Holmes v. Royal Loan Association

• Decision Date: 11 November 1912
• Citation: 150 S.W. 1111,166 Mo.App. 719
• Parties: RICHARD HOLMES, Respondent, v. ROYAL LOAN ASSOCIATION, Appellant
• Court: Kansas Court of Appeals

150 S.W. 1111

166 Mo.App. 719

RICHARD HOLMES, Respondent, v. ROYAL LOAN ASSOCIATION, Appellant

Court of Appeals of Missouri, Kansas City

November 11, 1912

Appeal from Gentry Circuit Court.--Hon. W. C. Ellison, Judge.

AFFIRMED.

Judgment affirmed.

J. W Peery, J. E. Watkins and Rusk & String-fellow for appellant.

J. W Sullinger for respondent.

ELLISON J. Broaddus, P. J., concurs. Johnson, J., not sitting.

OPINION

ELLISON, J.

--Defendant is a building and loan association, from which plaintiff borrowed six hundred dollars on the 21st of December, 1896, and for which he executed his bond and deed of trust on his real property to secure its payment. Contending that the loan had been paid, plaintiff, in February, 1906, brought the present action for an accounting and a cancellation of the deed of trust. Defendant filed a cross-bill denying the bond had been paid in full and alleging that there was still due thereon (including interest) the sum of $ 255, and prayed a foreclosure of the deed of trust. The deed of trust recites that plaintiff had borrowed $ 600 on six shares of stock, and provided that it should become void on the payment by plaintiff of said $ 600, interest and premium, in manner set forth in a certain bond executed by plaintiff. By the terms of this bond plaintiff and his wife acknowledged themselves indebted in the sum of $ 600 for money borrowed, in consideration whereof they bound themselves to pay three dollars and sixty cents each month as dues on stock, three dollars each month as interest on the loan, and three dollars each month as "premium on said shares of stock," all and each of the monthly payments to continue "until the said principal sum and interest and premium thereon shall have been paid in full . . . by said shares . . . having reached their par value."

Plaintiff paid these monthly installments for ninety-one months, $ 115.20 a year for seven years and seven months, aggregating $ 873.60.

The matter was referred to R. L. McDougal, Esq., to hear the evidence and make report of his findings and the testimony heard by him. Subsequently and in due form, he made his report, in which the sum found to be due on the mortgage was $ 269.06. In arriving at that result he found the loan to be usurious and gave plaintiff credit for the interest paid, but he refused credit for monthly payments on stock dues of three dollars and sixty cents for seven years and seven months. In other words, he refused to allow credit for the withdrawal value of the stock.

The trial court agreed with the referee that the loan was usurious and that plaintiff should be credited on the principal debt with usurious payments as provided by the statute (Sec. 7183, R. S. 1909). [McDonnell v. DeSoto Loan Ass'n, 175 Mo. 250, 272, 75 S.W. 438; Arbuthnot v. Ass'n, 98 Mo.App. 382, 72 S.W. 132.] But the trial court found error in the referee refusing to credit plaintiff with his payments on stock. The defendant agrees the trial court was right and the referee wrong, as to crediting the payments on stock, but insists the referee and the court both erred in finding the loan to be usurious; and that is the question which is presented for our decision. Its determination turns on the question whether the monthly three per cent charge during the whole time the loan was unpaid, was a legal charge for a premium.

The statute, sections 1363, 1364, R. S. 1899, which are sections 3390 and 3391 of the revision of 1909, provides that premiums for loans shall consist of a percentage on the amount loaned, in addition to interest; and that such premium shall not be considered usury unless it should be "unreasonable and extortionate."

So therefore, if in making the loan to plaintiff, defendant has provided for such a bonus or premium in addition to interest as is allowed by the statute, it does not render the loan usurious. On the other hand if, in providing for what defendant calls a bonus, provision has really been made for a rate of interest in excess of that allowed by law, it is usurious; for the law is, that for defendant to enjoy the extraordinary privilege of immunity from the usury laws which apply to the community in general, it must, with substantial precision, track the course set forth in the statute as a requisite to such immunity. Such has been the rulings in this state and so it was held under a like statute in Illinois. [Free Home Bldg. & L. Assn. v. Edwards, 223 Ill. 126, 79 N.E. 64.] In that case the court stated that: "Usury is prohibited by our statute, and while homestead and loan associations are authorized to charge more than the rate of interest allowed by our interest laws, they can only do so by a compliance with the act under which they are incorporated. . . . It is just as illegal and contrary to public policy for associations like appellant to charge more for a loan than is allowed by our interest laws, without a compliance with the provisions of the statute authorizing them to do so, as it would be to charge a usurious rate in the absence of a statute."

The sections of the statute (Sec. 1362, R. S. 1899, Sec. 3389, R. S. 1909) directing how loans shall be made, provides: First, that loans may be offered to stockholders who shall bid the highest premium; and this premium "may be deducted in gross from the loan, or it may be charged and be required to be paid in installments." Second, if the stock is issued in series or at different times, so as not to mature at the same time, then the borrower only pays such proportion of the full premium as the number of months his stock lacks of being 120 months old, bears to 120 months. Third, the association may however provide in its by-laws that instead of a premium the bid for a loan may be a stated rate of annual interest upon the sum desired, payable in periodical installments; such bids shall be the interest to be paid during the whole period of the loan. Fourth, if a by-law of the association so directs, bids may be dispensed with and loans may be made to members at such rate of interest and premium as may be provided in the by-laws, "such premium to be paid in gross installments."

It will be observed that all the foregoing provisions except the last one, concern loans which are auctioned off to the highest bidder. In supposed compliance with the last one, the association passed the following by-law dispensing with bids, under which the loan in controversy was made: "Bidding for loans shall be dispensed with and, in lieu thereof, interest at the rate of six per cent per annum shall be charged, payable in monthly installments of fifty cents per month on each $ 100 borrowed, and a premium of fifty cents per month on each $ 100 borrowed shall be charged, payable monthly." A construction of the statute clause, in connection with this by-law, will determine the case. It will be observed that that clause does not dispense with a premium and authorize a loan at any rate of interest which may be bid, as may be done under the third clause. If the money is loaned under that clause, without a bid, and a bonus is charged, it is a charge in addition to interest. It is apparent throughout the statute that interest and a bonus or premium are two different things. The very act of providing, as in the third clause, that a premium may be dispensed with and interest alone substituted, emphasizes the distinction between them. And more than this, the third clause provides that when premiums are dispensed with and interest is substituted, it must be a stated rate of annual interest payable in installments "during the whole period of the loan." But the fourth clause, in permitting premiums "to be paid in gross installments," does not say that such installments may be required during the whole period of the loan. The plain inference is the contrary, that is to say, that the premium is a certain sum, a certain per cent of the principal, divided into installment payments. Installment means a part of a greater amount, and it is a word only fitly used in connection with an ascertained amount; especially is this true when it is qualified by the word "gross;" and when the statute says such premium shall be paid in gross installments, it is no more nor less than saying that the premium shall be in gross, payable in installments.

It is suggested that section 1363, R. S. 1899, section 3390, R. S. 1909, says that premiums shall consist of a percentage on the amount loaned; but that does not mean a rate per cent for the uncertain period the money may be kept. It means a certain per cent or part of the sum borrowed is bid by the borrower, and that it is either retained by the association out of the sum loaned, or the amount which that per cent would make is divided into installment payments and incorporated in the note; and that is what is expressly contemplated by the first clause of section 1362, R. S. 1899, section 3389, R. S. 1909, which reads that "said premium bid may be deducted in gross from the amount of the loan, or may be charged, and be required to be paid in proportionate amounts or installments, at such time during the existence of the shares of stock loaned or advanced upon as may be provided in the by-laws of the association." And so under the last clause of that section (under which this loan was made), when the loan is not by bid, the premium is a certain per cent of the sum loaned, the amount of which is ascertained and divided into gross installments and thus paid.

It being thus clear that interest and premium are two different things, we ask what the difference is? It is this: Interest is a certain rate per cent of the sum loaned for the time the money is detained by the borrower; while a bonus or premium is a definite sum agreed upon which is paid in addition to...