*

The Pennsylvania statute* provides that "the premiums taken by the said associations for the preference or priority of such loans [to stockholders], shall not be deemed usurious; in case of nonpayment of installments, premiums or interest, * * * payment of principal, premiums and interest, without deducting the premium paid, or interest thereon, may be enforced."

In Ohio, the Revised Statutes of 1880 † declare that "the premiums so paid by its members or depositors, although in addition to the legal rate of interest on loans taken by it [association], shall not be construed to make the loans so taken usurious."

The code of Iowa ‡ allows loans to members on notes or obligations; which "shall not be construed or held to be usurious by reason of any dues, fines or premiums paid in addition to the legal rate of interest; but the same shall be valid and binding in all respects, the payment of such dues, fines or premiums, in addition to a rate of interest not exceeding ten per cent. per annum, payable annually, or at a less period, notwithstanding."

In New Jersey, by amendments to the Revised Statutes,§ associations are permitted to take a premium for priority of loan, or acquisition of real estate, or discount on the redemption of shares; and "no premium or discount so taken for such purpose shall be deemed to be usurious."

The premium itself has been almost universally allowed, by statute, to be charged to members. || But it is not believed that, in the absence of statutory permission, it could be recovered; ¶ nor that it can be recovered from strangers to whom loans are made, unless this is expressly provided for by statute. The right to make loans to anybody outside of the association membership is even denied in some States s; it is conceded in New Jersey.** But it is doubtful whether our statute authorizes "these corporations to blossom out as loan agencies and banking institutions, without limit as to the rate of interest they could receive and collect," as the Kansas court puts it.tt The principle appears to be that a building association can only lend to strangers

*Brightly's Purdon's Digest, ?? 2, 6.

†R. S., 3833.

Code of 1873, ¶ 1187.

February 29th and April 21st, 1876, Revision (1877), p. 1272.

In Ohio the statute has been held not to authorize the exaction of interest on the premium.

25 Ohio 208. So also in Maryland, Iowa, Kentucky and Tennessee.

Endlich on Law of Building Ass'ns, 383; Am. and Eng. Ency, of Law, Vol. 2, p. 612. **Union Building Ass'n v. Masonic Hall, 2 Stew. 392. See above.

†† 19 Kansas 325.

when no member offering proper security applies for the loan, and that in making such loans the association holds to the stranger the same relation as any other money-lender, and can recover only the principal and legal interest on the loan. The immunities conceded to building associations in the matter of premiums, interest and all payments beyond the limits of what the usury laws allow in transactions between other borrowers and lenders, were intended to apply only to dealings between the association and its members, and not between it and outsiders.*

There is a practice followed by some associations of borrowing money whenever the funds in the treasury are not sufficient to meet the demands upon it. There is, of course, no legal objection to that, if expressly authorized by statute. Where the statute is silent upon the subject, but the members of the association are allowed, as by the English act of 1836, Chapter 32 of 6 and 7 Wm. IV., a fairly general power to adopt "wholesome rules and regulations for the government and guidance of the same," a limited power to borrow may be conferred by the constitution or by-laws. In the absence of such special provision in the constitution or by-laws, no such power can be implied. If the power so conferred is unlimited, it is void.† In America the point does not seem to have arisen frequently. In Maryland the capacity of associations to borrow money with a view to accomplish the purposes of their organization has been expressly recognized by the courts, while in Ohio and Pennsylvania it has been denied. In New Jersey there have been no decisions on the matter, but as there is a general power to establish by-laws, it would seem that the English law holds good. But under no circumstances, either in the United States or in England, can the individual credit of members be pledged to lenders of money to the society, and a rule granting such power is ultra vires.§ All of this is important, because when a corporation has no power (ultra vires) to do a certain act, the corporation cannot be held to its contract, in which case it may happen that the directors may be held personally liable.||

* Endlich on Building Ass'ns 314; Am. and Eng. Ency. of Law, p. 616.

+Laing v. Reed, 21 L. T. (N. S) 773; Re Victoria_Building Society, 22 L. T. 777; Endlich on Building Societies 293-303; Am. and Eng. Ency. of Law, p. 615.

Am. and Eng. Ency. of Law, p. 615; Endlich on Building Ass'ns, ¶ 303.

Am and Eng. Law Ency., p. 615.

Endlich on Building Ass'ns, ¶¶ 198, 307.

The Law of Building Associations-Acts of Legislatures.

MASSACHUSETTS.*

1. Twenty-five or more persons who associate themselves together by an agreement in writing, with the intention of forming a corporation for the purpose of accumulating the savings of its members, paid into such corporation in fixed periodical installments, and lending to its members the funds so accumulated, shall be and remain a corporation upon complying with the provisions of the three following sections.

2. The agreement shall set forth the fact that the subscribers thereto associated themselves with the intention of forming a corporation, the name by which the corporation shall be known, the purpose for which it is formed, the town or city (which shall be within this commonwealth) in which it is located, and the limit of capital to be accumulated.

3. The name shall be one not previously in use by any existing corporation established under the laws of this commonwealth, and shall be changed only by act of the general court. The words "co-operative bank" shall form a part of the name.

4. The provisions of sections eighteen, twenty and twenty-one of chapter one hundred and six shall apply to such corporations,† except that, in the certificate signed by the secretary of the commonwealth, the limit of capital to be accumulated, as fixed in the agreement of association, shall be inserted, instead of the amount of capital, that the certificate required by said section twenty-one to be filed and recorded, may be signed and sworn to by the presiding and financial officers and a majority, at least, of the officers possessing the powers of directors, by whatever name they may be called, and that the fees to be paid for filing and recording the certificates required by said section twenty-one, including the issuing of the certificate of organization, shall be five dollars.

5. The capital to be accumulated shall not exceed one million dollars, and shall be divided into shares of the ultimate value of two hundred dollars each. The shares may be issued in quarterly, half-yearly or yearly series, in such amounts and at such times as the members may determine.

No person shall hold more than twenty-five shares in the capital of any one such corporation. No shares of a prior series shall be issued after the issue of a new series. The limitation of capital to be accumulated shall be held to apply to capital actually paid in, and no such bank shall be restrained from issuing shares so long as the capital actually paid in on shares is not in excess of one million dollars.

6. The number, title, duties and compensation of the officers of the corporation, their terms of office, the time of their election, as well as the qualifications of electors, and the time of each periodical meeting of the officers and members, shall be determined by the by-laws; but no member shall be entitled to more than one vote at any election. All officers shall continue in office until their successors are duly elected, and no corporation shall expire from neglect on its part to elect officers at the

*See Chap. 117 of Public Statutes, and supplements (1882, 1883. 1885, 1887), entitled "An act relating to co-operative banks," previous to 1883 called "co-operative saving fund and loan associations." The principal statute was enacted in 1877. The Maine legislation of 1887, relating to this subject, is substantially similar to that of Massachusetts. See Bank Examiner's report,

1888.

+These sections (of the General Corporation Act) refer to the formation and organization of corporations.

time prescribed by the by-laws. The offices of secretary and treasurer may be held by one and the same person.

7. The officers shall hold stated monthly meetings. At or before each of these meetings every member shall pay to the corporation as a contribution to its capital one dollar as dues upon each share held by him, until the share reaches the ultimate value of two hundred dollars, or is withdrawn, canceled or forfeited. Payment of dues on each series shall commence from its issue.

8. A member may withdraw his unpledged shares at any time by giving thirty days' notice of his intention so to do, written in a book held and provided by the corporation for that purpose. Upon such withdrawal the shareholder's account shall be settled as follows: from the amount then standing to the credit of the shares to be withdrawn there shall be deducted all fines, a proportionate part of any unadjusted loss, together with such proportion of the profits previously credited to the shares as the by-laws may provide, and such shareholder shall be paid the balance; provided, that at no time shall more than one half of the funds in the treasury be applicable to the demands of withdrawing members, without the consent of the directors. The directors may, at their discretion, under rules made by them, retire the unpledged shares of any series, at any time after four years from the date of their issue, by enforcing the withdrawal of the same; but whenever there shall remain in any series, at the expiration of five years from date of its issue, an excess above one hundred unpledged shares, then it shall be the duty of the directors to retire annually twentyfive per cent. of such excess existing at said expiration of five years after the date of its issue, so that not more than one hundred unpledged shares shall remain in such series at the expiration of nine years from the date of its issue, and thereafter the directors may, in their discretion, retire such other unpledged shares as they consider the best interests of the bank to require; provided, that whenever the withdrawal of shares is to be enforced the shares to be retired shall be determined by lot, and the holders thereof shall be paid the full value of their shares, less all fines and a proportionate part of any unadjusted loss; and provided also, that shares pledged for share-loans shall be treated as unpledged shares.

9. Shares may be issued in the name of a minor, and if so issued may, at the discretion of the directors, be withdrawn, in manner as provided in the preceding section, by such minor, the parent or guardian of such minor, and in either case payments made on such withdrawal of shares shall be valid. When a share or shares are held by any one in trust for another, the name and residence of the person for whom such share or shares are held shall be disclosed; and the account shall be kept in the name of such holder as trustee for such person; and if no other notice of the existence and terms of such trust has been given in writing to the corporation, in the event of the death of the trustee, such shares may be withdrawn by the person for whom such deposit was made. or by his legal representatives.

10. When each unpledged share of a given series reaches the value of two hundred dollars, all payments of dues thereon shall cease, and the holder thereof shall be paid out of the funds of the corporation two hundred dollars therefor, with interest at the rate of six per cent. a year from the time of such maturity to the time of payment; provided, that at no time shall more than one-half of the funds in the treasury be applicable to the payment of such matured shares without the consent of the directors; that before paying matured shares all arrears and fines shall be deducted; provided further, that when any series of shares, either pledged or unpledged, reaches maturity

between the dates of adjustment of profits, or whenever shares are retired between such dates, the holders of such shares shall, in addition to the value thereof, be. entitled to interest at the rate of six per cent. per annum for all full months from the date of the preceding adjustment.

11. The moneys accumulated, after due allowance made for all necessary and proper expenses, and for the withdrawal of shares, shall, at each stated monthly meeting, be offered to the members according to the premiums bid by them for priority of right to a loan. Each member whose bid is accepted shall be entitled, upon giving proper security, to receive a loan of two hundred dollars for each share held by him, or such fractional part of two hundred dollars as the by-laws may allow. If a balance of money remains unsold after a monthly sale, the directors may invest the same in any of the securities named in the second clause of section twenty of chapter one hundred and sixteen, namely: in the public funds of the United States, of any of the New England states, or of the state of New York, in the bonds or notes of any city, county or town of this commonwealth, or of any city of the states of Maine, New Hampshire, Vermont, Rhode Island or Connecticut, whose net indebtedness does not exceed five per cent. of the last preceding valuation of the property therein for the assessment of taxes; or of any county or town thereof whose net indebtedness does not exceed three per cent. of such valuation; or in the notes of any citizen of this commonwealth, with a pledge of any of the aforesaid securities at no more than the par value thereof. Any corporation organized as herein provided may provide in its bylaws that the bid for loans at its stated monthly meetings shall, instead of a premium, be a rate of annual interest upon the sum desired, payable in monthly installments. Such bids shall include the whole interest to be paid, and may be at any rate not less than five per centum per annum.

12 Premiums for loans shall consist of a percentage charged on the amount lent, in addition to interest, and shall be deemed to be a consideration paid by the borrower for the present use and possession of the future or ultimate value of his shares, and shall, together with interest and fines, be received by the corporation as a profit on the capital invested in the loan, and shall be distributed to the various shares and series of said capital, as hereinafter provided.

13. A borrowing member, for each share borrowed upon, shall, in addition to his dues and monthly premium, pay monthly interest on his loan at the rate of six per cent. per annum until his shares reach the ultimate value of two hundred dollars each, or the loan has been repaid; and when said ultimate value is reached, said shares and loan shall be declared canceled and satisfied, and the balance, if any, due upon the shares, shall be paid to the member.

14. For every loan made, a note secured by first mortgage of real estate shall be given, accompanied by a transfer and pledge of the shares of the borrower. The shares so pledged shall be held by the corporation as collateral security for the performance of the conditions of said note and mortgage. Said note and mortgage shall recite the number of shares pledged and the amount of money advanced thereon, and shall be conditioned for the payment at the stated meetings of the corporation of the monthly dues on said shares, and the interest and premium upon the loan, together with all fines on payments in arrears, until said shares reach the ultimate value of two hundred dollars each, or said loan is otherwise canceled and discharged; provided, that the shares, without other security, may, in the discretion of the directors, be