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NEW JERSEY BLDG., LOAN & INV. CO.
Suit by the New Jersey Building, Loan & v. MCNULTY.
Investment Company against Anthony Mc
Vulty to foreclose a mortgage. Decree of (Court of Chancery of New Jersey. Oct. 12,
foreclosure. 1908.) L BUILDING AND LOAN ASSOCIATIONS (8 42*) The following is the opinion of Special - LOANS MORTGAGES FORECLOSURE Master Rellstab, appointed to report on exLIABILITIES OF BORROWING MEMBERS.
ceptions to the master's report: Where a mortgage given to a building association by a borrowing member thereof was
"The complainant is a building and loan matured by the insolvency of the association, association in the course of liquidation. The the member as mortgagor could not be charged defendants are shareholders and borrowing with any part of the running expenses of the members of said association. association imposed only by the laws of the as
The associasociation and expressly limited to the stock, nor tion advanced them $2,000 on their shares of could he be charged with any sum as a reduce stock, and, to secure this loan, the defend. tion charge in the book value of his stock, as-ants gave it their bond and mortgage for signed as collateral; the expenses and reduction charges relating only to the value of the stock that amount, and, as additional collateral, asnot involved in determining his liability under signed to it their shares in such association. the mortgage.
The complainant is foreclosing said mort(Ed. Note. For other cases, see Building and gage, and the master, to whom the case Loan Associations, Cent. Dig. $ 66; Dec. Dig. was referred with directions to ascertain the $ 42.*]
amount due upon said mortgage, reported 2 BUILDING AND Loan AssociaTIONS (8 42*) that said defendants should, in addition to
-LOANS–CONTRACTS-INSOLVENCY OF Asso-
the principal and accrued interest of said The insolvency of a building association loan, be charged $64 on account of operatholding mortgages to secure loans to members ing expenses and $56.83 in reduction of the who assigned their stock as collateral renders the sums borrowed payable immediately regard- | book value of the defendants' shares of less of the contract, and the association may, at stock, and that they should be credited with its option resort either to the mortgage or to all payments made by them as dues, interest, the stock, or to both if necessary, for the col- and premiums (being all the payments made lection of the debt, but neither party can force a sale of the stock, the value of which is not by them to said association on account of ascertainable until the final act of winding up such shares and loan), and also with the the insolvent association.
sum of $32.64 dividends declared. The mas[Ed. Note.-For other cases, see Building and iter found that there was due to the complain. Loan Associations, Dec. Dig. $ 42.*]
ant on the date of his report the sum of $1,029.8. BUILDING AND LOAN ASSOCIATIONS ($ 42*) 19. To this finding the defendant excepted. - CONTRACTS-CONSTRUCTION.
The provisions in the articles of a building "These exceptions, in terms, are as follows: association providing that shareholders in good “ 'First Exception. For that the master standing may withdraw the amount paid in having reported that the said defendants monthly installments on their stock, and that, on such withdrawals, members shall receive in? should be charged with the sum of $64 for terest for the average time such payments have expenses, in addition to legal interest on been made to the association, are dependent on the said bond and mortgage, and that dethe association being a going concern, and they fendants insist that it is contrary both to cannot apply during insolvency, which at once abrogates such provisions of the contract be. law and equity to so charge them with such tween the association and the members, and the expenses. loan fund into which such installments of dues
“ 'Second Exception. For that the said were paid, as well as other estates of the association, 'must be held until the losses thereof master having reported that the said defend. and the costs of liquidation have been ascer- ants should be charged with the sum of $56.tained.
83, as a reduction charge, in addition to [Ed. Note:-For other cases, see Building and legal interest. And said defendants insist Loan Associations, Cent. Dig. $ 16; Dec. Dig. that it is illegal to charge them with said § 42.*)
sum, and that no such charge can be made 4. BUILDING AND LOAN ASSOCIATIONS (8 42*) in ascertaining the amount due on the said -Loans — MORTGAGES — LIABILITY OF BORBOWING MEMBER.
bond and mortgage. Where a mortgage given to a building as- “ 'Third Exception. For that the said massociation by a borrowing member was matured ter in his report has failed to credit the by the insolvency of the association, the member, as mortgagor, was to be debited only with the said defendants on the mortgage debt, with amount of his loan and interest thereon, and the value of the stock, the shares of which was to be credited only with interest and premi- were assigned as collateral security to the ums paid, and interest on such premiums calculated by the application of the rule of ave mortgage debt, as seť forth in the complain. erage payments, and he could not be credited | ant's bill of complaint, as in equity said with dues paid on his stock, and dividends al- master should have done. lowed thereon before the association became in
“Fourth Exception. For that the value solvent.
(Ed. Note: --For other cases, see Building and of said stock was not ascertained by sale and Loan Associations, Cent. Dig. 66; Dec. Dig. credited on the said bond and mortgage be42.*]
fore the said master by his report ascertain. ed the amount for which the mortgaged " premises should be sold.
And the saial de that the master failed to credit the defend fendant claims the right to require that the ants' mortgage debt with the value of the said stock should be sold by the complain stock which the complainant held as colant, and the proceeds applied to the payment lateral security for the payment of such loan. of the amount due on the said bond and “The master credited such debt with 89 mortgage, before recourse is had by the com- monthly payments of dues, interest, and preplainant to the said mortgaged premises. miums, which was all that they had paid in.
“Fifth Exception. For that the said mas- to the association, either as borrowers or ter in his report should have credited on shareholders, also the whole of the dividends the said bond and mortgage only the inter- allotted on their shares. The value of the est that had been paid on the said bond and shares could be no more than had been paid mortgage, and the premiums that had been on account thereof plus their share of the paid at the rate of $10 paid monthly for net earnings. If the defendants were enti89 months, together with interest on said tled to a credit on their bond of the value premiums so paid, and the said master errec of their shares, the master's allowance exin crediting the said bond and mortgage with ceeded the value of such shares, for the evithe whole amount that had been paid for dence taken in this cause shows that the dues, interest, and premiums, and also a cer- dividends declared were made on the suptain sum amounting to $52.64, stated to be position that the premiums paid by the borfor dividends allowed, and the said defend- rowing members as well as the earnings ants claim that, on account of the matter therefrom were assets of the association to mentioned in this exception, the said master be distributed among the shareholders. has not reported properly in accordance with "In Harris v. Nevins, 68 N. J. Eq. 684, the principles of equity.'
63 Atl. 172, the Court of Errors and Appeals “The master in his findings acteć upon the held that 'in the computation of the amount theory that in this foreclosure all the rights payable upon a mortgage made to a building of the parties, whether arising out of the and loan association by one of its members, defendants' relation to the association as and which has become due by reason of the shareholders or as borrowers, should be set- insolvency of the association, the mortgagor tled. The exceptions are predicted on a is entitled to have credited upon the princilike theory; the exceptants contending, how- pal of the mortgage all sums paid by him as ever, that the master erred in the applica- premiums for the loan.' It follows as a nection thereof to the defendants' prejudice. essary deduction that, if the association had The first and second exceptions attack the not considered the premiums paid by bordebit side, and the remaining exceptions the rowers as assets or the association, the divicredit side of the master's computation. Idends allotted on the defendants' shares am of the opinion that the theory adopted would have been considerably less than deby the master and approved by the except. clared. By the assignment of the defend. ants is untenable as far as this foreclosure ants' shares to the association as collateral is concerned.
security for the payment of said loan, in"As to the first and second exceptions, dorsed on the defendants' said bond, the there is nothing in the bond and mortgage association was authorized to make sale or that requires the obligors to pay any por- withdraw the same in case the defendants tion of the running expenses of the associa-defaulted in payment of dues, interest, etc., tion. This liability is created by article 18 and to apply the proceeds of such sale or of the association articles and by-laws, but withdrawal to payment of said loan. This it is expressly limited to the stock, and sec- authorization, as well as the obligation of tion 1, as amended, directs that five cento be the bond and mortgage of the defendants to deducted from the monthly installment on pay dues and premiums, was of force only each share of such stock; and section 4 as long as the association was a going condirects that one per cent. of the maturity par cern. In Weir v. Granite State Provident value shall be deducted from the first year- Association, 56 N. J. Eq. 234, 38 Atl. 643, aply payment. These shares of stock owned proved in Nevins v. Harris, supra, it was by the defendants are properly chargeable considered as settled law that in case of with their proportionate share of such ex- bonds and mortgages given by borrowing penses, but in this controversy, which re members of such association which afterlates only to the defendants' liability as bor- wards became insolvent that such insolvency rowers, such expenses amounting to $64 may worked a rescission of the contract, and that not be added to the loan. The reduction the sums borrowed became immediately due charge of $56.83, being a reduction of 144 and payable, regardless of the terms of pay. per cent. in the book value of the shares, is ment fixed by the contract. By the assignuntenable for the same reason. Both these ment to the association of such shares as expenses and reduction charges relate only additional collateral for the payment of the to the value of the shares, and are not to be mortgage debt, such association had the right considered in a foreclosure suit, where the in case the loan became due to resort to rights of the defendants as shareholders are either the mortgaged premises or such stock
if it became necessary so to do. In such and reasoning of V. C. Reed in Weir Case, case the defendant could not control the as- supra. The facts in both cases were subsociation as to which collateral should be stantially alike. Both associations first enforced. In what respect is their posi- insolvent; both defendants were borrowing tion superior now that the association is in- members; both had paid dues, on account solvent? There is nothing in the terms of of the stock as well as interest and premi. their contracts, as borrowers or shareholders um on the loan; each sought to obtain credthat entitles them to first have their shares it on the mortgage debt for such payment of of stock disposed of before the mortgaged dues. In both cases the right to credit the premises are resorted to. Before insolvency, dues on such debt was denied, but in the the association had the right to waive any Saul Case the learned Vice Chancellor pracdefault of the borrowing members and ex- tically allowed such credit by requiring the tend the time of payment. With the advent stock held as collateral to be sold, and the of insolvency, however, the duty to conver proceeds to be applied to such debt before the the assets into cash in order to liquidate its taking of final decree. In this latter case the obligations became imperative. While the as- learned Vice Chancellor sought to adjust sociation was a going concern, the value of the rights of the defendant as a shareholdthe outstanding shares was a mere matter er as well as a borrower, seemingly overlookof bookkeeping. The total of installments ing the distinction between the two clearly paid on the shares plus net earnings con- pointed out in the Weir Case and the conclustituted the value of all the shares, and the sion there reached that the borrowing memvalue of any given number of shares was bers' rights as a shareholder were in no re. easily determined by computation. Insolven- spect superior to those of a nonborrowing cy, however, changed all this. Considerable shareholder, and that the borrower must, of what were assets before are now liabili-like them, await the final wind-up of the ties. Before insolvency, all premiums paid insolvent association before obtaining the by borrowers and the earnings therefrom be- value of their shares of stock. By section longed to the shareholders, and were so treat- 2, art. 14, of association's articles, it is proed and formed a part of all dividends that vided that shareholders in good standing had been declared on the stock. Not so after may withdraw amount paid in monthly inthe advent of insolvency. From that time stallments on their stocks; and by section under the cases last cited, all premiums 3 of the same article it is provided that on paid by borrowers with interest had to be such withdrawals members shall receive 6 credited on their loans. All previous decla- per cent. interest per annum for the average rations of dividends, which entered into the time such payments have been made to the book values of the shares, are now proven to company. Manifestly these provisions as to be erroneous. A new listing of assets and the right to withdraw and the terms upon restatement of values must be made, and, as which such withdrawals are to take place a closing up of the association's business is are dependent upon the association being a now the only thing left, such values cannot going concern. They cannot apply during be determined till all the assets shall have insolvency. Insolvency, at once abrogates been collected, the costs of liquidation paid, such provisions of the contract between the and the amount left for distribution among association and the shareholders. In addithe shareholders ascertained.
tion to cases cited, see those noted in 6 "In Weir v. Granite, etc., Ass'n, supra, a Cyc. 130. The loan fund into which such similar clair was denied. In that case the installments of dues were paid, as well as insolvent association held the stock of the other assets of the association, must be held borrower as collateral security. The borrow- till the losses of the association and the cosi er sought credit for the dues paid by him on of liquidation have been ascertained. such stock. V. C. Reed held that the borrow. "In the very nature of the case it cannot ing member was not entitled to credit on be otherwise, If the borrowing, member the mortgage debt for any of the dues paid could withdraw from the association and on account of the shares of stock, and that receive the so-called value of his shares, the only equitable rule is to require such every other member (borrower or nonborborrower to await the final distribution of rower) could do the same. Upon what basis the assets of the association, and then take could such values be determined ? Certainly what his shares are proved to be worth, no rational basis is suggestible. At best,
"In Hoagland v. Saul (N. J. Ch.) 53 Atl. the amount fixed would be a guess, with 704, it was held: 'On foreclosure of a mort. a strong probability that either the withgage given to a building and loan association, drawing member or those who awaited the the stock held by the mortgagor, and assign- final accounting would suffer loss. To force ed as collateral to the mortgage, should be a sale of the stock with the purpose of creditsold, and the proceeds credited on the mort. ing the bond with the proceeds would necesgage debt, before recourse to the mortgaged sarily entail a loss upon some one. Insolvengremises.'
cy having abrogated the express contract “This holding, and the reasoning of V. C. between the parties, neither party should Gray in support thereof, to my understand be permitted to force the sale of the stock,
the final act of winding up the insolvent con- , and Appeals, furnish the true rule to be cern. There can be no final accounting till applied on this question. For the reasons all the loans have been paid, and the bor- given in support of the conclusions reached rowing member cannot prevent a decree for in such case, and those herein mentioned, the amount due by him on his bond merely I am of the opinion that the defendants in because, in the final wind-up, he may be en- this case are not entitled to a credit upon titled to receive something on the shares this mortgage debt of the value of their owned by him. The borrowing member oc- shares of stock held by the association as cupies a dual relation. Some, but not all, collateral, and that the amount due by them of the terms of the contract with the as to such association in this foreclosure suit sociation in both relations, are necessarily is to be determined by the relation such de abrogated by the association's insolvency. fendants bear to said association as borrowWith respect to his contract as a borrower, ers, and not as shareholders. he, as a result of the abrogation, is treat- "As to the fifth exception: This challenges ed as if he were not a shareholder at all. the principle adopted by the master in mak. Under the decisions of the Court of Errors ing his credits, and in effect charges that and Appeals, in the Nevins Case, supra, he he erred in crediting the bond with the whole is charged with the entire amount of the amount paid for dues and dividends declar. loan secured, with legal interest, and is creded, and further that be erred in not credit. ited with all payments made by him by rea- ing such bond with interest on the paid son of such loan. His payments as interest premiums. are credited as such, and his payments of "I am of the opinion that this exception premiums together with interest to be cal. must be sustained. The case of Weir v. culated thereon are credited to him as made Granite State Provident Ass'n, supra, is dion account of the principal of such loan. rectly in point. It expressly decides that Assuredly insolvency has worked no harm such borrower is entitled to interest on preto him as a borrower. With respect to his miums paid on account of loan, and that he contract as a shareholder, he must be treat- is not entitled to any credit for dues paid on ed as if he were not a borrower, and take account of bis stock; and inferentially such bis stand with the nonborrowing members, case decides that no profit (dividends) derivand share with them in whatever hardships ed from the stock payments inure to the bor. or losses are ultimately to be charged against rower as such, but only to bim as a stock. the stock of the company. The learned Vice bolder. Chancellor in Hoagland V. Saul, supra, in "Summarized, my conclusions are as fol. support of his conclusion that the stock of lows: the borrower held as collateral by the as- "First. That the master whose findings are sociation, should be sold and the proceeds ap- here under review on such exceptions erred plied in reduction of the mortgage claim be- in debiting the borrower with the expense fore final decree should be made, cited Ass'n and reduction charges, and in crediting them v. Patterson, 27 N. J. Eq. 223. In this case, with the dues paid on the shares of stock, as well as Ass'n v. Conover, 14 N. J. Eq. and the dividends allowed thereon before 219 relied upon in the Patterson Case, the the association became insolvent and for failassociation was not insolvent. Furthermore, ing to credit them with the interest on prein both of these cases there were subsequent miums paid. mortgages, and, as neither of these second
"Second. That the borrower is to be deb mortgages had any lien upon the shares of ited only with the amount of his loan and stock which the mortgagors had assigned the legal rate of interest thereon, and is to to the first mortgagee as collateral, a mar- be credited only with the interest and pre shaling of the assets to preserve the equi- miums paid, and interest on such premiums. ties of these subsequent incumbrances was “Third. That, as these premiums were paid necessary.
at intervals, the interest thereon be calculate “In my opinion the cases of Weir v. Gran- ed by the application of the rule of average Ite State Prov. Ass'n, and Hoagland v. Saul, payments. supra, are not in harmony on this subject. “Fourth. That the date of the report of If they were, I should be constrained to fol. the former master be taken by the witness low the latter without regard to my person who calculated the interest on such preal views. As I read them, however, they miums as the date to which such interest are irreconcilable on the right of the bor- was calculated, and, as this was acquiesced rower to have his loan credited with the in by counsel for all parties, such date be probable value of his shares of stock held adopted for the same purpose, and also beby the association as collateral. With such a cause a ready comparison of the results here conflict of authority confronting me I am reached with those reported by the former forced to adopt the case which appears to me master will thus be afforded. to furnish the rule that best safeguards all "And I further report that the schedule the equities. In my judgment the reasons hereto annexed, and making part hereof, given by V. C. Reed in the Weir Case, and contains a statement and account of the prinplainant on its said mortgage found in ac- , rectly applied to the facts of this case. The cordance with my conclusions as aforesaid, result is that the prayer of the petition must and to which I, for greater certainty, refer." be denied.
Schedule No. 1
(81 Conn. 378) Bond bearing date the 17th day of
FINNUCAN V. FEIGENSPAN. December, 1896, in the penal sum of $4,000, conditioned for
(Supreme Court of Errors of Connecticut. Dec. the payment of $2,000, with in
18, 1908.) terest thereon secured by the
1. GUARANTY ($ 27*)-CONSTRUCTION-INTENT mortgage in the complainant's
OF PARTIES. bill mentioned......
A. contract of guaranty is to be construed Interest thereon at 6 per cent.
according to what is fairly to be presumed to from December 17, 1896 to April
have been the understanding and intent of the 15, 1907-10 years, 3 months, and
parties, and the language used will not be ex28 days......
1,239 34 tended by any strained construction to enlarge
the guarantors' liability. $3,239 34
[Ed. Note.- For_other cases, see Guaranty, Cr.
Cent. Dig. $ 28; Dec. Dig. $ 27.*] By 89 monthly payments of $10
2. GUARANTY ($ 27*) - CONSTRUCTION – Evieach, as interest....
$ 890 00
DENCE. By 89 monthly payments of $10
To discover the intent of parties to a coneach as premiums on loan.. 890 00 By legal interest on such month
tract of guaranty, their situation and the cir
cumstances connected with the transaction may ly payments of premiums calculated on the rule of average
be considered, and their language interpreted payments, accepting 6/8 years
with the help of that evidence. as the average period....... 275 90
[Ed. Note.-For other cases, see Guaranty,
Cent. Dig. $ 28; Dec. Dig. $ 27.*]
$2,055 90 $2,055 90 3. GUARANTY (8 39*)-CONSTRUCTION. Amount due complainant the
Defendant having agreed to loan a per15th day of April, 1907.....
$1,183 44 son $450 and furnish him merchandise neces
sary for a saloon business, certain others agreed Barton B. Hutchinson, for complainant. to guarantee to defendant payment for merchanCharles T. Cowenhoven, for defendant.
dise to be thus furnished and the repayment of the $450, not exceeding the sum of $750. Held,
that the guaranty was not a continuing one. WALKER V. C. This is a foreclosure but only a guaranty of repayment of the $450 case. The defendant Anthony McNulty ap- further amount which would bring the total of
and of the purchase price of merchandise in a plies by petition to open the final decree, to cash and goods up to $750, and, where the prinset aside the execution, and to set aside the cipal had made payments on the cash loan, the master's report so far as it denies to the sureties' liability was diminished to the extent of
the payments with interest thereon, though his petitioner the right to have certain shares indebtedness to defendant aside from the payof stock in the complainant company, an in- ments exceeded $750. solvent corporation, sold before the mort.
(Ed. Note.-For other cases, see Guaranty, gaged premises are sold. The matter is pre
Cent. Dig. § 47; Dec. Dig. $ 38. *] sented in this form because no exceptions Appeal from Court of Common Pleas, New were filed to the master's report, the excuse Haven County ; Isaac Wolfe, Judge. given being that counsel for the defendant Action by Martin J. Finnucan, administrawas to have had actual notice, by arrange- tor, against Christian Feigenspan, corporament of the parties, of the filing of the re- tion. Judgment for plaintiff, and defendant port, which notice he did not receive, and a appeals. Affirmed. final decree was entered ex parte upon the
On or about December 5, 1896, one Martin report in due course and an execution issued J. Finnucan was desirous of engaging in the before he became aware of the situation.
business of selling spirituous and intoxicating For the purpose of deciding the question liquors in Ansonia. He did not have the nechere presented I shall assume that the ar-essary means, and applied to the defendant, rangement was as claimed on behalf of the a Newark, N. J., corporation, having an agendefendant. The case then stands in the pos- cy in Ansonia, to furnish them to him. In ture of an application to open a judgment response to this application, the defendant by default, in order to accomplish which the agreed to loan Finnucan $450 in cash, and party applying must show both surprise and to furnish him certain merchandise of its merits.
manufacture necessary for the conduct of the Coming to the question of merits, I find business upon condition that security to inthat the petitioner is without them. The demnify it against loss for such loan and furquestion presented on this application was nishing of merchandise was given. Finnucan fully tried out before the able master who thereupon appealed to Mrs. Corr and Mamie made the report, and he supported his find. Finnucan to provide the demanded security, ing by the citation of authorities, and, in and thereupon they agreed with the defendmy judgment, his reasonings deduced from ant “to guarantee to the defendant payment those authorities are correct, and were cor- / for merchandise to be thus furnished by the •For other cases see same topic and section NUMBER in Dec. & Am. Digs 1907 to date, & Reporter Indexes