SOUTHERN OHIO LOAN & TRUST COM- and for a personal judgment against the hus PANY. (........ Ohio....... .) band. The petition alleges that plaintiff is a corporation under the laws of Ohio, and organized for the purpose of raising money to be loaned among its members, and that it *1. Section 3836-3, Bates's Anno. Stat. is engaged in that business; that on the 24th p. 2130, which confers power on building and loan associations "to assess and collect from members and depositors such dues, fines, interest, and premium on loans made, or other assessments, as may be provided for in the constitution and bylaws," and which further provides that "such dues, fines, premiums, or other assessments, shall not be deemed usury, although in excess of the legal rate of interest," is a valid enactment, and is not in conflict with § 26 of art. 2, nor with § 2 of art. 1, of the Con day of June, 1896, under an application in writing for that purpose, and submitted to said company, Cramer became a member of the company, and a stockholder to the extent of 17 shares of instalment stock of class B of $100 each share; that on the same day he made application for a loan of $1,700, and offered as security for the same the mortgage in suit, an assignment of all fire insurance on the buildings, and a transfer of the 17 shares of stock; that the application contained, besides a description of the real estate, several conditions with which he would comply; that, acting on the application, the company loaned to Cramer $1,700, and as security for which he gave the mortgage, assigned the fire insurance, and transferred the said shares of stock. It is alleged that Cramer, as one of the ERROR to the Circuit Court for Pauld- stipulations of the mortgage, "agreed to pay ing County to review a judgment reversing a judgment of the Court of Common Pleas in plaintiff's favor for a less amount than demanded in an action to foreclose a mortgage which had been given to secure the payment of a loan. Affirmed. Statement by Price, J.: The defendant in error began a suit in the court of common pleas of Paulding county against the plaintiff in error and his wife *Headnotes by the COURT. NOTE. For other cases in this series as to validity of statute exempting building and loan associations from operation of the usury laws, see Smoot v. People's Perpetual Loan & Bldg. Asso. 41 L. R. A. 589, and Iowa Sav. & L. Asso. v. Heidt, 43 L. R. A. 689. As to usury in contracts by building and loan associations generally, see note to Reeve v. Ladies' Bldg. Asso. Perpetual, 18 L. R. A. 129; monthly, without demand therefor, until said loan was fully repaid, as follows: 'The dues upon said 17 shares of stock; the 5 per cent premium bid upon said $1,700, 5 per cent interest on said $1,700, and, in addition thereto, to pay all fines, penalties, and other charges which should become due against said shares, and all taxes, assessments, costs of insurance, and other charges upon said premises, in accordance with the constitution' and by-laws theretofore duly adopted by said company.' The dues were Pioneer Sav. & L. Co. v. Cannon, 33 L. R. A. 112; Falls v. United States Sav. Loan & Bldg. Co. 24 L. R. A. 174; Bennett v. Eastern Bldg. & L. Asso. 34 L. R. A. 595; Smoot v. People's Perpetual Loan & Bldg. Asso. 41 L. R. A. 589; Iowa Sav. & L. Asso. v. Heidt, 43 L. R. A. 689; Borrowers' & Investors' Bldg. Asso. V. Eklund, 52 L. R. A. 637; and Pacific States Sav. Loan & Bldg. Co. v. Hill, 56 L. R. A. 163. which loan was granted on July 24, 1896, and that sum was paid to Cramer, on the terms and conditions aforesaid, and that to secure the payment of the loan he gave to the association his mortgage deed on the real estate described in the petition; and that the mortgage contained by reference thereto all the provisions and agreements in the application for stock and for the said loan. This mortgage was filed for record on the same day and recorded the succeeding day. fixed at $8.50 per month on the 17 shares. | in all respects as stated in the petition, The company alleged that Cramer failed to keep and perform the agreement made in his application and mortgage, so that on the 14th day of October, 1902, the sum due upon said loan, including principal, interest, premiums, fines incurred on said stock, and cost of insurance paid by the company, according to the terms of the agreement, amounted to $2,787.35 and that Cramer had paid thereon in cash and dividends to be applied only the sum of $1,391.83, leaving a balance due at that date of $1,395.52. For this amount the petition prays judgment and foreclosure. The answer of Cramer admits that he obtained a loan from the Southern Ohio Loan & Trust Company for $1,700, and gave his mortgage to secure the same; admits that he has paid thereon the sum of $1,391.83; but he denies each and every other allegation of the petition. He further answered "that § 3836-3 of the Revised Statutes of Ohio (Bates's Anno. Stat. 2130), in so far as it presumes to authorize building and loan associations to collect dues, fines, interest, and premiums in excess of the legal rate of interest, is unconstitutional, against the public policy of the said state of Ohio, and void." He further claims in the answer "that any amount or sum of money exacted or attempted to be collected by the . company is usurious, and he claims the privilege of the usury statutes of the said state of Ohio." For the purpose of a settlement, and for no other purpose, he tendered in the answer the sum of $900, and he prays that "all amounts collected and heretofore paid in excess of the legal rate of interest be credited to him as payments of that amount of principal, and, if the amount found to be due is less than the amount here tendered, that the plaintiff be decreed to pay all costs after the date of making of the said tender." A jury was waived, and the cause was heard and submitted to the court, who made findings of fact in substance, that the plaintiff in that court, on the 24th day of June, 1896, was, and at the time of the trial, a domestic building and loan association, duly organized and empowered under the laws of Ohio, as such associations are described and defined by § 1 of "An Act to Provide for the Organization, Regulation, and Inspection of Building and Loan Associations, passed May 1, 1891" (88 Ohio Laws, p. 469). Further, that on the 24th day of June, 1896, defendant purchased from said company 17 shares of its instalment stock of the par value of $100 each, and became a member of said association, and that on the same day, and as part of the same transaction, he made application to the association for a loan of $1,700 The court found the terms and conditions of the mortgage to be as above stated, but found that the premium mentioned in said application and mortgage was not fixed by any competitive bidding, but by the terms and provisions of the constitution and by-laws of said association, the said defendant and all other borrowers from said association of class B therein referred to were required to pay interest on their respective loans at the rate of 5 per cent per annum, payable in equal monthly instalments, together with a so-called premium at the uniform rate of 5 per cent per annum on said loan, in addition to said socalled interest. In addition to the findings, it was conceded and agreed in open court at the trial that the application and mortgage were signed by Cramer, and that book exhibit C is a true copy of the constitution and by-laws of the association, and was such when the loan was negotiated and made, and that before the loan was made Cramer had issued to him on his application 17 shares of stock class B in said association, and that before he received his loan he transferred said stock to the association. It was further conceded that, if plaintiff's contention in this case is sustained, and its basis of computation is correct, the amount due it would be $1,480.89, but if the court should find the contract to be usurious, and determine that the rate of interest to be charged is 6 per cent, computed on the basis of partial payments, then the amount due is $840.03 to December 10, 1902; but, if the contract be usurious, and the rate of interest the plaintiff should recover should be 5 per cent, then, computed on the basis of partial would be $646.68. The court found the conpayments to the same date, the amount tract and mortgage to be usurious, and decided that the statute entitled "An Act to Provide for the Organization, Regulation, and Inspection of Building and Loan Associations,' passed May 1, 1891 (88 Ohio Laws p. 469), in so far as it allows any such company to assess and collect from members and depositors such dues, fines, interest, and premium on loans made, or other assessments as may be provided in the constitu tion and by-laws," and that "such dues, | N. P. 86; Thornton & B. Bldg. & Loan Asso. fines, premiums, and other assessments § 19; 4 Am. & Eng. Enc. Law, 2d ed. pp. shall not be deemed usury, although in excess of the legal rate of interest," is unconstitutional and void. The court also held that the plaintiff's claim should be computed on the basis of $1,700 as a loan at 6 per cent interest, to be computed on the rule of partial payments for each payment, by which rule there was then due the sum of $981.67, to draw interest from the first day of the term of court. Judgment was rendered for that amount, and foreclosure ordered. A motion for new trial was overruled, and the case taken on error to the circuit court, where the judgment was reversed, and that court rendered a judgment in favor of the association for $1,480.89, with 6 per cent interest thereon from June 2, 1903, and ordered foreclosure of the mortgage. Cramer prosecutes error to reverse the judgment of the circuit court. Mr. Vance Brodnix for plaintiff in er ror. Messrs. A. M. Waters and Snook & Savage, for defendant in error: The legislation in question is not class legislation, and does not grant special privileges. 1054-1056, 1073; McLaughlin v. Citizens' Bldg. Loan & Sav. Asso. 62 Ind. 264; Shaffrey v. Workingmen's Sav. Loan & Bldg. Asso. 64 Ind. 600; Vermont Loan & T. Co. v. Whithed, 2 N. D. 82, 49 N. W. 318; Central Bldg. & L. Asso. v. Lampson, 60 Minn. 422, 62 N. W. 544; Zenith Bldg. & L. Asso. v. Heimbach, 77 Minn. 97, 79 N. W. 609; Winget v. Quincy Bldg. & Homestead Asso. 128 Ill. 67, 21 N. E. 12; International Bldg. & L. Asso. No. 2 v. Wall, 153 Ind. 554, 55 N. E. 431; Security Sav. & L. Asso. v. Elbert, 153 Ind. 198, 54 N. E. 753; Reeve v. Ladies' Bldg. Asso. 56 Ark. 335, 18 L. R. A. 134, 19 S. W. 917; Bedford v. Eastern Bldg. & L. Asso. 181 U. S. 227, 45 L. ed. 834, 21 Sup. Ct. Rep. 597; Iowa Sav. & L. Asso. v. Heidt, 107 Iowa, 297, 43 L. R. A. 689, 70 Am. St. Rep. 197, 77 N. W. 1050; Smoot v. People's Perpetual Loan & Bldg. Asso. 95 Va. 686, 41 L. R. A. 589, 29 S. E. 746. Price, J., delivered the opinion of the court: The amount in controversy between the parties is $499.22, the difference between the judgment of the court of common pleas and that of the circuit court. This amount the plaintiff in error claims is all usury, and should not be charged against him. The Southern Ohio Loan & Trust Company is an Ohio corporation, organized under the provisions of §§ 3836-1 et seq., Bates's Anno. Stat. p. 2130. That section pro State v. Nelson, 52 Ohio St. 88, 26 L. R. A. 317, 39 N. E. 22; State ex rel. Schwartz v. Ferris, 53 Ohio St. 314, 30 L. R. A. 218, 41 N. E. 579; Fox v. Fox, 24 Ohio St. 335; Adler v. Whitbeck, 44 Ohio St. 539, 9 N. E. 672; Senior v. Ratterman, 44 Ohio St. 661, 11 N. E. 321; Marmet v. State, 45 Ohio St. vides: "A corporation for the purpose of 63, 12 N. E. 463; Kimbleawecz v. State, 51 raising money to be loaned among its memOhio St. 228, 36 N. E. 1072; Cass Twp. v.bers shall be known in this act as a buildDillon, 16 Ohio St. 38; State ex rel. Andering and loan association. Associations orson v. Harris, 17 Ohio St. 608; State ex rel. Cline v. Wilkesville Twp. 20 Ohio St. 288; State ex rel. Bates v. Richland Twp. 20 Ohio St. 362; Holst v. Roe, 39 Ohio St. 340, 48 Am. Rep. 459; Anderson v. Brewster, 44 Ohio St. 576, 9 N. E. 683; Hagerty v. State, 55 Ohio St. 626, 45 N. E. 1046. All questions of public policy are within the sole discretion of the general assembly, and, if the law is not unconstitutional, it will not be disturbed on that ground. Probasco v. Raine, 50 Ohio St. 378, 34 N. E. 536. Mutuality is the essential principle of a building association. Eversmann v. Schmitt, 53 Ohio St. 184, 29 L. R. A. 184, 53 Am. St. Rep. 632, 41 N. E. 139. The statute is valid. Spies v. Southern Ohio Loan & T. Co. 24 Ohio C. C. 40; Brooklyn Bldg. & L. Asso. Co. v. Desnojers, 2 Ohio Law Rep. No. 6, p. 337; People's Sav. & L. Asso. v. Roberts, 5 Ohio ganized under the laws of this state shall of the corporation so organized is not ma- | $1,700, and in order to obtain a loan of terial, if it has the purposes and character- that sum subscribed for 17 shares of the istics named in the statute and in its own stock in the association, and thereby beconstitution. This requirement seems to came one of its members. He signed a writhave been fully met, for we find it further ten application for the loan to the full par provided in the same article: "All stock value of the shares, and, according to the reis paid for in cash, or in monthly instal- quirements of the association found in its ments, as provided for by the by-laws of constitution and by-laws, he executed and this company. Whenever the amount of delivered to it a mortgage on real estate dedues paid and dividends credited on any scribed in the petition, and as further seshare shall equal the face value of said curity transferred back to the association share, it shall be fully paid in and be con- the 17 shares of stock. The constitution sidered to have fully matured, at which and by-laws were made part of the covetime it is subject to withdrawal." etc. nants and stipulations of the application Again, from same article: "Annually on and mortgage. The condition of the mortthe first business day of January, so much gage now involved obligates Cramer to pay of the earnings as may be necessary shall be (1) the sum of $8.50 per month, being the set aside to pay the current expenses of the monthly dues on the 17 shares of stock, to company and the interest on deposits; so be credited as provided in the constitution much as shall be decided by the board of and by-laws; (2) the interest due on $1,700, directors shall be reserved for the payment or money so advanced, payable monthly, as of contingent losses, and the residue shall specified in the same instruments; (3) the be transferred as a dividend and credited to premium bid on said $1,700, or money so the shares of stock in force in proportion to advanced, as specified in said constitution their average monthly balances. . ." and by-laws; (4) all fines, penalties, and Article 10 of the by-laws provides that the other charges which said Cramer shall incur funds of the company shall be loaned only as a member of the association; (5) all to members on real estate security; and, rents, taxes, assessments, costs of insurfurther, that the borrower "shall in all cases ance, and other charges upon said premises, receive the full amount applied for, for in accordance with the constitution and bywhich he shall pay 5 per cent interest, and laws. When we turn to the by-laws for bid 5 per cent premium per annum. In the rates of interest and premium, we find terest and premium must be paid in month- the interest charged to be 5 per cent and ly instalments, and accompany the dues to the premium fixed at 5 per cent. The court the home office." The same article provides below found, as we do, that the premium that, if a member neglects to make his pay- was not ascertained by competitive bidding, ments according to the terms of his mort- or, as sometimes called, at auction in open gage and application, he shall be liable to meeting of the members; and on that acan action at law for their recovery, besides count it is claimed that the association dethe principal, all dues, interest, premiums, termined an arbitrary or level premium, cost of insurance, taxes, fines due and owing which renders the contract usurious when the company (association). We have re- such premium and interest are added toferred to so much of the constitution and gether: Here it becomes necessary to exby-laws of this association as seems neces- amine the legislation of this state upon the sary to show that its organization and oper- authority committed to such associations, ation are clearly within the scope of § 3836 and we find their first statutory authority -1, supra. The clause in article 2 of the in the act of February 21, 1867 (64 Ohio constitution of the corporation, "and to pro- Laws, p. 18). It authorized any number of vide the advantages usually expected from persons not less than five to associate themsavings banks and other similar institu- selves together and become a corporation tions," is not involved in this case. It is for the purpose of raising moneys to be not assumed by it that general banking pow-loaned among its members for use in buyers will be exercised, and in the present case ing lots or houses, or in building or repairit is apparent that such powers were not ex- ing houses, and such corporation shall be ercised. Dearborn v. Northwestern Sav. authorized and empowered to levy, assess, Bank, 42 Ohio St. 617, 51 Am. Rep. 851. and collect from its members such sums of Therefore we find, as did the lower court, money by rates of stated dues, fines, interthat the defendant in error, plaintiff in the est on loans advanced, and premiums bid by foreclosure action, was and is a domestic members for the right of precedence in takbuilding and loan association, organized ing loans as the corporation by its by-laws and empowered under the laws of Ohio as shall adopt. . . Provided, that the described and defined by the act of the dues, fines, and premiums so paid, legislature above named. although paid in addition to the legal rate of interest on loans taken by them, shall The plaintiff in error desired to borrow 66 .. not be construed to make the loans so taken | seasons, or the financial stress in which the usurious." The act was amended in some borrower might be found. The old law derespects May 5, 1868, and again May 9, 1868, but the feature of a competitive bidding was retained. Under these statutes we have the cases of State ex rel. Atty. Gen. v. Greenville Bldg. & Sav. Asso. 29 Ohio St. 92, State ex rel. Colburn v. Oberlin Bldg. & L. Asso. 35 Ohio St. 258, and Bates v. People's Sav. & L. Asso. 42 Ohio St. 655; and they decide that under the statutes then in force, in order to save the premium from being obnoxious to our laws against usury, it must have been paid for precedence in obtaining the loan, and at competitive bidding. Undergoing some changes subsequently, not important here, the statutes were recast in an act passed May 1, 1891 (88 Ohio Laws, p. 469), from which we have quoted in the earlier part of this opinion. Under the head of "Powers" (§ 3) it is now provided: "Such corporation shall have power, to assess and collect from members and depositors such dues, fines, interest, and premium on loans made or other assessments, as may be provided for in the constitution and by-laws. Such dues, fines, premiums. or other assessments, shall not be deemed usury, although in excess of the legal rate of interest." Bates's Anno. Stat. § 3836-3, p. 2130. The statute now in force, and which was in operation when the mortgage in suit was executed, omits the former requirement, or, rather, condition, of competitive bidding as to the premium to be paid, and therefore, if the statute is valid, usury cannot be asserted as tainting the loan in question. The legislature, we must assume, had a reasonable motive for this material change, for before that time this court, in the cases cited under the former law, held that, if the premium was not bid for precedence in obtaining the loan, it was usurious in case it and the interest exceeded the legal rate to be charged under the interest laws. We think a reason for the change in the statute may be readily found. Experience with competitive bidding did not tend to fairness and equality among the members. The amounts of premiums bidden at different times and by different borrowers were not uniform. At one time competition may be stronger than at another, thus increasing the sum to be paid. There was opportunity at least for fictitious competition to run the premium up. And, whatever the premium, high or low, the dividends were the same to all. The member who paid a high rate of premium received no greater dividend than the one who paid the lowest. There was no certain standard, and the rights of members thus varied with the feated the principle of mutuality, which is the basic principle of such associations. Now all borrowers are treated as upon a common level, and the premium is uniform, and all fare alike in that respect, and, of course, share alike in the dividends to be credited. Therefore the present law is not vicious, as declared by one of our circuit courts, but, on the contrary, it is fair, and is sanctioned by the rule of mutuality. We do not judge these associations by the operation and powers of banking institu tions. A member of the former sustains a relation of mutuality to each and all of the other members. If he becomes a borrower, he is at the same time one of the lenders. In making a loan it is not contemplated that the principal debt will be repaid in bulk, but in instalments of dues, interest, dividends, and perhaps premiums. When these amount to the sum borrowed, the mortgage is canceled, the stock returned to the borrower, which he may hold free of liens, or he may withdraw from the association under its rules for that purpose. Therefore the relation of debtor and creditor, it may be said, does not strictly exist. In Licking County Sav. Loan & Bldg. Asso. v. Bebout, 29 Ohio St. 252-254, Gilmore, J., says: "The object of these associations, and the powers with which they are clothed on becoming incorporated, are expressed in very general terms in the statute authorizing their incorporation. Each association, when incorporated, is left at liberty to adopt such a scheme or plan for working out and accomplishing its object as the members of the association may, by its by-laws, provide; and so long as these do not violate any of the provisions of the statute, nor transcend the powers granted, they will be binding and obligatory upon and between the members and the association." In Eversmann v. Schmitt, 53 Ohio St. 174, 29 L. R. A. 184, 53 Am. St. Rep. 632, 41 N. E. 139, this court stated in the syllabus: "(1) The members of a building association, whether borrowers or nonborrowers, have a mutual interest in its af fairs; and, sharing alike in its earnings, must assist alike in bearing its losses. A borrowing member is one who receives in advance the par value of his shares, and agrees in consideration of such advance to pay the weekly dues on the shares and the interest on the loan until the dues paid and the dividend declared and not paid are equal to the par value of his shares. He then ceases to be a member, and is entitled to a cancelation of the mortgage given to secure the obligations arising from the loan." In (2) |