Boleman v. Citizens' Loan & Building Ass'n

BaedeeN, J. In so far as the findings and judgment depend upon irregularities or informalities in the proceedings leading up to Bullman’s subscription for stock and his application for a loan, they have no basis to rest upon. When he made his application for a loan, he was chargeable with knowledge that the defendant had no right to loan money except to members. Such application for a loan was virtually an application for membership in the corporation. The application, the loan, and the issue of stock must be con — 225 — sidered as one transaction, the result of which made him a member of the corporation; and under well-recognized principles neither Bullman nor the assignee of his stock can be heard to question the regularity of that transaction. Leahy v. Nat. B. & L. Asso. 100 Wis. 555, 76 N. W. 625. A person may become a member for the mere purpose and at the time of obtaining a loan. Endlich, Bldg. Asso. § 55; Freeman v. Ottawa B., H. & S. Asso. 114 Ill. 182, 28 N. E. 611. The mere circumstance that at the instant he signed the application for a loan he was not a member of the association is of no significance. Unless the loan itself violated some provision of the statute, it cannot now be impeached. Having accepted the loan and the stock issued to him, he cannot now be heard to say that he dealt with the association as a stranger, and his assignee certainly possesses no better right. Neither did the fact that the bond and mortgage provided that in case of default in payments stipulated for a period of three months the whole principal debt should forthwith become due and payable render the loan usurious and void. It is true that the statute (sec. 2011, S. & B. Ann. Stats.) provides that such default shall exist for a period of six months, and that after such period has expired payment of the whole "principal and interest, without deduction of any premium paid, or interest thereon, may be enforced by proceedings on the member’s securities according to law. The contract in question runs contrary to the statute, but the validity of that feature of it is not here in issue. The defendant is not here seeking to enforce it. It in no way affects the real essence of the loan. If beyond the power of the corporation to make, the plaintiff is in no position to take advantage of it. The law does not, in terms, prohibit the parties from contracting for a shorter' period. Whether the parties might legally contract for a different period than that named in the statute, we need not determine. It is enough to say — 226 — that tbe question is not liere^ and tbe attempt of tbe court to rest its conclusion upon it was wholly unwarranted. See Leahy v. Nat. B. & L. Asso., supra. Another reason why tbe court believed tbe contract was unlawful and usurious was that Bullman was not given an opportunity to bid at an open meeting of tbe members of tbe association. Sec. 2011 of tbe statute aforesaid, among other things, provides that the by-laws of every such corporation shall fix the time of bolding periodical meetings at which the money in the treasury shall be offered for loan in open meeting, and the stockholder who shall bid the highest premium for the loan should be entitled to a loan of at least the full amount of a share for each share of stock held by him, if the association is in funds, upon giving good and ample security. The premium bid may be by a certain sum or percentage on the loan, to be deducted in advance, or may be by certain periodical payments during the existence of such loan, according as tbe by-laws may prescribe. Under tbe articles of organization of defendant, power was given the board of directors to adopt such by-laws, not inconsistent with the articles, as they might deem necessary. The by-laws so adopted provided that the meetings of the stockholders should be held annually on the second Tuesday of June of each year. Regular meetings of the board of directors were to be held on Tuesday evening of each week for the purpose of loaning the funds of the association, and such meetings were to be open to the stockholders. At each such meeting precedence in borrowing money on hand was to be sold at auction to the highest bidder who would pay the highest monthly premium therefor, such premiums to be paid monthly during the continuance of the loan. Any member not desiring to be present might leave written authority with the secretary to bid for him, but no such bid was to be made unless the same was higher than that of any person present, or until all such bidders were satisfied. Payments — 227 — to the association on loans were to he made as set out in the statement, and continued until the dues paid on the stock, together with the dividends credited thereon, should equal the amount of the loan, at which time the stock was to he canceled and the mortgage released. Dividends were to be declared in January and July of each year, pro rata on the value of the stock. We have already held that neither Bullman- nor plaintiff is in a position to raise the question of want of membership ut the time the application for a loan was made. Bullman’s hid for a loan was made in writing. It was submitted at a regular open meeting of the board of directors. There is nothing in the statute requiring the person desiring a loan to be present at the meeting and make his bid in person. The by-laws expressly authorize a written bid. We see no reason-why every purpose of the law is not met by a written bid -filed with the secretary. Hughes v. Farmers’ S. & B. & L. Asso. 46 S. W. 362. Counsel for the plaintiff lay some stress upon the fact that the bid was not presented at a meeting of .all the stockholders. We do not think the statfite contemplates that the stockholders should meet every time money is put up at auction. Under its articles of incorporation the business of the association was given to the control of its hoard of directors, who were also given power to adopt proper by-laws. One of their duties was to loan the surplus -money. The by-laws provided that they should hold stated meetings, open to the stockholders, at which the money to be loaned was to be put up at auction. The members were bound to take notice of this provision, and if a loan was desired they might appear in person or submit their written bids. Open meetings of the board of directors, where any or ■all stockholders might be present, answer every demand of the statute. It was the natural and logical way of conducting their business, and surely does not contravene any provision of the statute. — 228 — Along this line is the further suggestion that a fixed rate of premium was charged, which, under a numerous line of decisions, made the contract usurious. The evidence shows that a great majority of the loans made were upon a bid of fifty-two cents per share per month as premium. This is accounted for by the testimony of the secretary, who says that he advised applicants that that rate, with the interest charged, would probably mature their stock in from seven and one-half to nine years; that he had been advised by an actuary versed in business of this kind that such were the results generally, and so many of the bids were put in on that basis. He also says that no rate had ever been fixed by the directors, and that every applicant was free to make whatever bid he chose. Such being the uncontradicted proof, there is no ground for saying that an arbitrary standard of rates had been fixed, so as to bring the case within 'the authorities cited. It is worthy of note that corporations of this kind, organized under our present statutes, are authorized to adopt fixed rates of premium and interest on loans. This was evidently done in deference to the fact that horizontal or uniform premiums, based upon a just profit to the association, have been demonstrated in actual experience as being more to the advantage of the association, and as of more fairness to the members desiring loans, than the other plan. Thompson, Bldg. Asso. § 188, p. 377; Manship v. New South B. & L. Asso. 110 Eed. 845. As said in the head-note of the case last cited, “Uniform premiums are in fact more equitable, as between the borrowing members, than those determined in each case by the necessities of the borrower.” An appreciation of this fact, and a little closer reading of the case of Bates v. People’s S. & L. Asso. 42 Ohio St. 655, upon which many of the decisions are based, would have prevented much of the confusion existing in the authorities and great injustice to associations of this kind. Judge Niles.in — 229 — Manship v. New South B. & L. Asso., supra, clearly points out the misleading statements in Endlich., Bldg. Asso. § 409, and shows how the courts have been misled by them. It now being the policy of our law to permit premiums to be fixed by associations in this state, we do not feel bound to. follow the extreme cases found in other states, holding contracts made on that basis invalid. Binding 19, copied in the statement, is most striking in its facts. The court sets out certain features of the plan adopted by defendant in conducting its business, as being so vicious as to warrant the conclusion that it was merely seeking to loan money at high rates of interest, under the guise of a building and loan association, to avoid the penalty of usury. His first indictment is that it took the business of loaning out of the hands of the members generally, and vested it in the board of directors. This was a plan directly authorized by law and its articles of incorporation, and one approved by the experience and observation of any one familiar with the conduct of corporate affairs. The chief business of the corporation was to collect and loan money. Its entire profits grew out of fines for default in stock payments, and from loans. It would seem hardly necessary to argue that the business could best be done by a few chosen for that purpose, who were responsible to the body of members for their acts. His next serious charge is that they created two distinct classes of members, — a lending class and a borrowing class, whose interests were antagonistic. We do not quite appreciate the drift of this part of his finding. There never was and never can be an association of this kind that does not have the two classes of members,- — the borrower and the nonborrower. . Their interests are .not antagonistic in any legal sense. One is an investor and the other sustains the dual relation of investor and borrower. Both are equally interested in the prosperity of the association. The failure of courts to appreciate the fact that the borrower becomes an in — 230 — vestor to the amount that lie pays on Ms stock has led to very much of the' confusion in the case. Another complaint against the association was that it “put all real power into the hands of a board of directors.” This was strictly according to law. Every corporation must have a managing body, and usually the smaller the number the better the management. This association was required to have a hoard of fifteen directors, chosen from the stockholders. Certainly the power of management was sufficiently disseminated to meet all practical demands. A final sweeping charge is that it was the policy to lend funds to persons not members, and generally to evade legal requirements as to bidding, and exact greater interest on loans than the law permitted. We have read the evidence with care, and are unable to find anything therein to support this conclusion. There is no proof of a single instance of a loan to one who was not a member, or who did not become a member at the time the loan was made. There is no proof of any arbitrary action on the part of the board of directors, or any evasion of the by-laws, to the oppression of members. As already suggested, the fact that many of the bids for money were at the same rate was not suggestive of oppression, or violative of the fundamental idea of such association. So long as rates of premiums were not arbitrarily fixed, and loans refused because the prescribed standard was not reached by the bid submitted, certainly no injury was done to the borrower. The fact that most borrowers come in on an equal footing does not tend to impeach the integrity of the management. The fifth conclusion of law quoted in the statement indicates that the court labored under a misapprehension of the-nature of the contract in question. The court says that it was “contemplated by the contract that the principal shall be diminished at the rate of $2.30 per month until it is all paid, the average amount upon which Zach Bulhnan was- to pay interest was only $250, and the agreement to pay $2.60 a — 231 — month, or $31.20 a year, was an. express agreement to' pay interest at the rate of 12 48-100 per cent, per annum.” The contract in question warrants no such conclusion. There is not a word in it that contemplates that dues on stock should be applied on the loan at any time before the stock reached its par value. The contrary idea is apparent from the very nature of the transaction, and from the very terms of the contract. All payments made by the borrower for interest and premiums went to the general credit of all stockholders, including the borrower. All payments on stock dues went to the credit of the paying stockholder, and each year as the total amount was increased, the dividends apportioned to' each share increased, so that as the period of maturity approached, stock dividends were correspondingly larger, and shortened the time for which interest payments were to be made. By the terms of the by-laws and the contract itself, when such payments and the dividends apportioned thereto equaled the amount of the loan, or in other words when the stock reached par, it was to be applied on the loan and the stock was to be canceled and the mortgage released. The fact that the interest and premium payments together exceeded the rate of interest allowed under the general statute did not make the transaction usurious, because sec. 2013 says, “No premiums, fines or interest on such premiums that may accrue to any such corporation under the provisions of this chapter shall be deemed usurious.” The interest reserved by the contract was within the legal rate, and the transaction cannot be deemed usurious unless the premium payments are tacked thereto. This, the statute says, shall not be done. Defendant raises the question of plaintiff’s right to contest the validity of the mortgage in suit. It is claimed that she purchased the premises and assumed the mortgage. The circumstances certainly point that way. On her examination before trial, plaintiff at one time testified that she was to — 232 — pay tbe mortgage, but later in ber testimony took back tbe statement, claiming it was inadvertently made while sbe bad lost ber self-control and was weeping. Tbe' conclusions reached on other branches of tbe case render it unnecessary to discuss this situation. Even if it be conceded that sbe stands as a mere volunteer under ber quitclaim, and that tbe mortgage was in fact tainted with usury, there is some question whether plaintiff could interpose such claim. Ludington v. Harris, 21 Wis. 239, which is claimed establishes ber right to do so, was decided at a time when tbe law declared tbe contract made in defiance of tbe statute void. Tbe court then speaks of the contract in suit as being void for usury. At tbe time tbe contract in suit was made, if affected by usury, it was enforceable, except as to interest. In Bensley v. Homier, 42 Wis. 631, this court denied tbe right of a junior creditor to make tbe defense of usury in a suit to foreclose a mortgage in which the mortgagor did not defend. Without referring to tbe Ludington Case, the following language was used: “It is difficult to perceive why tbe defense given by tbe statute to tbe borrower, for bis protection against oppression, and which be may waive at bis pleasure, should be extended to any one but himself or bis representatives. . . . The courts have generally held tbe defense of usury personal to tbe debtor, bis privies in blood or estate, and privies to tbe contract;' and that strangers to a contract cannot impeach it for usury.” Where the contract is declared void by the statute, there is good ground for saying that .any one whose property is affected by it may take advantage of tbe fact. But when, as now, the statute only prevents a recovery of interest when tbe proper defense is made, and requires tbe person who desires to set up tbe defense of usury to prove a tender of tbe principal sum, there is some reason for saying that a mere quitclaim purchaser of tbe premises affected is not in a position to urge a defense which tbe borrower has waived by not mak233 rug it. We leave tbe question without decision, as not being ■necessary under tbe conclusions already stated in tbe case. It follows from wbat bas been said that plaintiff is not ■entitled to tbe relief granted ber in tbe court below. Tbe right of defendant to charge up fines against' delinquent members is expressly given by tbe by-laws. Plaintiff, not 'having made payments according to tbe requirements, is in no position to contend against their enforcement. Inasmuch ■as tbe statute in force when tbe loan was made permitted tbe borrower to repay bis loan at any time, and as tbe relations between the parties have become somewhat strained, we have deemed it best to remand tbe case with directions to enter a judgment permitting plaintiff to' redeem tbe premises and •sever her relations with the association, or dismiss tbe case, .at ber option. Tbe association bas heretofore offered to apply tbe amount paid as interest, premiums, and stock dues on tbe mortgage debt, and to release tbe mortgage upon payment of the balance due. Upon tbe assumption that such offer is still good, judgment may be entered permitting plaintiff to free -the premises from the mortgage by paying to defendant the •amount actually due on ber loan for interest, premiums, and -fines, according to tbe by-laws, at tbe time of tbe entry of judgment, with costs of suit, less tbe amount paid to tbe association and dividends declared on ber stock. Or, to state it otherwise, plaintiff shall comply with the terms of ber contract to tbe date of tbe entry of judgment, and shall receive ■credit for wbat sbe bas already paid tbe association, with -dividends, if sbe desires to redeem. Tbe payment of tbe balance due, with costs, will entitle ber to a release of tbe mortgage. In such an event ber stock should be surrendered for ■cancellation. In case plaintiff shall not elect to enter tbe judgment as suggested, tbe action will be dismissed, By the Court. — The judgment is reversed, and tbe cause is remanded for further proceedings as directed in tire opinion.