Zenith Building & Loan Association v. Heimbach

• Decision Date: 22 June 1899
• Docket Number: 11,483 - (223)
• Parties: ZENITH BUILDING & LOAN ASSOCIATION v. WILLIAM P. HEIMBACH and Another
• Court: Minnesota Supreme Court

79 N.W. 609

77 Minn. 97

ZENITH BUILDING & LOAN ASSOCIATION v. WILLIAM P. HEIMBACH and Another

Nos. 11,483 - (223)

Supreme Court of Minnesota

June 22, 1899

Action in the district court for St. Louis county to foreclose a mortgage. The case was tried before Moer, J., who found in favor of plaintiff; and from an order denying a motion for a new trial, defendants appealed. Affirmed.

SYLLABUS

Mortgage -- Usury -- Building Society.

Held that the finding and conclusion herein of the trial court to the effect that the plaintiff is a mutual building and loan association, within the meaning of G.S. 1894, §§ 2218, 2794, exempting such associations from the usury laws of the state, and that the mortgage here in question is not usurious, are sustained by the evidence.

Mortgage -- Constitution.

Held that the statutes so exempting such associations are constitutional.

Keyes & Baldwin, for appellants.

Plaintiff is not a building and loan association within contemplation of the laws which exempt such associations from usury. In such an association there must be mutuality. In order that there may be mutuality, the money should be raised by dues paid in on stock and moneys loaned, and the association should not be a borrowing and loan brokerage institution. See City Loan Co. v. Cheney, 61 Minn. 83. Borrowing money to reloan must not be made an essential element. McCauley v. Building, 97 Tenn. 421; Stiles's Appeal, 95 Pa. St. 122; State v. Building, 35 Oh. St. 258, 263; North Hudson v. First, 79 Wis. 31. See Laws 1889, c. 236, §§ 1,22. If plaintiff ever was such an association, it has departed from its legitimate purpose and used the privileges of its charter as a mere cloak for usury. One of the fundamental ideas of these associations is that their accumulated funds should be freely loaned to members at a rate fixed by free competitive bidding. Endlich, Bldg. Assns. §§ 42, 375, 378, 397, 399; McCauley v. Building, supra; State v. Greenville, 29 Oh. St. 92, 100; Stewart v. Hamilton (Tenn. Ch. App.) 47 S.W. 1106; Stiles's Appeal, supra; Laws 1889, c. 236, § 30.

Many courts have held that a premium means a present sum, and that a sum in addition to interest to be paid in instalments is not a premium, but only interest under another name. Endlich, Build. Assns. § 393. Such a premium renders the loan usurious. Mechanics v. Wilcox, 24 Conn. 147, 152; Birmingham v. Maryland, 45 Md. 541. The fact that no one was permitted to become a stockholder except on condition of becoming a borrower shows conclusively the spirit and purpose of the organization. People's v. Rising (Tex. Civ. App.) 34 S.W. 147. Central B. & L. Assn. v. Lampson, 60 Minn. 422, is distinguishable. See Kupfert v. Guttenberg, 30 Pa. St. 465, 470; Hawkins v. American, 96 Ga. 206; Endlich, Bldg. Assns. § 7; Central B. & L. Assn. v. Lampson, supra; Myers v. Alpena, 117 Mich. 389; Martin v. Nashville, 42 Tenn. 418; Hagerman v. Ohio, 25 Oh. St. 186, 204.

If plaintiff is such an institution as was intended to be exempt from the usury laws, the act is class legislation and unconstitutional. Such laws have been held unconstitutional even when applied to strictly mutual societies doing business on the building society plan. Henderson v. Johnson, 88 Ky. 191. The act will be so construed as to admit of its being held constitutional, if one interpretation would make it so and another not. Lavallee v. St. Paul, M. & M. Ry. Co., 40 Minn. 249. But the law cannot adopt a mere arbitrary classification. Nichols v. Walter, 37 Minn. 264, 271. See Gordon v. Winchester, 75 Ky. 110; Cameron v. Chicago, M. & St. P. Ry. Co., 63 Minn. 384; Maudlin v. American S. & L. Assn., 63 Minn. 511; State v. Sheriff of Ramsey Co., 48 Minn. 236.

J. B. Richards, for respondent.

The law exempting building and loan associations from the usury law is constitutional. Vermont v. Whithed, 2 N.D. 82; People's v. Billing, 104 Mich. 186; Archer v. Baltimore, 45 W.Va. 37; Winget v. Quincy, 128 Ill. 67; Mechanics v. Allen, 28 Conn. 97; McLaughlin v. Citizens, 62 Ind. 264; Holmes v. Smythe, 100 Ill. 413, 422; Freeman v. Ottawa, 114 Ill. 182. Plaintiff is in fact a building and loan association. Its character is determined by its articles and by-laws. Fitzgerald v. Hennepin Co. Catholic B. & L. Assn., 56 Minn. 424; Central B. & L. Assn. v. Lampson, 60 Minn. 422, 424; United States v. Shain (N.D.) 77 N.W. 1006; Leahy v. National, 100 Wis. 555. See Hawkins v. American, 96 Ga. 206; Thompson, Bldg. Assns. §§ 188, 191. As to the fairness and wisdom of such associations borrowing to reloan to members, see Thompson, Bldg. Assns. § 116; Endlich, Bldg. Assns. § 305; Grommes v. Sullivan, 26 C.C.A. 320, 81 F. 45, 43 L.R.A. 419 and cases in note. Defendant is equitably estopped, in the absence of statutes forbidding such by-laws, from raising the question of ultra vires to do the specific acts or to make him a loan in violation of a by-law. United States v. Shain, supra; Endlich, Bldg. Assns. §§ 122, 288, 397; Thompson, Bldg. Assns. §§ 103, 104, 185, 188; Orangeville v. Young, 9 W.N. Cas. 251; McCauley v. Workingman's, 97 Tenn. 421; 5 Thompson, Corp. §§ 6021-6029; Reynolds v. Georgia, 102 Ga. 126; National Bank v. Matthews, 98 U.W. 621; Central B. & L. Assn. v. Lampson, 60 Minn. 422, 424.

S. T. Harrison, by consent, filed a brief for respondent.

OPINION

START, C.J.

This is an action to foreclose a real-estate mortgage executed April 16, 1892, by the defendants to the plaintiff to secure a loan of $4,000 made by it to the defendant William P. Heimbach. The making of interest and premium and dues was not made as the bond and mortgage required, were admitted by the defendants, but they alleged as a defense that the transaction was usurious. The trial court made its findings to fact and conclusions of law to the effect that the mortgage was a valid security, and directed judgment of foreclosure and sale of the mortgaged premises. The defendants appealed from an order denying their motion for a new trial.

The amount agreed to be paid in this case as interest and premium was in excess of interest at the rate of 10 per cent. per annum on the sum loaned, and the real question in this case is this: Is the plaintiff exempt from the usury laws of the state? The defendants claim that the question must be answered in the negative, for three reasons: First, the plaintiff was not organized as a building and loan association, within the meaning of the statute (G.S. 1894, §§ 2218, 1794) exempting such associations from the usury laws of the state; second, if it was so organized, it departed from the purposes of its organization, and used its privileges and its charter as a cover for usurious transactions; third, that the statutes in question are class legislation and unconstitutional, if they apply to such a corporation as the plaintiff.

1. The first and second claims may be considered together, for they are practically one. Tersely stated, the claim is this: The plaintiff is not a building and loan association, because it was organized to do and did do business not within the scope of such associations. It is not claimed by the defendants that the loan in question was usurious because of any specific violation of the principles of building and loan associations in this particular case, but that the plaintiff is not such an association, therefore it is not exempt from the usury laws of the state, and that all the defendants were required to show, in order to establish their defense, was the fact that the premium and interest which they agreed to pay were in excess of the highest rate of interest allowed by law. The trial court found as a fact that the plaintiff is a mutual building and loan association duly organized under the laws of this state. This finding is challenged by the defendants.

The undisputed evidence establishes these facts: The plaintiff was incorporated under G.S. 1878, c. 34, tit. 2, to commence business June 4, 1888. The general nature of its business was declared in its articles of incorporation to be the accumulation of funds by the contributions of its members, to be loaned to such members as desired the same, and in such manner as might be prescribed by its by-laws. The directors were authorized by its charter to borrow money, in their discretion, for the purpose of loaning it to its members. The limit of its liabilities was originally fixed at $30,000, but it was afterwards raised to $250,000. They were also authorized, in their discretion, to issue or to withhold the stock of the association. The by-laws provided that no money should be sold at a less premium or bonus than 40 per cent., and also that,

"If any application requires immediate attention, the association may make loans between the monthly meetings: provided, such loans are approved, in writing, by the president, secretary, and treasurer, and four other directors, and the premium paid is not less than the highest paid at the last sale of money."

The business was limited to the county of St. Louis and adjoining counties, and it was annually licensed by the public examiner of the state as a mutual building and loan association. It borrowed between the years 1889 and 1895 money for the purpose of reloaning it to persons who were or were about to become stockholders. The amount so borrowed is not disclosed by the evidence. The association, at some time not disclosed by the evidence, but the trial court finds that it was in 1888, passed a resolution to restrict the issue of shares to those who wanted to borrow. On September 2, 1889, at a meeting of the association, the highest bid for money was 70 per cent. After this the money was not put up at auction, as all applications for it were made between meetings; and after the passage of the resolution referred...