Burlington Mut. Loan Ass'n v. Heider

• Decision Date: 23 April 1880
• Citation: 5 N.W. 578,55 Iowa 424
• Parties: THE BURLINGTON MUTUAL LOAN ASSOCIATION v. HEIDER AND OTHERS.
• Court: Iowa Supreme Court

55 Iowa 424

5 N.W. 578

THE BURLINGTON MUTUAL LOAN ASSOCIATION

v.HEIDER AND OTHERS.

Supreme Court of Iowa.

Filed April 23, 1880.

Appeal from Des Moines circuit court.

Action to foreclose three several mortgages. An answer and cross-petition were filed, and it was pleaded therein-- First, payment; second, that there was no consideration for one of the mortgages; and, third, that all were tainted with usury. There was a reference, and the referee found against the defendants as to all the defences. To the report of the referee exceptions were filed, and the court found and held that the mortgages were usurious; that two of them had been satisfied, and that there was a sufficient consideration for the other. A decree of foreclosure as to one of the mortgages was entered, and the plaintiff appeals.Hall & Huston, for appellant.

J. & S. K. Tracy, for appellees.

SEEVERS, J.

1. The plaintiff was organized under the general incorporation law in 1868. Two of the mortgages were executed prior to the passage of the curative act. Code, § 1186. The question of usury, under the curative act, and law as it existed prior to its enactment, was somewhat considered in Hawkeye Benefit & Loan Association v. Blackburn, 48 Iowa, 385. The correctness of this decision has been assailed by counsel for the appellant in an able and exhaustive argument. It is insisted there is a difference between the two cases. This shall first receive attention. The general objects of both are undoubtedly identical. The general plan of doing business is the same. The most, we think, which can be said is that slightly different modes were adopted to accomplish the same end. In the former the amount of the premium depended on the necessities of the borrower, as the loan was made to whoever bid the highest premium therefor. In the present case the premium was fixed, by the articles of incorporation or by-laws, at 10 per cent. on the amount loaned, and was uniform in all cases. In the former the association became extinct in 10 years. In the latter it was to continue until the shares of certain series reached the par value of $200. In both monthly dues were to be paid, and while in the former there was an apparent obligation to pay the principal, yet, if the interest and dues were promptly paid when due, the principal was not collected, unless, possibly, at the end of 10 years, the obligation to a certain extent to pay the principal might be enforced in order to equalize profits among the members. In the case at bar there was no obligation to pay the principal, and, in fact, with honest management, and if no losses of any kind were incurred, the principal was not to be repaid except to the extent that the payment of interest and dues could be so regarded. If there was a failure to do this for the period of four months the principal sum became due, and at the option of the plaintiff its payment could be enforced. Because of such failure the plaintiff has availed itself of such option, and this action was brought to enforce the payment of the principal, interest and dues.

It is, we think, quite evident there is no substantial difference between this and the Blackburn case, in so far as the question of usury is concerned, and both must be governed by the same legal principles. The par value of the stock was fixed at $200 per share, but no part of this was paid at the time of the organization.--the plan being that each subscriber should pay one dollar per share each month, and the money thus obtained constituted the capital, and was loaned to members. On such loans 10 per cent. was deducted as the premium when the loan was made, and 10 per cent. interest was to be paid monthly on the money actually paid the borrower, and also on the premium. From the interest thus paid, and accumulated dues, other loans were made, and thus the business of the association was done. The amount loaned in no instance could exceed the par value of the stock owned by the borrower.

The practical workings were that the defendant, being the owner of five shares of stock, applied for and obtained a loan of $1,000, for which he gave his obligation, secured by a mortgage. He only got, however, $900, and agreed to pay interest at the rate of 10 per cent. per annum monthly on $1,000, and five dollars monthly as dues. This latter sum, however, he was bound to pay whether he was a borrower or not; so that, for the $900, he each month paid $8.33 interest and five dollars dues. When the payments would cease was indefinite and uncertain, for they were to continue until each share owned by the defendant and all other shareholders reached the par value of $200. It is said if there was honest management, and no losses were incurred, that experience demonstrates such period would be reached in about nine years. This we presume to be true; but still this does not remove the uncertainty, for the management may not be honest. In fact, it is so claimed in the present case, and that losses were thereby incurred. Fires may destroy the mortgaged property, or great and unexpected depreciation in value take place, and thereby losses may occur.

The longer the payments continue the more apparent the usurious nature of the transaction would become. But on the supposition that the payments will cease at the end of nine years, how will the accounts stand? The money actually received is $900. During the period of 108 months the defendant would pay $1,439.44. If he paid only 10 per cent. interest on the money actually received, the amount would have been $1,350. There is and can be no doubt that an agreement to pay 10 per cent. per annum on $1,000, when only $900 was loaned, is usurious. Because of the plan of the association this, it is said, is not the transaction or effect in the case at bar; that there is in fact no loan, but a mere advance of the ultimate value of the stock. But if this ultimate value is reached sooner than it otherwise would be by reason of usurious interest exacted and paid, does it not, nevertheless, constitute usury?

The name given the transaction, as if it be called a loan, advance, or purchase of shares, is not a controlling circumstance, but these parties designated it a loan. The defendant made written application for a loan and it was made. The name of the...