Assets Realization Co. v. Heiden

Mr. Justice Freeman delivered the opinion of the court. There is and can be no serious doubt that the certificate constituting the original borrower in this case a shareholder of the International Building, Loan and Investment Union, so far as it embodies an agreement of the union to pay the holder of the certificate the full value of one hundred dollars for each of his shares of stock at the end of six years from the date of the certificate, whether such stock has matured or not, is “ inconsistent with the statute under which the corporation has its existence, and antagonistic to the legal purposes and plans of such organization, and not enforcible ” as a contract. King v. International B., L. & I. Union, 170 Ill. 135. The provisions of the act under which appellant was organized as a building association do not authorize any such agreements. Rev. Stat., chap. 32, title, “ Homestead Loan Associations.” In the case cited it is said that by-laws purporting to authorize such an agreement are ineffectual to make the agreement valid, “for the reason a corporation has no power to enact a bylaw inconsistent with the statute under which it was created.” By its terms the certificate was payable in six years, and if valid, the amount due under it at the end of the term would be applicable upon the debt of the holder to the union. It is contended by appellant, however, that the certificate, while by its terms payable in six years, is, nevertheless, to be deemed to have been issued in view of the statutory provision authorizing the issue of shares of stock in periodical series, each class having a different fixed periodical payment of dues, the payment of which “ shall continue on each share until the same shall have reached maturity value, or is withdrawn or retired.” R S., chap. 32, sec. 83. It is argued that notwithstanding the invalidity of the provisions of the certificate as therein expressed, the statute entered into and became a part of the certificate as fully as if in terms a part thereof, making the contract, lawful and operative. There is language which may bear such construction in the case above referred to. King v. International Union, supra, p. 142. The loans in the case at bar, however, were made in December, 1889, and February, 1890. At that time the provision of the statute relied upon was not in existence. The act containing that provision was approved June 16, 1897, in force July 1, 1897. R. S. of 1897, chap. 32, sec. 83. Whatever may have been the date of the certificate which was under consideration in the case above cited, the language of the court in that case is not applicable, as we understand the law, to the certificate in the case before us. A provision of a statute enacted in 1897, can scarcely be deemed to have entered into and become a part of a certificate issued eight years before, which had matured according to its terms two years before the enactment relied upon, and where, as here, the bill of complaint which began the proceedings before us for review was filed June 19, 1896, before the remedial statute of 1897 became operative. The certificate was therefore illegal as a building association contract when issued, and remained so during the whole time of the transactions involved in the case before us. It appears, however, that the borrower and his assigns complied substantially with the provisions of the certificate and of the by-laws in that respect and paid to the union the amounts therein required of them. It was therefore apparently an executed agreement according to its terms when this suit was begun. It was further provided in the charter and by-laws adopted by the, union that each shareholder should pay on all loans not only interest at five per cent per annum but premium also at five per cent per annum, and the terms and conditions of the certificate, the application for membership and the by-laws are made to form the contract between the union and each shareholder. The notes given to secure the loans likewise provided for the payment of five per cent interest per annum and five per cent premium, a total of ten per cent upon the amount of each note. The whole contract, therefore, between the union and the borrower, was in all its parts in violation of the statute under which building associations were organized in this state. There was no authority conferred by the statute to demand payment of a fixed premium at that time. The statute then in force required the money in the treasury, if one hundred dollars or more, to be offered for loan in open meeting and to be loaned to the stockholder who should bid ¡the highest premium for the preference. It was not until 1891, long after these loans were made, that the law authorized a premium to be fixed in the by-laws. The premium xvas therefore “ illegally fixed, and the contract was usurious.” Eklund v. Borrowers & Investors B. Assn., 91 Ill. App. 657-661; same case 190 Ill. 257-266; Jamieson v. Jurgens, 195 Ill. 86-88. The scope of the union was not such as is authorized by the building association statutes of this state. Its funds were derived from sources not recognized by the building association laws. Rhodes v. Missouri Savings Co., 173 Ill. 621-631. It appears from the evidence that it issued paid-up stock as well as what is called “ current ” stock. One of the “ terms and conditions ” upon which the certificates of stock were issued and accepted was that •“ the union further agrees to issue a paid-up certificate for the amount of all monthly installments paid on shares that have been in force one year or over, payable at the maturity of the stock with interest at six per cent per annum.” There is evidence also that it received money on deposit; and this seems to have been in accordance with section 2 of its charter, and to have been one of the purposes of its organization. It had no power to conduct a banking business. As said in Rhodes v. Missouri Savings Co., stvpva: “ Neither directly nor by implication is the issuing of paid-up stock recognized by our statute. Such a procedure * * * is a distinct departure from the original plan of an association recognized by our statute as a co-operative building association.” The court concluded in that case (p. 632) that an association which under the guise of a building association conducts a business of such a character as to make it in facta loaning company only, “will be treated as a loaning company and will not, in the absence of other and additional legislation, receive the benefit of the liberal statute and decisions of this state which have attempted to foster these purely co-operative associations for building and saving purposes.” Appellees would be obliged, therefore, unless in some way estopped, to return only the amount of money actually loaned in this case. It appears from the evidence that the union has been paid this amount with interest, and it is claimed that the debt is discharged. Borrowers Assn. v. Eklund, 190 Ill. 257-267; Jamieson v. Jurgens, supra. It is contended, however, that as grantees of the premises covered by the trust deeds in controversy, appellees are estopped from "setting up usury. In the deed from Linke, the original borrower, to Mrs. Wetterhahn, it is recited that the grantee assumes and agrees to pay the two mortgages according to the terms and conditions thereof, with all accrued indebtedness thereon. Her grantee, Samuel Wetterhahn, assumed nothing, but appellee Heiden, who bought the property from him, took it subject to the mortgages. In Crawford v. Nimmons, 180 Ill. 143-147, it is said that “ in all the cases where it has been held that the grantee cannot question the validity of the mortgage, he has purchased the property on the basis of a clear title at an agreed price, and has assumed to pay the mortgage debt as a part of the consideration, or the amount of such debt has been deducted from the purchase price of the land on the basis of such clear and complete title. In such cases the grantee has paid that part of the purchase price representing the estimated value of the equity of redemption, and has reserved the amount of the encumbrance,” etc. It is further said that “if the usury has become a part of the consideration in the agreement between the mortgagor and his grantee, it is an affirmance of the debt by the mortgagor, and when the grantee contracts with a view "to the payment of the encumbrance, equity demands that be shall pay it or lose the property. There was no evidence of such a condition here.” What is said in that case is, we think, applicable to the grantee, who took the title merely subject to the mortgages. We are of opinion, however, that, waiving the usurious nature of the contract, the union in this case must be treated, not as a building association, but as a mere loaning company, “not entitled to claim any special rights or powers ” granted by the statute to building associations, and that the limit of recovery should be the amount of money actually loaned, with legal interest thereon. Rhodes v. Missouri Savings Co. supra, p. 633. This amount has been paid. We are of opinion, therefore, that the decree of the Circuit Court is correct and it will be affirmed. Affirmed.