Monier v. Clark

OPINION. BAKER, J. Appellants have made seven assignments of error. One to six inclusive will be considered together; in fact, they all go to the question of what amount of all moneys paid by appellants shall be credited upon their-loan of four thousand dollars. 1 One of the first questions to arise for the consideration of a receiver of an insolvent building and loan association is the application of the moneys paid by a borrowing member. If there were no borrowing-members the concern would be settled like any other insolvent institution, the stockholders receiving equal benefits and bearing equal burdens. Does the fact that a non-borrowing member becomes a borrowing member change his relation with the non-borrowing members? Section 2, article 5, of the by-laws of the American Building and Loan Association provides that no member can secure a loan from the association until after he shall have been a member at least three months, unless the board of directors shall for good reason determine to the contrary. The by-laws also provide that no one can borrow of the association unless he be a member thereof. The appellants, Monier and Donoghue made their application to become members of said Association on the seventeenth of December, 1888, and made application for 120 shares of stock, of the par value of one hundred dollars each. On December 26, 1888, a certificate was issued to them for said number of shares. Subsequently, on application of Donoghue and Monier their number of shares of stock was reduced from 120 to 80, and such reduction having no bearing upon the issues in this case it will not further be mentioned. On January 22, 1889, said Donoghue and Monier applied for and obtained a loan from the association of four thousand dollars. If the association had become insolvent and passed into the hands of the receiver between the dates of December 26, 1888 and January 22, 1889, of course Donoghue and Monier, through their trustee would have been entitled to whatever benefits there might be coming to them on their shares of stock, or been required to have borne their share of the burdens. Does the fact that the insolvency of the concern occurred after they had made their loan change their relationship with the non-borrowing members? The presumption is that they became members of the association for the profit expected to be derived from the investment. Aricle 4 of the by-laws of the association provides that “there shall be two funds; the loan fund, and the expense fund.” The loan fund is derived from many 'sources, among them, fifty cents per share per month paid on the stock, fines collected for non-payment of dues, fines for failure to insure property in the time prescribed, fines for failure to pay assessments of taxes when due upon property covered by the loan and interest on the sums loaned. Section 6, article 4 of the by-laws provides that on the first day of the months of January, April, July and October, in each year, all undivided profits shall be apportioned and credited to the shares in force. It is not incumbent upon any stockholder to become a borrower. If he becomes a borrower it is at his own volition, The rules and regulations of the concern governing loans are known to the borrowing member. The by-laws of the association also provide that if any member desire to borrow from the association any given amount of money he is required to file his application with the president, which is required to be accompanied by a sealed bid stating the amount of premium per share, in addition to six per cent interest, which the applicant is willing to pay for such loan; and further provides that where there are several applications, in event of a scarcity of money in this fund, the highest bidder shall prevail when the bids are the same and the one offering the best security shall be first accepted. The by-laws further provide how the bids shall be opened and that any member or his attorney may be present when the bids are opened. Thus, it will be observed that the applicant for a loan must know just what he is doing in order to secure his loan. The by-laws, section 9, article 5, under the head of “Loans” provides that “members obtaining loans shall execute such notes or bonds and mort. gages as stall be required by the board of directors.” The appellant, Donoghue and Monier secured from the association as an advancement on their eighty shares of stock, fifty cents on the dollar. They assigned their eighty shares of stock to the association as collateral security and gave a bond to the association that they would make all paymtnts as required by the by-laws of the association to mature such stock, which, it was estimated, would mature in nine years, and they further agreed to pay six per cent interest on the $4000 advanced, or loaned them by the' association. It is provided in the bond that when the eighty shares of stock shall have been fully paid up or matured, that the stockholders shall transfer their stock to the association which was to be accepted by the association as full payment of the advancement or loan of $4000. Should the association be prosperous and the profits sufficient to mature said shares before nine years, the matured stock transferred to the association would be payment in full of the loan. To secure said bond the appellants Florence Donoghue and Antonita G-. Donoghue, his wife and Quintien Monier executed a deed of trust (in effect a mortgage) upon certain real estate. This mortgage is sought to be foreclosed against the Donoghues and Monier, and Bartlett, trustee, for the payment of $4000 advanced on the stock of the said Florence Donoghue and Quintien Monier, the money loaned them, with seven per cent interest. 2 Appellants resist the foreclosure, claiming that they have paid in monthly payments and interest $5644 down to the time of the insolvency of the ' association, which said $5644 is $124 more than the amount of the loan with six per cent interest at the date of appellants last payment, and appellants therefore ask judgment against, the association for the said sum of $124. 3 It has been held in Strauss v. Carolina International Building and Loan Association, 117 N. C. 308, 30 L. R. A. 693; Thompson v. N. C. B. & L. Assn., 120 N. C. 420; Buist v. Bryan, 44 S. C. 121, 29 L. R. A. 123; Rochester Savings Bank v. Whitman, 25 App. Div. 491, and Randall v. National B. & L. Assn., 42 Neb. 809, that a proper and equitable settlement of an insolvent building and loan association is to charge the borrowing member with the amount of the loan, or advance on his stock, and to give him credit for all moneys paid the association for fines, penalties, dues and interest. As between the association, as a unit, and the borrowing member, this would seem to be equitable; but when you con siderthe non-borrowing member, who went into the association for the same purpose as did the borrowingmember and stood in the same .position until after the loan to the borrowing member,it presents.a different phase. Incases of an insolvent association when the association has been fully wound up by the receiver all stockholders or shareholders should receive their pro rata of the assets of the association. In case the borrowing member is allowed to pay off his loan or advancement on his stock with the moneys paid the association by him with interest on his payments and if the assets of the association were sufficient to refund to the non-borrowing members all moneys paid in by them and interest on each payment at the legal rate to the time of insolvency, and there were still left a large surplus to be distributed to the holders of such stock, it would scarcely be expected that the borrowing members,- having settled their interest in the association, would be permitted to participate in said surplus. Should this condition of affairs exist with an insolvent building and loan association, it is plain to see that the non-borrowing member would receive more for his money invested than the borrowing member, which would be inequitable, and no chancery court would permit such a settlement of an insolvent building and loan association. On the other hand, if the borrowing member is allowed to pay off his loan with his moneys paid in, and when the insolvent association is wound up, it is ascertained that- the assets are insufficient to refund the amount paid in by the non-borrowing members with legal rate of interest on such payment, or are insufficient to even refund the principal of the moneys paid in by the non-borrowing members, then in that case the borrowing member would receive one hundred cents on the dollar with interest on the moneys paid the association by him while a non-borrowing member would suffer a loss either great or small. The injustice of this last proposition is apparent upon its face. Considering the fact that the non-borrowing and the borrowing members joined the association, paid their money to the association for the same purpose, to-wit, the profits to be made upon their investments, one waiting until the maturity of the stock that he might takeout his money and the profits, the other selling hig stock, or receiving an advance upon it and contracting to pay enough money upon it to mature his stock. In other words, he simply seeks to take the profits out in advance Certainly the non-borrowing and the borrowing member should stand upon the same footing. If the association is a winner, they should all share equally in the profits; if it is a loser, then all should lose alike. Reasoning as we do, we are of the opinion that so far as the stock is concerned and the payments thereon that the borrowing and non-borrowing member should equally receive the benefits and bear the burdens; that the borrowing member should pay his loan with interest, the same as though it were an indebtedness due the. association from any other source, and thereafter when the affairs of the association have been adjusted that he participate in the assets in the same manner as does the non-borrowing member. Strohen v. Franklin Saving Fund & Loan Assn., 8 Atl. 843; Sullivan v. Stucky, 86 Fed. 491; Towle v. Am. B. & L. Society, 61 Fed. 446; Manorita v. Fidelity Tr. & Loan Co., 101 Fed. 8; Post v. B. & L. Assn., 34 L. R. A. 201, 37 S. W. 216; Young v. Improvement Loan Assn., 38 S. E. 670. We alsoi cite in support of this position, the case of Hale, Receiver, 261 (North Dakota), which is a very carefully considered case, and the many authorities therein cited. The case of Sullivan v. Stueky, supra, is strikingly similar to the one under consideration and is entirely in accord with the views herein expressed. 4 The contract between Donoghue and Monier and the association was a Minnesota contract. Bedford v. B. & L. Assn., 181 U. S. 242; B. & L. Co. v. Miller, 118 Fed. 369; McMurray v. Gosney, 106 Fed.11; Miles v. B. & L. Co., 111 Fed. 946. The foregoing citations fully answer the seventh assignment of error as to the rate of interest allowed appellee. The learned counsel for appellants, in his statement of facts, employs the following language in speaking of the amount of the judgment rendered in the court below, $5198.50 with $200 attorney’s fees: “Appeal therefrom was prayed and allowed, and the case is now here for review upon the sole question of the application of the moneys paid by appellants upon this contract whether all such moneys should be applied toward the reduction of the mortgage or the sixty cents per share or $48 a month should be considered payment on the shares of stock alone, and whether or not the appellee is entitled to any judgment until he has accounted for the shares of stock assigned to the association as collateral security for the loan.” We think this fairly represents the status of this case before the court. From what has been said in this case we are of the opinion that the appellants must pay the amount of their loan with interest and that they must look to the receiver at the final settlement of the affairs of the association for such dividends, if any, that are to come to them on account of their holdings of stock. When the association became insolvent neither party could fulfill the terms of the contract. Therefore, it is just and equitable that appellants should pay the amount of money by them received at the legal rate of interest as required by the laws of the State of Minnesota, to-wit, seven per cent and that they he credited upon said sum for all interest by them paid and interest npon partial payments of interest. For the reasons given we are of the opinion that the judgment of the lower court should be affirmed. Mills, C. J., and Parker, A. J., concur. McFie, A. J., having tried the case below, and Pope, A. J., did not participate in this decision.