Citizens' Mutual Loan & Accumulating Fund Ass'n v. Webster

Birdseye, J. Two objections are made to the validity of the bonds and mortgages in suit, and to their enforcement in this action. First. That they are usurious and void. Second. If not void, that they are evidence of a contract so unconscionable, oppressive and harsh in character, that the court must — 268 — presume- that the defendant could not have assented to it, with a knowledge and understanding of its exactions. As to the usury. Upon an examination of the bond and mortgage, and the articles of association of the plaintiffs therein referred to, it appears that the security is given not for the payment of the principal sum mentioned in the bond, but for the payment of the monthly dues and redemption fees on two shares of the stock of the association owned by the defendant, and redeemed by him, and of fines charged against him under those articles. These payments are to be made only K until the term-11, ination of the said association.” The duration of the association is uncertain. It will continue till a fund has been accumulated, sufficient to pay to every holder of unredeemed shares, the nominal or par value of the share, being the sum of $800. Whether the payments required to be made by this bond, in order to prevent forfeiture, will exceed the principal and legal interest of the amount advanced to the defendant, will depend upon matters not brought before the court either upon the pleadings or the proofs. If the principal were payable absolutely, there could be no doubt of the usury. But it is not. 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 is to be returned to the mortgagor. That such a contract might be usurious, and might be shown to be so, by proper allegations and proofs is unquestionable. But I think a sufficient case has not been stated here. But even if there were, there is another and conclusive answer to the objeetion. T-he seventh section of the act of April 10, 1851, “ for the incorporation of building, mutual loan and accumulating fund associations,” provides that neither the imposition of fines for the non-payment of dues or other fees, or other violation of the articles of association, nor the making of any monthly payments required by the articles of association, or of any premiums for loans made to members, shall be deemed a violation of the provisions of any statute against usury. By the articles of association, each member was to be entitled to-the sum of $800, out of the funds of the association, at its — 269 — termination, upon complying with the provisions of the articles, by paying the monthly dues, &e. But by article 13 it was provided that this sum of $800, instead of being paid at the ; dissolution of the association, might at the option of members be obtained by them, or some of them, at an earlier period. As often as the funds of the association should amount to $800, (one share,) that sum was to be put up to competition among the members, the member offering the highest premium for it was to be entitled to it, for the purpose of purchasing lands, building, &c. But as the party thus receiving in advance all the benefits of membership, would be relieved of all necessity and inducement to continue the payment of the monthly dues, during the residue of the existence of the association, he was required to give security for such payment. The process of obtaining in advance the amount of shares properly payable only at the winding up of the association, is called the purchase and redemption of shares. The defendant, being the owner of certain shares in the association, thus purchased or redeemed two of them: that is to say, he received in advance moneys not due till the close of the association. He then gave the bonds and mortgages in suit to secure the payment of the future dues, fees and fines, which had been theretofore secured by the liability of his shares to forfeiture in case of non-payment, which was provided for in the articles of association. So far the bonds and mortgages are not objected to; nor do they seem objectionable in law; whatever may be thought of the policy of thus putting one’s funds out of his own control, and into the hands of agents and trustees for management and investment. But it appears that when the sum received by the defendant was put up at auction among the members of the association, the competition for it was so great that he was required to pay, and did pay, a premium of $258, per share of $800. That is: he obtained and took $542, in hand, rather than to await the winding up of the association and get the $800. That such sacrifices should be made to obtain money, is well nigh incredible. But the motive for making them, whatever it was, seems to have been shared by other members of the association than the de — 270 — fendant. For it must have been their bidding that induced him to give so enormous a sum for the pres.ent use of a little money. He would not voluntarily have given any such’premium, or even any premium at all. Upon purchasing the two shares in question the defendant gave the bonds and mortgages now in suit, receiving $542 in money, the association retaining the premium of $258 upon each share. The bond and mortgage are conditioned for the payment of $14 per month, until the termination of the association, being the monthly dues and redemption fees on the two shares. This sum of $14 is made up of the monthly dues of $3 per share, which every member of the association is, by article 10, bound to pay; and of $4 per share, being the interest on the norriinal or par value of the share, $800, for one month, at six per cent. The precise ground of the defendant’s objection is that this interest is charged on the $800, the par value of the share, instead of upon the sum of $542, which was actually advanced. The ansAver to the objection is that th,e statutes of usury have been repealed as to this premium, by the provisions of § 7, above quoted. The taking of the premium is not to be deemed a violation of any statute against usury. There may, perhaps, be some want of precision in the language of the enactment. The words used are, “ nor shall the making of any monthly payment required by the articles of association, or of any premiums for loans made to members, be deemed a violation of the provisions of any statute against usury.” To speak of the transaction in question as the “making of a premium,” in obvious connection Avith “ the making of the monthly payment,” is clearly an incongruity. Some word has been omitted before the words “ of any premium.” And, to make sense of the expression, the missing term must be supplied. It may be either “ payment,” or “ taking,” or “receipt;” so that the clause would read that the payment, or the taking, or the receipt of the premium shall not be deemed a violation of any statute against usury. The meaning of the provision, however, is clear, without resort to any such process for the purpose of removing the incongruity. The obvious design is to remove these transactions — 271 — between the society and its members, beyond the pale of the statutes against usury. That purpose can only be effected by allowing the society to collect interest on the full amount of the share. To have provided merely that the association, instead of paying $800 at its close, to each member, might at an earlier period have advanced to each one that sum, or a less' one, and on that advance might have collected legal interest, would require no interference with, or mention of, the law against usury. The transaction, if duly provided for, by express agreement, in the articles of association, would have formed no violation of any such law. Besides,"the higher the rate of interest to be paid by each member to the association, the shorter would be the period required to complete the accumulation, on the completion of which the association was to terminate, and the payments to cease. The moneys collected by the association being the mutual property of all the members, and the greater the accumulation the shorter being the period during which they will have to bear the burden of paying the moneys for the purpose of accumulation, the ordinary objections to the collection of interest beyond the fixed rates are removed. There is, therefore, in my judgment no foundation for the objection that the contract in suit is void for usury. The considerations last adverted to, form the answer to the other objection urged by the defendant against the enforcement of his contract, viz : its oppressive and unconscientious character. That the defendant is required to pay considerable sums of money, every month, and that these payments may be increased by fines in case of default, and that such fines may be made heavier for a continued default, forms no sufficient reason for declaring the contract void, in the whole, or even pro tanto. It is not shown, or pretended, except in the arguments of counsel, that the defendant did not fully understand the nature of the bargain he made; or that he could not have calculated the precise amount he would be hound to pay, or that he has been in any manner deceived, defrauded or misled, either in joining the association or bidding for the shares and paying his premium. His engagement may be an onerous one. But all his associates — 272 — entered into the same engagement, and assumed the same burdens. For aught that appears, they have borne those burdens, and made all their payments regularly, in the expectation that the defendant and every other member would do the same, and thus the winding up of the association, and the termination of the tax upon them, would he speeded. To release the defendant now from his contract, or any part of it, is only imposing on each of them so much greater burden, and requiring a proportionate extension of payments, to an early relief from which they are justly entitled. The defendant must continue to pay into the common fund the sums he agreed to pay; and if the other members of the association equally comply with their agreement, all of them will be, at no very distant day, relieved from the necessity of making further contributions. They may not then have realized the benefits they looked for. They will, perhaps, have learned that the proprietor is the best guardian of property; that the making of extravagant gains involves great risks or great burdens; and that the steady accumulations of honest industry are the surest way to wealth. But they will have met with no losses which a reasonable prudence would not have enabled them to foresee and to measure. The case of the 2d N. Y. Building Association v. Gallier, which has been cited upon this point, does not warrant the defendant in claiming to be relieved from his contract or any part of it. There the fine for the non-payment of monthly dues was, on each share, 12 cents for the first month, 37 cents for the second, 75 cents for the third, $1.25 for the fourth, and each succeeding month 50 cents more than the preceding month. And the case was compared, not unreasonably, to the purchase of the horse, to be paid for, one farthing for the first nail in his shoes, two for the second, and so in geometrical progression. By the plaintiff’s articles, however, the fines, though not light, are very different from those imposed on Grallier. They are for the first month, 12 cents ; second month, 25 cents; third month, 37; fourth month, 50 cents ; and every succeeding month $1. These fines are sufficiently definite in amount. Mor can I say that they are so clearly "unreasonable as to war — 273 — rant me in declaring the article on the subject of fines void, and relieving the defendant from any penalty, except interest. [Kings Special Term, July 6, 1557. The objection which was taken in The Franklin Building Association v. Mather, (4 Abbott, 274,) to the provision for the investment of the surplus proceeds for the purpose of meeting future dues, is not raised in this case. I must, therefore, hold that the plaintiffs are entitled to judgment. The cause must be referred to a referee, to take and state the account between the parties, and to report the amount due to the plaintiffs from the defendant. If the latter desires, the referee will report what sums are due for monthly dues, redemption fees, interest- and fines, with the particulars as to each. The defendant must be credited for all payments made. On the coming in of the report, unless the balance reported due is paid within thirty days, judgment of foreclosure and sale must be entered, providing for the payment of the plaintiffs from the proceeds of sale, of the amount reported to be due to them, with costs. The surplus to be brought into court, by paying it to the treasurer of Queens county, who must invest the same on bond and mortgage, to be held subject to the claims of the plaintiffs for subsequently accruing dues from Webster. Out of the moneys, before investment, the amount of the dues for six months may be paid to the plaintiffs in advance, on their allowing a rebate of interest; and on the collection of interest on the bond and mortgage, from time to time, a similar payment in advance may be made; but the plaintiffs must give security for refunding any part of such advance which would be- due to the mortgagor, in _ case the association should terminate before the end of the period for which the advance may be made. Either party to be at liberty to apply to the court for necessary directions, as to such payments, in case the interest be not sufficient to pay the dues to the plaintiffs, or otherwise. Birdseye, Justice.] — 276 — the commission, and to the reading of the depositions in evidence, was, that the caption of the interrogatories states that they were to be administered to the witness by Charles Cheny. The justice, in his amended return, sets forth how this mistake occurred. The parties,- by their attorneys, upon the settling of the interrogatories, agreed to substitute Mr. Keese as commissioner, in the place of Mr. Cheny, who had been proposed by the plaintiff, in his notice. The justice inserted the name of Keese in the commission, but inadvertently omitted to strike out the name of Cheny from the caption of the interrogatories, where it had been inserted pursuant to the notice. The commission, however, was actually sent to, and executed by, Mr. Keese, "who administered the oath and interrogatories to the witness, and reduced his deposition to writing, as required by the statute. Here was no error, therefore, in fact. The mere mistake of the name of Cheny, in the caption, which might be stricken out as unnecessary, and as being no part of the interrogatories, did not vitiate the commission, or its return, and the justice properly overruled the objection.