Hughes v. Farmers' Savings & Building & Loan Ass'n.

• Decision Date: 20 December 1897
• Citation: 46 S.W. 362
• Parties: HUGHES et al. v. FARMERS' SAVINGS & BUILDING & LOAN ASS'N.
• Court: Tennessee Supreme Court

46 S.W. 362

HUGHES et al. v. FARMERS' SAVINGS & BUILDING & LOAN ASS'N.

Court of Chancery Appeals of Tennessee.

December 20, 1897.

Appeal from chancery court, Rutherford county; Ernest Coldwell, Special Chancellor.

Bill by Alice J. Hughes and J. M. Hughes against the Farmers' Savings & Building & Loan Association to enjoin a foreclosure of a mortgage, and to ascertain the true amount due. From a decree in favor of defendant, complainants appeal. Decree affirmed, with directions.

R. S. Brown, for appellants. McLemore & Richardson and J. C. Bradford, for appellee.

NEIL, J.

The bill in this case is filed for the purpose of enjoining the sale of certain lands under a building and loan mortgage, and to have the contract between the complainant Alice J. Hughes and the association purged of usury, and the true amount ascertained. On the 24th of November, 1890, the complainant Mrs. Hughes became a stockholder in the defendant association, purchasing 5 shares therein, of the face value of $100 each; and on February 17, 1891, she became the owner of 10 other shares. On the 9th day of April, 1891, she filed an application for a loan of $300, and shortly thereafter changed it so as to make it $1,000, before any money was advanced; offering to secure the loan on certain real estate, — the same now in controversy. The application contains, also, the following clause or proposition: "The applicant agrees to pay interest on the amount of the loan applied for, at the rate of six per cent. per annum. To procure said loan, I bid as a premium six per cent. on the amount so loaned me. Both interest and premium shall be due as follows: Six months' interest and premium at time loan is made, and semiannually thereafter." On the 23d day of April, 1891, at an auction of the funds of the association, $1,000 was sold to the complainant Mrs. Hughes, under her written bid above referred to. The result was that she bid off in this manner $1,000, at a premium of $420. There were competing bids, but hers was declared the best, and so the money was knocked off to her. The advance, however, was not consummated at the time by a payment of the money, on account of the absence of one of the officers of the association, whose duty it was to pass upon securities. On the 10th of May, 1891, however, the advance or loan was consummated by the execution of a note and mortgage, and an obligation for the premium. The note is dated May 10, 1891, and is signed by Mrs. Hughes and her husband, J. M. Hughes. It obligates the makers to pay to the defendant association $1,000, with interest at the rate of 6 per cent. per annum, payable on the 10th day of May and November of each and every year, and continues: "This obligation is for money advanced us on fifteen shares of the stock of said association owned by us, certificates being numbers 2,831, 2,792, and 2,444, which said stock is hereby assigned and pledged for the payment of said loan; and the same is further secured by a mortgage of even date herewith, executed by us upon the tract or parcel of land situated in Rutherford county, state of Tennessee. We agree to pay to said association on the tenth day of May and November, at its office, in Nashville, Tenn., $84, which shall be applied as follows: (1) To the payment of any fines made against us in pursuance of the by-laws of said association. (2) To the payment of interest due on said loan. (3) To the payment of the premium bid on said loan according to the contract between the parties. (4) The balance shall be credited as dues on said stock. Said payments shall be continued until the dues so credited on said stock, together with the profits thereon, shall equal the amount loaned. Should we fail for six months to make said payments, then the whole amount of said loan shall, at the option of said association, at once become due and payable." The mortgage contains a copy of the note, except that item 3, as to the payment of the premium, is stricken out of it, as it appears in the mortgage; that is, the following words and figures: "(3) To the payment of the premium bid on said loan according to the contract between the parties," — do not appear in the mortgage. The mortgage provides for the security of the above-mentioned note. It provides that the mortgagors shall pay taxes, and keep up the buildings, etc., and, on default in the payment of the note in accordance with its terms, or in performing the other stipulations of the mortgage, that the same shall be foreclosed. On the same day the following obligation was entered into with regard to the premium, — being the obligation on this subject above referred to: "Whereas, the Farmers' Savings and Building and Loan Association, a corporation duly incorporated and organized under the laws of the state of Tennessee, and having authority, by and under its charter, to do the business of a building and loan association, did on the 23d day of April, 1891, at an auction of its funds, sell to us, as the highest bidder, one thousand dollars, at the premium bid of four hundred and twenty dollars; and whereas, the said Farmers' Savings and Building and Loan Association, after deducting the amount of said premium from the loan aforesaid, has this day, at our special instance and request, loaned us the said amount of four hundred and twenty dollars: Now, in consideration of the premises, we hereby promise to repay said sum of four hundred and twenty dollars in semiannual installments of thirty and 00/100 ($30) dollars each; the first installment being paid in advance, and the others to be paid on the tenth day of May and November until fully paid. And, to secure the prompt payment of this obligation as provided herein, we have this day assigned to said the Farmers' Savings and Building and Loan Association fifteen shares of the stock of said association owned and held by us; being evidenced by certificates Nos. 2,831, 2,792 and 2,444. Witness our hand this 10th day of May, 1891. Alice J. Hughes. J. M. Hughes." The application for the advance asked that the money should be paid in installments of $300 and $700, but it was paid in three installments. The first installment was paid on May 30, 1891; the second, on June 17, 1891; and the last installment, August 10, 1891. Under the terms of the contract, six months' dues and interest and premium were payable in advance. Consequently these deductions were made from the amount of money furnished Mrs. Hughes. Six months' dues on 15 shares of stock, at 60 cents per share each month (which was the amount agreed on), amounts to $54; 6 months' interest on $1,000 amounts to $30; and the payment of the installment on the premium, being for 6 months, amounts to $30. The payments to Mrs. Hughes on the advance or loan, with the deductions made for the above purposes, were as follows: May 30, 1891, paid to Mrs. Hughes, $300; June 17th, $400, with the following deductions from the latter sum, namely: Interest and premium on the $300 from May 10th to August 10th, $7.50; interest and premium on $400 to August 10th, $6; dues, June and July, $18; leaving net amount paid to Mrs. Hughes out of the $400 the sum of $368.50. On August 10th there was paid to Mrs. Hughes $300, less the following deductions: Dues for June and July, $18; dues to February 10th, $54; interest to February 10th, $30; premium, $30; error in previous remittance, $10; aggregating $142; leaving the balance paid to her out of the $300 the sum of $158; making the aggregate amount paid to her on the advance, less the deductions for payments on stock, interest, and premium, the sum of $836.50. We need not, at this stage of the discussion, go into the question of subsequent payments, and the ascertainment of the exact amount due upon the mortgage. It is first necessary to arrive at a basis of settlement, whether upon the terms of the contract, or whether from the standpoint of a usurious arrangement between the parties.

First it is earnestly insisted that there was no competitive bidding. We have already found the fact otherwise, but it is proper to go into the matter with a little more particularity, in view of the earnest contention of counsel upon this subject. The only witness who testifies upon the question at all is Mr. Raymond, the secretary and general manager of the defendant association. He says in his deposition, clearly and explicitly, that there were other bidders, and that in an open meeting the money was knocked off at an auction of the association's funds, in competitive bidding, to Mrs. Hughes. It appears that her bid was not made by her in person, but in the form of a written application or bid, which we have previously referred to. Our attention is called to the fact that the statute of 1893 is the first act which directly authorizes this form of bidding, but we do not think that this is material. We think it was never contemplated that persons should be at the meeting, necessarily, and bid in person. It was entirely competent for persons who desired to have an advance upon their stock to file a written bid, without the necessity of statutory authority therefor. The substantial thing is the bid, and, whether made orally or in writing, if it is in fact made and treated as a bid, and in competitive bidding the money is knocked off to the person so filing a written bid, every purpose of the acts of 1875 and 1889 is met.

The next question, and the one most seriously insisted upon, is that the statute was not complied with in respect of the premium. The act of 1875 (chapter 142) provided that the premium should be paid before the consummation of the loan. The exact language of that statute upon the subject is: "The premium bid by borrowing stockholders for the preference or priority of loan shall be paid before the loan is consummated, not as a part of the loan, not as interest, but as a means of determining which one of the shareholders shall receive the loan, whenever there are a number of stockholders...