Mechanics & Working Men's Mutual Savings Bank v. Wilcox

"Waite, C. J. The loan, made by the plaintiffs to the defendant, Wilcox, in the present case, aside from the statute, “ authorizing the establishment of savings and building associations,” was unquestionably made upon an usurious contract, and in violation of the statutes made “ to restrain the taking of usury.” For although one portion of the sum to be paid for the use of the money is called interest, and another portion a bonus, yet in truth, and in fact, it was nothing more nor less, than a contract to pay fifteen percent, for such use. The only question therefore is, whether the former statute — 154 — authorized the making of the contract in question. If it did, then the contract is valid, and Wilcox is bound to perform it; if it did not, then it falls within the operation of the statutes, prohibiting the taking of usury. The former statute, so far as it is applicable to the case under consideration, provides that “ every association, formed in accordance with the provisions of this act, shall be a body corporate, and politic, with power to loan money to its members, upon real or personal security, or upon the pledge of the borrower’s stock in said association; to receive interest for money so loaned, monthly, quarterly, semi-annually or in advance; to receive for such loan or loans, in addition to the legal rate of interest, paid as aforesaid, such a bonus as the parties, in each case, may agree upon; to loan money to persons, not members of said association, at the legal rate of interest, provided no member of said association, who can furnish good and sufficient security therefor, applies for it.” Statutes, 1854, 218. It is apparent, from that provision, that the legislature intended to authorize an association, formed under the statute, to receive a compensation, in addition to the legal rate of interest, for a loan of money made to one.of their members. But did they intend to exonerate all contracts, made with their members, from the operation of the usury laws ? We think not. Had they so intended, they would have used language more appropriate for such purpose. They naturally would have said, that such associations might loan money to their members, at such rates of interest, or upon such terms, as the parties might agree. This language would have been plain, intelligible, and liable to no misconstruction. But they have simply authorized th.e receipt of a bonus for the lpan, in addition to the legal interest. By that expression, we think that they meant something definite; something distinct, and independent of the interest, in the ordinary acceptation of that term-; a definite sum for a loan for a — 155 — specified time, and not anything which the parties, in their contract, might choose to denominate a bonus. But even this extra compensation can be received only from a member of the association. No loan can be made to any other person, at more than legal interest, and not even at that rate, provided any member of the association, who can give sufficient security, applies for the loan. Again, the statute authorizes the receipt of the interest monthly, quarterly, semi-annually, or in advance, but confers no authority to receive the bonus in that manner; implying that the latter is to be paid in a different mode. It merely authorizes the receipt of a bonus, in addition to the interest^ which might be received in a specified form. Had the legislature intended to sanction the payment of the bonus, in the manner in which the interest might be received, why did they not' say that the association might receive the interest on the money loaned, and the bonus agreed upon by the parties, monthly, quarterly, semi-annually, or in advance ? But they have not so said, and, as we think, for a very good reason; they did not intend to authorize contracts of so ruinous á character, as the one under consideration. Their design was to benefit a class of borrowers, who might not be able to obtain loans in other modes. The name of the present plaintiffs implies, that one object of their association was to accommodate mechanics and working-men with loans, and they say, in the preamble to their constitution, that they are desirous of enabling each member, to procure, for himself, a dwelling-house, and thus become the proprietor of his own home. Such men can generally understand the effect of a contract for a loan, at the legal rate of interest, although a specific sum may.be required to be paid for the accommodation, for a given period of time. . If the borrower fails to pay at the end of that time, his debt is subject only to lawful interest. — 156 — And how much he can afford to pay, for that accommodation, is a matter within his judgment. But such men may not all be able to foresee the consequences of a contract like the one under consideration; a contract, by which the borrower is bound to pay fifteen per cent, per cmrmm, for the loan, so long as it continues, and from an accumulation of the debt, at that rate of interest, he has no means of extricating himself, except by a re-payment of the debt, with the accumulated interest. This he may not, at all times, be able to do. Sickness, scarcity of money, misfortune in business, and various other causes, may prevent. And if he has mortgaged his dwelling-house for the security of the loan, he may find that the loan, instead of enabling him to become the proprietor of his own home, is sweeping it from under him, with all his other earnings, therein invested. His condition, upon a failure to pay, is very different from that of a member, who has borrowed at lawful interest, and a stipulated bonus. The latter, under no circumstances, can be compelled to pay, in addition to a specific bonus, more than the debt, and the lawful interest, however long the debt may remain. But the debt of the former may go on accumulating, at a rate, which, if the debt be large, few men can bear, for any great length of time, without becoming ruined. We have been referred to the statute, passed at the last session of the general assembly, providing that the bonus on certain loans made to stockholders, shall, in no case, exceed twenty-five per cent, on the amount loaned, when taken for the whole time for which the loan is made, and one-half of one per cent, per month, when taken monthly. Rev. Stat., 19. Hence it is claimed that the statute, limiting the monthly payments óf a bonus, impliedly admits the legality of such contracts under the previous statute. That statute was passed subsequent to the making of the contract in the present case, and by an express provision, does not go into operation until the first of January, 1856. — 157 — What the true construction of the statute is, is not a question properly before us, and any opinion, which we might express upon the subject, would be but an obiter dictum, not legitimately binding in any subsequent case. It is obvious, however, that it can have no effect upon the contract under consideration, the construction of which must be governed by the law in force, when it was made. We are not to be understood as saying that the legislature had no power to authorize the making of such a contract. All we mean to say is, that, in our opinion, when it was made, there was no law in force, making it a legal contract. It is said, by the defendants, that the contract was not merely usurious, but void, as one which the plaintiffs, by the statute empo' vering them to act, had no authority to make. And the cases of the Philadelphia Loan Company v. Towner, 13 Conn. R., 249, and The Bank of the United States v. Owens and others, 2 Pet., 527, are cited in support of the claim. But the former ease is an authority against the defendants. Williams, C. J. there says: “In this state most, if not all, the bank charters prohibit the taking of more than six per cent., and leave the effect to be determined by the general law. It has never been claimed that a construction was to be given to such contracts, different from that given to a similar one, made by an individual.” And Judge Sherman, who differed from the other judges in that case, placed his dissent upon the ground, that the plaintiff’s charter prohibited the taking of more than six per cent, interest. In the case in Peters’ Reports, the charter of the bank contained an express provision to the same effect. . In the present case, the statute authorizes the company to loan money, and contains no express provision, prohibiting them from taking more than legal interest. In the language of the court in the former case, the contract must be considered in the same manner as if the loan had been made — 158 — by an individual. In such case it would be merely usurious, and not entirely void. Another question has been made, and that is, whether the payments, which have been voluntarily made on account of the bonus, are not valid. The statute, it is said, expressly authorizes the taking of a bonus, and if it does not sanction a contract, made in the form adopted in the present case, yet if, under it, a payment has been voluntarily made, it amounts to a waiver of objection to the form, and is therefore good. In this respect, it is claimed, that the contract is like one for the payment of compound interest, which the law will not generally enforce, yet if the debtor voluntarily pays it, or embraces it in a new note, he can neither recover the money paid, in the one case, nor invalidate the note in the other. Camp v. Bates, 11 Conn. R., 487. But a majority of the court are of opinion, that the contract, in its inception, was' usurious, and that the statutes, relating to usury, apply as well to that part denominated a bonus, as to the interest, both being of the same character. The payments, on both accounts, were made for the forbearance of the money loaned. Another question relates to the payments, made by Wilcox to the plaintiffs, upon his subscription for stock. It is found that the subscription and payments were made, for the purpose of enabling him to obtain the loan. But as he had a perfect right to become such stockholder, and in consequence obtained the loan, we think that the mere circumstance, that he is not liable to the full extent of his contract, does not affect his rights, or his liability, as a stockholder. We therefore advise the superior court to ascertain the amount due upon the note, in conformity with the provisions contained in the statutes relating to usury, and pass a decree in favor of the plaintiffs accordingly. — 159 — In this opinion the other judges, Storks and Hinman, concurred. Decree accordingly.