Fidelity Savings Ass'n v. Shea

Building and Loan Associations. — Where the borrower subscribes for shares in a loan association merely to obtain a loan, and is required to make monthly payments upon such shares, and by the terms of the contract the “maturity of the shares” extinguished the debt and cancels the stock, the borrower is a stockholder in fiction and not in fact, and the actual relation between the parties is only that of creditor and debtor. Beeation of Pakties. — A contract of loan, in which the debtor agrees to pay monthly six dollars, which is applicable to the satisfaction of the principal debt, and seven dollars and fifteen cents interest monthly, upon the debt of 5650, until the entire debt is paid, is equivalent to an interest charge of twenty-six and two-fifths per cent per annum, upon the principal of the loan, average time, and is usurious. Usury. — Under the laws of Idaho, building and loan associations cannot charge, dirctly or indirctly, usurious interest on loans. Same — Evasion of Usury Laws. — One who comes into Idaho and loans money upon real estate there situated cannot evade and defeat the usury laws of the state by stipulating in the contract of loan that the contract shall be tested, and its validity determined by the laws of another state, such stipulation being against public policy, and not binding upon the debtor. Same — Attorney Fee. — In a suit upon a usurious contract, it is error to allow the plaintiff under the stipulations of a mortgage securing the debt an attorney fee, as such fee is no part of the debt. (Syllabus by the court.)

APPEAL from District Court, Barmock County. A payment upon a collateral is not a payment on the debt. (Endlich on Building Associations, 2d ed., sec. 4-Tt; Philadelphia Mer. Loan Assn. v. Moore, 41' Pa. St. 233.) There is nothing unfair or illegal about the contract. The interest and premium which is to be applied as interest on the note only amounts to thirteen dollars, and. twenty cents per year on each $100, or thirteen and one-fifth per cent per annum, which, at the time the contract was made, was not a usurious rate of interest. It is only wben we destroy this fair, reasonable and legal contract, which the borrower has by refusing to let the stock payments be applied-on the stock, as the writing says they shall be, and substitute for it another contract, which the parties never made, by applying the stock payments on the principal of the loan from month to month as they are made, that we make an unfair, illegal, or usurious contract. The lower court fell into the error -of doing this, by construing the case of Stevens v. Home Sav. etc. Assn., 5 Idaho, 739, 51 Pac. 779, 986, decided by this court, 'as so holding. The law is universal that stock payments are not payments on the loan from time to time as they are made. This principle of law is well stated in 4 Am. & Eng. Ency. of Law, 2d ed., 1057; State v. Hornbacher, 42 N. J. L. 635. In a building and loan association, payments on a stock are simply investments in stock, whether the shareholder be a borrower or not; hence the borrower and shareholder are separate and distinct in their relations, and a payment of dues upon stock is not, vpso facto, a payment on the member’s loan. (Post v. Mechanics’ etc. Assn., 97 Tenn. 408, 37 S. W. 216; Reeve v. Ladies’ Bldg. Assn., 56 Ark, 335, 19 S. W. 917; People’s Bldg, etc. Assn. v. Furey, 47 N. J. Eq. 410, 20 Atl. 890; Tilley v. American Bldg. etc. Assn., 52 Fed. 622.) It has become a well-recognized doctrine that payments of dues upon the stock are not payments upon the mortgage debt, and do not, ipso facto, work an extinguishment of so much of the mortgage, and hence they are not to be regarded as partial payments, .and that therefore a statutory rule for computing interest on partial payments is inapplicable to them. (Endlich on Building Associations, 1st ed., see. 452; Endlich on Building Associations, 2d ed., sec. 477; Overby v. Fayetteville etc. Assn.,. ,81 N. C. 56; North America Bldg. Assn. v. Sutton, 35 Pa. St. 463, 78 Am. Dee. 349.) Fines are not interest and cannot be construed to be interest upon interest. This question has been before the court and definitely settled. They are held to be “liquidated damages agreed to be paid for the nonperformance of a promise or covenant.” (Shannon v. Howard Mut. Bldg. Assn., 36 Md. 382; Ocmulgee Bldg. etc. Assn. v. Thompson, 52 Ga. ,427; Goodman v. Durant Bldg. etc. Assn., 71 Miss. 310, 14 South. 146; Hughes Bros. Mfg. Co. v. Conyers, 36 South. 1093.) Plaintiff requires the borrower to subscribe for stock in order to get a loan. Then it charges interest, premium, dues and finéis. The interest and the premium are both interest, and the fines are compound interest, which makes the whole contract usurious, and the action was brought prematurely. (Stevens v. Home Sav. etc. Assn., 5 Idaho, 739, 51 Pac. 779-896; Vermont Loan Assn. v. Hoffman, 5 Idaho, 376, 49 Pac. 314; Idaho Kev. Stats., secs. 1263-1266; Vermont Loan etc. Co. v. Tetzlaff, ante, p. 105, 53 Pac. 104.) The maxim that “He who seeks equity must do epuity” fully applies in the case at bar. It principally applies to a party who is seeking relief in the character of plaintiff in the court. If the borrower of money upon usurious interest seeks to have the aid of court of equity in canceling, or procuring the instrument to be delivered up, the court will not interfere in his favor, unless upon the terms that he will pay the lender what is really due him. But if the lender comes into court to assert and enforce his own claim under the instrument, there the borrower may show that the contract is usurious and have the action dismissed without paying anything to the lender; as a court of equity will never assist a wrongdoer in effectuating his wrongful or illegal purpose. (1 Story’s Equity Jurisprudence, Bed. ed., sec. 64; Hawkins v. Pearson, 96 Ala. 369, 11 South. 304.) Action by the Fidelity Savings Association against Patrick E. Shea, and others, to foreclose a mortgage securing payment on a loan. Judgment for defendants, and plaintiff appeals. Modified. The plaintiff, a Colorado corporation, received the following application: “Application for Shares. No. of Certificate, 14,-122. Dated July -, 1896. Office of the Fidelity Savings Association. Home Office, Denver, Colorado. Name, P. E. Shea; .... occupation, boilermaker; P. 0. address, Poca-tello; street and number, Fourth ave,; county, Bannock; state, Idaho. I hereby apply for membership in the Fidelity Savings Association, and subscribe for stock, subject to the bylaws, rules, and regulations of said association, to the amount and of the class specified, viz., twelve shares at $100.00 per share, of monthly payment stock, amounting at maturity to $1,300. Agents are authorized to collect the first two payments of fifty cents on each $100 share, or, if subscription is made direct to the home office, the first payment must be remitted by bank check or draft, postal, or express money order. No agent is authorized to promise any specific loan. I understand that no agent has power to make any representation binding upon the association, other than authorized by the bylaws and literature issued by the association, or by letter of authority issued under the hand of the president, secretary, or manager of the association, and that the shares cannot be withdrawn until after twelve payments have been made, and that, if withdrawn before maturity, the association will reserve two dollars and fifty cents ($3.50) per share, and such sum, if any, as may be set aside by the board of directors, not exceeding one per cent per annum of par value of the shares, for the purpose of meeting any contingency that may arise, as provided by the stock certificate. And, whereas, the law of Colorado requires that a majority of all stock in force be voted at every legal election of the shareholders: Now, therefore, to prevent a failure of election in the event of my absence or neglect to send a proxy,. I appoint J. S. Wolfe, 1st, E. M. Johnson, 3d, or E. H. Webb, 3d, as my proxy. Send certificate to-. ' Signature of Applicant: P. E. Shea.” Pursuant to said. application, the .following certificate of stock was issued: “No. 14,133. Monthly payment stock. $1,300. The Fidelity Savings Association, Denver, Colorado. Be it known that P. E. Shea, of Pocatello, county of Bannock, state of Idaho, is the holder of twelve shares, of the face value of twelve hundred dollars, of the participating capital stock of the Fidelity Savings Association, and a member thereof. The conditions of this membership are as follows: First. The shareholder agrees to pay the association fifty (50) cents per month on every one hundred ($100) dollars of face value of this certificate the last day of every month, commencing with the next month after the date of this certificate; provided that the holder may, at his option, after three months from the date hereof, make larger payments than herein required; and provided further, that if there shall be paid hereon in the aggregate the sum of forty-five ($45) per share at the end of four years after the date of this certificate, or at any earlier period, then no further payments need be made, and on request the secretary of the association shall, on presentation of the certificate, certify the same as fully paid up> except, however, that, if these shares are pledged as collateral to a loan, regular payments shall be made until maturity, unless waived by the board of directors of the association at a regular meeting. No notice of payments shall be required from the association. A failure to make payments when due will subject the stock to a fine of ten (10) cents per share each month during delinquency. Second. Should the holder hereof, by reason of sickness, loss of income, or other reason, be unable to make the payments due hereon, the pass-book, issued with this stock, may be presented or sent to the secretary of the association, with request that the stock be suspended for any period not exceeding six months at one time, which suspension shall be plainly marked in the pass-book by the secretary, and returned to the member; and during the period of suspension the. stock shall not be subject to fine, nor share in the profits of the association; provided, that no stock can be suspended, if pledged as collateral to a loan, without the consent of the directors of the association. Third. These shares may be withdrawn, after twelve payments have been made, by giving thirty days’ notice in writing, and surrendering this certificate and the accompanying pass-book; and the holder will be paid all money received, with interest at six per cent per annum, if withdrawn before maturity, or with full profits if- carried to maturity, less fines, if any, and less a reserve fee of $2.50 per share, and provided, if tbe board of directors deem it necessary to meet any contingency, less a further sum of one per cent per annum on the par value of these shares; provided that the holder or assigns may renew the said shares within twelve months after- withdrawal, and receive credit thereon for an amount equal to the reserve fee retained; provided, further, that shareholders in the aggregate can only withdraw during any month an amount equal to one-half of the receipts of the association for that month without the consent of the board of directors. Fourth. Should members die, their personal representatives may surrender the shares at any time, if they shall elect to do so, and receive the full amount credited to such shares; or, if said shares shall-not be surrendered, they may remain in force, for the benefit of the estate, by payment of regular dues. Fifth. These shares may be transferred at any time, subject to a lien of the association, for any unpaid balance due from the holder, by returning the certificate to the secretary for transfer on the books of the association, and in no other manner. Sixth. This, the certificate giving the terms and conditions of these shares, the by-laws, and the application for membership, constitute the contract; provided, further, that all executed papers connected with any loan form part of the contract. Seventh. Agents of this association have no authority to promise loans, or change any of the conditions of this contract. Given under the seal of the Fidelity Savings Association, and under the hand of its president and secretary, at Denver, Colorado, this twenty-seventh day. of July, A. D. 1896. M. B. Johnson, President. [Seal] G. D. Campbell, Secretary.” And to secure the loan evidenced by said contract the respondents executed a mortgage, bearing date July 27, 1896, upon lots 3, 4, and 5, in block 322 in the town of Pocatello, county of Bannock, state of Idaho. Appellant, by averment, pleaded in lime, verba, certain statutes of the state of Colorado relating to building and loan associations, and also the bylaws of the appellant corporation. The contract evidencing the loan, which is set forth at length in the complaint, is as follows: “$650.00. Denver, Col., July 27th, 1896. On or before ten years after date, I promise to pay to the Fidelity Savings Association, a corporation formed and existing nnder and by virtue of the laws of the state of Colorado, at its principal office, in Denver, Colorado, the sum of six hundred and fifty ($650.00) dollars, with interest thereon at the rate of six per cent per annum, together with the monthly premium on said sum, of sixty cents on every one hundred dollars thereof; interest and premium being payable monthly in advance, on the last day of each and every month, until this note is fully paid. This note is given in consideration of a loan made by the payee to the maker hereof, who is a member of said association, and the holder of twelve II. P. shares of stock in said association, evidenced by the certificate No. 14,122, which are hereby assigned as collateral to the said loan. Said loan has been granted to and accepted by me as a member of said association, and with special reference to the laws of the state of Colorado for a construction of the contract hereby made. Now, therefore, the maker hereof covenants and agrees to pay the interest and premium upon said sum, and the monthly payments upon said shares, promptly, as the same become due and payable, in installments of not less than thirteen and fifteen one-hundredths ($13.15) dollars per month, payable in advance on the last day of each month, commencing with date, .and thereafter, until at the maturity of said shares the proceeds thereof shall be applied to repay the loan. If any interest or premium evidenced by this note, or monthly payments upon the shares herein described, shall remain unpaid for sixty days after the same becomes due and payable, then the principal sum, as evidenced hereby, may at once, without notice, become due and payable, at the option of said association; and. the withdrawal value of said collateral shares may, -at the option of said association, be thereupon credited upon ■any balance due the association from said shareholder, as said •association may elect. And, if any payment evidenced hereby is not paid when due, fines shall be added as provided by the by-laws of the Fidelity Savings Association aforesaid, together with all costs of collection, including an attorney’s fee of ten per cent if collected by an attorney, foreclosure proceedings, or by suit at law. [Signed] Patrick E. Shea, Mary E. Shea.” The mortgage provided that the appellant might keep the property insured, and pay the taxes thereon and it is so averred in the complaint, wherein it is averred that plaintiff paid insurance in the sum of four and one-half dollars, May 13, 1897, and October 15, 1897, the further sum of four and one-half dollars; that defendant neglected to pay the taxes on the mortgaged property, and appellant paid, July 15, 1897, taxes duly assessed on said property for the year 1897 in the sum of thirty-one dollars and fifty-six cents. The mortgage provided for attorney’s fees in ease of its foreclosure. Defendants made payments on said loan contract aggregating the sum of fifty-three dollars and thirty cents. The defendants demurred to the complaint, which demurrer was overruled. Findings of fact were made in accordance with the allegations of the complaint and the documentary evidence, and judgment foreclosing the mortgage for $696.28, without costs; the sum found due the plaintiff being the principal of the loan, less fifty-three dollars and thirty cents payments thereon, nine dollars insurance paid, thirty-one dollars and fifty-six cents taxes paid, and fifty-nine dollars attorney’s fee allowed. This appeal is from the judgment, and on the judgment-roll.