referred to in the reports of state officers and state institutions. Prior to the adoption of the code it was not usual or customary to incorporate the report of the state geologist in the Iowa Documents. Chapter 82 of the Twenty-second General Assembly specifically named the reports that should be embraced therein, aud the report of the state geologist was not included among the number. The report of the geological survey is more of a scientific and educational report along a specific line, and so far as I know, is never classed with the reports showing the management of the state affairs and of the state institutions.

I do not think the legislature intended such reports to be included in the Iowa Documents; nor is there anything in the language of section 126 which expressly requires it. Yours truly,

MILTON REMLEY,
Attorney-General.

BUILDING AND LOAN ASSOCIATIONS AND INSURANCE COMPANIES. 1.-When articles of incorporation of a building and loan association are once approved by the executive council, the law makes no provision for the recall of such approval. Remedies are suggested by way of amendments to the law.

2.- Articles of incorporation of insurance companies should be submitted to the attorney-general for his approval, before a certificate to do business is issued by the auditor of state. They should be required to submit the form of their policies to the auditor for approval. Remedies by way of amendments to the law suggested.

3.-Additional powers should be given to the attorneygeneral respecting building and loan associations and insurance companies doing business illegally.

To the Senate of the State of Iowa:

DES MOINES, Iowa, Feb. 17, 1900.

GENTLEMEN-The resolution adopted by the Senate on the 7th inst. requested my opinion upon four questions, as follows:

1. "Is the present law sufficiently comprehensive that the executive council or the officers charged with the approval of articles of incorporation can prevent the incorporation of, or the transaction of business by building and loan associations or insurance companies in contravention of law or public policy."

2. "Are there building and loan associations or insurance companies now doing business in lowa in contravention of law or public policy? If this is answered in the affirmative, in what manner do such companies violate the law?"

3. "Has the attorney-general exercised the powers given such officer respecting illegal corporations; is it necessary to give further and additional powers to the attorney-general, and if so, what powers, to enable such officer to prevent the conduct of an illegal business by the said associations?"

4. "What amendments, if any, are necessary in our laws to insure a conservative and prudent control of such corporations?"

Two classes of incorporations are involved. To avoid repetition and undue prolixity I will present my views, first, in regard to building and loan associations, and. second, in regard to insurance compan es, endeavoring to present the same under the three heads involved in the first, second, and fourth questions:

This will be done without repetition of the questions propounded.

The questions concerning both kinds of corporations involve the inquiry, what is public policy? It is difficult to give a comprehensive and exact definition of public policy which can be applied to all cases. I shall not attempt it. However much courts and lawyers may differ as to what is public policy, I think all will agree to the following propositions:

First. Whatever is contrary to the spirit of the law, and defeats the end and purpose for which the law was enacted, is contrary to public policy Second. Whatever is morally wrong in its tendency, deceptive and fraudulent in its practices, and produces results injurious to the welfare of any considerable number of the general public, is contrary to public policy.

Third. That it is the policy of the state of Iowa, as shown by its laws and the history of legislation for more than half a century, to encourage the citizen to acquire a home, to care for the family while living, and make provisions as far as possible for his dependent ones after he is dead.

Fourth. That the purpose of the law with reference to building and loan and insurance companies (both artificial, intangible beings born of the legislative will), was in furtherance of the general policy above stated, and to afford reasanable safeguards against fraud and deception, imposition upon, and the despoiling of, the very classes of persons whom it is the policy of the law to encourage and protect.

Such, I understand, to be the policy of this state, and the sense in which the term "public policy" was used in the inquiries of your honorable body.

I.

IN REGARD TO BUILDING AND LOAN ASSOCIATIONS.

The present law, section 1894 of the code, requires the executive council to examine the articles of incorporation and by-laws of building and loan associations, and to determine whether they are in conformity to the law, and are based upon a plan equitable in all respects to their members. If so, such articles shall be approved by the executive council. The clause of said section authorizing the executive council to pass upon the plan of building and loan associations, and to determine whether they are equitable in

all respects to their members, is quite broad and comprehensive, and ordinarily would be sufficient to prevent the approval of any articles which would do an injustice to any of their members. The general power is, however, limited by other provisions of law recognizing the right of building and loan associations to issue certain kinds of stock, or to assess fines, charge usurious interest, etc. It is not in the power of the executive council to say that a class of business which the legislature seems to recog nize as legitimate and equitable, is inequitable.

To illustrate: Section 1898 seems to recognize guarantee stock. In my judgment there is no place for guarantee stock in a building and loan corporation. In this the executive council have concurred, but have felt themselves, because of the statutory recognition, powerless to prevent the issue of such stock.

The law makes no provision, when the articles of incorporation of a building and loan association are once approved by the council, for the recall of such approval in case it be found to be transacting a business which may be strictly in accord with the articles of incorporation, yet may be a practical fraud upon the public, or all who invest money in such corporation. It is true section 1917 authorizes the revocation of the certificates by the auditor in case the association shall violate any of the provisions of law, but if the executive council approves the articles of incorporation, and acts are done which are not inconsistent with such articles, and no provision of law can be found expressly prohibiting such acts, it is questionable whether the auditor's authority reaches the evil.

The present law was enacted at a time when the building and loan fever was at the highest, when comparatively few men in the state had opportunity to know of the practical workings of building and loan associations. It was an excellent law under the circumstances; probably the best that could have been enacted. But experience has taught the people as if "with thorns of the wilderness and briers." At the present time I do not think the law is sufficiently comprehensive to prevent transactions which are contrary to the spirit of the law and public policy; specific defects will be referred to hereafter.

AS TO THE EVILS.

The evils are many and grievous. The many complaints received at this office from all parts of the state of the wrongs, the disappointments, the sorrows occasioned by delusory confidence in the promises of building and loan associations, is a strong argument at least that there is something radically wrong with the system. The complaints come from borrowers largely, and from non-borrowing members who wish to withdraw their stock. It is no uncommon thing to find a party paying a given sum monthly for four or five years on his stock who wishes to withdraw from the association in order to use his accumulated earnings, but is unable to realize from the association as much money as he has paid thereto, and this, too, in spite of the assurance that the association has been declaring dividends of 10 per cent, 12 per cent, or 14 per cent. In numerous cases, borrowers make monthly payments of interest and premium at the rate of 12 per cent or 14 per cent, and payments also upon the stock, which may be continued for four or five years, at the end of which time, if they wish to

pay up their loan, they are informed that the sum required to pay off the mortgage is actually more than the money borrowed. With some associations a system of fines and forfeitures has been adopted which bears heavily upon the unfortunates who are unable to continue the payments upon their stock. I have yet to find a case where the promises and representations made at the time the stock was taken have ever been fulfilled; nor have I found a borrower who felt that he obtained money to build a home at a cheap rate of interest, and that his connection with a building and loan association had been otherwise than disastrous. I do not say that there are no such cases. I am well satisfied that many domestic local associations, where the expenses have been kept down to the minimum, have produced good results, and many such associations have been beneficial to the community in which they do business. I have heard very few complaints of the domestic local associations.

The theory upon which building and loan associations are justified is, first, it encourages the man of small means to make a saving from a limited income; second, by furnishing money at reasonable rates to those who wish to build homes, they are enabled to pay for their homes in small monthly payments from year to year. The primitive idea of building and loan associations was that each member who made monthly deposits would in time become a borrower. If all became borrowers, and ultimately paid substantially the same rate of interest, it mattered little what that rate of interest might be, for all shared substantially equally in the benefits and in the burdens of such a system. It was a means of accumulating capital from small savings to build homes for the members as fast as the accumulations would permit. A very different condition arises, however, when stock is purchased in large amounts by capitalists-paid up stock-which, many times, receives dividends more than double the legal rate of interest. I am satisfied that not over 40 per cent of the stock of building and loan associations of the state is borrowed upon. Suppose it were 50 per cent. Taking up a report of an association at random, one of the strongest associations in Iowa, which has been in operation ten years, in reply to the question: "What has been the average annual dividend declared by your association since its date of organization, including the term covered by this report?" I find this answer: "Thirteen and one-fifth per cent."

The only source of income of a building and loan association is the premiums and interest paid by the borrowers, and the lapses, fines or forfeitures from the unfortunate members who fall by the way. Assuming that one-half of the stock belonged to the borrowers and the other half to the investors, many of whom had fully paid up stock, in order to make a dividend of thirteen and one-fifth per cent on the entire stock, the half of the stockholders who borrowed must have paid enough as interest and premiums to have amounted to twenty-six and two-fifths per cent on the money which they had borrowed, less, however, what was gained by the association by forfeitures and fines. It requires no words from me to show that such a ruinous rate of interest is crushing the very men the law was intended to benefit and protect.

It will be said that the dividends on the stock will offset the high rate of interest paid. From the nature of the case this cannot be true. "A" subscribes for $1,000 of stock in a building and loan association. and bor

rows $1,000 thereon. "B" subscribes for $1,000 of stock and pays therefor $1,000 in cash. "A" pays say 6 per cent premiums and 8 per cent interest. payable monthly. Such interest amounts to more than 14 per cent payable annually. At the end of the year "A" has paid into the association $140 as interest and premiums. To offset this he gets a dividend on his monthly payments which go to the loan fund for the average time. On the usual plan of payment he has paid in during the first year $72. $60 of which goes to the loan fund. He obtains then, dividends on $60 for one-half of the year which, at the rate of thirteen and one-fifth per cent, amounts to $3.96, which is in no sense an offset for the amount of interest that he has paid. "B", on the other hand, receives in cash his dividend of $132. That $132 passes forever beyond the control of "A", and there is never any redistribution of it. The same disparity, it is true, would not exist between the payments of interest and premiums and the dividends on stock in each succeeding year, but at the end of the time when "A's" stock is matured and his mortgage is canceled, which is seldom less than nine years, he has paid the enormous sum of $1,260 interest, which is in no ways offset by the dividends on the small payments made yearly on his stock; but "B", the investor, has received his $132 regularly every year.

This illustration leaves out one element. As the business is now conducted, there is a profit to the association from the fines and forfeitures of those parties who are unable to continue their payments, but such fines and forfeitures are taken from the class of people who can poorly afford to lose the money they have paid to the association. It is a patent fact, and cannot be disputed, that under the plans of building and loan associations as now operated under the law, capitalists have taken advantage of the law to secure exorbitant interest on their investments, and that, too, at the expense of the very persons the law is intended to benefit and protect.

The systems of fines and forfeitures are oppressive upon persons whose only crime is their inability to pay as much each month as they hoped to. Some associations have issued stock providing for the forfeiture of the entire amount that has been paid in case of failure for a given time to continue the payments. Others have a plan of imposing fines and selling the stock for the purpose of paying arrearages, which method would be tolerated in no enlightened community in regard to any other subject for a

moment.

Some associations have stock which is, to all intents and purposes, preferred stock, receiving an unequal distribution of the profits at the expense of the common installment stock. The supreme court of Kentucky, in a recent case, held that preferred stock in a mutual building and loan association, was against public policy. While there are associations which are undoubtedly carrying on their business within the legitimate lines of building and loan association laws, and have produced results highly satisfactory to the investor, and not very objectionable to the borrower who persists until the maturity of his stock, yet I will venture the assertion that 90 per cent of the borrowers from building and loan associations in the state, and an equal percentage of the installment stock holders who withdraw their stock before maturity, feel that they have been deceived by false promises, and unjustly dealt with.