The Legislature has authorized the incorporation of such associations and given them authority to make such contracts as that which was made by the plaintiff and Mrs. Lynch, and the courts have repeatedly approved them. (People ex rel. Fairchild v. Preston, 140 N. Y. 549.) In Concordia Savings & Aid Assn. v. Read (93 N. Y. 474) the court decreed the validity of a bond and mortgage similar to- the one here under foreclosure, and held that although Meier, the mortgagee, did not receive the entire amount named in the mortgage, the company retaining the amount of- the premiums, this did not render the loan usurious, and that it was lawful for the company to provide that default in the payment of dues, fines and penalties would mature the mortgage. It said (p. 480): “ This is not a case where a larger sum is made payable in consequence of the non-payment of a smaller sum, and payment of a larger sum is not imposed as a penalty. But this is a case where the whole of a specified sum becomes due because the partial payments are not made as stipulated, and the principles of law which authorize courts of equity sometimes to relieve from forfeitures do not apply to such a case as this.” The respondent contends that as the mortgage was dated May twentieth, and interest was calculated from May fifteenth, the agreement was tainted with usury. The amount of such interest is tri-fling, and in our view of the agreement between the parties we should hot be swift to seize such fact to defeat the mortgage. There is no evidence that this was a plan to exact usury or that there was any intention to demand or pay illegal interest, and the maxim, De minimis non curat lex, would seem applicable. Indeed, this would be offset and explained by the fact that the company retained the interest in the Schroeder mortgage only up to May fifteenth, which was one of the semi-monthly days on which the transactions of the — 564 — company were calculated. It is well settled that the intention to take usury must have been the full contemplation of the parties, not of one party, but of both parties to the transaction. In Condit v. Baldwin (21 N. Y. 219, 221) it was held that “ it is the essence ■of an usurious transaction that there shall be an unlawful and corrupt intent on the part of the lender, to take illegal interest, and so we must find before we can pronounce the transaction to be usurious ; ” and that to constitute usury it must be shown that the additional interest is paid or retained in pursuance of a mutual agreement between the parties. (Guggenheimer v. Geiszler, 81 N. Y. 293; Morton v. Thurber, 85 id. 556.) There is no evidence of any such plan or agreement. The moneys were charged against Mrs. Lynch .in pursuance of her agreement, and there is no evidence which justified a finding that the plan was intended to cover the exaction of usury. The bargain may have been a hard one, but the evidence is not sufficient to show that Mrs. Lynch did not understand the agreement. On the contrary, the. evidence impresses us with the conviction that she understood the terms of the contract and continued to observe it and pay her dues until sickness and misfortune jirevented further payment by her. But this may not interfere with the course of the law. We think the judgment should be reversed. All concurred. Judgment reversed and new trial granted, costs to abide, the final award of costs.