Coltrane v. Baltimore Building & Loan Ass'n of Baltimore City

Decision Date17 June 1901
Citation110 F. 293
PartiesCOLTRANE v. BALTIMORE BUILDING & LOAN ASS'N OF BALTIMORE CITY. In re BLAKE.
CourtU.S. Court of Appeals — Fourth Circuit

William Hepburn Russell and Richard S. Culbreth, for complainant and receivers.

Fielder C. Slingluff, for defendant association.

Morrill N. Packard, for intervening petitioner, Blake.

Thomas Foley Hisky, Edwin J. Farber, Charles F. Harley, George H Lamar, Douglass & Douglass, and William Pinkney Whyte, for various borrowing or advanced shareholders.

The hearing before the special master was at the instance of the petitioner, Black, who is one of the advanced or borrowing stockholders of the Baltimore Building & Loan Association of Baltimore City; and the matter came on to be heard before the special master upon the issues raised by Blake's petition, and by the answer of the association and its receivers, and upon their cross petition, and was for the purpose of declaring the proper rule for ascertaining the amount now justly due by Blake and by the other advanced shareholders to this insolvent association, the assets of which are now in the hands of receivers appointed by this court, and which is being would up under its orders. It being obvious that the declaration of the rule of settlement with the petitioner, Blake, would partially affect the rights of all the stockholder, the special master, in pursuance of the general order of reference to him, gave notice to all stockholders who had filed intervening petitions that he would sit to hear argument on all the questions of law involved in Blake's petition in which they were severally interested. The special master did, in accordance with this notice and subsequent notices, sit from time to time from June, 1900, to October, 1900, giving opportunity to all the intervening petitioners, by their respective counsel, and to the counsel by the complainant and of the receivers, to present their respective contentions both orally and by printed briefs. On the 30th of January 1901, the special master filed his report, in which, with great care and particularity, he has clearly and learnedly set forth his conclusions, in 71 findings of fact and in 14 conclusions of law, with the reasons therefor. The substance of such of the findings of fact as are at all material to the questions raised by the exceptions filed by Blake and others to the special master's report may be stated as follows That the Baltimore Building & Loan Association was incorporated under the general laws of Maryland, by a certificate of incorporation recorded April 1, 1891, which was subsequently amended April 20, 1893. That by-laws were adopted which were from time to time amended as in said findings set forth. That Blake, by application in writing subscribed November 16, 1892, for 10 shares of installment stock of said association, and on November 22, 1892, made application for a loan of $1,000, which was granted to him upon the security of a deed of trust of certain real estate situate in Tucker county, W.Va. That Blake had paid to the association on said 10 shares 87 monthly payments of $6 each, as stock dues from December, 1892, to February, 1900, amounting to $522, and also, as premium and interest, $10 per month, which were receipted for without distinguishing how much was premium and how much was interest, and amounting February, 1900, to $863.32; and he also paid an admission fee of $10. That subsequently, May 17, 1895, Blake procured another loan of $300 on the three shares of stock upon the same security, and made similar proportionate payments on said three shares. That, under the by-laws in force when these loans were made, a fixed charge of 50 cents a month per share, as premium, was made to all borrowing shareholders, irrespective of whether the applications for loans were in excess of funds on hand or not; the premium not being influenced or affected by competition for loans among shareholders. That no profits were ever apportioned among any of the shares, or credited to the account of any shareholder. That by the bonds executed by Blake, and by the deeds of trust, he agreed to pay upon each share advanced to him 60 cents as dues, 50 cents as interest, and 50 cents as premium per month per share until each share should be fully paid in, of the par value of $100. That, if the association had proved to be a continuously successful concern, its stock would have matured in about 105 months, and the advanced shareholders would have paid about 13 per cent. per annum for the use of the money advanced to them, and the investment installment stockholders would, under the same circumstances, have received as a return on their money the equivalent of 10 per cent. per annum, compounded monthly.

The master finds, as a conclusion of law, that when, on March 21, 1900, on account of the insolvency of the association, the court appointed receivers of its assets for the purpose of winding up its affairs and equitably distributing its assets, the contracts between the association and its borrowing stockholders became impossible of performance, and that the borrowing shareholders by the now undisputed rule of law were entitled to treat their contract as mature, and to be presently released upon adjusting upon principles of equity and fair dealing the amounts due by them. The special master held that with regard to the question whether the monthly payments of premiums were legally exacted or not this court was bound to follow the decisions of the court of appeals of Maryland, in so far as it had passed upon that question, because this was a Maryland contract, made with a Maryland corporation, whose charter depended upon the statutes of Maryland, and that the decisions of the state court construing those statutes were controlling in the federal court. The court of appeals of Maryland having decided in the case of Geiger v. Association (1882) 58 Md. 569, that an agreement to pay a

weekly premium in addition to 6 per cent. interest was not authorized by the law of Maryland, and was by the law of Maryland usurious, and having held in White v. Williams (decided March 21, 1900) 90 Md. 719, 45 A. 1001, with regard to this defendant association, that at the date when Blake's first mortgage was executed there was no law in Maryland authorizing the payment of a weekly premium in addition to legal interest, the special master held that the weekly payments exacted from Blake were usurious, and must be the law of Maryland be credited as payments on the advance to him. The special law master in his report dealing with the second loan made to Blake, and which was made subsequently holds, as a conclusion of law, that even upon shares advanced and mortgages made since the passage of the act of 1894, c. 321, the payment of weekly premiums are usurious, and are to be credited as payments upon principal. The act of 1894 (chapter 321) provides that building associations, instead of receiving the whole amount of such premium as might be agreed upon in advance, or deducting the whole amount of such premium as might be agreed upon in advance, or deducting the whole amount of such premiums from the amount advanced, might agree with the borrower that he should pay the premium in such installments as might be agreed upon. The special master, in a very able presentation of the law in support of his sixth conclusion of law, points out that the line of decisions in the Maryland court of appeals, extending through more than 40 years, has held that, although a premium in the nature of a competitive bonus between members of a building and loan association who are bidding for a loan may be lawful, a fixed premium exacted, which is in no way to be distinguished from usurious interest, has never been sanctioned; and the court of appeals of Maryland has constantly declared that the rate of interest agreed to be paid on the sum advanced cannot lawfully exceed 6 per cent. The special master points out the facts from which the conclusion is to be deduced that the exaction of weekly payments of premium, fixed or uniform, from all borrowers alike, and having no relation to the demand for money among the shareholders, and without competition, is usurious in states where the law does not expressly legalize it, and in which statutes forbid taking above a fixed and less rate of interest. The special master, under his seventh conclusion of law, holds that when an insolvent building and loan association is being would up in an equity court, and the contract under which the advance was made has become impossible of fulfillment, and the effort is equitably to adjust the relations of the parties so as to put them, as near as they reasonably can be, in the position in which they were when the contract was made, the great weight of authority supports the rule of settlement by which the advanced member is credited with the money paid the association under the special contract in accordance with which the money was advanced to him, and that therefore both interest and premium, having been paid in his capacity of borrower, are to be credited to him in full, without rebate for any portion of the premium. By his eighth conclusion of law the special master held that the court of appeals of Maryland, in the cases before it in which it ruled that in a settlement with an insolvent or wind-up building and loan association the borrowing shareholder must be credited with stock dues paid by him, had never had a case in which it was made to appear that the by-law contained an express provision that all shares should be charged pro rata with losses, and that therefore there is no Maryland decision which has held, in a case similar to the present case, as dues upon stock. And by his ninth conclusion of law, and the reasons in support of it,...

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