Cynthiana Bldg. & Sav. Ass'n v. Ecklar

Opinion of the court by JUDGE O’REAR Affirming. In 1895 appellee, being a holder of ten shares of the •stock of appellant, association, borrowed $1,000 from it, upon which he made payments from time to time, according' to the by-laws of the association, which payments, unden numerous familiar decisions of this court, included usurious interest. In 1897 this court deciding the case of Simpson v. Association (19 Ky. Law Rep., 1176), (41 S. W., 570), (42 S. W, 884), exactly defined the relations between building and loan associátions that were going concerns and their borrowing stockholders. The result of that decision was to declare unconstitutional the Kentucky 'Statutes allowing such institutions to collect greater than the simple rate of six per cent, per annum interest upon their loans to their members, which was materially different from the general plans upon which they were then being operated. It seems that some confusion and material alteration of plans resulted, and so appellant claims to have had such experience in the conduct of its affairs. Thereafter, in 1900, when many similar conqerns had found! it necessary to quit business, or, at least, had found it so un [167] profitable to continue that they had determined to quit, appellant undertook, it seems, to settle with its stockholders who 'were borrowers rather than go into a liquidation, with all of its incidental expenses and losses. Thereupon appellant and appellee entered into an agreement, as follows: “Whereas, the Cynthiana Building and Sawings Association, a corporation duly incorporated under the laws of the State of Kentucky, with its place of business in Cynthiana, Kentucky, has, by reason of it's several years’ experience in conducting a business of receiving and lending money under the laws regulating building and loan associations in the State of Kentucky, collected fines, premiums, and a sum for the running expenses of said association in excess of the dues and six per cent, interest, and now having arranged for the loan of its money to-its members at a less rate of interest than six per cent, per annum, the undersigned being a member and borrower of said association, and being fully advised as to all his rights and interest in whatever of fines, premium's, and expense fund he may have heretofore paid to said association, and of the fact that said association has heretofore inc-nrred extensive losses by reason of the umconstitutionality of the law under which it was operating: Now, in consideration of the reduction of his loan, and the reduction of the rate of interest as stipulated in the mortgage this day executed to said association, -said member and stockholder does hereby waive and relinquish any and all claim nr claims to any part or portion of said fines, premiums,. and expense fund that he may ¡have paid, and agrees that the same may be applied in full payment and discharge of said member and stockholder’s proportion of said losses sustained and running expenses incurred, and he from and after this date is acquit by said association of all liability a.s a stockholder [168] in same arising from his connection with it prior to and up to this date, and further agrees that the new debt created on this-day,.and represented by note and mortgage, shall be in no wise connected with the old debt, and the said .old -debt is now fully settled, and th-e new debt to be treated as if no previous transaction 'had ever existed between said association and the undersigned.” Upon this agreement, it is averred, appellant canceled the old debt, loaned appellee a new -sum, a part of which went to the extinguishment of the balance ascertained to be due under the. settlement of the old debt, and reduced the rate of .interest from six to five per cent, per annum. Appellee, having paid off this last-named sum, brought an action within a year thereafter to recover from appellant $260.92 which he 'says was the amount of usury which had been carried forward from the old contract. This apjjeal involves the validity of the settlement contained in the writing above quoted, which was denied by the circuit court. It may be accepted as an uncontrovertible proposition that agreements between a debtor and creditor, while the debt exists, by which the debtor undertakes to waive objections to usurious rate of, interest, or obligates hims-elf not to claim the benefits of’the statutes against usury, are void. “The law regards the debtor, in executing such a release, as acting under the coercion of the creditor, and yielding to the -demand, under the pressure of his-condition. If such agreements were recognized as valid, it would take from the statute its entire force and efficacy for the suppression of usury or the protection of borrowers; for the lender would always procure, for some small consideration, a release from the borrower of his right to refuse to pay the usury promised.” Browning v. Thompson, 13 B. M-on., 3S7. In fact it may be stated that any settlement of a [169] usurious transaction had between the parties, while the relation of debtor and creditor existed, upon other than a full consideration for the usury involved, would be void as to the difference between the actual value of the consideration and the amount of usury. It is claimed that the case of Association v. Florence (21 Ky. Law Rep., 1403), (55 S. W., 207), is conclusive of the case at bar. That case is distinguishable from this one, however, in' the fact that in the Florence case it was not shown of what the loss and running expenses consisted, other than that it. amounted to $147. Wlmt we held in that casé was, in effect, that where a loss h'ad been sustained, which was such a loss as a borrowing stockholder was chargeable with some part of, -it was a matter forming the subject of settlement or compromise between tbe parties; that, having themselves fairly settled upon the sum as the 'shareholder’s part of his company’s losses with which he was chargeable, it could be set off against his claim of usury against the company. However, in the case at bar the parties, by the writing exhibited with the answer and copied above, have undertaken to set - forth the nature of the losses it sustained, a part of which appellee by the contract in question assumed as a liability upon his part. These losses are shown to be usurious interest collected by tbe company, which it had been required to repay to its debtors. No other item of loss is named or suggested in the writing. In the case of Association v. Denton (21 Ky. Law Rep., 148), (50 S. W., 53), we held that losses embracing the amounts which the association has sustained by its failure to collect usury off of certain of its delinquent members were not such losses as were chargeable to a borrowing member for which he in Ms other capacity as stockholder must answer to the corporation. It was there said: “The stockholders have simply failed to [170] make certain profits to which they laid, claim under usurious and unlawful contracts. These contracts ought not to have been made, and the amount of usury embraced in them is not a loss to the association, save as it is a curtailing of expected profits. The appellee is no more chargeable with this alleged loss than he is chargeable with the usurious amount embraced in his own contract.” In Association v. Bybee (21 Ky. Law Rep., 1021), (53 S. W., 670), it was held: “It is the contention of appellant that the appellee is bound for her proportional ishare for the expense of conducting the business. It, however, seems to us that the law is well settled that appellee can not be made to account for losses occasioned by the payment of usurious interest to withdrawing members.” In Association v. Montjoy, 107 Ky., 473 (21 Ky. Law Rep., 1189), (54 S. W., 719), the two cases above referred to were approved and followed, the court saying that they “recognized the liability of the shareholder for his ‘just share of the expense land loss of the association/ upon a proper showing being made by the company of such loss and expense. But, as held distinctly in the cases of Denton and Bvbee, supra, losses due to -the failure to 'collect or refunding of usury can not be included.” ' It may therefore be accepted as a settled proposition in this State that such losses of a going association are not chargeable to the borrowing member, and therefore they could form n'o legal basis or consideration for a settlement of an admitted claim of usurydue him. It follows that the court below properly rejected the answer pleading the contract of settlement, and its judgment is affirmed.