Johnson v. Sharon Building Ass'n

Opinion by W. D. Porter, J., The learned judge of the court below directed a verdict for the plaintiff, subject to the opinion of the court upon two questions of law reserved: “ 1. Whether the association, when the stock was canceled, was bound to give the mortgagee credit for the withdrawal value, including profits, or only credit for the amount actually paid in. 2. Whether the association had the right, as against the right of the assignee of the stock, to apply the entire value of the stock to the payment of the mortgage to the benefit of the second mortgage, to the amount of $174.51.” It was agreed by counsel that the court might mold the verdict [315] in accordance with its opinion upon the points reserved; and, further, that the amount of the profits of the stock was $382.20, and that the amount of the fund realized from the sale of the real estate which was appropriated to the second mortgage was $174.51. No exception was taken to the reservation of these questions, nor to the form in which the reservation was made. Under this reservation the question as to whether or not the action was prematurely brought cannot be raised. The learned court below decided both the questions reserved in favor of the plaintiff and accordingly entered judgment upon the verdict. The undisputed facts as agreed upon by the parties, make it clear that on February 2, 1898, when the equitable plaintiff gave to the association a notice of withdrawal of the shares of stock, the said shares were held by the association as collateral security for a loan to the legal plaintiff, who had executed a formal assignment thereof; that the loan had not been paid and that the fund then in court which had been realized from the sale of the property upon the mortgage was not sufficient to pay the loan. The notice of withdrawal amounted to nothing, so long as the stock was held in pledge: Watkins v. Workingmen’s Bldg. & Loan Association, 97 Pa. 514; Wadlinger v. Washington German Bldg. & Loan Assn., 153 Pa. 622. The first question reserved seems to be immaterial to the determination of the question at issue between the present parties, unless the second question should be determined in favor of the plaintiff. If the association had the right to appropriate the value of the stock to the reduction of the debt, then, it being admitted that the value of the stock was in any event less than the debt, it is manifest that the stock was extinguished and the plaintiff could take nothing. In that case any increase in the value of the stock over and above the amount which, was admitted by the association must, necessarily, inure to the benefit of the holder of the second mortgage, by reducing the amount which the association was entitled to claim out of the fund then in court for distribution. The equitable plaintiff took his assignment of stock from the legal plaintiff, subject to the assignment to the building association, about the time that default was made in the payment of the interest and dues on the loan, and long after the rights of the second mortgagee had accrued. Let it be conceded that the association had the right to apply [316] the stock upon the loan. It then simply became a question how much of the loan remained unpaid, and it was then to the interest of the legal plaintiff to assert his right to profits upon the stock, in order to cut down the claim of the association and cause the fund then in court for distribution to discharge the largest amount of his junior debts of record. The plaintiffs did appear, through their counsel, before the auditor who made that distribution, and it was incumbent upon them there to assert their rights; and, if they were not satisfied with the findings of the auditor and the action of the court of common pleas, they had the right of appeal. Did the association have the right “ as against the interests of the assignee of the stock, to apply the entire value of the stock to the payment of the mortgage to the benefit of the second mortgage ? ” This is the second question reserved, and upon its determination the rights of the parties depend. It is well settled that payments of instalments upon the stock are not ipso facto payments upon the loan secured by the mortgage for which the shares are assigned as a collateral security. It is true the mortgagor may apply his payments on the stock to the mortgage debt, a license to do so being implied in the nature of the relation between building and loan associations and their shareholders. The building association may also make such application, by virtue of the assignment of the stock as a collateral security for 'the loan. In order to effectuate such an application an act of appropriation by one or other of the parties is required. Strangers to the transaction can require nothing which one or other of the parties did not. In the present case we do not have to deal with the rights of a creditor of the borrower, who has attached the stock, caused it to be sold at sheriff’s sale, and himself become the purchaser, and then tendered to the association the full amount of its claim and demanded a transfer of the mortgage. This equitable plaintiff made no such offer. The defendant association, by a resolution in proper form, applied the shares of stock of Paul D. Johnson in part payment of the amount due on his loan. This was a definite application of the shares to the payment of the debt, and that the association had the right to make such application is well settled by authority: Spring Garden Assn. v. Tradesmen’s Loan Assn., 46 Pa. 498; North American Building Assn. [317] v. Sutton, 35 Pa. 463; Link v. Germantown Bldg. Assn., 89 Pa. 15 ; Early & Lane’s Appeal; 89 Pa. 411; Economy Building Assn. v. Hungerbuehler, 93 Pa. 258; Watkins v. Workingmen’s Building & Loan Assn., supra; Wadlinger v. Washington German Bldg. & Loan Assn., supra; Erthal v. Glueck, 10 Pa. Superior Ct. 402. In Early & Lane’s Appeal the application was made by the borrower after the lands, upon which the claim of the association was a lien, had been sold at sheriff’s sale. The facts in Wadlinger v. Washington German Bldg. & Loan .Assn., were, in every respect, similar to those in the present case. The argument, that because Samuel Johnson became the assignee of these shares of stock prior to the sheriff’s sale, he has an equity to compel the association to first exhaust the mortgage security, is without force. The equities are rather in favor of the second mortgagee, who acquired his rights years before Samuel Johnson had intruded into the transaction, and had a lien only upon the land, while the building association had a lien upon both the land and the stock. It was, however, held in Jennings v. Loeffler, 184 Pa. 318, that where a creditor has a lien upon two funds, both of which are subject to junior liens, he is not obliged to resort to one rather than the other to satisfy his debt. The authorities above cited determine definitely that the judgment upon the second question reserved ought to have been in favor of the defendant. The judgment is reversed and judgment is now entered in favor of the defendant, non obstante veredicto.