State v. Lee

• Decision Date: 08 July 1921
• Docket Number: No. 22590.,22590.
• Citation: 288 Mo. 679,233 S.W. 20
• Parties: STATE ex rel. GREAT AMERICAN HOME SAV. INSTITUTION et al. v. LEE.
• Court: Missouri Supreme Court

233 S.W. 20

288 Mo. 679

STATE ex rel. GREAT AMERICAN HOME SAV. INSTITUTION et al. v. LEE.

No. 22590.

Supreme Court of Missouri, in Banc.

July 8, 1921.

Petition by the State of Missouri, on the relation of the Great American Home Savings Institution, an association and its members, for a writ of mandamus against John A. Lee, Supervisor of Building and Loan Associations. Writ issued.

Wilfley, Williams, McIntyre, Hensley & Nelson and Lee A. Hall, all of St. Louis, for relators.

Jesse W. Barrett, Atty. Gen., and Merrill E. Otis, Asst. Atty. Gen., for respondents.

Alroy S. Phillips, of St. Louis and Lee B. Ewing, of Nevada, Mo., for Missouri State League of Building and Loan Ass'ns, amicus curiæ

HIGBEE, J.

The statement of the case by relators, not questioned by the respondent except as to their conclusions, is substantially as follows:

This is a proceeding in mandamus against the Supervisor of Building and Loan Associations in the state of Missouri, brought by the Great American Home Savings institution, an unincorporated association of individuals, who are also parties relators, seeking a certificate of authority to do business in this state under a plan set forth in a trust agreement for the formation of the Great American Home Savings institution heretofore filed with the Supervisor of Building and Loan Associations when an application was made October 27, 1920, for a certificate to do business in this state under the provisions of section 10263, R. S. 1919. The form of the trust agreement for the organization of the Great American Home Savings Institution is what is familiarly known as a common law trust. Attached to said trust agreement were a detailed statement of its plan for doing business, a copy of the contracts proposed to be issued, and other documents.

The Supervisor of Building and Loan Associations refused to issue a certificate authorizing this association to do business in this state, and suit was instituted in this court praying for a writ of mandamus commanding the Supervisor of Building and Loan Associations to issue to petitioners herein a certificate authorizing them to do business in this state under the plan set forth in said trust agreement. The alternative writ of mandamus was granted by this court, whereupon respondent waived the issuance and service of said alternative writ, and afterwards filed his second amended return.

The Great American Home Savings Institution is a voluntary unincorporated association of individuals formed for the purpose of accumulating a fund or funds to be used under the terms of the trust agreement for the purpose of enabling the contributors to such fund or their assigns to secure a loan or loans for the purpose of acquiring a dwelling house or farm, or other income-producing property, or discharging a mortgage or other incumbrance thereon. The business intended to be carried on under said trust agreement is to all practical intents and purposes the same as the business now being conducted by corporations doing a building and loan association business in this state.

Said trust agreement provides for the issuance of trustees' certificates in the amount not exceeding $100,000 to provide an initial fund which is in the nature of a permanent guaranty fund and furnishes funds to meet immediate loan demands, and is to stand as a guaranty to the maintenance of the loan and trust fund. The trust agreement further provides for the issuance of trust certificates on the monthly installment plan in denominations of $1,000 and multiples of $100 in excess thereof. The holders of said trust certificates are to pay thereon in monthly payments the sum of $6.50 per $1,000 face value for a period of 132 months. The loan and trust fund is created from these monthly payments by setting aside $6.20 per month out of each monthly payment, after the first three payments, and said fund is to be maintained upon a 4 per cent. basis, compounded monthly, which is the liability of the Great American Home Savings Institution on account of said fund. The Great American Home Savings Institution agrees to establish and maintain said loan and trust fund at all times unimpaired. The first three monthly payments of $6.50 and 30 cents of each subsequent payment of $6.50 per each $1,000 face value of certificates shall belong to the general funds of the trust and will be available for overhead and operating expenses.

The trust agreement further authorizes the issue of a "full-paid interest-bearing certificate" subject to the approval of the Supervisor of Building and Loan Associations. Hence the Great American Home Savings Institution has three sources available for raising funds to make loans to home builders: First, by the issuance of $100,000 of trustee certificates which cannot be issued for less than their par value; second, the issuance of the installment trust certificates; and, third, the issuance of full-paid interest-bearing certificates.

The owner of the trust certificate shall be entitled to a loan equal to its face value to be made from the "loan and trust fund" (or from funds created by the issuance of trustees' certificates) in the order of written application made therefor and subject to the rights and priorities of other certificate owners and the security tendered for said loan being satisfactory. The said loan shall be made only for the purpose of the purchase or building of a home, purchase of farm, or other improved income property, or making improvements thereon or paying off mortgage, deed of trust, or other incumbrances existing thereon. In the event a certificate owner does not avail himself of the borrowing privilege, then at the end of 11 years he collects his investment plus his share of the surplus profits earned in the "loan or trust fund," not to exceed $308 per $1,000 face value of the certificate, which means the maximum amount to be repaid on the $1,000 trust certificate held by one who has not exercised the loan privilege and has deposited 132 monthly payments of $6.50 (or a total of $858) is $1,308. However, $1,000 is the guaranteed liability of the institution.

Loans made from the loan and trust fund under the terms of the trust certificate are to be repaid by the borrower in 132 monthly installments of $11.19 per $1,000, which cover both principal and interest on the loan. In other words, any one who borrows $1,000 from the loan and trust fund repays the Great American Home Savings Institution in 132 monthly payments of $11.19 each, or an aggregate of $1,477.08, which is a return of the principal with interest at the rate of 7.72 per cent. per annum. By reference to the actuarial opinions of Messrs. Harvey and Shepherd, the sum of $6.20 per month set aside to the loan and trust fund from the $6.50 monthly payment by the holder of trust certificate for 132 months, less the first three payments, improved with interest at the rate of 7.72 per cent. earned on loans, will equal $1, 248.37 at the end of the time. That is, the individual share of each certificate owner in this fund and its earnings at 7.72 per cent. interest will amount to $1,248.37 per $1,000 face value of certificate, and since the liability assumed on the certificate is limited to $1,000, this actuarial opinion shows a surplus profit earned on the money set aside to the loan and trust fund for the "exclusive benefit and profit of certificate owners" of $248.37 on each individual certificate of $1,000. But under the terms of the certificate "all surplus earnings from interest, fines, transfer, and waiver fees, cash surrender, and partial paid-up values" belong to the nonborrowing owners of trust certificates, to the "extent of, but not to exceed, a total surplus of $308 per $1,000 face value." So that the Great American Home Savings Institution does not profit by the earnings from these sources on account of the $6.20 placed in the loan and trust fund unless said earnings exceed $308 per $1,000. The loan privilege provides that—

"When loan is made for any of the purposes defined herein, this certificate may be surrendered, in which event the owner shall be credited with its accrued value, equal to $6.20 of each monthly deposit made on each $1.000 face value of this certificate less the first three, with interest at the rate of 6 per cent. per annum, which may be applied as part equity requirements for said loan or withdrawn in cash at the option of the owner."

Trust certificates become nonforfeitable after four monthly deposits have been made; that is, the holder may surrender his certificate and receive in lieu thereof a paid-up certificate for the total amount paid in, less the first three payments, which paid-up certificate matures 11 years from date with interest at 5 per cent. per annum.

The trust certificate gives its owner a cash surrender privilege at the end of 3 years or at the end of any year thereafter equal to $6.20 of each monthly deposit made, less the first three payments, with interest at the rate of 5 per cent. per annum thereon, plus its share of surplus earned, not to exceed 2 per cent. more, or certificate owner may borrow 80 per cent. of the accrued cash value after one year at 8 per cent. discount by giving certificates as collateral security.

The affairs of the Great American Home Savings Institution are under the general direction of a board of directors selected by the holders of trustees' certificates. The board of directors shall cause a full and accurate set of books of account to be kept in which shall be kept a full record of all of the transactions of the institution, and a full report of the financial condition shall be made by the president of the trust at all annual meetings of the trustees. The board of directors shall be charged with the duty of taking proper action by all proper methods in order to afford a proper and equitable administration of the affairs and business of the trust.

Under the plan of organization and operation and under...