
    The Columbia Building and Loan Association vs. William Bollinger.
    
      Usury.
    
    An incorporated building and loan association advanced, in conformity ■ to tbe provisions of its constitution, to one of its members, wbo owned ton shares of its capital stock, two thousand dollars, at a premium of thirty-five per cent., equal to seven hundred dollars, paid him thirteen hundred dollars, being the amount advanced less the premium, and took his bond, secured by a mortgage of real estate and an assignment of his shares of the stock, for the amount advanced, two thousand dollars, payable, with interest at the rate of six per cent, per annum, in monthly instalments of twenty dollars each: — Held, that the contract was usurious.
    BEFORE OARROLL, OH., AT HIGHLAND, JUNE, I860.
    The decree of his Honor, the Circuit Chancellor, which states every thing necessary to a full understanding of the case, is as follows:
    Carroll, Ch. The Columbia Building and Loan Association was organized in May, 1852, and on 16th of December following obtained a charter of incorporation. In its constitution it is declared that the association " shall have for its object the accumulation of a fund, by the monthly subscriptions or savings of the members, to assist them in procuring for themselves such real estate as they may deem desirable, or to be employed in their business or trade.” By its charter, the association is created “ a body politic or corporate, for the purpose of making loans of money, secured by mortgage of real estate or personal property, to its members and stockholders, with power to make such rules and by-laws for its government as are not repugnant to the constitution and laws of the land, and with a capital stock to consist of twelve hundred shares, to be paid in by successive monthly instalments of one dollar on each share so long as the corporation shall continue.” The Act of incorporation further provides, that the funds of the association "shall be loaned and advanced to the stockholders in such mode, and subject to such terms, conditions, and regulations as may, from time to time, be prescribed by its rules and by-laws, and that whenever its funds shall have accumulated to such an amount that, upon a just division, each stockholder will be entitled to receive two hundred dollars, or property of that value, for each and every share of stock by him or her held, and such division of the funds shall have been made, the corporation shall cease and determine.” In the constitution of the association, among other regulations, are the following:
    “ Each stockholder, for each share of stock he may hold, shall be entitled to purchase an advance of stock of two hundred dollars, and no more. Whenever the funds in the treasury shall warrant it, one or more advances shall be disposed of to the highest bidder. Any stockholder taking an advance shall allow to be deducted the premium offered by him for the same, and shall secure the association for such advance by bond and mortgage. Eor each advance of two hundred dollars made to a stockholder, at least one share of stock shall be assigned as collateral security. Any stockholder taking an advance shall pay to the treasurer, in addition to his or her monthly dues for shares, one dollar per month on each share for which such advance is made, or at the rate of six per cent, per annum on the whole amount including the premium. Should any stockholder, having received any portion of his stock in advance, neglect or refuse to pay any or all of his dues to the association for three successive months, then the directors may compel payment of principal and interest by instituting proceedings on the bond and mortgage according to law.”
    
      On the 2d Monday of December, 1854, two thousand dollars of the funds of the association were “purchased” in parcels of one thousand dollars by William Bollinger, then ■ a member and holder of ten shares of the capital stock, at the premium of thirty-five per cent. From the sum so purchased, the premium bid, seven hundred dollars, was deducted, and the residue, one thousand three hundred dollars, was delivered to Bollinger, who, at the same time,' executed his bond to the association in the penalty of four thousand dollars, conditioned for the payment of two thousand dollars in manner following, that is to say: the “ sum of twenty dollars to be paid on or before the second Monday of each and every month succeeding the 14th December, 1854, the date of the bond, until the whole sum of two thousand dollars (the principal) and the interest thereon, at the rate of six per centum per annum, payable monthly, as above, shall have been fully paid and satisfied.” To secure payment of his bond, Bollinger, on the same day, executed to the association a mortgage of a lot or parcel of land in the town of Columbia, and as collateral security he also assigned to . the association his ten shares of the capital stock, as required by its constitution.
    Before the 2d Monday of December, 1854, Bollinger had made thirty-two monthly payments upon his stock, amounting in the aggregate to three hundred and twenty dollars.
    After the execution of his bond, the monthly payments required by its condition were duly made until November, 1856; but since that date nothing has been paid upon the bond.
    The bill is for foreclosure of the mortgage, sale of the premises comprised in it, and payment of the mortgage debt out of the proceeds. By consent of parties, the usual order of reference was made, requiring the Commissioner to ascertain the amount due upon the bond. The report was filed 18th June, 1860, and states the balance due upon the bond at that date to be two thousand seven hundred and seventy-nine dollars and fifty cents, and the defendant Bollinger excepts to that report. His fourth exception is, that the report does not show how the supposed balance of two thousand seven hundred and seventy-nine dollars and fifty cents is made up.
    In the statement of the account between Bollinger and the association, annexed to the report, there is a debit against him of eight hundred and sixty dollars for arrears of monthly dues, and this is followed by another charge, which is thus expressed: “ To amount of fines for non-payment of the above dues, one thousand eight hundred and ninety-two dollars.” It is shown by the testimony before the Commissioner, that Bollinger “had incurred fines and forfeitures;” that he “ owed fines and penalties” which amounted on 2d Monday of August, 1858, to four hundred and sixty-two dollars, and that the fines he subsequently incurred were in the' aggregate five hundred and six dollars; and it is stated in general terms by the witness examined at the reference, that the sum of two thousand seven hundred and seventy-nine dollars and fifty cents was due upon the bond on 2d June, 1860. This comprises the whole of the evidence reported, which relates to the item of the account under consideration, except what may be collected by inference from the constitution of the association. The report should specify so much of the evidence as will enable the Court to perceive with certainty upon what proof the Commissioner has acted. When the Commissioner reports upon accounts, he generally states the results of the accounts in the body of his report, and refers to schedules annexed, as to the particular items. Johnson vs. Davis, 2 Strob. Eq. 157 ; 2 Dan. Ch. Pr. 1481. It is considered that the report does not conform to the rule referred to, and the fourth exception is therefore sustained.
    The remaining exceptions present the single question, whether the contract, upon which the defendant’s bond is founded, was usurious or not.
    Societies similar to the Columbia Building and Loan Association are common in England as well as in. this country. A question similar to that now to be considered, if not identical with it, arose in the case of Silver vs. Barnes, 6 Bing. N. C. 180. There, the defendant, a member of the “Woollridge Mutual Benefit Society,” had bid off eighty pounds of the society’s funds, at the premium of £15. 17s. 6cl., to be paid in addition to five per cent, on the eighty pounds. The defendant received the eighty pounds, and executed his note for that sum to the treasurer of the society, and the action was brought upon the note. It was held by the Court, that “the transaction was a dealing with a partnership fund, in which the defendant had an interest in common with the other members of the society, and was not a loan.” The authority of this doctrine has been repeatedly recognized. Burbiclge vs. Chiton, 8 Eng. L. and E. R. 62; Cutbill vs. Kingdom,, 1 Excheq. R. by Welsb. H. & G. 494 ; Bibb County Loan Association vs. Richards, 21 Geo. R. 608. The point decided in Silver vs. Barnes, that the money advanced to the defendant was not a loan, appears to have been rightly determined.
    But it is conceived that there were other and more satisfactory grounds for that judgment than those upon which it seems to have been placed. In this cause the most embarrassing inquiry, perhaps, is to ascertain what was the real contract as to the money advanced to Bollinger by the association. That sum comprised the entire portion of the common fund that could ever be advanced to him as a stockholder, according to the constitution of the association. Neither Bollinger, nor any one of his associates in that society, had the right to be paid two hundred dollars in December, 1854, upon each share of their stock. They could only claim such payment when, from the monthly dues upon their stock, the premiums to be received, and other sources of supply, the funds of the association should so accumulate as to be sufficient to pay to all the stockholders that sum upon each share of the stock held by them respectively.
    If, however, the wants or necessities of any stockholder rendered it desirable that he should receive a sum equivalent, presently, to the amount to which he would be entitled upon his shares at the termination of the association, its constitution provided for such advances upon the stock. Indeed this was the primary and leading purpose of the association. As two hundred dollars, not payable until a day indefinitely future and uncertain, are not worth that sum, if paid immediately, the stockholder who received, in anticipation, the moneys that would be payable on his shares at the termination of the association, might well be content to receive a sum of less nominal amount, if presently paid. The constitution of the association accordingly provides that its funds shall, from time to time, be offered to its members as advances upon their stock, and in parcels corresponding with the assumed ultimate value of one or more shares, the preference of taking such advances to be decided by competition among the stockholders, and to be assigned to him who shall consent to the largest abatement from such ultimate value, and agree to take the residue of the same, to be immediately paid as au equivalent for the present value of his stock. It was under this provision of the constitution of the association that Bollinger, in December, 1854, obtained an advance upon his ten shares of the capital stock. By his contract with the association Bollinger agreed, in lieu of the two hundred dollars for each of his shares to which he would be entitled when the funds of the association would suffice to pay that sum to each share of its whole capital stock, to accept the sum of two thousand dollars in cash, to be reduced, however, by seven hundred dollars, payable presently, and by the further sum of ten dollars, payable monthly thereafter, during tbe existence of the association. If this be a just conception of the contract between Bollinger and the association, then the transaction was not a loan. It was an advance by anticipation to Bollinger of the present value of what he would be entitled to receive upon the shares he held at the termination of the association. If the contract be regarded as a sale by Bollinger and a purchase by the association of his interest as a stockholder, the inhibition against usury would have no application to such a transaction. If his interest in his shares be considered as in the nature of a debt against the association, the agreement, being executed, would be sustained as amounting to a lawful Satisfaction of such debt. When a creditor accepts as full satisfaction a sum less than his debt, if such payment be made before the debt is due it is a good discharge. Pinnell's case, 5 Hep. 117. The acceptor of a bill took a premium of sixpence in the pound from the indorsee for payment of the bill before it became due, and this was held not to be usurious. Chit, on Con. 772. If the association stood towards Bollinger as an agent in regard to particular funds of uncertain amount not yet received, and were to advance to him the estimated amount of the same, retaining as compensation a -sum exceeding the legal rate of interest upon such advance, the transaction could not be impeached upon the ground of usury.
    In Harvey vs. Archbold, 3 Barn. &. C. 631, an agent, to whom goods had been consigned for sale, remitted to his principal, by anticipation, the probable amount of the proceeds of such goods, and it was held that such remittance did not amount to a loan, so as to render a charge of six per cent, thereon usurious. A contract, if not usurious when executed, would not be usurious if executory only. If, in the case cited, the agent, instead of having all the goods actually consigned to him, had received but a portion of them, and had taken security from his principal for the consignment of the residue, the result would have been the same. The relations between the parties in the case supposed are considered as analogous to those between the parties here.
    The additional sum of one dollar to be paid monthly by Bollinger on each of his shares of stock, after receiving the advance upon them, was as much parcel of the premium for such advance as were the seven hundred dollars. If, by agreement founded upon an estimate of the probable duration of the association, a gross sum had been fixed and paid presently, in lieu of such additional monthly payments, and such ascertained sum had been deducted from the one thousand three hundred dollars received by Bollinger, the residue would have exhibited the net sum paid to him as an advance upon his stock. Prom the very nature of his contract with the association, such net sum was not then capable of being ascertained. But that sum, whatever its amount, Bollinger never engaged to return. The bond that he executed is not and was never intended to be a security for its repayment. Twenty dollars are required by the condition of the bond to be paid monthly.
    Of this sum, it is in proof that the one moiety is for the primary monthly dues upon the defendant’s shares, and the other moiety for the additional monthly dues that arose upon the same shares after the advance thereon. The former moiety cannot be regarded as interest upon the sum advanced to Bollinger, for the obligation to pay it existed prior to such advance, and was assumed by his original subscription for his shares. As to the latter moiety, it was, in truth, but parcel of the abatement agreed to be made from the assumed ultimate value of his shares when Bollinger received the advance of their value by anticipation, and is no more interest than were the seven hundred*dollars deducted at the outset. It is provided by the constitution of the association that “ each stockholder taking an advance shall secure the association for such advance by bond and mortgage.” The security referred to surely does not mean security for the return of the money to be so advanced. This would be wholly inconsistent with the idea of an advance to the stockholder in anticipation of what will hereafter be due to him upon his shares. The security contemplated is security that the stockholder will make all such payments as are necessary to preserve and perfect the right to the sums payable at the termination of the association, upon the shares whose value has been advanced to him. His title to receive those sums, the ultimate profits and proceeds of his shares, is transferred to the association by the effect of his contract for such advance, and the assignment of his shares executed in pursuance of it. The very object of the bond is to secure and render effectual such transfer. The view which has been taken of the contract between the parties is sustained by the case of Moseby vs. Baker, 6 Hare, 98. What is said by the Vice-Chancellor of the plaintiff in that case may almost literally be applied to the defendant in this. “ He was in the position of a member who had received, by anticipation, the one hundred and twenty pounds, which the non-purchasing members were not to receive until the termination of the association. Each of the members (as well those who had purchased advances as those who had not) had to pay the price of his shares, so far as the future monthly 'payments were concerned. That the plaintiff had discounted his share and received its full value in advance, would not alter his liability in that respect. He is a purchaser of shares, who has received the value of his shares, but whose purchase-money is unpaid.”
    It is true that the terms loan and advance are employed in the charter as if synonymous; that the constitution of the association designates the bond to be executed by the member receiving an advance upon his shares as “security for such advance,” and refers to the payment of the bond as a “payment of principal and interestand that an officer of the association, examined, as a witness in the cause, speaks of the advance to the defendant as a “borrowing” and a “ loan.”
    But, it is the duty of the Court “to look, not at the form and words, but at the substance of the transaction.” Tete vs. Bedgood, 1 B. & C. 453.
    Thus considering the matter in controversy, the Court is of opinion that the contract in question was not usurious, and the first, second, third, and fifth exceptions are therefore overruled.
    Whether any other defence in this Court would have availed to resist the enforcement of the contract between Bollinger and the association, it is unnecessary to determine. It was assailed by the defendant as being within the inhibition of the statute against usury. But neither in his answer, nor in the argument at the hearing, was it impugned upon any other ground. It is ordered that the report be recommitted and amended as herein above directed.
    The defendant appealed, and now moved this Court to reverse or modify the decree, on the grounds:
    1. Because the contract, on which the bond and mortgage sought to be foreclosed were given, is usurious, and therefore null and void, and certainly for the excess beyond the money actually lent.
    2. That the constitution and by-laws of the plaintiffs, under which the loan to the defendant was made, are repugnant to the laws of the land prohibiting usury, and are not authorized by their charter.
    3. That the whole scheme of the plaintiffs, in forming their association and obtaining a charter of incorporation, was, in effect, to evade the laws of the State against usury, and to lend their money at exorbitant rates of interest by color of authority under their charter and by-laws, which, without such disguise, would be prohibited by law as glaringly usurious. But the charter grants no such authority.
    
      Baushett, for appellant.
    
      Arthur, Tally, contra.
   The opinion of the Court was delivered by

O’Neall, C. J.

The single question presented by this case is, whether the contract is or is not usurious.

Had it not been for the Chancellor’s decree, and the cases to which he has referred, I should not have entertained a doubt as to the usurious character of the contract.

The contract, in the beginning, allowed a discount of seven hundred dollars, on an advance of one thousand three hundred dollars, which was called a purchase of two thousand dollars of the funds of the corporators, at the premium of thirty-five per cent. This sum of two thousand dollars and interest at six per cent, was to be repaid, in sums of twenty dollars, at the end of each month succeeding the 14th of December, 1854, the date of the bond. These were the provisions of the bond. Before the second Monday of December, 1854, the defendant had made thirty-two monthly payments, amounting to three hundred and twenty dollars. After the execution of the bond, the monthly payments required by its condition were duly made until November, 1856. This constituted a further sum paid of four hundred and sixty dollars. The actual payments on the loan, or advance, amounted to one thousand four hundred and eighty dollars, one hundred and eighty dollars more than the sum loaned, or advanced.

How the contract, which has thus earned more than the principal in a period of little more than four years, can be any thing else than usurious, the taking, directly or indirectly, above the value of seven pounds for the forbearance of one hundred pounds for one year,” is difficult to conceive. Indeed it must task and has tasked human ingenuity in every tribunal where the question has been presented, to find the reasons whereby such a contract could be sustained.

The case of Silver vs. Barnes, 37 Eng. C. L. Rep. 335, seems to have been the beginning where the doctrine was sustained that such a contract was not usurious. That case was. put by the Circuit Judge upon the ground that it was a mere advance of partnership funds. How that could have sanctified such a contract, I cannot perceive. Eor it was as much usury to receive more than seven per cent, on such an advance as upon individual funds. The Court of Common Pleas, on an appeal, placed their judgment on the ground whether it was an advance of partnership funds, or an usurious loan, was a question for the jury, and their verdict, that it was an advance of partnership funds, was sustained, as conclusive. I think it was a decision against law, even put in that point of view. Eor it still was contaminated by usury, if it was even a partnership fund. It was the taking more than legal interest for the forbearance of money. That case has been the foundation of all the subsequent cases in England, Connecticut, and Georgia. Here it is to be decided for the first time, and I rejoice that we are not bound by any previous adjudication. The case of the Bibb County Loan Association vs. Richards, 21 Geo. Rep. 592, was placed upon the ground that the charter had adopted the constitution and by-laws of the association as part of the law by which it was regulated, and the charge being according to it, could not be illegal. This was the view of Lumpkin, J., followed by Benning, J., who hold that the association had followed the charter, and therefore they were entitled to recover. McDonald, J., dissented, and took, it seems to me, the true view, that more than legal interest being charged and received for the forbearance of money, the contract was usurious.

In the case before us, the constitution and by-laws were not adopted as part of the charter. By the third section of the charter, the corporation is authorized to make “ any such rules and by-laws for their government as are not repugnant to the constitution and laws of the land.”

The by-laws which authorized the contract before us cannot of themselves sustain its validity. If the contract be contaminated by usury, it must fall, and with it the by-laws, as contrary to the law of the land.

By the second section of the by-laws, it is provided, • whenever the funds in the treasury shall warrant it, one or more advances shall be disposed of to.the highest bidder, provided the same be not sold under par, and be secured by real estate fully equal in value .to the sum advanced.” Under this section, two thousand dollars were bid in by the defendant, at a premium of thirty-five per cent., and under the third section, any stockholder taking an advance shall allow to be deducted the premium offered by him or her;” the premium, seven hundred dollars, was deducted. Eor what was such a premium deducted ? Beyond all doubt, it was not for the privilege of buying. But it was for its consequence, the use of the money, which was to be repaid by instalments of twenty dollars per month. That, beyond all doubt, was for the forbearance of money, and is necessarily, under our law, usurious. The contract made under the third and fourth sections provides ample security for the payment of the moneyj ih the mortgage of real estate of equal value, and the assignment of stock in the said corporation. There is therefore no risk to increase the premium. By the fifth section, the defendant is bound to pay interest at six per cent, on the amount bid in, and by the seventh section, for the failure to pay his dues to the association for three months, the directors may compel the payment of principal and interest, by instituting proceedings at law, or in equity, on the bond and mortgage. I am therefore clear that the contract in this case is a plain attempt to evade the usury law. By the Act of 1831, which altered the law in relation to interest and usury, and repealed the penalties of the Act of 1777, it is in the second section provided, that every person lending or advancing money, or other commodity, upon interest, shall be allowed to recover, in all cases whatsoever, the amounts or value actually lent and advanced; and that the principal sum, amount, or value so lent or advanced without any interest, shall be deemed and taken by the Court to be the true legal debt, or measure of damages, to all intents and purposes whatever, to be recovered without costs.” Under this provision, the corporation will be entitled to recover the sum actually loaned, deducting the payments made. The result will be, that thirteen hundred dollars will be the principal, on which payments to the amount of one thousand four hundred and eighty dollars have been made; so the corporation has been over-paid one hundred and eighty dollars. The consequence is, that the complainant’s bill must be dismissed.

It is, therefore, ordered and decreed, that the Chancellor’s decree be reversed, and that the bill be dismissed with costs.

Johnstone, J., concurred.

"Wardlaw, J., was absent, and gave no opinion.

Decree reversed.  