Pacific Building Co. v. Hill

Mr. Justice Wolverton, after stating the facts in the foregoing terms, delivered the opinion of the court. 1. It will be noted that these transactions of which the complaint speaks were had, and the loan consummated, before the passage of the act of 1895, regulating the incorporation and business of building and loan and savings' and loan associations doing a general business, and it is claimed that the loan was lawfully negotiated, although the company had not at the time executed and acknowledged a power of attorney, appointing a citizen and resident of the state as its attorney, with authority to accept, and upon whom lawful service may be made of, writs and process necessary to give jurisdiction of the' incorporation to any of the courts of the state, as prescribed by Hill’s Ann. Laws, §§ 3276, 3277. To overcome this position, it is maintained, upon the other side, that the plaintiff is a banking concern. We do not think enough appears by the record by which it can be so classified. It is, rather, to be denominated a loan company or association, and not such an institution as comes within the purview of the statute cited: Singer Mfg. Co. v. Graham, 8 Or. 17 (34 Am. Rep. 572); Commercial Bank v. Sherman, 28 Or. 573 (43 Pac. 658, 52 Am. St. Rep. 811); Oregon & Wash. Invest. Co. v. Rathburn, 5 Sawy. 32 (Fed. Cas. No. 10,555). It was, therefore, lawful, without the observance of the conditions there prescribed, for it to do or transact business in this state. It must be conceded that it is beyond the power of the legislature, by retrospective act, to impair, in any degree, the obligations of a contract; nor are we advised of any provision of the act of 1895 that impinges upon this principle. Apparently, the act was drafted — 291 — witli a view to avoid such a contingency, as witness the declarations of section 7 relating to usury. 2. Plaintiff insists that it is a legitimate building and loan or savings and loan association, organized and operating under the special plan or system that characterizes those peculiar organizations or associations. But, to show that it is not, we will advert to one feature of its plan of operation. It requires a bidding to fix the amount of the premium, which, no donbt, is legitimate. But it exacts of the purchaser of the loan, or the borrower, that he bid a certain amount of his stock (in this case, fifty per cent.), which is to be assigned to the company, and henceforth to become its property, the borrower being required, notwithstanding, to pay the monthly dues or premium upon the assigned stock until it is matured, which must, from the nature of the obligation, be to the time of the maturity of his own stock, when the loan is extinguished, — that is, the full time the loan remains unpaid in any part. Note its present operation. Defendant assigned to plaintiff thirty of his sixty shares of capital stock absolutely, as a premium bid in consideration of obtaining the loan of $3,000, and pledged the balance of thirty shares as security for its payment. He was required to pay sixty cents per month denominated “dues” to the company, not only upon the thirty shares pledged, bnt also upon the thirty assigned to the company absolutely, being $36 per month; but only one half, or $18 per month, went to the reduction or the extinguishment of his loan, or was available to him for the accumulation of profits in the concern, the other half being a sheer contribution to the company. Aside from this, defendant was required to pay six per cent, on the amount of the loan, or $15 per month, as interest. The result is that defendant was paying to the company $18 per month, aside from the $15 called interest, that is, $33 per month, or 13.20 per cent., for the use of the $3,000 advanced; so that ultimately the defendant paid in monthly installments towards said loan, during the time from November, 1891, to August, 1899, the sum of $1,392, and yet plaintiff insists that the obligation is not discharged by $831, leaving nearly a third — 292 — of it for which a decree is demanded. The scheme is a vicious one, and foreign to the operations of a legitimate building and loan or savings and loan association, and falls within the denunciation of this court: Washington Invest. Assoc. v. Stanley, 38 Or. 319 (84 Am. St. Rep. 793, 63 Pac. 489); Western Sav. Co. v. Houston, 38 Or. 377 (14 Am. & Eng. Corp. Cas. N. S. 710, 84 Am. St. Rep. 808, 65 Pac. 611). The pretended measure adopted for the bidding of a premium, and the regulation for the payment of dues on the stock assigned to the company therefor, is a subtle method for collecting interest by another name, and constitutes a shift or device for the cover of usury. This renders the transaction a loan merely, and the payments made, under whatsoever denomination, should go to its extinguishment, along with the interest reserved, under the holding in Western Sav. Co. v. Houston, 38 Or. 377 (84 Am. St. Rep. 808, 65 Pac. 611, 14 Am. & Eng. Corp. Cas. N. S. 710). These payments are more than sufficient to discharge the same in full, unless it be true, as contended by .'plaintiff, that, the contract being for money payable in the State of California, it is solvable by the laws of that state, where parties are permitted to contract for any rate of interest they may desire. 3. It is sound doctrine, no doubt, that a contract for the payment of money entered into Iona fide in one place, and made payable in another, is to be construed, governed, and enforced according to the laws of the state or country where payable. But it is without application where there is a purpose manifest to avoid the laws of usury. Mr. Chief Justice Taney, in a discussion of the subject, in Andrews v. Pond, 38 U. S. (13 Pet.) 65, 78, says: “The general principle in relation to contracts made in one place, to be executed in another, is well settled. They are to be governed by the law of the place of performance; and if the interest allowed by the laws of the place of performance is higher than that permitted at the place of contract, the parties may stipulate for the higher interest, without incurring the penalties of usury; but,” continues the eminent jurist in another paragraph, “the same — 293 — rule cannot be applied to contracts forbidden by its (the place of contract) laws, and designed to evade them. In such cases, the legal consequences of such an agreement must be decided by the law of the place where the contract was made. If void there, it is void everywhere. ’ ’ .So, in Miller v. Tiffany, 68 U. S. (1 Wall.) 298, 310, Mr. Justice Swayne, after stating the general rule and observing that the converse is also true, says: “These rules are subject to the qualification that the parties acted in good faith, and that the form of the transaction is not adopted to disguise its real character. The validity of the contract is determined by the law of the place where it is entered into.” And in De Wolf v. Johnson, 23 U. S. (10 Wheat.) 367, it was held that the lex loci contractus must govern in a question of usury. See, also, Holmes v. Manning (Mass.), 19 N. E. 25. Usury is a moral taint wherever it exists, and no subterfuge should be permitted to conceal it from the eyes of the law. This, it is said, is the substance of all the cases. As a principle of international jurisprudence, no state is bound or ought to enforce or hold valid in its courts of justice any contract which is injurious to its public rights, offends its morals, contravenes its policy, or violates a public law: Dickinson v. Edwards, 77 N. Y. 573, 576 (33 Am. Rep. 671); 2 Kent, Comm. p. 458; Varnum v. Camp, 13 N. J. Law, 326 (25 Am. Dec. 476). It is scarcely controverted that plaintiff was doing-business in this state. Indeed the fact is apparent from the minutes of plaintiff’s board of directors, set out in the complaint, showing that loans were negotiated with persons resident within the state other than the defendant. Besides, plaintiff had a local advisory board, composed of its stockholders and members, ’and an agent in Albany, so that beyond question it was transacting business here, and was subject to the observance of the public laws and policy of the state, as much as any citizen thereof. Certainly, international or interstate comity does not go so far as to require the enforcement of a contract in favor of a nonresident doing business here that the courts of the state would not enforce in favor of one of its own citizens. — 294 — Now we have seen that the plaintiff, although pretending to be operating as a building and loan association, had adopted a plan or scheme not in accord with the true principles and purposes of that character of associations, with the manifest design of collecting interest by another name, and by deception to induce the payment of an unusual and unlawful rate. It is also manifest that the defendant Hill applied to become a member of the company, not that he especially desired to be a member and stockholder thereof, but solely for the purpose of obtaining a loan under the conditions offered. So it is perfectly reasonable and altogether natural to conclude that the stipulation for payment in San Francisco was introduced into the contract to avoid the usury laws of this state. A contract of the kind consummated with such a purpose, is an evasion of our laws, and contrary to the declared policy of the state, and cannot receive the sanction of this court. But, aside from this, there is very little to distinguish the case from that of Washington Invest. Assoc. v. Stanley, 38 Or. 319 (84 Am. St. Rep. 793, 63 Pac. 489). There the association had conformed to the act of 1895, and appointed a resident attorney, become duly Licensed to contract business in the state, and had a solicitor residing where the loan was negotiated. In the present case, the plaintiff was transacting business here, as it had a right to do, but it had an agent and local board here composed of its resident members, appointed under the by-laws and usages of the association, whose functions it was to-promote the membership thereof, and approve its loans. The bond and mortgage were executed by citizens of the state, realty situated within the state was hypothecated as security, and the money used in business here; so we must conclude -that, notwithstanding the express stipulation that the bond was payable in San Francisco, the contract is solvable by the laws of this jurisdiction. We have not overlooked the eases of Bedford v. Eastern Bldg. & L. Assoc. 181 U. S. 227 (21 Sup. Ct. 597), and Dygert v. Vermont L. & Trust Co. 37 C. C. A. 389 (94 Fed. 913), but in each of these cases the bona fides of the transaction seems to have been unquestioned, and the point of controversy was re — 295 — solved to the general proposition that a contract made in one state, which, by its terms, is payable in another, is to be controlled by the laws of the state where payable. These considerations affirm the decree of the court below, and it is so ordered. Affirmed.