Middle States Loan, Building & Construction Co. v. Hagerstown Mattress & Upholstery Co.

Bryan, J., delivered the opinion of the Court. The Hagerstown Mattress and Upholstery Company of Washington County borrowed five thousand dollars from the Middle States Loan, Building and Construction Company of Hagerstown, and executed a mortgage to secure the payment of the loan. It filed a bill in equity praying leave to repay the money and redeem the mortgage. It was not questioned that it had the right of redemption, but the controversy was upon the amount to be paid for the purpose. The Court below filed an opinion in which it stated the terms on which the redemption might be made, and referred the case to an auditor to state an account in accordance with its opinion. Upon the coming in of the auditor’s report the account was ratified and confirmed. The Middle States Company has appealed. The following recital in the mortgage shows the nature of the transaction between the parties. “ Now, whereas the said Hagerstown Mattress and Upholstery Company has become a member of the said The Middle States Loan, Building and Construction Company of Hagerstown, Maryland, and has subscribed for 100 shares of the stock of said company, and has a loan of five thousand dollars thereon, for which he has executed his bond or obligation of even date herewith, payable to said company with interest from date, payable monthly, with the following conditions: If the said Hagerstown Mattress and Upholstery Company shall pay the interest monthly on said sum of five thousand dollars received by them as aforesaid, and shall make the monthly payments monthly on roo shares of stock of said company, and shall pay any and all fines assessed against them on said shares of stock, and shall likewise pay, when — 513 — due, the taxes assessed against the property mortgaged to secure the repayment of said loan of five thousand dollars and the premiums necessary to keep the buildings on said mortgaged property insured from loss by fire, in such sum as the said company may require (not exceeding $5,000.00), until the said stock subscribed 'for by them as aforesaid becomes fully paid in, and of the value of $100.00 per share, then it is understood, that upon the surrender of said stock to said company, this obligation shall be deemed fully paid and cancelled. But, if they fail to pay, when due and payable, the said taxes and insurance premiums, or make default in the payment of said monthly interest, fines and monthly payments on said stock for a period of six months after the same are or any instalment thereof is due, then, at the option of said company, the whole indebtedness evidenced by this obligation, including any taxes and insurance premiums due or paid by said company, shall at once become and be due and collectible and a foreclosure of said mortgage in the manner therein provided may be had.” The mortgage has some of the features of an ordinary building association mortgage, but it also has some others appropriate to ordinary loans of money. Balding associations are authorized to transact their business by Article 23 of the Code, sections 95, 96, 97, 98 and 99. They advance to any member, for such premium as may be( agreed upon, the sum which he would be entitled to receive on the dissolution of the corporation for any number of shares which he may pledge, or they purchase from him certain shares of his stock. And the member is bound to pay the dues on the shares of stock as provided by the articles of assotion, and to pay interest at the rate of six per cent, per annum on the sum so paid or advanced to him. He is to pay the dues and the interest at such times as are prescribed by the articles or by-laws, and also fines and penalties for default in the prompt payment of interest and dues, as may be in like manner prescribed. These payments are to continue until the shares are worth the sum of money advanced — 514 — or paid to him. And it is usually provided thát then the association is to be dissolved. The member so receiving the advance or payment of money executes a mortgage to the association to secure the payment of the interest and his dues, and the fines and penalties which he may incur; but he never agrees to pay back the money advanced to him, or contracts any responsibility for it. It is'anticipated that from the prosecution of the business of the association the shares will in the course of time be worth the amount advanced, and that the association will be paid by its ownership of them. On the other hand, the borrowing member participates in the prosperity of the business by being enabled, through the enhanced value of the stock, to discharge the loan in consequence of the surrender of his shares to the association. In the present case the shares at their par value are worth double the amount borrowed and the dues are to be paid upon them until they reach par, when they are to be surrendered to the association. The mortgage secures the payment of the interest and of the dues and fines, and also the repayment of the sum borrowed. On default in any of the conditions of the mortgage the sum borrowed becomes, at the option of the mortgagee, a debt to be paid by the mortgagor. By section 5 of Article 6 of the by-laws of the building company the mortgagor has a right to repay the loan at any time on giving thirty days notice. The notice having been duly given, a controversy has arisen in regard to the amount necessary for the repayment of the loan. A borrower can never in this State be required to pay in satisfaction of an ordinary loan more than the principal and six per cent, interest per annum thereon. Therefore if this amount should be paid by the mortgator in this case, the debt would be discharged. But the mortgagor is not only a debtor, but is also a stockholder in the building company, and after the payment of the debt, it would still be a stockholder, and would still have all the rights and be liable to all the obligations attached to the ownership of stock. By — 515 — the by-laws it would have the right of withdrawing its stock according to certain terms which will hereafter be explained. Although not stated in so many words, it is evident that it is the purpose of the mortgagor to settle and conclude all of its business with the mortgagee, and to dissolve all connection between them. It is proper to settle in this suit all the questions between the parties growing out of their dealing with each other on the subject of this loan. We must therefore determine what amount the mortgagor is bound to pay to the mortgagee, and what amount it is entitled to receive on the withdrawal of its shares. . It is alleged in the bill of complaint that on the fifth day of February, eighteen hundred and ninety-four, the mortgagor tendered to the mortgagee thirty-one hundred and twenty-six dollars and sixty cents in full satisfaction, and that the mortgagee refused to accept it, but demanded a larger sum as due, to-wit, thirty-seven hundred and thirty-five dollars and ninety-eight cents. And in the thirteenth paragraph of the bill it is further alleged that the mortgagor ever since the day of said tender has been, and at the time of the filing of the bill, was able and ready to pay the amount of principal and interest due on said mortgage, and it was maintained that interest on the principal should not run after the day of the tender. The mortgagee (the defendant below) denied the thirteenth paragraph. It was shown in evidence by the treasurer of the mortgagor that he borrowed the money from the bank of Eavey, Lane & Co., and tendered it to the mortgagee; and on its refusal to accept it, he returned it to the bank. Such a tender is far short of what is necessary to stop the running of the interest. In Columbian Building Association v. Crump, 42 Maryland, 194, it was decided that in order to stop the interest the mortgagor must not only make a tender, but “ must keep the money continually ready and make no profit of it.” Section 13 of Article 2 of the by-laws already mentioned states the terms on which stock may be withdrawn. It is in these words: “ Shares may be withdrawn — 516 — at any time after three months, and before maturity, and the-holder thereof will be entitled to receive the amount paid into the loan fund in monthly payments on such shares together with six per cent, annual interest, less any losses to which the stock withdrawn may be subject. The membership fee of one dollar per share cannot be withdrawn.” By section 5 of the same Article the monthly payment on each share is fixed at sixty cents; of this sum fifty cents a month must be paid into the loan fund, and ten cents a month must be applied to defray the operating expenses. By the charter of the building company, dividends are not to be paid to members who receive advances or loans on their shares. If the mortgagor is ready to pay the amount due on the mortgage its rights will not be affected by the twelfth section of Article 2 of the by-laws, which declares that "shares on which loans have been made may be withdrawn if the loan is paid, but not otherwise.” It would flagrantly and unreasonably increase expense and litigation if we should merely determine the amount due on the mortgage, and remit the parties to another suit to determine the amount to be paid to the mortgagor on the withdrawal of his shares. In such case the mortgagor would be required to pay to the mortgagee a sum of money, with the necessity of ascertaining by future litigation what portion of this money should be returned to him. No Court of Equity could tolerate such a proceeding. Justice requires that we should ascertain what the mortgagor would be entitled to receive when his shares are withdrawn, making the hypothesis that the mortgage debt has been paid; and then we must deduct this amount from the sum due on the mortgage. There is ho possibility that we can in this way injuriously affect the rights of the mortgagee; because until the whole indebtedness shall be paid, the mortgage must remain in force and effect. In our opinion the mortgagor must be charged with the loan of five thousand dollars with interest thereon down to the filing of the — 517 — bill of complaint, and it is to be credited with its payments into the loan fund, to-wit, fifty cents a month on each of its shares, with interest on each payment from the time it was made down to the institution of this suit. For the amount thus ascertained to be due, the mortgagee is entitled to a decree with interest thereon until paid. The learned Judge who heard this cause in the Court below decided that the mortgagor was entitled to the dividends on its shares of stock. He also decided that the tender of thirty-one hundred and twenty-six dollars and sixty cents by the mort•gagor was good and effectual to stop the running of interest from the time it was made. The ground of his opinion was that the amount tendered was more than was due. If the dividend on the stock be not allowed to the mortgagor the amount was less than was due. And according to the case in 42 Maryland, above cited, the tender would not, under the circumstances accompanying it, be sufficient to stop the accrual of interest. (Decided February 14th, 1896.) We will reverse the order of the Court below and remand the cause for further proceedings in accordance with this opinion. Reversed with costs in both Courts and remanded. N. B. — This opinion was filed after Judge Robinson’s death, but he concurred in it in his lifetime.