Iowa Sav. & Loan Ass'n v. Heidt

• Decision Date: 24 January 1899
• Citation: 77 N.W. 1050,107 Iowa 297
• Court: Iowa Supreme Court
• Parties: IOWA SAVINGS & LOAN ASS'N v. HEIDT ET AL.

107 Iowa 297

77 N.W. 1050

IOWA SAVINGS & LOAN ASS'N

v.HEIDT ET AL.

Supreme Court of Iowa.

Jan. 24, 1899.

Appeal from district court, Polk county; C. P. Holmes, Judge.

Action in equity to foreclose a mortgage on real estate, and to cancel certain shares of stock held by defendant in plaintiff association. Defense usury, which was sustained by the trial court. An accounting was had. A judgment of forfeiture was given in favor of the school fund, and plaintiff was awarded a decree for the sum of $72.80, without either interest or costs. It appeals. Modified.Baily & Ballreich, for appellant.

Dudley, Coffin & Byers, for appellee.

WATERMAN, J.

Plaintiff is a building and loan association, having incorporated as such originally in 1889. On July 2, 1896, its articles were amended to comply with the requirements of chapter 85, Acts 26th Gen. Assem. Defendant was the owner of 10 shares of stock in said association, and on February 15, 1891, he borrowed from it the sum of $1,000, giving as security his shares of stock in pledge and the mortgage in suit. At the time of making the loan, plaintiff deducted from the amount of the loan the following sums: Attorney's fee for examining abstract, $2.50; appraiser's fee, $2; recording mortgage, $1; abstracter's fee, $9. The remainder, $985.50, was paid to defendant. Defendant was to pay, according to the contract contained in his note and mortgage, the sum of $17 per month until the maturity of his stock. This amount was made up as follows: 60 cents per share, installments on his stock, $6; 60 cents per share, premium for the loan, $6; and 50 cents per share as interest on the money received, $5. Out of the dues on stock, the association deducted 7 cents from each 60 cents paid, for expenses of management, but only so much of this was used or kept as was necessary for actual expenses. From time to time the surplus of the expense fund was carried to the credit of the stockholders.

1. It is claimed that defendant did not receive the full amount of his loan, and this is correct. But the amounts deducted were necessary expenses in perfecting the loan. These sums were not retained by the association, but were paid to others, and were proper charges against defendant. Association v. Johnston (Iowa) 76 N. W. 678.

Some complaint is also made because of the deduction by the association of 7 cents out of each 60 cents of dues, for expense of management. We see no ground for a member's objection to this method. It is not claimed that more was used for expenses than was actually necessary. Now, it is apparent that these expenses had to be paid by the members. If a fund was not raised in this way, the amount would have to be taken from the earnings. In any event the burden would fall on the stockholders.

2. With these minor matters out of the way, we take up the next question in the case, which is the claim of usury. It is said (1) that the contract is usurious, because the premium exacted was not bid for the right of precedence in taking the loan; (2) because interest was charged upon the face of the loan; and (3) because the fines and fees were exorbitant. It is true that the premium was a fixed sum, established by the by-laws of the association, and chapter 6, tit. 9, Code 1873, was in force when this loan was made. In that chapter such associations are given the right to receive “premiums bid by members for the right of precedence in taking loans,” and then it is said the taking of such premiums shall not be held to be usury. We are of the opinion that, under that statute, it was not lawful for the association to exact from a borrower, where there was no competition, an arbitrary sum in addition to the interest on his loan, where the whole amounted to more than legal interest; and we may say, without setting out the computation, that we think it did in this case. In Association v. Heider, 55 Iowa, 424, 5 N. W. 578, 7 N. W. 686, and Association v. Blackburn, 48 Iowa, 385, each of which involved a construction of the statute we are now considering, while usury was pleaded, the question presented now was not raised. Except in name, the premium here does not differ in any way from interest. It is paid for the use of the money, and not for the privilege of getting the loan. As it is claimed that the acts of plaintiff in exacting from defendant the various sums it did as consideration for the loan were validated by subsequent legislation, it may be well for us to determine to just what extent curative acts were needed. We take up, therefore, defendant's further claims of usury.

3. It is said that the loan was usurious, because interest was charged on the face of the note, and not on the amount actually paid to defendant. The two cases last cited are thought by counsel for appellee to support this claim. In those cases the premium charged for the loan was deducted at the time the loan was made, and was retained by the association for its benefit, and interest was collected upon the whole sum, including the amount of the premium; and this interest exceeded the rate fixed by law. The items which defendant claims should not have been included in the principal in the case at bar, and upon which interest was computed, are the $2.50 for examining abstract and $2 appraisement fee. Both of these were legitimate matters of expense, as we have already said. As we understand the record, while the $2 fee was paid into the expense fund, it was the exact amount that was paid by the association out of that fund for the appraisement in the making of this loan; and the other fee was paid to an attorney for services actually rendered. The payment by the borrower of the necessary expenses of the lender, incurred in making the loan, in addition to the legal interest, will not constitute usury. Smith v. Wolf, 55 Iowa, 555, 8 N. W. 429. These amounts were not exacted as a bonus by the association, and it got no benefit whatever from their payment. This case is materially different from those upon which defendant relies.

4. Next, it is said that the fines charged were exorbitant. Doubtless, a fine may be so unreasonable and excessive as to be void. But these do not appear of that character. Impositions proportionately as heavy have been approved in similar cases. See 4 Am. & Eng. Enc. Law, 1042, note 4. The statute authorized these penalties, and it fixed no limit to the amount that might be imposed. The amount fixed by the by-laws of the association was five cents for the first default on each share, and ten cents for each subsequent default. This amount was not exceeded in defendant's case. He knew, or should have known, the terms of his membership when he purchased stock in the association, and we do not think he can be heard now to complain of an obligation which he voluntarily assumed.

As we have found that the contract was tainted with usury because of the exaction of the level or arbitrary premium, it now becomes necessary to determine whether it has been purged of this illegality by subsequent legislation. This loan was made in 1891. In 1896 the 26th general assembly passed an act (chapter 85) providing for the government, management, and operation of associations of this character. Section 9 of that act, so far as material, is as follows: “All building and loan and savings and loan associations upon receiving the certificate of the auditor shall have power * * * to assess and collect from members such dues, membership fees, fines, premiums and interest on loans as may in the articles of incorporation and by-laws have been provided, and the same shall not be held to be usurious * * * to make loans to members on such terms and conditions as the articles of incorporation and by-laws provide. * * * In case of foreclosure the borrower shall be charged with the full amount of the loan made to him, together with the dues, interest, premium and fines for which he is delinquent, and he shall be credited with the same value of his pledged shares as if he had voluntarily withdrawn the same.” It is claimed by plaintiff that this section applied to contracts made prior to its passage, and...