Farmers' Savings & Building & Loan Ass'n v. Ferguson

Bunn, C. ¿T. This is a bill to foreclose a mortgage on appel-lees’ lands. The answer of the defendants sets up the defense of usury against the note sued on. Decree for defendants, and the plaintiff association appealed. The obligation sued on is as follows, to-wit: “$800. Nashville, Tenn., November 9, 1895. “Due the Farmers’ Savings and Building and Loan Association, at its home office at Nashville, Tennessee, eight hundred dollars, with interest at the rate of 6 per cent, per annum payable on the 10th clays of November and May. This obligation is -for money advanced me on 12 shares of stock of said association owned' by me, certificate being No. 8121, which said stock is hereby' assigned and pledged for the repayment of said loan, and the same is further secured by a mortgage, of even date herewith, executed by me upon a tract or parcel of land situated in Hempstead county,' state of Arkansas. I agree to pay to said association, on the 10th' days of November and May, at its home office in Nashville, Tennessee, sixty seven and 20-100 dollars ($67.20), winch shall be applied as follows: (1) To the payment of any fines made against' me in pursuance of the by-laws of the association; (2) to the payment of the interest due on said loan; (3) the balance shall be credited as dues on said stock. Said payments shall be continued ■ until the dues so credited on said stock, together with the profits thereon, shall equal the amount loaned. Should I fail for 6' months to make said pajunents, then the whole amount of said loan shall, at the option of said association, at once become due and payable.” This much of the obligation sued on is all that is necessary to be set forth here. Aside from fines, the contract of the appellee with the association was to pay interest in the sum borrowed at the rate of 6 per centum per annum, amounting to $48 per annum, and dues amounting to $144.40 per annum. The contract sued on, having to be performed in the state of Tennessee, according to the tenor thereof is a Tennessee 'contract, and is to be governed by the laws of that state. Sawyer v. Dickson, 66 Ark. 17, and cases therein cited. The defendants further contended that, as a Tennessee contract, it will not be enforced in this state, because they say the statutes of Tennessee on the subject of usury are criminal statutes, and that no state will enforce the criminal statutes of another state. The statutes of Tennessee herein sought to be enforced •are neither criminal statutes, nor statutes inconsistent with the statutes of this state, nor do they contain anything contrary to the policy of this state. Sections 2701 and 2707, Milliken & V. Code Tenn. The statute which declares the receiving of usurious interest to be a crime, and punishable by fine equal to the excess over the lawful interest, is a very different thing, for it will be observed that the crime.is the “receiving,” and not the “contracting for,” more than 6 per centum interest. Sections 5622 and 5623, ib. Again, it is contended by the defendants that the interest really contracted for in this case is more than 6 per centum per annum, notwithstanding that is the rate named in the obligation; for they say the amount stipulated for and denominated “dues” is in fact nothing else than interest cloaked under the name of “dues;” and they say this amount, added, as it should be, to the interest, makes the interest in fact usurious. As these several amounts are stipulated to be paid by the investor or the borrower, who also must be a member of the association, it has been uniformly held by this court that those so-called “dues” will be considered separate from those called “interest;” that the contract rights of the parties will be so far respected that they will be permitted to create a sinking fund, as it were, in this way, separate and distinct from the fund to pay the interest; for that is the real object of the dues at last. Thus it is that both the principal and interest of the investment or loan are paid off just when the stock is matured. It is then redeemed from pledge. This time of redemption is uncertain, and thus makes it impossible to determine a question of usury, if such is a proper question to consider in that connection. The fund thus created by the payment of dues includes the profits of the business, which must be distributed pro rata among the stockholders after payment of expenses of the business, and it is always impossible to say beforehand what proportion will be profits, and what proportion is to be credited on the stock redemption. The charge of usury must be supported by some certainty and definiteness of proof. But these and kindred questions are settled by the ruling of this court in the case of Reeves v. Ladies Building Association, 56 Ark. 335, in which, quoting from the syllabus, it was said: “(1) In a loan made by a building and loan association to a shareholder, in the usual form, there can he no usury, because the rate of interest payable by him is contingent upon the length of time required to pay out his shares. (2) A 'shareholder in a building association who procures a loan from it is not entitled to charge the association interest on his stock payments, nor to cause interest on the loan to cease running, from the time the payments are made, to the extent that they reduce the principal. All that he is entitled to receive is a share of the profits of the building association’s dealings with the whole fund of subscription.” There is no evidence that there was no competitive bidding for the stock. The only thing the defendant says for himself in that connection is that he never knew of this bidding. The presumption is that the by-laws were complied with until the contrary is shown. His presence at the bidding was not necessary. The decree is reversed, and the cause is remanded with directions to foreclose the mortgage.