Security Building & Loan Ass'n v. Shallow , 96 Mont. 498 ( 1934 )

I agree with most, but not all, that is said in the foregoing opinion. I disagree particularly with the final disposition of the case by affirming the judgment.

Laws exempting building and loan associations from the operation of usury laws are generally held to be valid. (4 R.C.L. 375; 9 C.J. 974, note 59; notes in 18 L.R.A. 133; 26 L.R.A. (n.s.) 1135; Ann. Cas. 1916E, 232.) But "building and loan associations are not invested by statute with unrestricted power to enter into private contracts with individual shareholders for interest or premium without regard to the general laws limiting the rate of interest which may be charged. Only by observing the provisions of the statute may a building and loan association obtain a higher return upon the money which it lends to its shareholders than is otherwise permitted by law." (Anna Loan Improvement Co. v. Dorris, 342 Ill. 567, 174 N.E. 865, 867, 74 A.L.R. 968.)

The exemption created by section 6358 has to do with dues, fines, premiums, fees or other assessments "as may be provided for in the constitution and by-laws." Here, though a portion of the by-laws was admitted in evidence at the instance of plaintiff, none was offered showing that the plaintiff had provided for the payment of any premium. To receive the exemption privilege it was incumbent upon plaintiff to comply strictly with the statute prescribing a premium in its constitution and by-laws. (See note in 74 A.L.R. 974 et seq.)

As said in the case of Borrowers' Investors' Bldg. Assn. v. Eklund, 190 Ill. 257, 60 N.E. 521, 524, 52 L.R.A. 637: "The privilege to contract for premiums accorded to these associations is not an unbridled license to exact any rate of premiums the present situation or stress of the affairs of each individual borrower may induce him to consent or agree to pay. On the contrary, if they would avoid the imputation of usury, and the forfeiture of all interest consequent thereupon, they must, whenever they have as much as $100 in the treasury, either publicly offer the same at a regular meeting of the board of directors, to be loaned to the stockholder who will pay the greater premium therefor, or they must fix by a by-law a uniform rate of premium at which their stockholders may borrow their money, in order as their applications are filed, and without distinction between stockholders."

Defendants attempted to plead usury. They alleged that to the extent of $12.20 already paid by defendants to plaintiff, the same was usurious and in excess of the legal rate of interest. This was tantamount to an averment that the sum sued for by plaintiff was also usurious. Conceding that their answer did not sufficiently allege usury on the ground here discussed, I think under the circumstances they should be given the opportunity to do so if they so desire, and if they can allege that plaintiff did not comply strictly with the statute in making provision for the exaction of a premium on its loans.

Here plaintiff at the opening of defendants' case objected to the introduction of any evidence in support of the affirmative defenses in the answer, on the ground that they did not state facts sufficient to constitute a defense. The objection was overruled. Conceding that it should have been sustained, defendants doubtless, had it been sustained, would have asked for and obtained leave to amend the answer. This they were not required to do under the circumstances. They were led to believe their defense of usury was sufficiently alleged. At the close of the entire case defendants requested leave to amend the answer "to make plain that usury is pleaded, and that the penalty for usury is asked for in this case." This request was denied.

I think in order to accomplish full justice in this case, we should exercise the powers conferred by section 8805, Revised Codes 1921, which in part provides that "in equity cases, and in matters and proceedings of an equitable nature, the supreme court shall review all questions of fact arising upon the evidence presented in the record, whether the same be presented by specifications of particulars in which the evidence is alleged to be insufficient or not, and determine the same, as well as questions of law, unless, for good cause, a new trial or the taking of further evidence in the court below be ordered."

Here it is shown that defendants have paid back to plaintiff $8,312.50 on the loan of $6,000. If the transaction were usurious, they should not now be deprived of the mortgaged property. Whether or not it was usurious depends upon whether plaintiff had made provision for the payment of a premium in its constitution and by-laws. The evidence leaves this point at least doubtful. The evidence was peculiarly within the knowledge of plaintiff. Defendants, if so advised, should be permitted to raise the question by proper plea, and further evidence on the point should be taken. This course of procedure is not without precedent. Thus it is said in 4 C.J. 1195, that "on reversal and remand for new trial or other appropriate proceedings, an appellate court may, in furtherance of justice, direct that the parties be given leave to amend their pleadings, where the pleadings are defective but not fatally so. Thus, on reversal and remand, it is frequently ordered that plaintiff or defendant be given an opportunity to amend his pleadings; and the rule that an appellate court may direct the lower court to allow an amendment is especially applicable on reversal of an order sustaining or overruling a demurrer to a pleading." And in 4 C.J. 1116, it is said that "the appellate court may remand the case to allow further pleadings to be filed or to give opportunity to amend the pleadings. This may be done where the record is in an unsatisfactory state and in furtherance of the ends of justice, or, as it has been held, to enable the court to decide the case properly on the merits, and especially where it appears that plaintiff is entitled to some relief."

Plaintiff itself introduced such parts of its by-laws as were necessary to show that it was a building and loan association. It introduced by-laws showing how its loans were made. It undertook, at least partially, to negative the claim of usury. It did not go far enough in that direction. It is singular that if it had a by-law dealing with premiums, it was not introduced. The plaintiff's own evidence came so near to proving usury that I think, in furtherance of the ends of justice, further evidence on the point as to whether plaintiff's constitution and by-laws made provision for a premium should be taken.

If it can be shown that the contract is usurious for want of strict compliance with section 6358, that fact will defeat the foreclosure of the mortgage. (Anna Loan Improvement Co. v.Dorris, supra.)