McCauley v. Workingman's Bldg. & Sav. Ass'n

• Decision Date: 14 October 1896
• Parties: McCAULEY v. WORKINGMAN'S BLDG. & SAV. ASS'N.
• Court: Tennessee Supreme Court

37 S.W. 212

97 Tenn. 421

McCAULEY v. WORKINGMAN'S BLDG. & SAV. ASS'N.

Supreme Court of Tennessee.

October 14, 1896

Appeal from chancery court, Knox county; H. B. Lindsay, Chancellor.

Bill by Mrs. Jane McCauley against the Workingman's Building & Saving Association to enjoin a sale of plaintiff's property under a trust deed. From a decree of the chancellor refusing the writ, complainant appealed to the court of chancery appeals. From a decree of such court reversing the decree of the chancellor, defendant appeals. Affirmed.

H. T Cooper, for appellant.

Junius Parker, for appellee.

WILKES J.

The original bill was filed to enjoin the sale of a house and lot under a trust deed executed by complainant and her husband to secure a debt due to the defendant building association. The chancellor refused to grant the injunction. The lot was sold and purchased by the City National Bank, which held a second mortgage on the lot, subordinate to that of the association. Complainant thereupon filed a supplemental bill, bringing that bank before the court, seeking to recover $340.72 claimed to be usury exacted on the loan by the defendant building and saving association of complainant. On the trial upon the merits, the chancellor refused any relief, and dismissed complainant's bill, and the complainant appealed and assigned errors. The court of chancery appeals reversed the holding of the chancellor, and granted the complainant the relief asked, and defendant has appealed to this court and assigned errors.

It appears from the finding of fact by the court of chancery appeals that the complainant was a subscriber to the stock of the defendant company in an aggregate amount of $1,600. She borrowed money from the association, and gave her note therefor for $1,600, bearing interest. She received upon this note $1,120, and the remainder, $480, was claimed by the association as the premium or bonus required for the loan. The charter of the company is not in evidence, but the by-laws are; and the court of chancery appeals find that they contain these provisions: "The funds of the association as they accumulate in the treasury, shall be offered and loaned by the board of directors to the best use and application among the stockholders entitled to borrow the same. The number of shares shall be regulated by the board of directors." "When two or more bids at the same rate of premium are offered, the preference may be given to the borrower whose application has priority of date, or whose property, in the opinion of the committee of examination, appears to be the best security for the loan, other things being equal. Applications for loans may be made to the secretary at any time before the weekly meeting, accompanied by the necessary papers, who shall note thereon the date of the reception. No money shall be loaned at a greater premium than 30 per cent., nor less than 29 7/8 per cent. The successful applicant, at the time of receiving the amount loaned, shall pay a premium of 30 per cent. on amount bid for the same, and shall secure the repayment of said loan, with legal interest, by satisfactory bond or mortgage upon real estate, and interest on all loans taken by stockholders shall be paid weekly from the time of bidding for the same." "In case the funds of the association shall not be called for by any stockholder furnishing satisfactory security, and should remain unproductive for one month, the board of directors may lend to others than members of the association, provided such loans are secured by a lien on real estate, and provided, further, that such loans shall not be made if as many as two directors object." There are other provisions regulating the payment of fines due, etc., and providing for steps to collect the loans when interest is in arrears for six months. It appears that the purchasing bank had a second mortgage on the property, and that it bought the house and lot under foreclosure of the trust deed, and paid therefor to the association $1,258. The court of chancery appeals find as a fact that the by-laws above copied were in force when the loan was made, and the loan was made to complainant under the operation of the rule, and in conformity to it.

The contention in this case is narrowed down to the question whether there was usury in this transaction, and whether the premium was a fixed premium, and, if so, whether it made the contract unlawful. It is insisted that it is not a case of fixed premium and not a case of usury, and not contrary to the laws governing building associations. The court of chancery appeals find that it is a case of fixed premium; that the margin of one-eighth of 1 per cent. between the highest and lowest rate is a mere device to evade any trouble arising out of an absolutely fixed premium, and is too small and inconsiderable to be considered except as an evidence of an attempt at such evasion. In this we think that court is correct. This by-law unquestionably fixes a minimum premium of 29 7/8 per cent., and a maximum premium of 30 per cent., and no loan could be made except between these figures, and, as a fact, none was made at less than 30 per cent. It must be held, therefore, that the by-laws of the association fixed a premium on all loans, and that no loans could be made at a premium below the sum fixed as minimum, nor above the sum fixed as maximum. In regard to the illegality and usurious character of such provisions in the by-laws, of a building association, there are some adjudications in other states, and our own decisions bear upon the principle involved. We are admonished that the question is an important one, and likely to affect many loans and associations that are now in existence, and we have carefully examined the question. We have not the time to consider the origin and history of building associations, but we deem it proper that we should advert to their original design and purpose. Many of our people have become shareholders in such associations. Through them, some have been enabled to secure homes and houses, that they could not otherwise have secured, and many others have lost their homes by foreclosure sales and burdensome requirements. They have increased in number, and grown in wealth, until a great portion of the real estate of the country is covered by their mortgages, and the dockets of our courts are crowded with the settlements of controversies between the companies and their members. In their original conception, their object was to enable the poor and those of small means and incomes to acquire homes and build houses, and thus to become better citizens, and more identified with the growth and welfare of the country. The original purpose is well foreshadowed by the name of "Building Associations," and the loan feature was a mere incident to effect its primary object. The theory was to enable persons whose earnings were small to become, by a system of compulsory saving, the owners of homesteads, either at the end of a certain time or in anticipation of it; and the scheme as originally framed was not complicated or difficult to understand. It has been well said: "A building and loan association is an organization created for the purpose of accumulating a fund by the monthly subscriptions and savings of its members, to assist them in building or purchasing for themselves dwellings or real estate, by loaning to them the requisite money from the funds of the society, upon good security." 2 Am. & Eng. Enc. Law, 604. And again: "To all practical intents, it may be said they enable a number of associates to combine and invest their savings to mutual advantage, so that from time to time any individual among them may receive out of the accumulation of the pittances which each contributes periodically a sum, by way of loan, wherewith to buy or build a house, mortgaging it to the association as security for the money borrowed, and ultimately making it absolutely his own, by paying off the incumbrance out of his subscription. It is only so far as they serve these purposes, and are confined to the objects necessarily involved therein, that the acts of the building association fall properly within the powers granted to them. As soon as they transgress their limits, they are acting ultra vires." End. Bldg. Ass'ns, § 283. And again: "If a building association invests its money in the purchase of real estate (and, it may be added, in any other way), looking forward to an increase in its value for the realization of a great gain, to the exclusion of a member who desires the whole or a portion of that money, to enable him to acquire and improve real...