Safety Bldg. Loan Co. v. Ecklar

• Citation: 106 Ky. 115,50 S.W. 50
• Parties: SAFETY BUILDING LOAN CO. v. ECKLAR. [1]
• Decision Date: 11 March 1899
• Court: Court of Appeals of Kentucky

50 S.W. 50

106 Ky. 115

SAFETY BUILDING LOAN CO. v. ECKLAR. ^[1]

Court of Appeals of Kentucky.

March 11, 1899

Appeal from circuit court, Harrison county.

"To be officially reported."

Action by the Safety Building Loan Company against S. J. Ecklar to recover a loan. Judgment for plaintiff for a part only of its claim, and plaintiff appeals. Affirmed.

L. H Jones, for appellant.

Swinford & Osborne, for appellee.

HAZELRIGG C.J.

In this case we are asked to review the question of usury, under our building and loan statute. We have the advantage of the brief of one who is familiar, not merely with the legal aspects of his client's cause, but as well with the practical workings of a successfully conducted modern building and loan association,--so successful, indeed, that the association, in a long course of business, has never declared less than a 13 per cent. dividend. The real plea offered as a reason for a revision and reversal of the Simpson Case (Ky.) 41 S.W. 570 and 42 S.W. 834, is that the statute, as understood generally, has afforded an unusually profitable field for the investment of money secured by mortgage on real estate, and the opportunity, after legal advice, has been seized by thousands of investors. We do not mean to say that the advantages secured to the borrower by this system of investments has not been urged, but, with candor, counsel has conceded that the borrower pays excessive interest for these advantages.

Turning to the opening section of the statute (Ky. St. § 854), we find that "any number of persons not less than nine may associate for the purpose of forming a corporation to accumulate the savings of its members paid into such corporation in fixed periodical installments, and lending to its members the funds so accumulated." An appreciation of the objects and purposes of such an association, as they are set out in this initial section, is presumably the consideration, in large measure, which induced the general assembly to confer, or to attempt to confer, on such associations peculiar rights and powers in the collection of dues, interest, premiums, and fines, not conferred on, or common to, individuals or other corporations. We notice, as a matter of primary importance, the source of the funds of the organization. They are to consist of accumulations of "the savings of the members." This language would of itself imply a gradual accumulation or heaping up of the pittances or small contributions of the members. But, as if to leave no room for doubt here, the statute in express terms erects the entire superstructure on an accumulation of funds "paid into the corporation in fixed periodical installments." This is a matter of vital moment, and so made by the very terms of the law. When the principle is departed from, the organization becomes a mere money-lending, dividend-paying corporation, entitled to the equal protection of the law of the land with all other such corporations, and to no other. On this point the supreme court of North Carolina, in Meroney v. Association, 116 N.C. 898, 21 S.E. 924, said of an association similar to appellant: "If we consider the manner in which its funds are to be raised, we find that it is not by accumulating of funds from monthly subscriptions or savings of its members but mainly by inducing capitalists to invest their surplus in one or the other of the kind of stock provided in the following by-laws: '(2) Full-pay interest bearing stock in Class B, which shall be sold at $50 per share, and which shall bear interest at 6% per annum, payable semiannually, on $50.00 per share,' etc." In a succeeding section of our statute we find authority for the issual of full-paid stock to members, but there is, we believe, no express power conferred to declare dividends in advance of maturity of stock. These features, however, are leading ones in the plans of the associations doing business in this state. The appellant's articles of incorporation provide that its stock may be fully paid for in advance, at not less than 50 per cent. of the par value of the stock, and the payment of annual or semiannual dividends on such stock may be made, and different classes may be issued, on which monthly or other periodical payments of different amounts may be made; and the corporation may also issue permanent nonwithdrawal investment stock, to be paid for at par value in advance. Pursuant to these articles, by-laws were enacted providing that "Single-payment stockholders should receive $50 per share and 8% per annum interest; the semiannual coupon dividends constituting a part of such interest. That full-paid stockholders should receive $100 per share, and 8 % per annum interest; the semiannual coupon dividends constituting a part of such interest." Other features of a kindred character are found, calculated manifestly to make the plan attractive to capitalists seeking unusually profitable investments. We regard these features as wholly foreign to the purposes and objects of a building and loan association. The exercise of the powers which are common to other corporations is a gross perversion of the spirit and design of such associations, and when they are exercised the distinctive features of such associations are so obliterated, or, speaking more accurately, so merged into the ordinary money-making corporation, that the institution is a building and loan society in name only. Judge Endlich (Bldg. Ass'ns. § 324) says: "As to participation in profits, which is but another name for the declaration and enjoyment of dividends, the scheme has reference to the final adjustment of accounts, not to any intermediate realization." And, speaking further as to the purposes of such an association, the same author says (section 283): "To all practical intents, it may be...