Roberts v. American Building & Loan Ass'n

Wood, J., (after stating the facts). 1. The appellee was duly incorporated under the laws of Minnesota. Its articles of incorporation and by-laws, which were in evidence, show that it is a mutual building and loan association, having the same plan or scheme as that in general use by such associations. Por a description of such associations, see note by Preeman in 69 Am. Dec. 151. The purpose of this association was to exact of appellant an obligation equal to the advancement which it had made her, together with the premium which she had bid for same, the whole amount being equal to the par value of her twenty shares of stock at maturity. And this purpose it carried out, as appears from the face of the note itself and the mortgage, as well as from the testimony of witnesses. While there is testimony to the contrary, it is improbable and unreasonable. The ruling of the trial court upon the issue of non est factum was correct. This issue, however, is immaterial. Por, although the note specifies that, in case of default, the “whole amount of the note is at once due and payable,” and although the mortgage gives appellee, in case of default, “the election to foreclose for the whole of said principal sum,” still a court of equity would not decree for the full' amount of the advancement and interest, together with the premium. Such a decree would be tantamount to enforcing a penalty for breach of contract. Hagerman v. B. & S. Ass. 25 Ohio St. 205, 206. The evident design of the parties to this contract was to have the debt discharged according to the system peculiar to building and loan associations. Rule for d“ount This contract, then, binds the appellant to pay monthly installments of interest on the advancement, monthly dues on stock, until its maturity (not to exceed a period of nine years), and fines assessed for failure to make stock payments or dues as specified. Default having been made for more than six months in the pay'ment of the installments of interest and monthly dues, foreclosure proceedings were begun, and the only real question here is as to the amount of the decree. The lower court charged the borrower with the whole amount of dues for nine years, and added to this sum the interest and fines in arrears at the institution of the suit. From this sum was deducted the amount of dues already paid on stock, and to the balance was added six per cent, interest per annum from the institution of the suit to date of the decree, making the sum of $1,260.70, for which decree was entered. Was this correct? The rule for determining the amount which we think most nearly enforces all the contract obligations is “to ascertain the amount of stated dues and interest which will become due during the future existence of the corporation, as estimated; then find the principal which, with interest for the supposed time, will amount to the dues and interest already calculated;, this will be the present value of the anticipated payments; to this principal add the arrearages due, and the fines for the time between the date of default and the entry of the decree of sale.” It was in proof, by the actuary of the association, that the stock would have matured in ninety eight months. The date of the certificate of stock was June 11th, 1888. The date of the decree was August 17th, 1893. The time therefore for the stock to run before maturity from date of decree was 35% months. Dues, interest and fines were in arrears from April 11th, 1890, or forty months and six days. Then, from this data, applying the above rule, we have the following: Dues, 35% months at $12.00 per month........ .$429 60 Interest on $1000 (advancement) for 35% months, at $5.00 per month........................ 179 00 Total, $608 60 Now, the principal which will amount to this sum in 35% months at 6. per cent interest is $516.20, which is ascertained by dividing the $608.00 by $1,179, the principal and interest on one dollar at 6 per cent for 35% months. The present value of the anticipated payments then is $516.20. To this add arrearages: Dues 40 months at$12.00...................$ 480 00 Interest 40 months at $5.00.................. 200 00 Pines 40 months at $2.00 .................... 80 00 Total, $1,276 20 This sum represented the amount for which the mortgage should have been foreclosed. But the court rendered judgment for $1,260.70, making a difference in favor of appellant of $15.50. So it is clear that she has not been prejudiced by the decree. The above rule is that announced by the superior court of Cincinnati. Bndlich, Building Associations, sec. 386. The rule, as announced in a leading case in Maryland, is “to ascertain by proof the probable duration of the society, then to estimate the aggegate amount of the weekly and monthly installments payable during that time, from that sum rebate a just amount of interest, and add thereto the arrearages due, after allowing for payments made to the society, and the sum thus ascertained is the amount which the mortgagee is entitled to receive in -prcesenti in satisfaction of the mortgage.” Robertson v. American Homestead Asso., 10 Md. 397; S. C. 69 Am Dec., and cases cited in note. When fines enforcibe. The application of this rule to the facts of this record would give substantially the same result as above. Either of these would bé just to the borrowing member and to the association. But we prefer the former, because it gives a simple, certain, and accurate method of arriving at the amount, whereas, by the latter rule, the amount of interest to be rebated is not fixed, but such as the chancellor may deem just. The rule we have approved is announced upon the basis of a final and complete foreclosure by sale of the property mortgaged, and a termination of appellant’s membership in the association. There is no intimation anywhere in the record that appellant desires or would be willing to continue her membership in the association. She repudiated the contract as a real building and loan contract, insisting that it only -binds her to repay the amount advanced at six per cent, interest, and that the mortgage only secured that amount, i. e., that the contract was for a straight loan. 2. The amount of the decree, under the rule announced, as well as the rule adopted by the trial court, includes fines for failure to make monthly payments. The by-laws authorise a fine of “ten cents per share to be imposed for each and every month the payment is not made.” The success of the building and loan association scheme depends upon the certainty and regularity with which members pay their dues. Fines, strictly as such, imposed merely by way of punishment for a breach of contract, a court of equity would not enforce. But what is usually designated as “fines” in a genuine building and loan association is intended for, and does subserve, a different purpose. They are treated by the best authorities as liquidated damages, fixed by consent of the parties, to/indemnify the association for the loss it has sustained by reason of the failure of the defaulting member to make prompt payments. Shannon v. Howard Mut. Bldg. Ass'n, 36 Md. 383; Ocmulgee Building & Loan Ass'n v. Thomson, 52 Ga. 427; 2 Am. & Eng. Enc. Law, p. 620, and authorities cited. Dues being the vitalizing principle in the whole plan, and the measure of the prosperity of the whole depending upon the promptness with which each member discharges his obligation to every other to pay them, it is but just that each delinquent may contract as far as possible to make good the loss occasioned by him. In most of the states, the legislature, recognizing that some such power is indispensable to preserve the equality of burdens, while each is sharing equally in the profits, has enacted laws providing for the imposition of fines. But, in the absence of such statutes, it is within the province of a court of chancery to enforce such an essential regulation, when adopted by the association. Those who become members or stockholders of an association having such a by-law, of course, approve and accept same, and should be bound thereby, provided said by-law be reasonable. Bndlich, Building Associations, 415; Shannon v. Howard Mut. Bldg. Ass. supra. Mr. Bndlich, speaking of a member who defaults in the payment of dues, says: “He will be getting an advantage over and above his fellows; he will have had the use of his subscription money for a longer period than they had theirs, and, besides, he will have his proportionate share of the gains made upon all their prompt payments, whilst he will lose only the trifling amount that would have come to him as his proportionate share of the profits, which, if he had paid his dues properly, would have accrued from such payment in the interval between the day when it was his duty to make it and that upon which he did make it. It follows that the society is, in good conscience, entitled to be made whole for the injury resulting from tardy payments.” Endlich, Bldg. Ass. sec. 412. In Goodman v. Durant Bldg. & Loan Association, 14 So. Rep. 146, Chief Justice Campbell said: ‘ ‘What is called afine (merely an agreed sum as liquidated damages) is imposed for every default in payment, as a spur to prompt payment, so as not to derange the process of compounding, which must fail if there is want of payment as agreed, and failure of which would cause failure of the scheme. We see nothing wrong in members of full age and compos mentis mutually binding themselves to so beautiful a scheme for reciprocal advantage, and being held to the performance of what they had agreed.” Mississippi, like Arkansas, has no statutes on the subject. We are aware that some courts regard fines as penalties, and will not lend their aid to enforce them, independent of statutory enactment. Lincoln Bldg., etc., Ass. v. Graham, 7 Neb. 173; Lincoln Bldg., etc., Ass. v. Benjamin, 7 Neb. 181; Jarrett's Ex'or v. Cope, 68 Pa. St. 67; Link v. Germantown Bldg. Ass., 89 id. 15. But the rationale of the doctrine of fines for the nonpayment of dues is that they are essential to the proper exercise of the express powers conferred upon building and loan associations in their incorporation. And therefore they have the right to impose them, whether any express warrant is found for it in the statute under which they are incorporated or not. They have such power by implication. Endlich, Bldg. & Loan Ass. sec. 417; Goodman v. Bldg. & Loan Ass. 14 So. supra. It has been suggested that the menace of foreclosure, which overhangs the borrower in case of default, is a sufficient stimulus to promptness, and that, therefore, the by-law imposing fines is unnecessary, and should not exist. But the investor has no such stimulus to enforce punctuality on his part. The imposition of fines for non-payment of dues must apply to every member alike, — the investor as well as the borrower. Fine must be reasonable. The power to impose fines, however, if unrestrained, might be abused, and thus cause injustice and oppression. Therefore, courts of equity, operating with or without the sanction of the statute, will see that fines are reasonable in amount, and equitable in every respect, having in view the object to be attained by them. They must be prescribed by the charter or by-laws, in precise and unequivocal terms, so as to be readily understood by the members. Endlich, Bldg. Ass. secs. 419-22; Occidental Bldg. & Loan Ass’n v. Sullivan, 62 Cal. 394; Davis, Law of Building, etc., Societies, p. 36; Mulloy v. Fifth Ward Bldg. Ass., 2 McArthur (D. C.), 594. The by-law under consideration conforms to-these requirements. Since the decree is for a sum less than it might have been, under the rule announced, it is unnecessary for us to determine whether the small interest on fines included in the decree is error. If so, it. was, not prejudicial. Affirm.