Bowen v. Lincoln Bldg. & Loan Ass'n of Jersey City

• Citation: 28 A. 67,51 N.J.E. 272
• Parties: BOWEN v. LINCOLN BLDG. & LOAN ASS'N OF JERSEY CITY.
• Decision Date: 05 December 1893
• Court: United States State Supreme Court (New Jersey)

28 A. 67

51 N.J.E. 272

BOWEN

v. LINCOLN BLDG. & LOAN ASS'N OF JERSEY CITY.

Court of Errors and Appeals of New Jersey.

Dec. 5, 1893.

(Syllabus by the Court.)

Appeal from court of chancery.

Bill by the Lincoln Building & Loan Association of Jersey City against Matthew Bowen, assignee, to foreclose a mortgage. There was a decree for complainant, and defendant appeals. Modified.

The following is the opinion of VAN FLEET, V. C, in the court below:

"That part of the contract which must be considered in deciding the questions raised in this case is expressed substantially in these words: "The obligors shall well and truly pay to the complainant $S,000, in the manner following: By the payment of dues of twenty-five cents per week, on the first and third Tuesdays of each month, on each of the forty shares of the fifth series of the capital stock of the association owned by the obligors, during the period of this loan, together with the interest on $8,000, to be computed from the date thereof, at the rate of six per centum per annum, payable as follows: At the expiration of three months from the date thereof on the whole principal sum, and at the expiration of each succeeding three months on the amount of the principal found to be due at the beginning thereof, after deducting all previous payments made on account of the principal, being the amount of dues paid on the forty shares during said three months, as provided for by the constitution and by-laws of the association, which have been duly assented to by the obligors, and made a part thereof.'

"My conclusions on the questions raised are:

"1. The complainant has a right to collect reasonable fines for nonpayment of dues. Association v. Stephens, 26 N.J.Eq. 351. I doubt whether the fine originally imposed was reasonable, but complainant has reduced it one-half. Such reduction I think makes it reasonable.

"2. The complainant has a right to recover fines for the nonpayment of dues as part of the debt secured by its mortgage. The constitution and by-laws of the association are, by express words, made a part of the contract, so that the rights and obligations of the parties in this respect stand, in point of law, precisely as they would have stood if that part of the constitution giving power to impose fines had been incorporated in the bond. The bond in Union Bldg. Loan Ass'n v. Masonic Hall Ass'n, 29 N.J.Eq. 389, 391, provided that the obligor should pay interest, 'together with all fines that may have been incurred under the provisions of the constitution;' and Chancellor Runyon held that the fines constituted a part of the debt secured by the mortgage. As in this case the constitution is made a part of the contract, the bond must be read as though it contained an express provision that fines imposed for the nonpayment of dues should be considered a part of the mortgagor's debt.

"3. The case just cited decides that fines incurred subsequently to the commencement of the suit to foreclose are recoverable. That decision is, in my judgment, clearly right, and it will be followed in this case.

"4. I am unable to see how that provision of the constitution which confers power to impose a fine for nonpayment of interest can be enforced in this cast. This provision first declares that a shareholder, for neglecting to pay his weekly dues as they become payable, shall, for each such neglect, pay a fine of five cents on each share of stock held by him, and then adds, 'and a like sum on interest due on each share borrowed on.' The important words are 'on interest due on each share.' Under the contract no interest could become due on each share, or on the money loaned on each share. The obligors made no contract to pay interest on several distinct loans, or to pay interest on the specific sum loaned on each share of stock they held; on the contrary, their obligation, as expressed on their bond, is to pay interest every three months, first on the whole sum of $8,000, and then subsequently on such part thereof as shall not have been paid by the payment of the dues on their stock. A fine can only be imposed for a default in duty or obligation. As I understand the terms of the bond in this case, no default in the payment of interest, of the kind contemplated by the constitution, can occur under this bond. The fines for nonpayment of interest sought to be recovered in this case must be disallowed, for the reason that, under a contract like that which the obligors have made, no power to impose fines for nonpayment of interest is conferred by the constitution.

"5. The obligors in this case bid off a loan of $8,000 at a premium of $1,000. The complainant subsequently advanced $7,000, and took a mortgage for $8,000. Transacting the business in this way, it is claimed, made this mortgage usurious to the extent of $1,000, or at least that no interest is recoverable on the $1,000 agreed to be paid as premium. I understand the law of this state to be firmly settled the other way. The statute expressly authorizes all corporations like the complainant to take a premium for priority of loan, and declares that no premium so taken shall be deemed to be usurious. Supp. Revision, 70. In Association v. Conover, 14 N.J.Eq. 219, it appeared that a loan of $2,000 was sold for a premium of 10 per centum, $1,800 was advanced in cash, and a mortgage given for $2,000. Chancellor Green held the transaction to be valid, and gave the complainant a decree for $2,000, with all the arrearages of interest This case, on this point, was approved on appeal by the court of errors and appeals in Herbert v. Association, 17 N.J.Eq. 497, 504, and was followed by the court in Association v. Furey, 47 N.J.Eq. 410, 20 Atl. 890. Mortgages given for the premium, as well as the money actually advanced, were held to be valid by Chancellor Williamson in Association v. Vandervere, 11 N.J.Eq. 382, and by Chancellor Runyon in Association v. Brown, 29 N.J.Eq. 121. These cases settle the question attempted to be raised finally, so far as this court is concerned. The $1,000 agreed to be paid as a premium constitutes a part of the debt secured by the complainant's mortgage, and carries interest from the date of the mortgage.

"6. The remaining question is, is the complainant entitled to recover interest on such part of the money secured by the mortgage as was not passed over to the mortgagors at or before the delivery of the mortgage, and as was not retained by the mortgagee in hand idle? To illustrate: The mortgage was delivered September 3, 1891. $1,015 of the $8,000 was not passed over to the mortgagors until January 5, 1892,—more than four months after the delivery of the mortgage. In the mean time the $1,015 was not in the treasury of the complainant, nor anywhere else. As between the parties during this interval, it had no existence; neither had it. I know of no principle of law or justice which will allow interest to be recovered under such a state of facts. To allow it to be recovered, we would have to treat a thing as a fact which we knew to be a fiction, and not a fact. On the $7,000, interest will only be allowed from the time it was actually passed over."

The other facts fully appear in the following statement by DIXON, J.:

The bill in this case was filed to foreclose a mortgage on lands in Jersey City, securing a bond, of which, with an assignment of stock indorsed thereon, the following is a copy:

"Know all men by these presents, that we, Bertrand L. Clark, of Jersey City, county of Hudson and state of New Jersey, and John Z. Demarest, of Closter, county of Bergen, state of New Jersey, are held and firmly bound unto the Lincoln Building and Loan Association of Jersey City, a body corporate of the state of New Jersey, in the sum of sixteen thousand dollars, ($10,000.00,) lawful money of the United States of America, to be paid to the said association, its successors or assigns, for which payment, well and truly to be made, we bind ourselves, our heirs, executors, and administrators, jointly and severally, firmly by these presents. Sealed with our seals. Dated the fourth day of August, one thousand eight hundred and ninety-one. The condition of the above...