pense to discourage lawlessness and violence, and maintain the empire of the laws established to preserve public quiet and social order. These ends are plainly within the purposes of civil government, and, indeed, it is to maintain them that governments are instituted, and the means provided by this act seem to be reasonably adapted to the purposes in view."

Except that of the State of Maryland, all of the statutes of this character, so far as we can ascertain, like our own, fix the liability of the municipality without reference to its ability or exercise of diligence to prevent the destruction, and that feature has not been considered, by any of the courts passing upon the question, as an objection to their validity. In Allegheny Co. v. Gibson, supra, it was said: "It may seem a harsh rule to hold a community responsible for the effects of mob violence, which, apparently, at least, they had no power to prevent, yet not more so than to hold every inhabitant of the English hundred liable for a robbery of which he knew nothing and had no means of arresting. In both cases, it is a police regulation. It is based upon the theory that, with proper vigilance, the act might and ought to have been prevented." The following authorities either directly pass upon and sustain like statutes, or recognize their validity and give force to them: 2 Dill. Mun. Corp. § 959; Davidson v. City of New York, 27 How. Prac. 342; Luke V. City of Brooklyn, 43 Barb. 54; In re Pennsylvania Hall, 5 Pa. St. 204; Underhill v. City of Manchester, 45 N. H. 214; Williams v. City of New Orleans, 23 La. Ann. 507; Chadbourne v. Town of Newcastle, 48 N. H. 196; City of Atchison v. Twine, 9 Kan. 350; Brightman v. Inhabitants of Bristol, 65 Me. 426; Clear Lake Waterworks Co. v. Lake Co., 45 Cal. 90.

In Marion Co. v. Lear, 108 Ill. 343, the question being as to the constitutionality of the statute requiring counties to pay sheriffs' fees in criminal cases where the defendants are acquitted, and to make up any deficiency in their salaries, we said, after holding that the passage of the law was an exercise of the police power (page 349): "Whether the burden of enforcing police regulations, in the absence of express constitutional restriction-and none such is here claimed-shall be borne by the State at large or be devolved upon the local municipality is a mere question of public policy, upon which the determination of the general assembly is conclusive. A county is a public corporation, which exists only for public purposes connected with the administration of the State government, and it and its revenues are alike, where no express constitutional restriction is found to the contrary, subject to legislative control." See also Harris v. Board, 105 Ill. 445.

Counsel for the city contended that in none of the authorities cited as upholding the constitutionality of these mob or riot statutes were constitutional provisions in force like those contained in our constitution of 1870. It is not and cannot be denied, says the Supreme Court of Illinois, that

the legislature of this State has full power to enact all laws pertaining to the civil government of the State, not prohibited by the federal or State constitutions. The constitution itself confers that power, and, as said in Association v. Lounsbury, 21 Ill. 511 (speaking of the constitution of 1848, similar in that regard to our present constitution): "The general grant of legislative power found in the constitution confers upon the general assembly all legislative power, and authorizes the lawmakers to pass any laws and do any acts which are embraced in the broad and general word 'legislation,' as known and defined in the English language," etc. "The question of legislative power, and its extent, depends on the limitations contained in the constitution. When a State is created it is vested with complete sovereign power, unless restricted by constitutional limitation. By section 1, art. 4, of our constitution, full, unlimited, and uncontrolled legislative power is conferred and may be exercised, unless limited by other provisions of that instrument or by the federal constitution." Harris v. Board, supra.

RECEIVERSHIPS OF BUILDING AND LOAN ASSOCIATIONS.

Various causes are assigned for placing a building and loan association or society in the hands of a receiver, but without attempting to discuss the reasons necessitating such procedure, it will suffice to say that insolvency is the chief cause and it is the relation, therefore, of the receiver to the creditors and stockholders of an insolvent association that we propose to examine.

The appointment of a receiver for the purpose of winding up a building and loan association puts an end to its active corporate existence and places upon the shoulders of the receiver the duty to collect and distribute the assets. The dissolution, strictly speaking, terminates the liability of the members to continue the prescribed regular stock payments or dues, and this applies to the borrowing as well as to the non-borrowing members.1

The reason for this is perfectly obvious, for the money if paid could not be used in the manner contemplated by the association and the stockholder alike, that is invested and reinvested for the benefit of the stockholder by means of the system peculiar to the building

1 Endlich on Building & Loan Assns., sec. 523; Cason v. Seldner, 77 Va. 293; Himan v. Ryan, 3 Ohio (C. C.), 529; Cook v. Kent, 105 Mass. 246; Strohen v. Franklin Sav. Assn., 115 Pa. St. 273; Assn. No. 6 v. Zucker, 48 Md. 448.

and loan association scheme;2 the dissolution of the association destroys that possibility.

The termination of the association's life also puts an end to the imposition of fineswhich are a kind of liquidated damages necessary to the carrying out of the idea of strict mutuality upon which the plan of a building association is largely built.3

It naturally follows, then, that when dues (and premiums and interest, as we shall see later *) are no longer collectible, that fines, which are imposed for the infraction of the rules of the association, can no longer be imposed.5 Cessante ratione, cessat lex.

The premium, which "is the bonus charged to a stockholder wishing to borrow for the privilege of anticipating the ultimate value of his stock by obtaining the immediate use of the money his stock will be worth at the winding up,' "6 is obtained by the association in one of two ways, namely, either upon the gross or installment plan. Under the gross premium plan the borrower agrees to relinquish a certain portion of his loan. To illustrate we shall suppose that the intending borrower has subscribed to five shares of stock having a par value of two hundred dollars each. He desires to make a loan of one thousand dollars. He bids twenty-five per centum premium,7 gives a deed of trust on his property and further pledges his stock as additional security. The association then turns over to him seven hundred and fifty dollars, but the borrower pays interest on the one thousand dollars, and when his stock reaches par the association deducts from its value one thousand dollars and hands over to him the difference.

Under the installment premium plan the borrower agrees as in the above case to pay a certain premium on his loan, but instead of

2 Waverly Mut. Bldg. Assn. v. Busk, 64 Md. 338.

3 Thompson on Bldg. & Loan Assn., p. 99. 4 See post, p.

5 In re Estate of Houlette, 2 Chester County Rep. p. 11; Cook v. Kent, 105 Mass. 246; Assn. No. 6 v. Zucker, 48 Md. 448.

6 Endlich on Bldg. & Loan Assns., sec. 339.

7 Unless permitted by statute the rate of premium plus the rate of interest must not exceed the legal rate of interest, otherwise the transaction is deemed usurious. Hammerslough v. Kansas City B. & L. Assn., 79 Mo. 80; Brown v. Archer, 62 Mo. App. 277; Price v. Empire Loan Assn., 75 Mo. App. 551. In some jurisdictions the premium is considered as a thin apart from interest and so not within the usury laws. Ex parte Bath, 27 Chan. Div. 509; Sullivan v. Jackson B. & L. Assn., 70 Miss. 94; Latchford's Succession, 42 La. Ann. 529.

receiving the loan, less the premium agreed upon, he receives the full amount asked for and pays the premium in certain periodical sums, generally in the form of so much each month.

The position of the receiver when the gross plan is adopted, in regard to the payment of the premium, will be taken up later on when we come to the question of credits allowed borrowers on their loans; but when the premium is paid on the installment plan and the association is dissolved, before it lives out its natural life, the question whether the receiver can demand payments of the premium arises.

The payment of the premium, in the first instance, is made on the basis of strict mutuality, and it is bearable only from the fact that the borrower has a long time in which to pay, and that his profits on his stock at the maturity of the association would reimburse him to a certain extent. Now when that mutuality is destroyed by the premature dissolution of the association his promise to pay the premium fails for want of consideration.9

This consideration consists mainly in the manner of payment that is in small monthly sums, to be invested by the association so as to reap a profit in which the borrower will share at the maturity of his stock, and so reduce the seeming great interest that he pays for the use of the money borrowed.

The receiver is appointed to wind up the association, not to prolong its life, consequently the payment of the premium, which forms an element only of the going, active concern, necessarily ceases when the association is dissolved.10

Before taking up the question of interest, which would seem to follow logically, I desire to show the position of the receiver in regard to loans made by the association to its members, or, in other words, to determine what is the receiver's duty when he is put in charge of an association that has various loans out standing due in six, twelve and, may be, eighteen months from the date of dissolution. Must he permit them to run their allotted time, or must he demand payment at once?

To permit the loans to run until the expiration of their time would be of no particular benefit to the borrower, and would delay the

8 See infra, p.

9 Endlich on B. & L. Assns., sec. 523.

10 Strohen v. Franklin Assn., 115 Pa. St. 273.

final settlement of the estate. At the end of the time during which the loan has to run, the borrower would have to meet it just the same, nor would he have his matured stock to set off against it owing to the dissolution of the association. Consequently, what at first seems a hardship, namely, that of compelling the borrower to pay up at once, is not in itself the hardship, but the loss to the borrower results from the dissolution of the association, and his consequent inability to receive the profits intended to make the burden of his loan comparatively light. And, further, it will be seen that if the loans were permitted to run on, the receiver would be continuing the association in part, instead of winding it up. As is said in Curtis v. The Granite State Prov. Assn., in answer to the same question: "It is now well settled that upon premature dissolution of an association of this kind, or upon its becoming insolvent and unable to carry out the purposes for which it was created and passing into the hands of a receiver for the purpose of having its affairs wound up, which is, in practical effect and operation, a dissolution, the borrowing member may be compelled to pay forthwith the balances due from them on their securities, although the latter in terms only provide for payment in installments extending over a definite period of time. ''12

It is the principle stated in the above case that should be enforced, but the writer does not contend that the principle should be literally and strictly enforced, for it is always hard and sometimes impossible for the borrower to repay his loan on a few days' notice, and, therefore, it seems that it should be left to the discretion of the receiver who, keeping the above stated principle in mind, can learn the circumstances of each individual case with which he has to deal, and thus place himself in a position to determine what is a reasonable time within which the borrower must liquidate his indebtedness.

The loan now due, it is necessary to look into what credits, if any, a borrowing stockholder is entitled to. The first question that arises is whether the borrower shall have the right to have his payments of dues or stock payments, as they are sometimes called, credited upon the amount of his loan.

11 36 Atl. Rep. 1023.

12 115 Pa. St. 273.

13

On this question the authorities are divided, but unjustly so, it seems, for the reasoning in the case of Strohen v. The Franklin Savings Association, partakes of conclusiveness. In that case Mr. Justice Paxon says: "The insolvency of the company, as before observed, puts an end to its operation as a building and loan association; to a certain extent it also ends the contract between it and its members respectively, and nothing remains but to wind it up in such a manner as to do equity to creditors and between the members themselves. As regards the latter care should be taken to adjust the burdens equally, and not to throw upon either borrowers or non-borrowers more

than their respective share. This result may be reached by requiring the borrower to repay what he has actually received with interest. He would then be entitled after the debts are paid to a pro rata dividend with the non-borrower for what he has paid upon his stock. He will then be obliged to bear his proper share of the losses. To allow him to credit upon his mortgage the payments upon his stock, would enable him to escape responsibility for his share of the losses and throw them wholly upon the non-borrowers. Ir other words, the borrower would escape without loss. It will not do to administer the affairs of an insolvent corporation in this

The theory upon which the cases taking the opposite view have been decided is, that the weekly or monthly dues are the purchase money for what the borrower has acquired in advance or in the anticipation of the redemption of all his shares; or, in other words, that the payment of dues is to the end that the borrower's shares will reach par value; that when they do reach par value they will be set off against his loan. Consequently, there

13 Towle v. Am. Bldg. & Invest. Co., 61 Fed. Rep. 446; Brown v. Archer, 62 Mo. App. 277; Rodgers v. Hargo, 92 Tenn. 35; Strohen v. Franklin Savs. Assn., 115 Pa. St. 273; City Loan & Bldg. Assn. v. Goodrich, 48 Ga. 448; Windsor v. Bandell, 40 Md. 172; Buist v. Bryan, 44 S. Car. 121; Cesso v. Martin, 13 N. J. Eq. 427; Endlich on Bldg. Assns., sec. 523a.

14 The following authorities are in accord with the above decision. State Sav. Assn. v. Carroll, 4 Pa. Dist. Rep. 6; Rodgers v. Hargo, 92 Tenn. 35; People v. Lowe, 117 N. Y. 175; Brown v. Archer, 62 Mo. App. 277; Callahan's Appeal, 124 Pa. St. 138; Quein v. Smith, 108 Pa. St. 325. Contra to the above decision are Brownlie v. Russell, L. R. 8 App. 235; Assn. v. Buck, 64 Md. 338; Winsor v. Bandell, 40 Md. 172; Assn. No. 6 v. Zucker, 48 Md. 448; Cook v. Kent, 105 Mass. 246.

fore, eliminating the intermediate supposition, the dues are to be considered nothing more or less than payments on the loan. What seems a simple answer to this proposition is that by so doing the borrower will receive, upon the premature dissolution of the association, full value for his shares of stock, and the entire loss will thus be thrown on the nonborrower. Is such a system just which places those who began on the same basis on different levels after the dissolution of the association? The Pennsylvania case undoubtedly lays down the sounder rule.

It is eminently fair for the receiver to compute as best he can, from the data at his command, what the value of the stock will ultimately be and allow the borrower the pro rata amount as a credit, when he comes to pay off his loan. This is a mere matter of convenience seemingly, but should be followed as it will lessen the amount of money passing through the receiver's hands, and, consequently, lessen the costs of settling up the

estate.

We come next to the question whether the receiver must credit the premium on the loan of the borrower. On this question the courts are generally in accord, and without, therefore, entering into a discussion of the principle involved it will be sufficient to give the general grounds for the conclusion reached.15

The premium is not a payment in advance, and the contract under which the borrower agrees to pay it is an entire one which does not contemplate a rupture and an apportionment of the premium. "Hence," as Endlich says,16 if, at any stage, the society breaking down fails to perform its part of the bargain, the promise to pay the premium loses the consideration upon which it was based, and ought to be regarded as wholly abrogated. To attempt to apportion the premium is simply to treat it as additional interest. To regard it as something with which the borrower has parted, as something which the society has earned as assets in its hands before it has done that which entitles it to retain the premium, is to misconceive its true character and office. It must be true, therefore, that the

15 Brownlee v. Russell, L. R. 8 App. 235; Assn. v. Buck, 64 Md. 338; Stohen v. Franklin Savs. Assn., 115 Pa. St. 273; Assn. v. Carroll, 4 Pa. Dist. Rep. 6; Rod· gers v. Hargo, 92 Tenn. 35; Brown v. Archer, 62 Mo. App. 277.

16 Endlich on Bldg. Assns., sec. 531.

basis of the borrower's indebtedness is to be taken to be the amount of money actually passing into his hands with legal interest thereon."

The question of crediting the premium is sometimes treated from another point of view which is not strictly in accord with the view just presented, but still is not entirely irreconcilable. In the case of Towle v. The American Building, Loan & Investment Society, 17 where the premium agreed to be paid by the borrower was to be paid on the gross premium plan, it was held that the borrower was entitled to a credit only for that much of the premium which the society could not be said to have earned, or, in other words, that when the normal life of the society is to be regarded as eight years, and it becomes insolvent at the end of six years, the borrower can claim a credit of but two-eighths of the premium. This conclusion is reached on the theory that each member, singly and collectively, is responsible for the premature dissolution. "The officers of the association are their agents, and the results of their investments are alike the fortune or misfortune of each stockholder, whether it be borrower or non-borrower," as is said by Grosscup, J., in the above case.

Whether the above view is the correct view depends upon the meaning of the words "earned premium." The writer is strongly inclined to the first view herein expressed, believing that the premium is earned only when it begets the profits which are to lighten the borrower's burden, which profits fail entirely when the association becomes insolvent. The premium is not earned, does not become an asset until the association has done all that it agreed with the borrower to do. The dissolution of the association breaks the contract, and in consequence the premium must remain a liability of the association, which the borrower is entitled to have credited on his loan.

The question of interest in building and loan association law presents itself in various ways. In the first place interest is paid by the borrower in the same way that he pays his dues and premiums, i. e., in monthly installments.18 When, therefore, the association is dissolved, the borrower can no longer be com

pelled to pay interest. The poignancy of this statement becomes apparent when it is recalled that upon the dissolution of the association the loan of the borrower becomes immediately due and payable. 19

The question of interest upon unpaid fines, as regard the receiver, arises when the borrower has given a mortgage or bond to secure the payment of fines, dues, etc. Fines, it must be remembered, are fixed penalties in the form of liquidated damages for defaults in payments.20 In reality, therefore, they assume the shape of interest on the unpaid installments, and interest upon them would be compound interest, contrary to the rules and principles adopted by courts of equity.21

The contra view to the one above expressed is maintained on the ground that fines secured by a covenant in a mortgage to a building and loan association form part of the principal in taking the account of principal, interest and costs in a foreclosure suit by the building association, and are payable with interest. That these sums become as much principal as the sum originally advanced by way of loan.22

It frequently happens that when an associa tion is placed in the hands of a receiver certain of its members are delinquent in the payment of their dues. If the delinquent has given a bond or mortgage to secure payment of his obligations, it would seem that the receiver can proceed upon that instrument to enforce their collection, and it is further held that where the delinquent is a borrowing member, and the receiver proceeds to foreclose the mortgage, he, the receiver, should withhold from the proceeds of the sale an amount corresponding to a pro rata proportion of the deficiency to the association.28

Having briefly set forth the position of the receiver in his capacity as collector of the assets of an insolvent association, we shall now attempt to point out the general rules that govern the distribution of the fund.

After payment of the costs of the administration, which is the first payment to be made,24 the first claims to be considered are those which are sometimes called "outside

19 See ante, p.

20 Goodman v. Durant B. & L. Assn., 71 Miss. 310. 21 Parker v. Butcher, L. R. 3 Eq. 762; Ingoldby v. Riley, 28 L. T. Rep. (N. S.) 55.

22 Home Mutual Bldg. Assn. v. Thursby, 58 Md. 284. 23 Meares v. Davis (N. Car.), 28 S. E. Rep. 188; Thompson v. Assn., 120 N. Car. 420.

24 Thompson on Building Assns., p. 129, sec. 15.

creditors' claims," by which is meant the claims of those who have demands against the association not arising out of any direct connection with the association, such a claim, for instance, as office rent.

In those jurisdictions in which building associations are permitted by statute to borrow money, we shall find notes of the association presented for allowance and classification upon its dissolution. It seems that the holders of these notes must be considered general creditors, and their several amounts allowed in full and paid prior to any payments to the stockholders, but the payment of dues in advance under an agreement that interest shall be paid upon the advances until they are absorbed ought not, it seems, in the case of insolvency, to entitle the stockholder to be treated as a creditor, 25 for although the charters of building associations, as a rule, do not prohibit stockholders paying their dues in advance if they so desire, still such advance payments are contra to the proper scope and scheme of building associations, for they are intended to be loaners of money and not borrowers, and especially when we find that such advance payments are made with an understanding that interest is to be paid upon them until they are absorbed by dues, we find the association doing nothing more or less than making an out-and-out loan. To allow these claims as creditors' claims would be converting capital into loans and creating preferred stock in order to work out supposed equities. Such payments should be treated merely as advance payments upon stock, not as loans, and thus in effect carry out the intention of the parties which was to pay up their stock in advance, and by anticipating its maturity receive a discount.

We find further certificates showing that the holders thereof have paid the whole or half of the amount of the shares issued presented for allowance. It is held that such certificates do not constitute promises to pay in the nature of commercial paper, and thus make the holders thereof creditors when the association becomes insolvent,26 but such holders are to be paid in the same manner and proportionate amounts as the ordinary

stockholders.

25 Post v. Mechanics' Bldg. Assn. (Tenn.), 37 S. W. Rep. 216.

26 Towle v. American Bldg. Assn., 75 Fed. Rep. 938.