March Term, 1900.
Homer Weston, for the plaintiff.
Edgar N. Wilson, for the defendant.
The method adopted by the plaintiff to determine the amount due upon his mortgage is founded upon the theory that the association, having voluntarily transferred all of its property through the medium of a general assignment, has by that act deprived itself of the power to mature the plaintiff's stock at any time in the future, and that in consequence thereof it has violated its contract with the plaintiff and become liable to him for such damages as he has suffered by reason of its breach. In this view of the situation it is claimed that the true rule of damages would be followed by applying all payments made, with interest thereon, in reduction of the sum borrowed, with interest on that sum; and that by this method the sum remaining would represent the amount actually due upon the plaintiff's mortgage, and the amount he would be required to pay as a condition of having it discharged of record.
There would be much force in this contention if the plaintiff occupied the attitude of an ordinary borrower of money seeking to adjust a strict legal right between himself and his creditor. But such is not the case; for his relation to the association and its stockholders was not that of a stranger. It was rather that of a copartner or co-member who, by virtue of his membership, acquired the right to borrow; but this right carried with it the burden of assuming in common with the other stockholders all the risks incident to membership, including that of the insolvency of the association. This being so, the adjustment of the plaintiff's rights and interests demands the application of equitable, rather than legal, principles; and when subjected to such a test the plaintiff's theory becomes untenable, inasmuch as its adoption would necessarily give him a preference over the other stockholders by enabling him to withdraw from the assets of the association premiums paid in by him under the requirements of its articles and by-laws, which surely would be in contravention of a fundamental principle of equity. ( O'Malley v. People's Building Assn., 92 Hun, 572; Choisser v. Young, 69 Ill. App. 252; Strohen v. Franklin Saving Loan Assn., 115 Penn. St. 279, 280; Towle v. A.B.L. I. Society, 61 Fed. Rep. 446.)
In the case last cited a receiver had been appointed to take charge of the defendant's business, and he applied to the court for instructions as to the terms on which borrowers of the association might repay their loans, and also as to the claims which the receiver should advance in the event of compulsory foreclosure. In passing upon this application the court discussed at some length the very questions here presented, and in its opinion, delivered by GROSSCUP, J., made use of the following language: "These associations are essentially corporate copartnerships. They have no function except to gather together from small stated contributions sums large enough to justify loans. * * * The so-called insolvency is such a condition of the affairs of the association as reduces the available and collectible funds below the level of the amount of stock already paid in. * * * I think it plain that when the condition of the association shows that instead of making profits it loses the principal of the contributing stockholders there is power in a court of equity to wind up its affairs upon purely equitable principles. This will consist in calling in the loans and paying out the funds thus received to the stockholders. It is not seriously disputed that on such an adjustment the borrower is under obligation to repay the actual sum received, together with interest thereon. The first question is whether he is entitled to a credit of assessments paid upon his stock. I think not. Such a credit practically would be paying par on his stock, a preference over other stockholders to which clearly he is not entitled."
By a similar course of reasoning the learned judge reached the conclusion that the borrower is entitled to credit for only such portion of premiums paid as the number of years or fractional parts thereof unlived by the association bear to the entire period of its normal life, which in the case he was considering was eight years. In the present case, however, the premium was paid in installments for the length of time that the loan had actually run, and, consequently, within the rule laid down in the case cited, the plaintiff would be entitled to no credit for premiums paid. If this seems like a harsh rule it must be borne in mind that both borrower and stockholder are common sufferers by reason of the untimely and unfortunate termination of the association of which they were members, and that to credit the former with the entire amount of premiums paid would have the effect to reduce the impaired assets to that extent and thus deprive the stockholders of their just and proper share of such assets which are made up in large part of premiums paid in. Such a result would certainly be inequitable to the stockholders and, consequently, one which should be avoided if possible.
We conclude, therefore, that the method employed by the defendant in ascertaining the amount actually due upon the plaintiff's mortgage is one which adjusts the burdens of the case as equally as may be and one which does not cast upon borrowers or non-borrowers more than their respective shares thereof.
But while adopting this method, we deem it proper to suggest that we are unable to see how, in view of the uncertainty which must necessarily exist respecting the character of the assets which have come into the hands of the defendant and of the large outstanding indebtedness of the association, he can with perfect safety compute the amount due upon the mortgage of any borrower without first requiring that such borrower's stock be paid in full. This, however, is a matter which we are not called upon to determine under the terms of the submission, and, therefore, it is one concerning which the defendant will have to exercise his own judgment.
The defendant is entitled to judgment determining that the amount to be paid by the plaintiff, as a condition of having his mortgage discharged is the sum of $802.92, with interest from the date of the submission, and that the plaintiff's proceedings be dismissed with costs.
Judgment directed for the defendant dismissing the proceedings, with costs, and determining that the amount to be paid by the plaintiff, as a condition of having his mortgage discharged, is the sum of $802.92, with interest thereon from the date of the submission.