Shannon v. Dunn

Bartlett, J. The plaintiffs are trustees of a voluntary association, which is said by its articles to be formed “ for the purpose of accumulating a fund for the purchase of real estate, making improvements thereon, and removing incumbrances therefrom; and for the purpose of accumulating a fund to be returned to its members who do not obtain advances as above mentioned, when the funds of the association shall amount to $500 per share.” The number of shares is fixed at 1200, of which 400 are reserved “ for the accommodation of members who wish to obtain larger loans than can be obtained on the shares previously held by them.” From the somewhat obscure provisions of these articles, we understand that every member is to pay an “ entrance fee,” for each “ share,” as it is called, held by him, and is also to make a monthly payment of two dollars for the same, during the continuance of the association. For neglect to pay these monthly dues, the member is liable to a fine for each share of twelve cents for the first month, twenty-five cents for the second, thirty-seven cents for the third, fifty cents for the fourth, and one dollar for each succeeding month. All shares on which no payment is made for six months, are forfeited, though the directors may, in certain cases, remit the forfeiture. Members paying their dues- three months or more in advance, [197] are entitled to interest at the rate of six per cent. Whenever the funds of the association amount to $500, that sum is to be “ put up to competition,” and the member offering the highest premium is to have it, “for the purpose of building, or purchasing freehold or leasehold premises, or removing incumbrances therefrom.” This transaction is termed in the articles, “purchasing shares,” but, if not colorable, is, in fact, nothing more than the member receiving $500, less the premium, at the time, in lieu of the $500 to which he would be entitled at the winding up of the association. It is^ the sale of his right to the $500, when it shall accrue, for a less sum in hand. No member can “purchase ” more than ten shares, and he must be the owner of a number of shares equal to the number he shall thus “purchase,” or become so by subscribing and paying the value of such as he has not already subscribed and paid for; or, in other words, he must pay or have paid the dues upon one share for every $500 that he thus obtains, and he can obtain but ten such sums in all. A member purchasing one such sum, could, at the time of the purchase, elect to receive nine more at the same rate of premium, and upon the same terms, in which case the nine amounts were to be paid him out of “the next moneys to be received.” Among other things, “the purchaser” is required to give his bond, secured by mortgage of the real estate, for the payment of his monthly dues and fines, and the interest, which, under the name of “ a redemption fee,” is to be paid monthly, at the rate of six per cent per annum. Article 17 provides for a redemption of the mortgaged premises, by payment of an amount to be determined by the directors. Whenever there are funds enough to pay all liabilities, and $500 on each “unpurchased” share, the debts are to be paid, and such a dividend is to be made to the holders of such shares, and no further monthly dues are to be paid, but the association is to terminate. The agreed case states that the association was limited to eight years ; but in the articles, which are made part of the case, we find no provision for a termination, other than that already stated. The funds, not required for advances to members, were to “be invested upon bond and mortgage, or such other security” as should be determined, agreeably to the articles. We can see that, in such an association, the relative advantages of the accumulators and the borrowers, as they are sometimes termed, may be by no means equal, and that a member obtaining an advance may, in some cases, be subjected to an exorbitant rate of interest; but we can not, as matter of law, pronounce the contract, upon which such advance is made, usurious. The monthly payment is not, apparently, exacted for the advance, but for the privilege of membership, and of ultimately sharing the dividend. Although the member obtaining an advance upon all his shares is to receive no dividend, he still continues interested in the profits of the association, as the time at which his payment of monthly dues and interest will cease is dependent upon them. If the transaction here is to be regarded as an advance to Dunn, it was from funds in which he had a common interest with the other members, and in [198] which he continued interested, and “is to be regarded as a dealing with the partnership funds,” rather than as a loan. Silver v. Barnes, 6 Bing. N. C. 180; Gilpin v. Enderly, 5 B. & Ald. 954; Chit. Cont. (10th Am. Ed.) 774; Burbidge v. Cotton, 8 E. L. & Eq. 57. If the transaction is to be deemed a sale by Dunn for a present sum of his right to a future dividend of $500 upon each share, it seems no more open to objections than somewhat similar transactions in post obit bonds, annuities, stock contracts, and negotiable securities. 2 Saund. Pl. & Ev. 897; Chit. Cont. 774, 775; Story Cont., secs. 595, 600; Beetee v. Bidgood, 7 B. & C. 453; White v. Wright, 3 B. & C. 277, by Bailey, J. The contract does not provide for the return of the sum advanced at all events. The association has other means of accumulation beside the monthly payments and the interest on advances ; and, whatever may be the probabilities in fact, we can not say, as matter of law, that, by the contract, Dunn will ever be obliged to refund the $2110 ; for, whether he will be called on at all, and if so, for how much, will depend on the gains of the association; for as soon as these are sufficient for a dividend of $500 on each “unpurchased share,” his payments are to cease. 1 Saund. Pl. & Ev. 896-898; Chit. Cont. 774; Story Cont., sec. 600. As the provision for fines applies equally to all members, whether obtaining advances or not, and as it can be avoided by making the payments as they fall due, we can- not hold it usurious, however harsh we may deem its terms. Citizens’ Association v. Webster, 25 Barb. 263; Pomeroy v. Ainsworth, 22 Barb. 118; 2 Saund. Pl. & Ev. 898; Chit. Cont. 775. We can not, therefore, pronounce the contract upon its face usurious. These views accord with the current of decisions elsewhere: Silver v. Barnes; Burbidge v. Cotton; Citizens’ Association v. Webster; Merrill v. McIntire, 13 Gray 157; Baxter v. McIntire, 13 Gray 168; Bibb Association v. Richards, 21 Geo. 592; Chit. Cont. 773. In Pennsylvania, the court seem to have held a transaction, differing somewhat in form from the present one, usurious, upon the ground that it was a mere cover to effect loans at illegal rates of interest. Kempfert v. Building Association, 30 Penn. 465; Hughes’ Appeal, 30 Penn. 471. But, under our practice in an action at law, we understand that to be a question of fact for the jury. In the Building Association v. Meriden Co., 24 Conn. 160, there was a loan to a party who was not a member. The Building Association v. Wilcox, 24 Conn. 147, is not in conflict with the views we entertain. In that case, upon a somewhat different state of facts, the court, sitting in equity, found that a direct loan was made at fifteen per cent interest, and held that a statute' allowing the association to take “a bonus,” in addition to the legal rate of interest, did not authorize it to take an additional interest of nine per cent, under the name of “a bonus.” Although we can not say, as matter of law, that the present transaction was usurious, it does not follow that it was not so in fact. However benevolent may have been the original purpose of such associations, we can not fail to see that they may easily be perverted to become instruments of extortion, and mere covers for usury. It is said that, “"Where a contract is not on the face of it usurious, it [199] is always a question of fact for the jury to determine whether it is a mere device to evade the statute, or is a bond fide transaction, to which the statute does not apply, the intention of the parties being the test of the legality of the transaction. Story Cont., sec. 601; Chit. Cont. 779. Where the parties have made the contract which they intended, and, without any mistake of fact, have secured by it illegal interest upon a loan, perhaps the question of their intention to violate or evade the statute may not be material. 2 Saund. Pl. & Ev. 896; Story Cont., sec. 597. Where it is alleged that, under color of a transaction not unlawful upon its face, an attempt has been made to evade the statute, that question is for the jury. Silver v. Barnes; Tate v. Wellington, 3 T. R. 538; Gilpin v. Enderly, 2 Pars. Cont. 420; Story Cont., secs. 593, 595, 600; 2 Saund. Pl. & Ev. 896, 897; Train v. Collins, 2 Pick. 152; Chit. Cont. 780, and note. Unless the defendant desires a discharge of the ease, in order to try this or some other question, there must be a conditional judgment for the plaintiffs, lor the full amount due according to the terms of the mortgage.