Security Loan Ass'n v. Lake

STONE, J.- The bill in this case was filed by Lake, the — 460 — mortgagor, to redeem real estate from under a mortgage, executed in 1876. The mortgagor is in possession, and a difference has arisen between him and the mortgagee, as to the amount •due on the mortgage. The mortgagor avers that the sum due is only about four hundred dollars, but that he offered to pay five hundred dollars, which was refused by the mortgagee. The mortgage creates a trustee, and contains a power of sale, under which the property has been advertised, and will be sold, unless restrained by injunction. An injunction was obtained. The bill prays for an account, and that complainant be permitted to redeem. It does not aver a tender, and does not bring the money into court. It contains this clause: “ Your orator is •still willing, and now offers to pay said association whatever amount he may be justly chargeable with, if any, upon the application to his said case of the terms of said by-law, section 4, article 2, and in this respect submits himself to the order and decree of this Honorable Court.” This is a sufficient offer to do equity to entitle the complainant to relief, if his bill is otherwise sufficient. — Rogers v. Torbut, 58 Ala. 523. The defendant is a private corporation, chartered under Arti•cle 7, Chapter 1, Title 2, Part 2, commencing with section 1937 of the Code of 1876. It is what, in the Code and in common parlance, is called a building and loan association, having some features of a mutual aid enterprise. The answer denies the averment that the sum of four hundred dollars is all that is due on the mortgage, and avers that near eleven hundred dollars is due; sets up that to settle the controversy, it had proposed to accept one thousand dollars in full discharge of the mortgage debt, and that Lake had refused to pay it. So the chief contention is, as to the amount due from Lake to the corporation. The ground on which the bill claims the right to redeem, on the basis of four hundred dollars due, is, that under the terms •of the contract evidencing the loan, the complainant, borrower, bound himself to pay as interest for the forbearance of the moneys, at the rate of six per 'cent, per a/ixnum, payable in monthly installments, or, one-half of one per cent, a month, and that he was to pay no higher rate of interest; and the bill then avers that Lake, the borrower, had in fact paid an additional half per cent, every month since the loan, being twenty-five dollars additional paid every month for a period of nearly five years. These several additional payments the bill claims should be entered as credits on the principal of the loan, at the times they were severally made; and in this way, it is contended that the mortgage det>t was reduced to four hundred dollars when the bill was filed. The claim and argument rest on the following postulates: That the sum borrowed was five thousand dol — 461 — lars, and Lake has, all the while, made monthly payments of fifty dollars each, which paid the accruing interest of one-half of one per cent., equal to six per cent, per anmvm, the agreed interest, and left a surplus to be applied to the reduction of the-principal, which would, and did, increase monthly, as these several payments reduced the interest-bearing debt. Then claiming -a reduction of twenty-five hundred dollars, the cost and value of complainant’s twenty-five shares of paid up stock, the conclusion is claimed, that only four hundred dollars is required to perfect the redemption; and all this is claimed under the terms of the contract, by which the loan was obtained. If this-be true, then complainant, with the exception of the loss of interest on the stock installments or calls, will have had the use of the money borrowed at the low rate of six per cent, interest. Is this the true construction of the contract ? Corporations such as the present one are of somewhat modern origin. Their purpose is not banking, neither are they manufacturing or trading corporations. They have some elements of mutual aid, and if properly organized, and prudently and faithfully conducted, they furnish a safe and profitable depository for surplus earnings; notably, for small surplus earnings. Under their workings, many small sums, contributed by the many shareholders, are brought together monthly, and an aggregate sum is thus gathered in, which, passing out immediately to one or more shareholders, furnishes a capital, or stock in trade, sufficient for permanent and profitable investment. Each month this process is repeated, furnishing capital, or stock in trade, for other shareholders. Thus the working is continued from. month to- month, until a sufficient sum is collected and disbui’sed to pay off and cancel all the shares of stock, at the value fixed in the articles of incorporation. The lettings of the moneys are frequently called loans, but they are not strictly loans. The principal is never to be repaid as principal. In truth, it is never to be repaid at all. It is an advance payment by the corporation of the agreed value, the shares owned by the bidder are to represent, and have, at the final completion of the enterprise and the dissolution of the corporation. It is the policy of the association that the funds received on stock calls should not remain idle, and hence they are employed in advance liquidation of the demands the shareholders, are severally to have at the dissolution. In anticipating payments of shares, the payments are at the rate of two hundred dollars per share. But all payments can not be made at the same time. Hence the competition. Hence the sale' to the highest bidder. — Code of 1876, § 1948, subd. 6. Those who obtain-the first advance, first realize the increased value of their- shares, and so on, until the enterprize runs its course and winds itself up. Sharehold — 462 — •ers pay for their shares, in stock calls, one hundred dollars per share, in installments of one per cent, a month, running through one hundred months, equal to eight years and four months. Discounting interest from the deferred payments, we have an average of four years and two months in interest saved. This would reduce the cash cost of the shares to less than seventy-three dollars. Now, if those who receive the early advance payment of their shares, like the shareholders who are not paid-in advance, are required to pay only the stock calls, it will be readily seen how inequitably such method of payment would work. ITence it is, that those receiving payment in advance •of others, are required to pay for this privilege whatever premium they bid and bind themselves to pay. All such payments go to augment the fund for the payment of other shareholders, and accelerate final completion of the purposes of the corpora-, tion — its final liquidation and dissolution. The mortgage executed by Lake and wife, made an exhibit to the bill, characterizes the transaction we are considering as a pezmanent loazi. How pezmaziezrt, if it was to be repaid? It makes no provision, for its repayment. The defeasance in the mortgage is expressed in the following language: “If the said Thomas II. Lake, his heirs, executors and administrators shall pay or cause to be paid unto the said Security Loan Association monthly, at the time prescribed izi the by-laws of said association, the sum of twenty-five dollars installment on said stock on which said loan was obtained, and the further sum of fifty dollai'S monthly on the same day, as interest and premium on said loan;. azid shall regularly continue to make such monthly payments, until all the receipts of said associatiozi shall amount to a sum sufficient to divide among the shares the amount of two hundred dollars per share, .... then these presents shall be void.” It is nowhere shown that the terms of the mortgage are in aziy z-espect different from the terms of the contract by which Lake purchased the advance on his stock. The terms are in strict conformity with the constitution and by-laws of the association, as znade an exhibit to the bill; and the terms and provisions of the constitution and by-laws on- this subject are fully authorized by the statute. — Code of 1876, § 1943, subd. 6; Montgomery Mutual Building and Loan- Association v. Robinson, ante, p. 413; Merrill v. McIntire, 13 Gray, 157. If it was intended in this bill to raise the questiozi of usury in the alleged loan, the averments are wholly insufficient for that purpose. — Munter v. Linn, 61 Ala. 492; Vaughan v. Marable, 64 Ala. 60; Brown v. Heard, 3 A. K. Marsh. 390; N. O. Gaslight Co. v. Dudley, 8 Paige, 452; Curtis v. Masten, 11 Paige, 15; Waterman v. Curtis, 26 Conn. 241. Nor do we — 463 — think the facts justify a charge of usury when considered in reference to the statute. In Montgomery Mutual Building and Loan Association v. Robinson, supra, we considered and construed language in a special act of incorporation, not distinguishable in substance from that found in the general law under which this association was incorporated, and we then held that although the premium bid and promised was in excess of the legal rate of interest, it was nevertheless recoverable. The legislature liad declared what was usury and its consequences, and when that body authorized such associations to sell loans of its funds to the shareholders at the highest bid, they thereby authorized them to demand and recover whatever premium the purchaser bound himself to- pay, and thus legalized the transaction. That which the legislature authorizes to be done, can not be a violation of the law. The statute in question in effect declared that such transactions were taken out of the operation of the statutes against usury. - The by-laws of the Security Loan Association recognize •several methods by which shareholders can cease to be such ; some relating to shareholders who have purchased an advance •or loan, and others to such as have not. Article 2, section 5 of the by-laws declares the rules to, be observed, when a member of the association dies. Article 2, section 3 declares in what manner members may withdraw, who are not indebted, and who have not taken a loan. Article 4, section 3, declares when stock is forfeited for non-payment of dues and fines. Article 5, section 3, relates to the transfer of stock. None of these provisions bear on the question before us, for Lake, the complainant in this case, purchased a loan or advance on his stock; and the question is, on what terms can he obtain a release of the mortgage security he gave when he obtainéd the money. When the shareholder has purchased a loan on his shares, or anticipated their enjoyment, the by-laws furnish two modes, and only two, by which he can release himself and his property from the liability and encumbrance he incurs when he takes the loan. The first, found in article 2, section 4, prescribes what he shall do when hé “ desires to withdraw from the association.” When this mode is pursued and carried out, he ceases to be a shareholder, ceases to be a member of the association, and no longer owns any interest in, or rests under any liability to the corporation. This he accomplished “ by payment to the association of the amount of the loan, less the full amount of money which shall have been paid in as monthly installments on stock by such stockholder.” It would geem that there should not be much difficulty in interpreting this language. The stockholder must pay back the amount of the loan; not in full, — 464 — he is entitled to a credit or discount. The by-law declares of what that credit or discount shall consist. It' is “the full amount of money which shall have been paid in monthly installments on stock.” The constitution and by-laws clearly show what is meant by monthly installments on stock. It is the payment of one dollar per month on each share of stock subscribed for one hundred months. It extends no farther, for nothing else paid can come under the denomination of monthly installments on stock. It can not include premiums bid, for they are always called premiums, and never called installments. They are paid monthly, it is true, and at the same time the installments are paid, but the provision for their payment is in the following language: “ To be paid unto the said Security Loan Association monthly, at the time prescribed in the bylaws of the association, the sum of twenty-five dollars installments on said stock on which said loan was obtained, and the further fum of fifty dollars monthly on the same day, as interest and premium on said loan.” It is just as compatible with the mortgage to call monthly payments of interest installments, as it would be to so characterize the monthly payment of the premium, at which Mr. Lake became the purchaser. So the monthly calls on stock subscribed are called installments in the constitution, article 4, and*in the by-laws, article 2,. sections 1, 2, 3, 4, 6; article 3, section 7; article 4, sections 2 and 3. The interest and premium are called interest and premium whenever mentioned. This section of the by-laws construed, and necessarily construed as stated above, imposes what seem to be onerous terms on the shareholder who wishes to withdraw from the association. Particularly so, when he seeks to withdraw, after paying many installments on his stock, and, as in this case, after he has made many monthly payments of interest and premium. But the right to withdraw is a privilege reserved, not a duty imposed. He may exercise it or not at his pleasure. If he elect to exercise .it, he must comply with the terms prescribed in the by-laws and voluntarily assumed when he executed the mortgage. As we have said above, the legislature has relieved this transaction from the imputation of usury, in the matter of premium promised in the purchase of the advance or loan. The other mode by which a borrower or purchaser of an advance can release himself and property from liability therefor, is prescribed- in article 5 of the by-laws. It is by procuring a substitute to take his place, and making good the difference in the premium the money may command on second sale. When this course is pursued, the shareholder remains a member of the association, unless he sells his stock. • It is not contended — 465 — this case falls within this provision, and we do not consider its terms. They appear to be plain and simple. Under the principles stated above, the complainant fails to show that the mortgagee claimed more than was due to it. There is not enough in the bill to show that the accounts are so complicated, that, the parties can not state them and ascertain the amount due. And there is a failure to show that the mortgagee is making or attempting to make a fraudulent or oppressive use of the mortgage, or of the power of sale contained therein. In such case, does the bill contain equity ? And if so, is there any reason shown why the injunction should have been granted ? Jones, in his excellent treatise on mortgages, Vol. 2, § 1801, employs this language: “ Generally, the purpose for which the power of sale is given, being to afford an additional and more speedy remedy for the recovery of the debt, the mortgagor is by his contract bound to exercise the necessary promptness in fulfilling it; and can not complain of a legitimate exereisé of the power. If in any case it is attempted to pervert the power from its legitimate purpose, and to use it for the purpose of oppressing the debtor, or of enabling the creditor to acquire the property himself, a court of equity will enjoin the sale or will set it aside after it is made. Of course, so long as the creditor exercises only his legal right, although this be contrary to the wishes and interest of the mortgagor, the court will not interfere to enjoin a sale.” In section 1804 is this language: “ Courts of equity will interfere by injunction to prevent a sale under a power in a mortgage or trust deed, when, by reason of fraud, want of consideration, or otherwise, the collection of the debt would be against conscience, and the sale would work a great and irreparable injury. To warrant this interference the complainant must allege specifically the grounds on which the application is based. General statements and inferences from facts are not sufficient.” Section 1805 : “ The court will enjoin a sale only when the petitioner’s rights are clear, or free from reasonable doubt. lie must show also a good reason for asking the interference of the court. He must show that the mortgagee is about to proceed in an improper or oppressive manner, and not merely that he might adopt a different remedy.” — Struve v. Childs, 63 Ala. 473; Vechte v. Brownell, 8 Paige, 212; Powell v. Hopkins, 38 Md. 1; Meysenburg v. Schlieper, 46 Mo. 209; Sloan v. Coolbaugh, 10 Iowa, 31; Van Bergen v. Demarest 4 Johns. Ch. 37; Wilkins v. Gordon, 11 Leigh, 547; Crenshaw v. Seigfried, 24 Grat. 272; Kornegay v. Spicer, 76 N. C. 95. The present bill fails to come up to this rule, and fails to show a ground for equitable' relief. "Whether it can be so — 466 — amended as to give it equity, we can not certainly know; and coming before us simply on interlocutory rulings by tlie chancellor, we can not finally dispose of it. The appeal is prosecuted from the decretal order of the chancellor overruling the demurrer and refusing to dissolve the injunction. The cause is still pending in the court below. The demurrer should have been sustained, and, unless the complainant offer an amendment to his bill, showing the account is so complicated that the parties can not ascertain the amount due, then the bill should be dismissed. To make such amendment sufficient, it must set forth the facts which show the complication, or it must show some other special exceptional equity. If not so amended, the injunction must be dissolved, and the bill dismissed. Demurrer to the bill sustained, at the costs of the appellee. Remanded for further proceedings in accordance with this opinion.