Gray v. Baltimore Bldg. & Loan Ass'n
| Decision Date | 21 April 1900 |
| Citation | 37 S.E. 533,48 W.Va. 164 |
| Parties | GRAY v. BALTIMORE BUILDING & LOAN ASS'N. [1] |
| Court | West Virginia Supreme Court |
Syllabus by the Court.
1. While a building association may fix a minimum premium payable in advance or in periodical installments, such premium must be a lump sum, certain and definite, and not a percentage payable indefinitely at fixed periods.
2. A percentage payable indefinitely at fixed periods is interest and although it be called "premium," and is in addition to the legal rate of interest already charged, it is usurious, and should be expunged from the account.
Appeal from circuit court, Kanawha county; F. A. Guthrie, Judge.
Bill by M. L. Gray against the Baltimore Building & Loan Association. From a judgment sustaining a demurrer to the bill complainant appeals. Reversed.
J. W Kennedy, for appellant.
Flournoy Price & Smith and IVORY C. JORDAN, for appellee.
M. L. Gray, on the 10th day of December, 1897, filed her bill in the circuit court of Kanawha county against the Baltimore Building & Loan Association, alleging that she borrowed the sum of $800 from such association on the 8th day of March, 1895, and the association, for the purpose of evading the usury laws, required her, as a mere shift and device, to become the ostensible owner of eight shares of stock in such association, of the par value of $100 each, and to execute a bond and a deed of trust on her property to secure the same. She was also required to pay 50 cents each per month for dues, interest, and premiums per share, and 10 cents per month per share for expense fund, making her monthly payments $18.80, in addition to $1 per share as a preliminary fee. On failure to pay up her dues, interest, and premium, the whole sum was to become due, and her property liable to sale. She paid into the association the sum of $132, and interest to March 30, 1896, and stopped when the association claimed a balance due from her of $930.45, and had her property advertised for sale the 11th day of December, 1897. She prayed an injunction, and that the claim be purged of its usury. The injunction was granted. The defendant appeared and demurred to the bill. The circuit court sustained the demurrer, and dismissed her bill, and thereupon she appealed.
The sole question presented to this court is as to whether the circuit court erred in sustaining such demurrer. The defendant insists that while the bill alleges that the plaintiff was only an ordinary borrower, and the whole transaction was under a building form merely as a device to evade the usury laws, the exhibits filed clearly refute this allegation, and show the bona fides of the transaction as the usual, ordinary building association arrangement, exempted from the operation of the statutes against usury. The association is a corporation of Maryland, doing business through agents in this state, and ordinarily its contracts between itself and stockholders would be subject to the laws of Maryland, at least to the extent they are not repugnant to the laws of this state. It has been held by the court of appeals of Maryland that to exempt building associations from the general usury laws is class legislation, and repugnant to the constitution of the state, and that the legislature has no such power. Land Co. v. Uhler, 48 Md. 455. It was also held in the case cited that "where a shareholder in a corporation executes a mortgage to such corporation to secure a loan, on which he agrees to pay interest at the legal rate weekly during the continuance of the mortgage, and also a premium of twenty-five cents weekly on each of his shares of stock, making in all nine and one-half per cent, interest on the money loaned, such charge is usurious." In this case Mrs. Gray is required to pay 50 cents per month premium, and 50 cents per month interest, making 12 per centum. In the case of Geiger v. Association, 58 Md. 569, the same court held that a premium of 30 cents per share, payable weekly, amounting to more than the legal rate of interest, was usurious. In its opinion the court says: "It is not called 'interest', but is called 'premium'; but it is manifestly intended for interest, and is an evasion of, and in violation of, law." Again: "In this case the word 'premium' and charge for it can only be regarded as meaning interest, and to the extent that the charge exceeds the rate of six per centum it cannot be allowed." The conclusion reached is that it is usurious to have the premium take the form of a percentage, payable, as interest is paid, indefinitely, so long as the loan continues; that such method of fixing the premium is but an evasion of the laws against usury, for the purpose of obtaining a greater rate of interest than the legal rate; that the amount of the premium proper should be fixed and determined as a bulk sum at the time of the building or borrowing, and then it can be divided into installments, to be paid periodically. To fix the premium at the rate of 50 cents per month, payable monthly, for an indefinite period, in addition to the regular rate of interest at the same percentage, is nothing more than doubling the rate of interest.
Since writing the foregoing, I have been furnished the decision of the court of appeals of Maryland in the case of White v Williams (Md.) 45 A. 1001, assignee of this same defendant, holding that prior to chapter 321 of the Acts of the Legislature of Maryland of 1894, in effect April 6, 1894, to fix the premium in shape of percentage was usurious; thus adhering to the case of Geiger v. Association, cited. The court did not pass on the effect the act would have on cases arising after its passage, although an inference might be drawn from the opinion that after the passage of the act the premium could be fixed in the shape of a percentage. The language of the act, as quoted, is that "instead of receiving the whole amount of said premium in advance, or deducting the whole amount of...
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