Hudson Bldg. & Loan Ass'n v. Et Ux.

• Decision Date: 04 October 1946
• Docket Number: No. 216.,216.
• Citation: 49 A.2d 131
• Parties: HUDSON BUILDING & LOAN ASS'N v. BLACK et ux.
• Court: New Jersey Supreme Court

49 A.2d 131

HUDSON BUILDING & LOAN ASS'N

v.BLACK et ux.

No. 216.

Court of Errors and Appeals of New Jersey.

Oct. 4, 1946.

Appeal from Court of Chancery.

Suit in equity by the Hudson Building & Loan Association against Louis H. Black and wife to foreclose a mortgage, in which defendants filed a counterclaim for, and set-off of, the amount due them from complainant on paid up shares of its stock. From a decree denying foreclosure and declaring satisfaction of the mortgage, N.J.Ch., 137 N.J.Eq. 427, 45 A.2d 318, complainant appeals.

Reversed and record remitted to the court of chancery.

LeRoy Vander Burgh, of Hackensack, for complainant-appellant.

Joseph H. Gaudielle, of Hackensack (James A. Major, of Hackensack, of counsel), for defendants-appellees.

FREUND, Judge.

The complainant appeals from a decree denying the foreclosure of complainant's mortgage and decreeing the satisfaction of said mortgage.

The appellant alleges in its complaint that on October 5, 1923 Louis H. Black and his wife borrowed from the complainant the sum of $5,400 evidenced by a bond and secured by a mortgage encumbering the premises therein and in said complaint described. The defendants agreed to repay the borrowed moneys

‘* * * by the payment of the sum of twenty-five cents per week on each of 27 shares, 52nd series, of the capital stock of said corporation, owned by said parties of the first part, and standing in their names, on the books of said corporation, and assigned to it as collateral security for the payment hereof, and on which this loan is based, during the period of this loan, together with all fines which may become due as provided by the Constitution and By-Laws of said corporation, which have been duly assented to by the said obligor and made a part hereof, and together with interest on said sum, to be computed from the date hereof at the rate of six per cent. per annum, * * *

‘Provided, However, that when the funds of said corporation in said pledged series shall equal two hundred dollars per share above all liabilities of said corporation, no further payments shall be required hereon except arrearages, if any, and thereupon a satisfaction piece for the cancellation hereof and of the mortgage given to secure this bond, shall be executed and delivered to said obligors, their heirs, executors, administrators or assigns, and said 27 shares shall thereupon also be cancelled.’

The complainant further alleges that in September, 1937 default was made in the payment of said dues and interest, whereupon complainant elected to foreclose its mortgage and that there was then due ‘the whole principal sum of $5,400, and interest thereon from September 30, 1937.’ The complainant prays that ‘an account may be taken of the amount due on complainant's mortgage’ and that ‘a decree may be made for the sale of the mortgaged premises and the shares pledged as collateral security as aforesaid, to raise and pay to the complainant the amount so found due on its mortgage, with interest and costs.’

The defendants by their answer admit the making of complainant's bond and mortgage but allege that on October 5, 1923 ‘defendants were only indebted to the said complainant on that day in the sum of $4,964’ although the complainant agreed to loan defendants the sum of $5,400, the difference of $436 being retained by the complainant as a premium. Defendants by their counterclaim allege that in 1932 there remained due to complainant on its bond and mortgage the sum of $3,587, but defendants, having available funds, instead of paying the balance due on complainant's mortgage, invested the sum of $5,200 in the appellant Association and received a certificate for 26 paid up shares having a value of $200 each and bearing interest at five per cent. per annum payable quarterannually. Subsequently, the appellant called in all outstanding paid up shares and issued in place thereof new certificates paying a reduced rate of interest. Defendants complied with the appellant's request and received eight new certificates in place of the paid up certificate issued in 1932. In 1938 the defendants applied to appellant for the withdrawal of the proceeds of one of said certificates of paid up shares and received payments on account thereof. Defendants have not demanded of the appellant payment of the withdrawal value of the other paid up certificates. Defendants allege that there is due from appellant upon the paid up shares a balance of $4,850.75 and accrued interest of $1,323. Defendants admit that in 1923, when they executed the bond and mortgage in question, they subscribed for 27 shares of stock from said Association, having a maturity value of $200 each, which were pledged to said Association as collateral security for the eventual payment of the amount due, and to be paid in accordance with the terms and conditions stated in said bond and mortgage. Defendants further allege that they have paid on account of the pledged shares the sum of $4,995 and the sum of $2,571.71 for interest. Defendants further admit that in ‘1940 the Commissioner of Banking and Insurance of the State of New Jersey, having determined that’ the complainant ‘was insolvent’ took possession of the appellant Association and ‘proceeded to liquidate the same for the benefit of the shareholders and creditors.’ The defendants also urge ‘that they be permitted to set off against the amount which they owe upon the bond’ of these defendants secured by said mortgage, ‘the amount due to them from said Association upon the paid up shares of said Association’ shown by the certificates owned by defendants, and the mortgage receipted and surrendered for cancellation.

The defendants brief and argue three points; (1) that ‘the proofs amply demonstrate that the mortgage was paid’; (2) that ‘the defendants occupy the status of creditors'; and (3) that ‘the complainant seeking equity must do equity.’

The mortgage under foreclosure, together with the bond secured by said mortgage, is the usual form of sinking fund loan authorized to be made by building and loan associations, with interest calcuated on the unpaid balance of principal at the end of every three months from and after the date of the bond. There is annexed to and made a part of the defendants' bond an assignment of the pledged shares, wherein the defendants agreed that the pledged shares were assigned to the appellant ‘as collateral security for the payment of the debt mentioned in the’ complainant bond.

The premium charge when paid was not usurious, as alleged by the defendants. Premium charges were permitted by statute when the mortgage loan in question was made, P.L.1918, Chap. 127, p. 291. However, the complainant admits that ‘the defendants are entitled to be credited with the amount which they paid in premiums at the time of executing the mortgage, inasmuch as the liquidation prevented the Association from carrying out the terms of its contract.’ Weir v. Granite State Provident Ass'n, 56 N.J.Eq. 234, 38 A. 643; Harris v. Nevins, 68 N.J.Eq. 183, 58 A. 1051, affirmed 68 N.J.Eq. 684, 63 A. 172; Reliant B. & L. Ass'n v. Sauter, 128 N.J.Eq. 599, 17 A.2d 810.

The learned Vice Chancellor fell into error when he found that ‘the amount of dues paid were to be deducted from the amount of principal and interest’ and that ‘all dues paid on the shares were expressly deducted from the principal of the debt.’ We have carefully examined the bond and mortgage and do not find therein any such provisions nor do the proofs justify such conclusions.

The defendants contend that, although the original principal sum was $5,400, they actually received the sum of $4,964, and having paid on account of the pledged shares the sum of $4,995, that when the latter ‘amount was repaid it matured the series.’ The testimony and exhibits disclose that the periodical payments agreed to be made by the defendants were payments on account of the pledged shares assigned by the defendants to complainant and were not payments on account of the mortgage debt. The bond and mortgage so provides and no credit on the mortgage debt can be allowed for payments made for dues on account of the pledged shares assigned to appellant as collateral security or for the value of such shares, unless and until the pledged shares have matured in accordance with the agreement between the parties. The mortgage loan was ‘payable in shares of the association * * *.’ R.S. 17:12-41, N.J.S.A. By the terms and conditions of the bond and mortgage as to the method for the repayment of the moneys borrowed, the defendants expressly agreed that ‘when the funds of said corporation in said pledged shares shall equal two hundred dollars per share above all liabilities of...