48 S.W. 954 (Mo. 1898), Bertche v. Equitable Loan and Investment Association of Missouri

Citation:48 S.W. 954, 147 Mo. 343
Opinion Judge:ROBINSON, J. --
Party Name:Bertche v. Equitable Loan and Investment Association of Missouri et al., Appellants
Attorney:J. H. Rodes and Ross & Bohling for appellants. Barnett & Barnett for respondent.
Judge Panel:ROBINSON, J. Gantt, C. J., Burgess, Williams and Marshall, JJ., concur; Brace, J., not sitting.
Case Date:December 23, 1898
Court:Supreme Court of Missouri

Page 954

48 S.W. 954 (Mo. 1898)

147 Mo. 343



Equitable Loan and Investment Association of Missouri et al., Appellants

Supreme Court of Missouri

December 23, 1898

Appeal from Pettis Circuit Court. -- Hon. George F. Longan, Judge.


J. H. Rodes and Ross & Bohling for appellants.

(1) The contract or obligation set out in the deed of trust providing for the payment of monthly dues and premiums, and further providing for release and satisfaction at the end of one hundred months, is legal and binding and in harmony with the statutes of Missouri and the by-laws of said association. R. S. 1889, sec. 2813; Lime City Building and Loan Ass'n v. Wagner, 23 N.E. 689; Sawyer v. Loan and Building Ass'n, 103 Mich. 228. (2) The statute does not in express terms authorize the association to make such a contract but such authority is clearly implied from section 1213, Revised Statutes 1889. So, also, by the by-laws. This view is confirmed by the fact that the estimated statutory period for maturity was afterwards raised to one hundred and twenty months. Sess. Acts 1895, p. 108, sec. 7; p. 110, sec. 13. (3) Public policy requires that contracts be kept; else companies calling themselves mutual may promise one thing to a subscriber and do something entirely different. (4) Under the contract in question, the borrower gets nothing but the satisfaction of his debt and the release of his deed of trust. If the association makes a profit it is divided between the prepaid and non-borrowing shareholder. Upon the cancellation of his debt at the end of one hundred months and the release of his deed of trust the borrowing member ceases to be a shareholder, ipso facto. (5) Where there may be mutual benefits resulting to all who hold shares in a building and loan association, the principle of mutuality can not be so applied as to place all shareholders on the same equality as to per cent of profit which may accrue to each for the following reasons: First. The statute permits and the by-laws divide the shareholders into three classes, viz.: Holders of prepaid stock, non-borrowing shareholders and borrowing shareholders. Second. Pursuant to section 4, article 1, of the by-laws of defendant investors (those of the first class), were to receive an agreed rate of interest not exceeding eight per cent per annum. Third. Those of the second class are investors for the sake of accumulation and profit. Fourth. Neither the first nor second class pay any premium. Fifth. The third class subscribe for stock in order to borrow money at an agreed rate of interest, and for the privilege of borrowing they each pay a premium or bonus for the privilege, and by express contract waive all interest in the profits of the association. R. S. 1889, sec. 2813. (6) The shares in question had been redeemed by loans or advances thereon, and the deeds of trust in question should be released. R. S. 1889, sec. 2817. (7) The free or non-borrowing shareholders shall in no case receive any more than the face value of their shares less the average premium paid by the borrowers of the association up to date. R. S. 1889, sec. 2817. (8) In the case at bar the prepaid and non-borrowing shareholders have made a contract with the borrowing shareholder whereby he can not share in the profits, and they will not be permitted to repudiate said contract in the event of loss. a. Said contract is not ultra vires. It was clearly within the legitimate corporate business of said association. The question of ultra vires as affecting the validity of contracts of a corporation can be raised only by a direct proceeding by the State against the corporation and not in a collateral proceeding by an individual. St. Louis Drug Co. v. Robinson, 81 Mo. 18. b. Even if the appellants have exceeded its power in accepting the note or obligation and deed of trust in question, respondent is in no position to complain. The State alone, by a direct proceeding, can interfere in such a case, for an abuse of corporate power or excess of authority assumed by the appellants. Hovelman v. Railroad, 76 Mo. 632; Broadwell v. Merrit, 87 Mo. 101; Ragan v. McElroy, 98 Mo. 349; St. Louis Drug Co. v. Robinson, 81 Mo. 26; Bank v. Matthews, 98 U.S. 621; Hotel v. Hunt, 57 Mo. 126. c. It is conceded that the borrowing shareholders have fully executed the contract on their part. The distinction taken between ultra vires contracts purely executory, and those fully executed on one side, is founded in reason. 27 Am. and Eng. Ency. of Law, 363 and 364; Bowman Dairy Co. v. Mooney, 45 Mo.App. 665, and the same doctrine is recognized and upheld in Winscott v. Investment Co., 63 Mo.App. 368. (9) a. Should said contract be held ultra vires, then the court will deal with the contract on equitable principles. Stiles App., 95 Pa. St. 122; 27 Am. and Eng. Ency. of Law, 363. b. The borrowing members were each required to pay eighty cents per month per share bonus in addition to seven and two-tenths per cent interest on the money received, and $ 1 per month on each share held by them. The premium or bonus thus charged is usurious and together with interest thereon at the same rate the borrower was paying the association, should be credited on the principal of the loan. Brown v. Archer, 62 Mo.App. 227; Nat. Loan and Inv. Co. v. Stone, 46 S.W. 67.

Barnett & Barnett for respondent.

(1) The provision in the notes described in the trust deeds sought to be released, to the effect that the shares of stock pledged to secure said debts, shall mature and be entitled to redemption at the par value of $ 200, at the end of one hundred months, and shall then be canceled in full satisfaction of the borrower's note and deed of trust, should be construed as an estimated period at which said stock would mature, and not an absolute contract or guarantee that it should so mature. If such provision is to be construed as an absolute guarantee that the shares shall mature within that length of time, and that said stock would be worth full par value, then such stipulation in the note is void because violative of the principle of mutuality between the shareholders. This association being mutual all the shareholders are entitled to share equally in the profits, and must bear equally the losses, and any agreement made by one member with the board of directors, by which such member obtains a greater share of profits than the other members, is void. R. S. 1889, sec. 2817; King v. International Building Union, 170 Ill. 135; Weiman v. International Building, Loan and Investment Union, 67 Ill.App. 550; Omally v. People's Bldg., Loan and Savings Ass'n, 36 N.Y.S. 1016; Dickinson v. Continental Trust Co., 52 N.Y.S. 672 (a) The law must be read into these contracts, and the contracts must be moulded to conform to the law. Latimer v. Equitable Loan and Investment Ass'n, 81 F. 776. (b) A building association is a mutual concern, and is bound to treat its members equally. Any contract or by-law made in contravention of such mutuality is void. Kent v. Quicksilver Mining Co., 78 N.Y. 159; Thompson on Corps., sec. 1011; Morawetz on Private Corps., sec. 367. (c) All of the parties whose trust deeds are directed to be released are members of the association. Membership is acquired by virtue of becoming owner of stock. Endlich on Bld. Ass'ns [2 Ed.], p. 39; Thompson on Bld. Ass'ns, p. 22; Robertson v. Homestead Ass'n, 69 Am. Dec. 151. (d) Perfect mutuality among all the members is the foundation on which the whole scheme of these associations rests. Endlich on Bldg. Ass'ns [2 Ed.], par. 121; Ibid par. 331; Bosworth v. Sumpter Real Estate Co., 100 Ga. 60. (e) The payment by the borrower on his dues is not a payment on the debt, the two must be kept distinct. The payments on his stock are simply investments. They do not diminish the amount of his interest. Post v. Mech. B. & L. Ass'n, 37 S.W. 216; Endlich on Building Ass'ns [2 Ed.], secs. 331 and 332; Kent v. Quicksilver Mining Co., 78 N.Y. 159; Thompson on Corps., sec. 1011; Morowetz on Private Corps., sec. 367. (2) The authorities cited by appellant to the effect that the question of ultra vires as affecting the validity of contracts of a corporation can only be raised by the State in a direct proceeding, have no application in a case like this. Fisher v. Patton, 134 Mo. 32. (3) The question of usury can not arise in this case. No one is complaining of usury here. This is not a suit for an accounting in which the borrowing member pleads usury and asks credit for the amount of unlawful interest paid. (a) Although a bonus is illegal and usurious, it can not be credited on the loan. Post v. Mech. B. & L. Ass'n, 37 S.W. 216. (b) The bonus was charged as a result of competitive bidding, and the statute provides that such premiums are not usurious. R. S. 1889, sec. 2814.

ROBINSON, J. Gantt, C. J., Burgess, Williams and Marshall, JJ., concur; Brace, J., not sitting.


[147 Mo. 348] In Banc.


This is a proceeding in equity, brought in the Pettis county circuit court, by the plaintiff as a stockholder, against the Equitable Loan & Investment Association of Sedalia, and the directors of said association, to enjoin the defendants from carrying out a resolution of the board of directors made in April, 1898, directing the release of certain deeds of trust given to the association by some twenty borrowing or advanced stockholders to secure the payment of loans or advancements on their shares.

There was a trial in the court below, resulting in a judgment enjoining and restraining...

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