Arbuthnot v. Brookfield Loan & Building Ass'n

ELLISON, J. 1. This is an action in equity whereby it is sought to cancel a note, and deed of trust to secure it, given by plaintiff to defendant for borrowed money. The plaintiff asked an accounting and offered to pay to defendant whatever sum was found to be legally due. The- trial court found that there was yet due defendant the sum of $777.28 and entered — 385 — a .decree that -upon the payment of that sum to defendant the note and deed of trust should be cancelled. The defendant, claiming more than that sum, has appealed. It appears that defendant is a building’ and loan association and that in October, 1891, plaintiff executed his note to it for $2',200. That of this sum defendant retained $583 as a bonus or premium bid for the loan. That he agreed to pay eight per cent per annum in monthly installments and also monthly dues of $11 each month on his certificate of stock as a member of the defendant association. The loan in this case was made prior to 1895, when the building and loan statute was amended, and is therefore governed by the original statute of 1889. If the loan was made in accordance with the provisions of the latter statute, the defendant has been injured by the decree of the trial court. If, as charged by plaintiff, that statute was disregarded, then the exactions by defendant in the way of premium, interest, etc., were not authorized by law, and being in the aggregate much more than lawful interest, became usurious and the decree of the trial court allowing credits for usurious payments should be affirmed. For we have ruled in a series of cases, beginning with Brown v. Archer, 62 Mo. App. 277, that if a loan was made in the manner provided by statute, it was a valid loan, though the premium, interest, etc., aggregated more than a lawful rate of interest. But that if the statute was disregarded it would not protect the loan from the charge of usury. The defendant had an established, fixed, minimum premium of sixteen per cent for preference of loan's. The statute referred -to (sec. 2812) required that the loan should be made at competitive bidding of premium for preference of loan in open meeting and we have held that where the association had a fixed minimum premium at which they made loans, that that was an — 386 — act in disregard of the statute and avoided its protection. Brown v. Archer, supra; Moore v. Building & L. Assn., 74 Mo. App. 468; Barnes v. Building & L. Assn., 83 Mo. App. 466; Clark v. Mo. Guar. Assn., 85 Mo. App. 388; Pry v. Savings Assn., 88 Mo. App. 289; Cover v. Building & L. Assn., 93 Mo. App. 302. 2. That'Statement of the law is not questioned by defendant. But it seeks to distinguish this case from those just cited by the fact that, while there was a minimum premium of sixteen per.cent for preference of loan fixed by one of its by-laws, yet, in point of fact, there was competitive bidding, in open meeting, at which the loan in controversy was bid off at twenty-five and one-half per cent. And that since the loan was bid off by competitive bids for a per cent greater than the premium fixed by the by-law, the fact that there was a fixed premium worked no harm and ought not to be allowed to affect the validity of the loan. The facts, as disclosed by the record, were these: Defendant had a by-law declaring that the premium to be received for preference of loans should not be less than sixteen per cent. That when this loan was let to plaintiff the secretary of the association, who cried the bids, opened the auction by announcing that no bid would be received under sixteen per cent. That thereupon bids were made over that rate until the loan was sold to plaintiff at twenty-five and one-half per cent. In our view, that manner of letting the loan gave effect to the objectionable by-law and was in the face of the statute directing free and open competition. The by-law was enforced by the opening declaration of the secretary. The bidders were compelled to bid more than sixteen per cent and while'there was competition above that rate, there could be none under that rate. It is manifest that there can be no fair and free letting of a loan, when a certain rate is determined upon beforehand under which no loan would be made. The by-law arbitrarily fixed upon sixteen per cent as the — 387 — rate, unless the association conld get more. The bylaw itself fixed a usurious rate and-being fixed, it was not protected by the statute. "When the association adopted the by-law and enforced it through the act of its secretary, it was demanding usury in a manner unauthorized and, therefore, it placed itself outside the protection of the statute; and the fact that it got more usury than it demanded in the by-law does not relieve the transaction of its illegality. We are cited to Endlich on Building & Loan Associations, section 411, but the citation does not support defendant. , That author says that if the premium exacted was the result of fair competition, without reference to. the illegal by-law, “no bid being refused because below the established ■minimum, nor raised for the sole purpose of covering it” the borrower has no cause of complaint. But in ■this case, while no bid was refused for the reason that it was Below the rate named in the by-law, yet the bidders were advised, at the outset, that they would not be permitted to bid below that rate. 3. It seems that plaintiff was the attorney for ■defendant when the loan was made to him. For that reason defendant objected to his testifying in the case. The objection was not well taken. The plaintiff could not be cut off from the right to testify to matters relating to the transactions concerning this loan. As to this loan, defendant and plaintiff were acting in antagonism. They were parties in-opposing interests .and did not occupy the position of attorney and client. 4. Defendant claims that there were fines for delinquent payments owing by plaintiff which should have been charged against him by the court. The evidence disclosed that these had not been charged against him. That through a series of years, no mention was made of fines, and none were ever collected because of plaintiff being the attorney of the association. The mention of fines was a mere afterthought and the court -properly refused to consider them. — 388 — 5. Defendant also claims that it has been improperly charged for interest on dues. A calculation shows this was not 'done in point of fact. 6. The note in question drew upon its face eight per cent interest. The trial court, having found the transaction tainted with usury for the reasons herein set out, refused to allow defendant the eight per cent; but, instead, allowed six per cent. In this State, six per cent is the legal rate, but the rate may be made eight per cent by contract. And so the former is generally termed the legal rate and the latter the contract rate. The statute (sec. 3709, R. S. 1899) is: “Usury may be pleaded as a defense in civil actions in the courts of this State, and upon proof that usurious interest ha® been paid, the same, in excess of the legal rate of interest,, shall be deemed payment, shall be credited upon the principal debt, and all cost of the action shall be taxed against the party guilty of exacting usurious interest,, who shall in no case recover judgment for more than the amount found due upon the principal debt, with legal interest, after deducting therefrom all payments of usurious interest made by the debtor, whether paid as commissions or brokerage, or as payment upon the principal, or as interest on said indebtedness.” Defendant claimed at the argument that as eight per cent may be legally contracted for, the statute,, when using the expression, “with legal interest” meant: the interest stipulated in the contract, provided it was-, within the rate which could be legally contracted for.. We think not. The statute, in using the expressions “legal rate- of interest”-and “with legal interest,”" meant the statutory rate which obtains in the absence-of contract. Usury avoids the contract as to interest and the- statute disposes of it by giving the creditor the statutory rate and applying the overplus towards the payment of the principal debt. By inadvertence of court and counsel, in directing the calculatiom-of what should be allowed the creditor in. — 389 — Brown v. Archer, 62 Mo. App. 277, the contract rate was used instead of the legal rate. The matter passed unmentioned and unobserved and the trial court did right in ignoring that calculation here. ■ The judgment will be affirmed. Alb concur.