Fidelity Sav. Ass'n v. Shea

• Decision Date: 11 January 1899
• Citation: 55 P. 1022,6 Idaho 405
• Parties: FIDELITY SAVINGS ASSOCIATION v. SHEA
• Court: Idaho Supreme Court

55 P. 1022

6 Idaho 405

FIDELITY SAVINGS ASSOCIATION v. SHEA

Supreme Court of Idaho

January 11, 1899

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.

RELATION OF PARTIES.-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 $650, 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, Bannock County.

Judgment affirmed. Costs of this appeal awarded to the respondents.

C. A Warner and Wyman & Wyman, for Appellant.

A payment upon a collateral is not a payment on the debt. (Endlich on Building Associations, 2d ed., sec. 477; Philadelphia Mer. Loan Assn. v. Moore, 47 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 when 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 P. 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, ipso 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 A. 890; Tilley v. American Bldg. etc. Assn., 52 F. 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., sec. 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. Dec. 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 So. 146; Hughes Bros. Mfg. Co. v. Conyers, 36 So. 1093.)

S. C. Winters, for Respondent.

Plaintiff requires the borrower to subscribe for stock in order to get a loan. Then it charges interest, premium, dues and fines. 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 P. 779-896; Vermont Loan Assn. v. Hoffman, 5 Idaho 376, 49 P. 314; Idaho Rev. Stats., secs. 1263-1266; Vermont Loan etc. Co. v. Tetzlaff, ante, p. 105, 53 P. 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, Red. ed., sec. 64; Hawkins v. Pearson, 96 Ala. 369, 11 So. 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. O. address, Pocatello; 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 by-laws, 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 $ 1,200. 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 by-laws 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 ($ 2.50) 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, 2d, 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. 14,122. Monthly payment stock. $ 1,200. 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...