Cobe v. Airey

Mr. Presiding Justice Smith delivered the opinion of the court. The defense of usury interposed by the defendants to the bill rests upon the question whether or not the Forth American Savings, Loan & Building 'Company was a building and loan association within the intent and purpose of the laws 'of Illinois governing homestead loan associations under the evidence in the record; and if it was a building and loan association within the meaning and intent of the laws of Illinois at the time of the transaction in question, did it conform to the requirements of such laws in making the loan to defenddant Airey ? On the hearing before the master in chancery the copies of the Minnesota statute under which the company was organized, and the by-laws of the company as set out in the answer of the defendants, were stipulated to be correct copies respectively of the statute and the by-laws, and were introduced in evidence. The copy of the articles of incorporation of the company attached to the bill of complaint was also put in evidence. By article third of the articles of incorporation it is provided among other things: “This corporation may also borrow money upon the sale of debentures issued by said corporation.” Article fourth fixes the limit of indebtedness which the corporation may incur at $1,000,000, and provides that the amount of its indebtedness, exclusive of debentures issued by it, shall not exceed $10,000. Section 8 of the by-laws of the company provided for the issue of fully paid up stock for $50 per share, and for dividends upon such stock at six per cent, per annum, payable semi-annually, on the price of the stock; and that the amount of the dividend should be deducted from the profits earned, the balance to be credited to the stock. When the amount standing to the credit of the stock equaled $100 the stock should be deemed-to have matured, and. the holder might withdraw the same, receiving the amount paid therefor at any time after .two years, together with three-fourths of the accrued earnings of said stock, less six per cent, interest paid on such shares. The evidence shows that under this section the company was engaged in selling fully paid up stock before and at the time of the loan to defendant Airey, and that on March 31, 1891, it had sold of this stock $33,866, and that of this amount $410 had been withdrawn. It further appears from the evidence that the company did not offer its money for loan in open meetings of its board of directors, but at closed meetings at which written applications, such as Airey made for this loan, were received from borrowers who were ignorant of the amount in the treasury and of the number or terms of applications made by others. The terms of the loans were fixed arbitrarily as to the premiums, which were made at one hundred per cent, of the amount loaned, payable in fifty per cent, of the borrower’s stock, which in each instance was double the amount of the loan. The company had local boards organized in localities in this and other states which were to pass upon the loans, but in the Airey loan this formality was not observed. There were other characteristic peculiarities of the business conducted by the company bearing upon the question before us, which might be mentioned, but we do not deem it necessary, in the view we take of the case, to call attention to them. In our opinion the features of the organization above mentioned and its methods of business as shown by the evidence place the company entirely outside of the scope and purpose of the statutes of Illinois relating to homestead loan associations. It is not a building and loan association as known to our statute. Rhodes et al. v. Missouri Savings Co., 173 Ill., 621. We do not deem the question raised in argument that the company does not fall within the building and loan statute of Minnesota as pertinent here, and we express no opinion upon it. For the. purposes of this case we need. go no further than to test the company by the statutes of this State, for if it does not conform in purpose and business methods to our laws, it can have no standing here as a building and loan association, under the rule of comity between states. In Stevens v. Pratt, 101 Ill., 206, the court referring to section 26, chapter 32, R. S., said: “Where the general laws of this State provide for the organization of corporations, foreign corporations of like character doing business in this State, shall exercise no greater or different powers, and shall be subject to the same liabilities, restrictions and duties. The manifest and only purpose was to produce uniformity in the powers, liabilities, duties and restrictions of foreign and domestic corporations of like character, and bring them all under the influence of the same law.” In the Granite State Provident Association v. Lloyd, 145 Ill., 620, the court after quoting the above language says: “We think this language clearly shows that under said section 26, when a foreign corporation of any kind comes into this State to transact business, it must conform to tire laws of this State, if such exist, regulating similar corporations organized under the general laws of this State; also that no law of comity between this and other States is thereby violated; it being simply a law of regulation, and in no sense one of prohibition.” See also The St. Louis Loan & Inv. Co. v. Yantis, 173 Ill., 321. In the transaction before us there was no pretense of conforming to the regulations of the Illinois statutes. The manner in which the business between the company and Airey was conducted shows conclusively that neither party to the transaction contemplated a competitive bid for the priority of loan. Airey agreed with Lahore "upon the terms of the loan and on January 15, 1891, paid the admission fee of $24 which he thought was a commission to Lahore, the sub-agent of the company at Morgan Park, Illinois, for his services in negotiating the loan. The loan was referred to the general agent of the company, Starbird, who directed Lahore to close it up without waiting for the organization of the local board at Morgan Park. Starbird himself approved the security and directed Lahore to procure the abstract of title. Airey delivered his abstract to Lahore or the attorney for the company and executed the note and mortgage, and on the approval of the title by the attorney the securities were delivered and the money advanced. This was all done in Chicago. Airey attended no meeting of the board of directors and made no bid for the loan in the sense contemplated by the statute. He signed the so-called bid and subscribed for the 24 shares of stock and assigned them to the company, agreeing to continue payments of installments thereon until the stock matured or the loan was otherwise paid. He also agreed to pay the company a bonus of 50 per cent, of the stock as a premium for the loan. ' These conditions, together with six per cent, per annum interest on the loan for the whole time, were thus imposed upon the defendants unlawfully and arbitrarily, by private negotiations and contract Avithout reference to any competitive bid for the priority of loan in open meeting of the board of directors, and made the transaction usurious under the laws of this State. In Borrowers’ Building Ass’n v. Eklund, 190 Ill., 257, the court in declaring the effect of section 11 of the Homestead Loan Association Act, said: . “The statute does not by any means invest these associations with unrestricted authority to enter into private contracts with individual stockholders for interest or premiums Avithout regard to the general laivs limiting the rate of interest which may be laAvfully contracted for. On the contrary there are but two modes by Avhich such associations may make loans of this privileged character. These modes of procedure are set forth in section 8 of the statute under which such associations have existence.” The court, after quoting section 8, says: “ These modes of making loans and contracting for interest by way of premiums were not declared by the legislature for the mere purpose of directing an orderly manner of business procedure for the associations, but for the purpose of operating as a restraint upon the power of such associations to enter into oppressive contracts for interest or gains for the use of their money.” The court holds that the transactions under review in that case were usurious, and that the association had forfeited the right to collect any interest whatever, but that only the sums loaned should be required to be repaid by the appellee because of the failure of the association to observe the provisions of the statute. To the same effect is Jamieson v. Jurgens, 195 Ill., 86. The evidence clearly shows that defendant Airey had paid back to the company $1,310.40, and therefore had paid to the company more than the amount loaned to him. ¡Nothing was due on the mortgage at the time the bill was filed. Complainant Cobe received the securities subject to all equities between Airey and the company and is not entitled to the relief prayed. The decree is therefore reversed and the cause is remanded with directions to dismiss the bill for want of equity. Reversed and remanded with directions.