Pacific States Savings, Loan & Building Co. v. Green

• Decision Date: 25 May 1903
• Docket Number: 928.
• Citation: 123 F. 43
• Parties: PACIFIC STATES SAVINGS, LOAN & BLDG. CO. v. GREEN et al.
• Court: U.S. Court of Appeals — Ninth Circuit

123 F. 43

PACIFIC STATES SAVINGS, LOAN & BLDG. CO. v. GREEN et al.

No. 928.

United States Court of Appeals, Ninth Circuit.

May 25, 1903

George W. Baker and G. W. Allen (John Croylan, of counsel), for appellant.

Lionel R. Webster, for appellees.

Appeal from the Circuit Court of the United States for the District of oregon.

Before GILBERT and ROSS, Circuit Judges, and HAWLEY, District Judge.

HAWLEY District Judge.

This is a suit to recover $2,594.90 upon a contract and bond executed by appellees Green to appellant, and for the foreclosure of a mortgage upon real estate situate in Oregon. The court below sustained a demurrer to the complaint, and dismissed the bill. From the decree of dismissal this appeal is taken.

Several of the essential averments of the bill of complaint, and some of the facts of this case, are referred to in the opinion of the court upon the demurrer (114 F. 412), and need not, in their entirety, be repeated here. The court below, upon the facts, held that the contract between the parties was one of unusual hardship, and such as a court of equity ought not to enforce. The case, as made out in the bill of complaint involves the consideration of the modes and methods adopted by the loan and building companies, and particularly of appellant herein, with parties securing loans therefrom especially in cases where defaults have been made in the payment of interest and premiums, in accordance with the contract of the parties. This field of litigation has become very extensive in recent years. Divers and diverse opinions have been rendered in regard thereto in the different state and federal courts; much, of course, depending upon the different statutes and different contracts made and entered into thereunder. In the present case it appears that appellant is a California corporation engaged in the building and loan business, and having its home office in San Francisco. It is provided in the mortgage sought to be foreclosed herein that the payments due thereon are to be paid 'at the office of its said treasurer in said city of San Francisco, state of California. ' We are therefore of opinion that the contract should be treated as a California contract, and that the rights of the parties must be determined in accordance with the laws of that state especially in so far as the question of usury in the payment of interest is considered, notwithstanding the fact that security for its performance was the taking of a mortgage upon real estate in Oregon. Eastern Building & Loan Ass'n v. Bedford, (C.C.) 88 F. 7, 14; Bedford v Eastern Building & Loan Ass'n, 181 U.S. 227, 242, 21 Sup.Ct. 597, 45 L.Ed. 836; Andruss v. People's L.& S.A., 36 C.C.A. 336, 94 F. 575, 580; Guarantee Savings Loan &I.Co. v. Alexander (C.C.) 96 F. 870, 872; Southern Building & L.A. v. Rector, 38 C.C.A. 686, 98 F. 171; Hieronymous v. New York N.B.& L.A. (C.C.) 101 F. 12; McIlwaine v. Ellington, 49 C.C.A. 446, 111 F. 578, 55 L.R.A. 933; Alexander v. Southern Home Building & Loan Ass'n(C.C.) 210 F. 963, 965.

We shall not attempt to discuss at any length the objects sought to be accomplished by the building and loan associations that are springing up all over the country, not enter into any detailed review of the various statutes of the different states authorizing their incorporation, and making provisions for their protection, but shall endeavor to confine ourselves as closely as possible to the question whether or not the averments in the bill of complaint affirmatively show that the contract made between the parties hereto is unjust and inequitable, and so unconscionable, in its nature and character, as to deprive appellant of any relief thereunder in a court of equity.

The suggestion on behalf of appellees that the general principles of equity, as applied to penalties and forfeitures, should be enforced in this case, is sufficiently answered by Earl, J., in Concordia Savings & Aid Ass'n v. Read, 93 N.Y. 474, 480. Among other things, he said:

'This is not a case where a larger sum is made payable in consequence of the nonpayment of a smaller sum, and payment of a larger sum is not imposed as a penalty; but this is a case where the whole of a specified sum becomes due because the partial payments are not made as stipulated, and the principles of law which authorize courts of equity sometimes to relieve from forfeitures do not apply to such a case as this.'

The theory upon which the court below rendered its opinion is that the transaction 'was one of loan, and nothing else,' and that the complainant is entitled only to its loan and interest, and cannot in equity be permitted to collect installments or premiums required in order merely to qualify the defendant to borrow money from the association. This theory has been sustained in some of the decisions in the state courts, cited by the appellees, notably in Utah (Howells v. Pacific States S.,L.& B.Co., 60 P. 1025, 81 Am.St.Rep. 659); in Washington (Hale v. Stenger, 63 P. 554); and in Oregon (Western Loan Co. v. Houston, 65 P. 611). But the objection to it is that the courts, in order to sustain this view, ignore the contract freely and voluntarily entered into by the parties, with full knowledge of all the conditions that might arise if the interest and premiums were not promptly paid, and make a new contract of a different character between the parties.

It seems to have been contemplated by both parties when the contract was entered into in February, 1893, that the stock would mature in 84 months, which would require 84 payments, of $93.50 each-- $66 premium and $27.50 interest--making a total of $7,854 of principal and interest to pay off and discharge the loan in 7 years. If this anticipation had been realized, and the premiums and interests specified in the contract had been fully paid, it certainly could not legally be said that the contract was unjust, inequitable, or unconscionable, because, as a matter of fact, the full amount that would have been paid by Mrs. Green, if she had secured a loan from any of the banks in Oregon for a period of seven years at the legal rate of interest in said state, would have been in excess of what she would have been required to pay if the stock of the loan association had reached par within the time anticipated. But it is safe to say that she could not ordinarily have obtained such a loan from any of the banks for such a length of time. The building and loan associations were organized to enable persons of limited means to borrow money and make small payments at stated times, but the money could not be procured unless the borrower bid for and obtained a certain number of shares of stock, proportionate in value to the amount loaned, one half of said shares as a premium, and the other half pledged as security for the loan, as required by the by-laws of the association. The success of associations of this character depends upon the promptness of its members, investors, or borrowers in making their payments. Perhaps the greatest drawback to the success of these institutions is one arising from the default of the borrowers to make good their payments. But investors are also liable to withdraw their subscriptions in times of depression or difficulty, and the shares of stock are liable not to mature in seven years.

In Endlich on Building & Loan Associations, Sec. 149, the author says:

'There is obviously a great difference between the case of a member who has fulfilled faithfully all the requirements of his undertakings with the building association, of those which relate to the duties of membership generally, as well as those which pertain to his position as a borrower, and that of a member who, after obtaining an advance, neglects both classes of obligations, and renders himself liable to compulsory proceedings on the part of the society, which the latter is

...