Mechanics' & Farmers' Bldg. & Loan Ass'n v. Dorsey

• Decision Date: 01 July 1881
• Docket Number: CASE No. 1065.
• Citation: 15 S.C. 462
• Court: South Carolina Supreme Court
• Parties: MECHANICS' AND FARMERS' BUILDING AND LOAN ASSOCIATION v. DORSEY.

15 S.C. 462

MECHANICS' AND FARMERS' BUILDING AND LOAN ASSOCIATION

v.DORSEY.

CASE No. 1065.

Supreme Court of South Carolina.

Jul. 21st, 1881.

1. At a time when there was no statute regulating the rate of interest on money lent, a building and loan association was chartered, with power to make such rules and by-laws as were not repugnant to the constitution and laws of the land; afterwards a usury law was enacted, limiting the rate of interest to seven per centum per annum. Held, that contracts of the association subsequently made were subject to the provisions of this law.

2. A member of a building and loan association received $1000, the full amount of his subscription to five shares of the capital stock, agreeing to pay monthly therefor (in addition to his installments of stock subscription,) $5 for interest and $7.25 for premium bid, total, $12.25 per month, or $147 per annum, until the assets of the association were worth $200 for every share. Held, that this was a greater rate of interest than seven per cent. per annum, and was, therefore, usurious.

3. Columbia Building and Loan Association v. Bollenger, 12 Rich. Eq. 124, recognized and followed.

Before MACKEY, J., Richland, October, 1879.

The plaintiff association commenced business under its charter in the city of Columbia in 1873. The defendant, John Dorsey, became a member of the association in January, 1878, by purchasing five shares for $295. In the same month defendant borrowed $1000 on these five shares, upon the terms mentioned in the opinion of this court. His bond did not call for the repayment of the principal sum borrowed, it being the scheme of the association that it was his shares of the capital stock received in anticipation. The bond was secured by mortgage of real estate. Defendant continued his payments under his bond until he had paid the sum of $189.75, after which no payments were made. This action was commenced September 27th, 1879, for foreclosure of the mortgage, alleging that defendant was in arrears nine months of subscription, interest and premium, and that the principal sum was, therefore, due also. The defence was usury.

This association was chartered February 15th, 1872. 15 Stat. 39. The usury law was passed December 20th, 1877. 16 Stat. 325. The loan was made January, 1878.

The Circuit judge, after a statement of the case and a review of authorities, concluded his decree as follows:

I am constrained, therefore, in accordance with the overwhelming weight of the decisions in this state, dating from the eighteenth century to the present time, supported by many most elaborate decisions of the highest courts, both of this country and of England, to declare that in my judgment the statute of usury has been violated in the case under consideration.

It is the opinion of the court that the interest paid to the association plaintiff by the defendant, John Dorsey, should be credited upon the dues that should legally have been collected by the plaintiff, to wit, $5.83 per month, which is the interest, monthly, on $1000, at the rate of seven per centum per annum. The amount in interest, installments and premiums paid into the association plaintiff from January, 1878, to November, 1879, by the defendant, John Dorsey, was $174.75. The amount to which the association was entitled from the same date to November, 1879, at seven per centum per annum, was $134.09, leaving a balance of $40.66 in favor of John Dorsey.

It is therefore ordered, adjudged and decreed-

1. That the complaint be dismissed, with costs.

2. That the balance of $40.66 be placed to the credit of the defendant, John Dorsey, on the books of the association plaintiff, who shall apply the same at the rate of $5.83 monthly, to the satisfaction of the defendant's dues, until the said amount of $40.66 shall have been exhausted.

The plaintiff appealed upon the following grounds:

1. Because his Honor erred when he held that the bond was usurious.

2. When he allowed any interest at all to the plaintiff, it being clear law that if it was usurious no interest whatever can be collected.

3. When he did not decree and adjudge that the plaintiff should recover the principal sums loaned, under the act relative to usury, assuming that the judge was right in finding the contract was usurious.

4. Because the whole decree is erroneous throughout, and in conflict with all the law and decisions both for and against usury.

Mr. John T. Sloan, Jr., for appellant.

The contracts of building and loan associations have been held to be exempt from the operation of the usury laws. In England: 37 E. C. L. 335; 1 Exch. 494; 6 Hare 87. In United States: 46 Ga. 172; 22 Gratt. 233; 27 Conn. 282; 43 N. H. 195;27 N. J. 223;25 Barb. 264;13 Gray 157, 168; 1 McArthur 385; 2 Quart. L. J. 347.

These contracts are not within the letter or spirit of the usury law. 7 Barn. & C. 453; 1 Cowp. 112; 4 Denio 264;22 Barb. 118.

Mr. J. E. Burke, on same side, cited the following additional authorities: 8 Eng. L. & Eq. 57; 3 Eng. L. & Eq. 157; 15 Id. 478;3 Stockt. 382.

Mr. Andrew Crawford, contra.

The opinion of the court was delivered by

SIMPSON, C. J.

The respondent, a stockholder to the extent of five shares, at $200 each, in the appellant association, on January 19th, 1878, under the rules and regulations of the association, obtained a loan of $1000 from said company. To secure this loan he gave his bond with mortgage of real estate, conditioned to pay to the association monthly payments of $17.25, itemized as follows: $5 for monthly subscription on his shares; $5 for interest on the sum advanced to him at the rate of six per cent. per annum, and $7.25 for the monthly premium which he contracted to give for the loan-in all $17.25.

This sum was reached in this way: The company was made up of those who had shares therein at $200 per share. These shares were not paid up in full at once, but were to be paid monthly at the rate of $1 per month. The money thus paid was to be lent out to stockholders in amounts not exceeding $200 per share, at the rate of six per cent. per annum. The privilege to borrow, however, was dependent upon the premium which might be offered at public bidding for the money proposed to be lent. The company, under the charter, was authorized to continue its operations until each share should amount to $200. In other words, the company expected, by lending out the monthly receipts on shares, the monthly receipts of interest, and the premiums, to be able ultimately to return to each stockholder his stock of $200 per share, and when this time arrived the company was to end.

As has been stated, the respondent, being a stockholder of five shares, borrowed $1000, the full extent of his privilege. He obtained this sum at public sale, agreeing to give a premium of $1.45, which premium was to be paid monthly, and amounted to $7.25 for five shares. For this amount, and for the monthly interest, as also the monthly subscription on his five shares, he gave his bond above referred to with the mortgage, the monthly payments, as therein stated, being in the aggregate $17.25.

The respondent failing to meet his bond, according to its terms, this action was commenced to foreclose the mortgage. As a defence, the respondent interposed the plea of usury. The Circuit judge sustained this plea, and the appeal here presents the single question whether the contract is or is not usurious.

The association was chartered in 1872, and organized soon thereafter. At this time there was no law in this state making contracts usurious at any rate of interest; but when the contract sued on in this case was made, the act of 1877, known as the statute of usury, had been passed, and was of force. The respondent relies on this statute.

If the rules and regulations by which the association exercised the right and power to lend their assets, at public sale, to the highest bidder at a premium, in addition to a regular fixed interest thereon, had been a part of the original charter of this association, or had been incorporated therein as by-laws, then a question might arise whether, even though the contract was in violation of the act of 1877, that act could apply.

In the case of Bibb County Loan Association v. Richards, 21 Ga. 592, the decision was placed upon the ground that the charter had adopted the constitution and by-laws of the association as a part of the law by which it was regulated, and the charge being according to it, could not be illegal. So, here, if the constitution and by-laws of this association authorizing it to lend its money at a premium, to be ascertained by public sale, in addition to six per cent. interest, had been adopted as a part of the charter, it might be a question...