Opinion
01-14-1899
MANHATTAN & S. SAVINGS & LOAN ASS'N OF NEW YORK v. MASSARELLI et al.
Robert M. Boyd, Jr., for complainant. Roberson & Demarest, for defendant Welshire. Van Buskirk & Parker, for defendants Alassarelli and Lee.
Bill by the Manhattan & Suburban Savings & Loan Association of New York against Gennaro Massarelli and others. Decree for complainant.
The bill in this case is filed by a building and loan association, incorporated under the laws of New York, to foreclose a mortgage given by defendant Massarelli, as one of its members, upon his lands in New Jersey. The mortgage and the bond it secures, which are both executed by Massarelli, recite his ownership of shares of the association of the par value of $5,600, and that he has borrowed, in the manner provided by the articles and by-laws, the full matured value of the shares, and that the sum of $5,600, with interest at 6 per cent from the time of making the loan, together with the monthly premium of 20 cents per 100 dollars, bidden by him, is to be repaid in the manner prescribed in the articles and by-laws. The manner of payment, as fixed by the condition, is the payment of $00.20 per month until 14 of the shares ($2,800) mature, and then $26.60 per month till the remaining 14 shares mature. The bond and mortgage further expressly provide, among other things, for the payment of fines on the holder of the shares under the articles, and that, on default in the monthly or other payments and charges for two months after they become due and payable, the entire principal sum of $5,600, or the balance remaining unpaid according to the articles and by-laws, with all arrearages of interest, shall, at the option of the association, become due and payable. The mortgage is made subject to another mortgage of the same date, given by Massarelli upon the same premises, to one Mary Strybing. for $5,000, with interest at 6 per cent.; which sum, with interest from the date of its own mortgage, the association assumes and agrees to pay as part of the consideration of its own mortgage. As a matter of fact the association, in carrying on its business of making loans to its members, instead of loaning money which has been paid in by the members, procures, in some instances, an advance of the money by a third person, to whom the member gives a first mortgage, the amount of which is assumed by the association, and is included, as above stated, in the member's mortgage to the association. The member, in such cases, pays directly to the association the monthly installments and premiums, and the association pays the interest on the first mortgage. Massarelli procured the loan for the purpose of completing and paying for the construction of a building which was in the course of erection upon the mortgaged premises at the time of the granting of the loan for $5,600, and, as appears by his written application for the loan, the advances were to be made as the association desired. The rules of the association (article 24, § 7) provide that interest and premiums on loans shall be payable from the date of bidding off the loan, which in this instance was October 24, 1895; and, within a few days from thisdate, the solicitors of the association, who were also the solicitors of Mrs. Strybing, received from her the $5,000, which was to be advanced by her to Massarelli upon the security of the first mortgage, and the mortgage to her and the association were then drawn, both bearing date October 25, 1895. The rules (article 25, §§ 3, 9) provide for the examination and approval of the title by the attorney of the association, and the payment of the attorney's charges by the borrower. In the present instance, delays in the actual advance of the moneys to Massarelli occurred by reason of defects in the title, failure to have the building completed according to the specifications, and other defaults; for which, however, as I find, upon the evidence, the association was not chargeable. The bond and mortgage were not in fact executed until January 14, 1896, when Massarelli also assigned to the association, as collateral, the shares which had been previously issued to him. The delivery of the papers at this date, without change in the date, was a fair settlement by the parties interested, in reference to the right to interest on the entire amount from their date. Subsequently to the delivery of the mortgage, Mrs. Strybing, through her attorney, advanced to Massarelli. or for his account, $4,469.08, of which $3,625 was paid to defendant Welshire, a contractor, who has executed a release or waiver of lien upon the premises. The balance of the Strybing mortgage, $530.92, was not advanced, by reason of alleged defects in title and in the construction of the building, which disentitle Massarelli, as complainant claims, to a further advance, and Mrs. Strybing has begun a foreclosure suit on her mortgage, which was due in one year. This suit is now pending. The portion of the entire loan of $5,600 which was to be advanced by the association itself, being $600, was not in fact advanced, but the money was ready for Massarelli immediately after the bidding in of the loan, and was held by the association for him, pending the perfection of the title and the completion of the building, until July 1, 1896, when, by entries upon its book in Massarelli's accounts, it credited the sum against his dues and installments. No installments under the mortgage, or dues to the association, were ever paid by Massarelli, otherwise than by this credit, and the credit of $600 was absorbed by the charges for interest, installments, and fines up to July 1, 1896. No payments being made for the August installment and dues, as provided in the mortgage, and this default being continued for two months, the association, on October 8, 1896, assuming to act under the option given in the mortgage, declared the entire debt of $5,600, with interest, due, and directed foreclosure. The association never paid the principal of the prior mortgage, which was assumed as part of the consideration of its mortgage, but has paid interest on the entire principal sum of mortgage, the amount of the payments up to the hearing being $450. Defendant Massarelli, and his subsequent grantee, Lee, who holds the title for him, attack the validity of complainant's mortgage, and contend that nothing was due on the complainant's mortgage at the time of foreclosure. These defendants also insist at the hearing, but not by their answer, that the mortgage is illegal, under the provision of the corporation act requiring foreign corporations to procure a certificate from the secretary of state before transacting business in this state. Act 1896, § 97. The defendant Welshire, who has, since filing his answer, obtained judgment against Massarelli on a lien claim for the balance due him on the construction of the building, also claims that his release of lien claims does not preclude him from the recovery of this balance as a lien prior to complainant's mortgage.
Robert M. Boyd, Jr., for complainant.
Roberson & Demarest, for defendant Welshire.
Van Buskirk & Parker, for defendants Alassarelli and Lee.
EMERY, V. C. (after stating the issues). Upon consideration of the pleadings and proofs in the cause, I reach the following conclusions:
1. The bond and mortgage executed by the defendant Massarelli and wife to the complainant, a New York building and loan association, must, under the evidence in the cause, be regarded as contracts made and to be performed in New York by the defendant, as a member of the association, and the validity of the contracts is to be governed by the laws of New York, although the debt to be paid is secured upon lands of the defendant situate in the state of New Jersey. Our statutes allow a foreign corporation to hold mortgages on lands in this state, and complainant is entitled to recover the amount due, even though it has not filed the certificate required by section 97 of the corporation act, if that section be held to apply to this case, and this defense is admissible under the pleadings.
2. Under the laws of New York, the bond and mortgage are valid securities, and the complainant association, as part of the loan of $5,600 made or agreed to be made by it to Massarelli, as one of its members, had the right to include the assumption of the prior mortgage of $5,000 to Mrs. Strybing as part of an entire loan of $5,600, which, with interest, was to be repaid to the association by monthly installments, as provided in the bond and mortgage and articles of association. The right is expressly conferred, by the New York statute, upon the complainant, to take, as security for its loans, second mortgages, when the second mortgage to the association is given in a sum sufficient to cover any first mortgage that may be a lien upon the property in addition to that of the association; and the object of this provision seemsto be to allow the association to include, as part of the loan made by it, the amount of the prior mortgage, which amount may, under the association mortgage, be secured to be paid to the association by installments, according to its articles and by-laws. The assumption of the first mortgage by the association would then be valid and legal, as part of the consideration of the payment of the entire amount of both loans to the association, as provided in its mortgage. This method appears to have been adopted in New York under this statute, and hitherto does not seem to have been questioned in its courts.
3. The defendant Massarelli having failed to pay the installments as stipulated in the bond and mortgage, the complainant is entitled to foreclose for the payment of these installments coming due under the terms of the bond and mortgage, but is not entitled to declare the entire amount of $5,600, with interest, due and payable, inasmuch as it has not itself paid the mortgage which it has assumed to pay. The amount of the prior mortgage, which was merely assumed by the association, cannot, in fact, become a debt due to it as guarantor until it has made payment; and the right given by the bond and mortgage to consider the amount assumed as due, on default in payment of the installments, does not relieve the association from such performance on its part of the contract of assumption as is necessary in order to make the amount assumed a debt actually due to the guarantor. The declaration made by the association on October 8, 1895, that the whole amount of the loan, $5,600, and interest, was due, was therefore ineffectual. Nor can the obligation of complainant to pay the mortgage assumed before it becomes a debt be performed, as complainant's counsel claims, by crediting the amount of the mortgage still unpaid, and giving complainant a decree for the entire amount, less this outstanding mortgage. The reason is that the mere credit of the amount due on the mortgage does not pay it, and it still remains, together with the bond, a debt of Massarelli, which he owes to the holder, which will not be discharged by a mere credit given by the guarantor. In this foreclosure suit, therefore, a decree can be obtained only for the amount due for the installments provided in the bond and mortgage, according to its terms, together with such other payments expressly provided for, such as fines, etc., as are in equity recoverable.
4. In estimating the amount thus due, the complainant must give credit for the $600 in its hands and held for defendant on the making of the loan, October 25, 1895. The bond and mortgage, after applying this $600 to the payments therein provided for, must still be considered an existing and valid security, for the purpose of securing complainant on its guaranty or assumption of the prior mortgage. Fines for nonpayment of monthly installments cannot, however, be collected after the filing of the bill of foreclosure, inasmuch as from that time the complainant formally repudiated the right of Massarelli to make payments of monthly installments, and, until this right is recognized by complainant, no fines for nonpayment would be reasonable.
5. The complainant's mortgage is prior to the lien claim of the defendant Welshire, and must be satisfied before Welshire's lien claim. The release of his lien claim executed by Welshire, and upon the faith of which complainant assumed the prior mortgage and received its own mortgage, is valid, and, in my Judgment, covers the entire claim of Welshire in connection with the erection and completion of the building, whether such work was done before or after the date of the release. The cross bill of defendant Welshire, to compel payment of his lien claim to him before complainant's claim, is dismissed.