Howells v. Pacific States Savings, Loan, & Building Co.

Baskin, J., after stating the facts, delivered the opinion of the court. The appellant claims that the transaction in question is not a naked loan by one stranger to another, but in substance is a dealing in relation to partnership funds, in which the respondent, and the other subscribers to the stock of the company, have a common interest in the concern. Among the by-laws of the company, introduced in evidence, are the following sections of Article 2: “ Section 1. The shares of stock in this company shall be of four classes; namely, classes A, C, and D of ordinary installment shares, and class B of fully paid-up shares. Sec. 2. The shares of class A shall be payable in monthly installments of fifty-two (52) cents per share, and an expense fee of eight (8) cents per share, also payable monthly. The shares of stock class B shall be payable at their par value at the time of subscription therefor, together with the membership fee. The shares of stock class .C shall be payable in monthly installments of sixty cents per share, and in class D in monthly installments of fifty cents per share. The first installment is due and payable on the second Tuesday of the month subsequent to the month in which the application is made; and all subsequent installments shall be due on the same day of the month. Sec. 3. On all advance payments on shares in classes A, O, and D for not less than six months, the members shall be entitled to receive a discount of five per cent per annum for the average time. On all shares of stock class B in this company members shall receive interest payable semiannually. Such inter [54] est shall be fixed by the board of directors. They may also participate in such profits as the board of directors shall elect; but the interest paid shall be deducted from the profits, and the balance paid at the maturity of the series in which they are entered. Sec. 4. Whenever any share in classes A, C, and D shall have matured, by monthly payments and profits credited, to the full amount of one hundred dollars, the same may be withdrawn. Such shares not withdrawn thirty days after maturity.shall thereafter be considered and entitled as class B shares, and members holding class A shares, after maturity will be required to surrender them to the company and receive therefor class B shares;’ ’ The certificate of the thirty shares of stock was never delivered to the respondent, but was, as recited in the bond, sold, assigned, transferred, and set over to the company as security for the faithful performance of the bond. By the terms of the bond the respondent was required to continue to pay $ 18 per month on the thirty shares of stock, together with the monthly interest on the amount borrowed, and all fines assessed, until said shares of stock became fully paid and of the par value of $100, and that then, upon the surrender of said stock to the company, the bond was to become void. By the terms of the mortgage when said shares of stock became fully paid and of the par value of $100 per share, then upon the delivery of said stock to the company in payment of the bond, which was for the sum of $3,000, said mortgage was to become void. In other words, as stated in the deposition of William Pardy, the secretary of the company, when said stock became matured by such payments all the shares were to be surrendered to the company as premium and payment of the loan. [55] The maturity of tbo thirty shares of stock, by such payments, would have closed the transaction and terminated the relations of the respondent to the company, and the payment of the loan with the interest thereon would have been the only benefit received by the respondent, or which he was entitled to receive under the provisions of the bond and mortgage. Notwithstanding the thirty shares of stock were, in form, subscribed for and a certificate therefor issued in his name, it is evident that the respondent only became a nominal stockholder, and that his actual relation to the company was merely that of a borrower, and not that of a beneficial stockholder. The real beneficiaries of the company are the holders of class B stock. There are no provisions, either in the bond or mortgage, which entitle the respondent, in any form, to share in any profits of the company; nor is he entitled, as provided in the fourth Section of Article 2 of the by-laws, upon the maturity and surrender of said shares, to receive in lieu of any of them, any class B shares, but on the contrary he is required to pay the full par value of said stock, and deliver the same to the company in satisfaction of the bond and mortgage, so that said stock, in disregard of the by-laws of the company, is subject to conditions essentially different from those to which any of the classes of stock mentioned in Section 1 of Article 2 of the by-laws, is subject, and does not therefore belong to either of the classes of shares authorized in the by-laws. Under the construction of the transaction contended for by appellant, the respondent thereby bound himself to pay on the thirty shares of stock $3,000 in monthly installments of $18, and to pay on the $1,500 advanced $7.50 interest each month until the monthly installments [56] amounted to $3,000. This would occur at the expiration of 166-J months. The monthly payments of interest up to that time would amount to $1,250, so that in addition to the fines which may have been incurred, the respondent, in order to liquidate his indebtedness on the loan, according to such construction, would have to pay $4,250, and in doing so the respondent would have paid at the end of six years, eleven and one-third months from the date of the transaction, in monthly installments of $18, the $1,500 loaned, and the monthly installments of interest thereon provided for, amounting to $625, and in all to a sum of $2,125. Yet, .notwithstanding this, under the construction contended for, he would have been obliged to still continue to pay the monthly installments of $18, and interest on the sum loaned, until twice the sum of $2,125 was paid. The whole thus required makes the amount of $4,250, which sum is equivalent to the sum loaned ($1,500) with interest thereon at the rate of twenty-six per cent per annum from the date of the transaction up to the expiration of the time, six years, eleven and one-third months, when the monthly payments required would have equaled the loan and the monthly interest which was to accrue during said period. Such a transaction is unconscionable. Lord Hardwicke, in the celebrated case of Chesterfield v. Janssen, 2 Ves., 155, stated that fraud which is dolus mabus ‘ ‘ may be apparent from the intrinsic nature and subject of the-bargain itself, such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other; which are inequitable and unconscientious bargains.” 1 Story’s Eq. Jur., Sec. -188. It is apparent from the facts disclosed by the record that the bargain in this case belongs to the class which Lord Hardwicke designated as unconscientious. [57] It is evident that the transaction in regard to the 30 shares of stock was simply a cunning device to obscure the real transaction, and induce the respondent to believe that by subscribing for the stock he would derive a benefit other than the advancement of the sum loaned. Had the matter been presented in a direct and simple form, there can be little doubt but that the offered loan would have been declined. In the case of People's Building Association v. Fowble, 17 Utah, 122, and Sawtelle v. North American Savings Co., 14 Utah, 443, this court held that a grantee, who purchases mortgaged premises and assumes and agrees to pay the indebtedness, upon a loan like the one involved in this case, secured by the mortgage, ‘ ‘ has a right to have the stock payments, whether paid as dues or premiums credited on the loan, and applied in reduction of the debt.” In these cases the grantee in assuming the indebtedness of the borrower became obligated to make the same payments which the borrower would have been compelled to make in order to liquidate his indebtedness, had no conveyance of the mortgaged premises and assumption of the indebtedness been made. It follows that any payment which reduces such indebtedness in favor of such grantee must also reduce the same in favor, of the borrower. In view of the principles announced in these cases and cases cited therein, the peculiar facts disclosed by the record, and the unconscionable -character of the stipulations of the bond and mortgage, the decree rendered is correct. It is therefore ordered that the decree of the court below be affirmed with costs. Bartch, C. J., and Miner, J., concur.