Juergens v. Cobe

Mr. Presiding Justice Freeman delivered the opinion of the court. It is contended on behalf of appellant that the two trust deeds given by Frederick Beitz to the International Building, Loan & Investment Union were absolutely void. The ground of this contention is that the property upon which they were given was at the time incumbered with a prior mortgage to one John Plumer, made to secure a note of said Frederick Beitz for $600, and interest, dated November 1, 1889, and payable five years after said date, which has never been satisfied or released. It is claimed that the Building and Loan Association had no authority to loan money upon incumbered real estate, and hence the taking by the union of trust deeds upon property already incumbered was ultra vires. The act under which said association or “union” was organized provides (It. S. Chap. 32, Sec. 85) that “ Good and ample real estate security unincumbered except by prior liens of such association shall be given by the borrowers to secure the repayment of the loan.” It appears that in his application to the association for the loans in question, Beitz, the applicant, stated under oath that no incumbrances existed on said property except one which apparently was taken up by the association with the money borrowed. Ho mention was made in said application of the Plumer incumbrance, and it does not appear that the officers of the association were advised of its existence at that time, although the abstract of title should have disclosed it. An elaborate argument is made by appellant’s counsel in support of the claim that it was beyond the power of the “ union” to make these loans subject to the Plumer incumbrance. We do not, however, regard them as beyond the association’s powers. If the statute be read strictly it is not a positive prohibition to the association, but is mandatory upon the borrowing member requiring him to give such unincumbered security. It would hardly be urged in a case where unincumbered security was given, and as additional security a mortgage was also given to cover property which was incumbered, that the statute was not complied with and that such second mortgage was null and void. Tet if the association has no power under any circumstances to take incumbered security, such would be the logical result of appellant’s argument. In the present case, the applicant made a misstatement as to the facts, by which for aught that appears the association may have been misled. It would scarcely be in accordance with equity to relieve Beitz’s property of an incumbrance of which he has had the benefit, and from a loan which was procured by his own wrong. It appears, moreover, that the property in question was in fact regarded and apparently is still, as constituting “good and ample real estate security” for the amount of the loans in question, else appellant, it may be presumed, would not have ventured to make a fourth loan subject to the three prior incumbrances. These trust deeds are-not, properly speaking, ultra vires. They were within the scope of the association’s charter powers, and any fraud or mistake by which they were made subject to a prior incumbrance on the property, did not and could not invalidate them, taken, as they appear to have been, in good faith. The contracts were recognized for six years as valid by the mortgagor and by the association. They were performed by the latter not only, but complied with by the borrower during that time. It may be conceded the security was not given in the manner prescribed by statute. But this was immaterial under the circumstances of the case. We regard the trust deeds as valid and binding. The views ' we have stated are sustained by principle and authorities, among which it is sufficient to cite Eckman v. C., B. & Q. Ry. Co., 169 Ill. 312; Lurton v. Jacksonville L. & B. Association, 187 Ill. 141. We are obliged to concur, however, in appellant’s contention that there is error in the statement of the account. It seems to be conceded that the stock held by Beitz ivas forfeited by the resolution of the directors of the “ union” adopted September 22,1897. The “union” filed its bill to foreclose these trust deeds October 11,1897, some time prior to the proceedings which resulted in its dissolution. The effect of what was done was to forfeit the stock and mature the debt, and to sever the relation of the borrower as a member of the association. Armstrong v. Building Association, 176 Ill. 298, 301. Having ceased to be a member he was not entitled thereafter to share in the earnings. Vierling v. Mechanics’ Saving Association, 179 Ill. 524-532. It is claimed by appellant’s counsel that it must follow Beitz was not thereafter liable for the association’s losses. However this may be, it is, we think, clear that when his stock was forfeited September 22,1897, he thereafter ceased to be a member of the association. When subsequently the suit against the union was prosecuted by the state auditor, Beitz, not being a member of thó association, and not having been brought in by summons or otherwise, was not a party to that proceeding and not bound by orders therein entered. ■ By the decree in that cause it was ordered th°at each borrowing stockholder should be credited with an amount equivalent to twenty-five per cent of the payments he had made of installments upon his stock, in full settlement of his claims against the insolvent association. This decree did not apply to Beitz. His membership had ceased long before his debt had been declared matured and foreclosure proceedings begun. His relation to the association was that of a debtor, not of a stockholder. The account between himself and the association must be determined in accordance with the rules governing such foreclosures. These are stated, in part at least, in the case of Vierling v. Mechanics’ Saving Association, 179 Ill. 524-531. It is there held that the borrower is entitled to be credited with the actual payments made by him on account of his stock and by way of interest on the loans. In the present case the decree has allowed a credit of only twenty-five per cent of the dues paid in; the property is charged with interest and premium to the time of the dissolution of the association, and fines for the same period. Hpon no theory that we are aware of can fines be charged after the determination of the stockholder’s membership. Armstrong v. Building Association, supra. For the errors indicated the decree of the Superior Court is reversed and the cause remanded. Reversed and remanded.