The Royal Loan Association v. Forter

• Decision Date: 06 February 1904
• Docket Number: 13,472
• Citation: 75 P. 484,68 Kan. 468
• Parties: THE ROYAL LOAN ASSOCIATION v. SAMUEL FORTER et al
• Court: Kansas Supreme Court

75 P. 484

68 Kan. 468

THE ROYAL LOAN ASSOCIATION v. SAMUEL FORTER et al

No. 13,472

Supreme Court of Kansas

February 6, 1904

Decided January, 1904.

Error from Marshall district court; SAM KIMBLE, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. BUILDING AND LOAN ASSOCIATION--Transaction Held Simply a Loan. The facts in this case, such as the absence of competitive bidding for the loan, a level rate of interest and premiums payable in gross instalments, and circumstances indicating that the borrower did not become a member of the building and loan association, sufficiently show that the transaction was not a building and loan association contract on which more than the legal rate of interest can be collected, but was simply a loan which is subject to the usury laws.

2. BUILDING AND LOAN ASSOCIATION--Kansas Contract--Kansas Usury Laws Govern. Although the loan was made by an association organized in Missouri, the negotiations were had with an agent in Kansas; the bond and mortgage were executed in Kansas by residents of the state; the mortgage was on land in Kansas; the money borrowed was paid back to the agent in Kansas; and the recitals in the mortgage, as well as the actions of the parties, indicated that the parties treated the transaction as a Kansas contract, to be interpreted in accordance with the laws of Kansas. Therefore, it was governed by the usury laws of Kansas.

Johnson, Rusk & Stringfellow, and J. A. Broughten, for plaintiff in error.

Theodore H. Polack, W. A. Calderhead, and W. W. Redmond, for defendants in error.

JOHNSTON C. J. All the Justices concurring.

OPINION

JOHNSTON, C. J.:

The Royal Loan Association was a corporation organized under the laws of the state of Missouri, with its principal office located in the city of St. Joseph. It organized a local board with a local secretary and treasurer at Marysville, Kan. About August 14, 1895, Samuel Forter applied to John H. Cole, the local secretary and collector at Marysville, Kan., for a loan of $ 400. On his application he obtained the sum of $ 382.75, and he and his wife executed a bond and a mortgage on real estate at Marysville, Kan., to secure the payment of the indebtedness. The application for the money was transmitted to the association at St. Joseph, Mo., where the loan was allowed. The papers were there prepared for execution and sent to Cole, the agent at Marysville, where they were executed by Forter and his wife, the money paid, and the transaction closed. On the part of the association, it is claimed that Forter became a member of the association, and that he was required to make payments on his shares according to the laws of Missouri and the by-laws of the association. The Forters claim that Mr. Forter never became a member; that no application for membership was. made and no certificate of stock was issued and given to him; that the books of the association do not show that a certificate of stock was issued, and that no membership fee, as required by the by-laws, was paid or refused.

After the money was received by Forter, he subsequently made sixty payments of eight dollars per month, or $ 480. Having paid the amount received with the highest rate of interest permitted under the laws of Kansas, the Forters regarded the mortgage as paid and demanded that the Royal Loan Association release the same. This demand was refused and the present action was brought under sections 4224, 4225, and 4226, General Statutes of 1901, to procure a cancelation of the mortgage, and to recover damages for the refusal to enter satisfaction, as well as for a reasonable attorney's fee in prosecuting the action. A trial resulted in a decree in favor of the Forters for the cancelation of the mortgage, quieting their title as against it, and also for $ 100 damages and $ 200 as attorney's fees.

The principal issue in the case was whether the transaction between the parties should be treated as a building and loan contract, one where the dues, premiums and other charges provided for may exceed the legal rate of interest on money borrowed, or whether it should be treated as a mere loan, wherein the parties stood toward each other in the relation of creditor and debtor alone. If it be treated as a loan, it seems to be conceded that the Forters have paid the amount borrowed with the full legal rate of interest chargeable for money in Kansas. If he became a member and liable to pay the dues, premiums and other charges imposed by the association, there is yet due the sum of $ 142.79.

The conclusion of the trial court, that the contracts were usurious, the debt fully paid, and that the mortgage should be canceled and discharged, must be sustained. There was no competitive bidding for preference at a meeting of the directors when the loan was obtained, and they had fixed an arbitrary minimum rate, both of which, it is argued, were in violation of law. If this contention be correct, the case is in the situation of Savings Association v. Worz, 67 Kan. 506, 73 P. 116, and the transaction is no more than an ordinary loan. It is argued that the law of Missouri was amended on June 21, 1895, dispensing with competitive bidding, and that, in pursuance of the amended law, the association, on June 22, 1895, amended its by-laws, making them conform to the new statutory provisions. This argument is met by laws under the amended law of Missouri was not valid, for the reason that under that law it was necessary to call a meeting of the stockholders upon a notice as provided by the by-laws for special or annual meetings. Such meetings required ten days' notice. It appears that the law went into effect on June 21, 1895, and that the association amended its by-laws pursuant to the new law on June 22, 1895, only one day after the law went into effect. The notice was, therefore, not given for ten...