Quein v. Smith

Mr. Justice Tjrunkey delivered the opinion of the court, March 16th, 1885. Smith and Christian having withdrawn their stock, each [330] ■received from the association an order for $2490, dated April 3d, 1879. Christian placed his order in the hands of Smith for collection. After Smith had threatened to sue unless secured, the board of directors agreed to accede to his demand, and on May 10th, 1880, the association assigned to him as collateral security four mortgages, including the one in suit, and stipulated that all the income derived from said four mortgages, together with one half of all the income derived from any other source, should be wholly applied to the liquidation of orders prior in date to those held by Smith until all should be paid, and then to the liquidation of those he held until fully paid; and that the treasurer of said association should furnish monthly statements showing in detail the receipts and disbursements, and how the agreement was being carried out. It is plain that the terms of the assignment involved no change in the duties of the mortgagors — by necessary implication the mortgagee was to receive the payments. The assignee was entitled to monthly statements from the mortgagee showing how the agreement was being performed. It is immaterial whether Smith placed the assignment on record, or caused notice thereof to be given to the defendant. If the defendant had knowledge of it, he knew of its conditions and stipulations. The assignee did not notify him to stop payments to the mortgagee, and he is entitled to credit for whatever payments that were properly made. It follows that the first and sixth assignments of error need not be noted. If the defendant fairly and within the provisions of the charter and by-laws, satisfied the mortgage by payment of stock, the terms of the prior assignment to Smith do not render said payment invalid, if the minutes do show that the defendant had knowledge of the assignment. Hence the seventh and eleventh specifications of error must be sustained. The instructions set out in those specifications required a finding for the plaintiff, on the ground that if the defendant had information of the assignment, under no circumstances would payment in stock be valid. Quein was elected Treasurer of the Association on January 6th, 1881. Before Iris attempted settlement and satisfaction of the mortgage he knew it was assigned to Smith. He was a director and was present, March 11th, 1881, when the board resolved that it would best serve the interests of all parties for the affairs of the Association to pass into the- hands of a Receiver. Three months before the settlement he bought stock at twenty-five per centum less than par. When he applied to pay the mortgage with stock he knew there were a number of withdrawing stockholders who had not been paid, that orders were outstanding, and that Smith’s turn had not come. In [331] the minutes and Quein’s own testimony is ample evidence that he knew the Association was insolvent, and the court committed no error in the answer to the plaintiff’s fifth point. Under such circumstances an officer could not discharge his indebtedness to the Association with stock for which he had subscribed, nor with stock he had bought from others at a discount. When the officers learned that the Association was rvithout sufficient means for payment of its debts, they could not lawfully appropriate its property to themselves to the prejudice of creditors. The fact as to Quein’s knowledge of the insolvency was rightly submitted to the jury with proper instruction. This action is for recovery of the mortgage debt. The receiver was a witness and knows of the proceeding. If the assignee is not entitled to the money by virtue of the assignment, by a proper proceeding the suit can be marked for use of the party entitled. This is not the case of an absolute sale or transfer of a mortgage or other evidence of debt. Such an assignment as this, if not a safe security for the assignee, is prima facie valid, for it is to secure an existing debt, and upon conditions not prejudicial to the Association or to other persons. On its face the assignee is entitled to no money until prior orders are fully paid. We are not convinced that the court erred in refusing to charge that the assignment was invalid. A solvent building association may appropriate the proceeds of a debt owing to itself in payment of a debt it owes. The Act of 1859 provided that at no time should more than half of the funds in the treasury be applicable to 'the demands of Avithdrawing stockholders without consent of the board of directors. In this proceeding it need not be determined whether the assent of the board was illegally given to the assignment. If the defendant prior to the assignment to Smith, had the right to appropriate his stock to payment of the mortgage debt, the assignment did not deprive him of that right. But Avhether assigned or not, after insolvency of the company, he could not discharge the debt by appropriating thereto his stock, and the defendant’s second, third and fourth points were rightlyrefused. Had those points been affirmed the jury must have found for the defendant, even if they were satisfied he knew of the insolvency of the Association when he paid the stock. The settlement was made February 7th, 1881, and the plaintiff concedes'that all monthly dues were paid to that date. A receiver was appointed by the court on July 29th, 1881. No payments were made after February 7th, 1881, and the court affirmed that the defendant having defaulted in payment of principal and interest on the loan, was entitled only to credit [332] for tlie amount paid in by bim on account of bis stock. It is contended by tbe defendant tbat be bad properly paid in full, and be complains of tbe affirmance of tbe plaintiff’s fourth, point which assumes be was a defaulter. If be colluded with other officers to procure a wrongful satisfaction of tbe mortgage, be may be treated as a defaulter. Tbe question of fact should have been submitted to tbe jury, not assumed. Tbe plaintiff has shown no reason for affirmance of bis third point, namely, “It was incompetent for tbe mortgage of the defendant to be paid off in stock, because in by-laws, Article X., section 1, as amended by tbe stockholders at meeting held February 5th, 1880, which reads as follows: ” setting out tbe amendment. That section ancl amendment relate to stockholders who bad not received a loan. Tbe second section of same article relates to any stockholder who has received a loan, and provides, among other things, tbat tbe stock of tbe Association will be taken for tbe payment of loans. The second, not tbe first, appears to be tbe section under which tbe defendant attempted to satisfy bis indebtedness by delivery of stock. Judgment reversed and venire facias de novo awarded.