Opinion
10-11-1897
MERCHANTVILLE BUILDING & LOAN ASS'N v. ZANE et al.
M. V. Bergen, for complainant. T. E. French, for defendants.
Bill by the Merchantville Building & Loan Association against Charles E. Zane and others to foreclose a mortgage. Decree for complainant.
This bill is filed to foreclose a mortgage made on May 9, 1890, by Charles E. Zane and wife to the Merchantville Building & Loan Association, to secure the payment of the sum of $5,000. The condition in the accompanying bond was that the obligor should pay to the complainant, its successors or assigns, the sum of $5,000, with interest thereon at the rate of 6 per cent. per annum, and the premium thereon; said principal, interest, and premium to be paid at such times, in such places, and in such installments as now or hereafter may be provided for or required by the constitution and by-laws of said association. The mortgagor, at the time of the execution of the mortgage, assigned to the complainant 10 shares of stock in the seventh series, and 15 shares in the eighth series, in the association, as collateral security for the payment of the mortgage debt. On February 1, 1894, Zane, the mortgagor, executed another mortgage upon the mortgaged premises to one Edward B. Sudbury to secure the sum of $1,000, and on the same day still another mortgage to the same party to secure the sum of $4,000; both sums so secured being pre-existing debts due from Zane to Sudbury. On June 5, 1894, Zane withdrew, by permission of the association, the 10 shares of stock in the seventh, and the 15 shares in the eighth, series, which he had assigned to the association as collateral security. The association paid him their withdrawal value, which was $1,907.40. Zane substituted for the collateral securities thus withdrawn 25 shares of stock in the thirteenth series of the stock of the association, being the current series, of that date, and then of little or no value. On August 28, 1895, the lastmentioned shares were withdrawn; Zane receiving, as their withdrawal value, the sum of $409.75. He substituted in their stead 25 shares of the fourteenth series of the stock of the said association, which shares have now a withdrawal value of $382.81.
M. V. Bergen, for complainant.
T. E. French, for defendants.
REED, V. C. (after stating the facts). The insistence made upon the part of Mr. Sudbury, the second mortgagee, is that the mortgage of the association is paid, and therefore his mortgages have precedence. The way in which the mortgage of the association was paid, as it is insisted by the counsel of Mr. Sudbury, is this: The condition of the bond(to secure which the mortgage was given) was that the mortgagor should pay the principal, the interest, and the premium at such times and in such places as were provided for by the constitution and by-laws of the association. The by-laws provide (section 7) that every member, for each share of stock held, shall be entitled to the loan of $200; and in section 6 that the premium paid for the prior right to a loan of $200, or the multiple thereof, shall be at a rate per share, and shall be payable monthly by the stockholder borrowing. Now, the point made is that, inasmuch as this loan of $5,000 was made originally to Zane by virtue of his holding the original 25 shares thereof, therefore the condition of the bond in respect to the payment of premiums, etc., refers to the premiums to be paid upon those shares. In connection with this insistence it is also pointed out that the substitutions of shares in the two instances mentioned, viz. on June 5, 1894, and August 28, 1895, were made upon applications for a loan, as if the loan of $5,000 was regarded as a new transaction occurring at those dates, and as made to Zane as the holder of the new series of stock held by him at the times of the respective applications. Inasmuch as the original shares have ceased to exist, and with their extinguishment has ceased the duty to pay the dues and premiums upon them, it is argued that the condition of the bond has lot been broken, or, rather, has been performed, and the mortgage satisfied. I am unable to assent to this proposition. A part of the scheme provided by the by-laws of this association, like that of all such organizations, was to enable the shareholder to receive, in anticipation, the matured value of his shares. The loan so received, it was expected, would be paid by the application to it of the value of the shares when the value of each should amount to $200. The language of the condition in the bond was employed in view of this well-understood purpose. The $5,000 was to be paid through the monthly payments of interest, dues, and premiums for such period as would be required to mature 25 shares of stock. The substantial feature of the condition was that the mortgagor should have the right to pay by the application of the matured shares. The shares upon which the payments were to be made were originally the 10 shares of the seventh series and 15 shares of the eighth series. When, however, on June 5, 1893, the association consented to release the original shares, and accept others in their stead, thereafter the condition in the bond, by the very quality of the transaction, required the payment of the interest, premiums, and dues upon the new shares until they matured. The same consequence followed the second substitution. The condition thereafter required the payment of the interest and dues upon the shares in the fourteenth series until they became worth $200 each. There never was a performance of the condition of the bond, nor a satisfaction of the mortgage.
But there is another question involved in the cause. This question is whether, as between the second mortgagee and the association, the former is entitled to have the withdrawal values of the shares released deducted from the amount due to the association. This query is not propounded upon the notion that the value of the shares was to be applied as pro tanto payment of the mortgage; for it is entirely settled that payment of dues upon the stock is not a payment upon the mortgage debt, and does not, ipso facto, work an extinguishment pro tanto of the mortgage. 2 Am. & Eng. Enc. Law, 639; Association v. Conover, 13 N. J. Eq. 219; Herbert v. Association, 17 N. J. Eq. 497; Association v. Martin, 13 N. J. Eq. 428; Association v. Vandervere, 11 N. J. Eq. 382; Association v. Hornbaker, 42 N. J. Law, 635. The question is one involving the doctrine of marshaling. The position of the parties at the time of the release of the shares was this: The association held the first mortgage, with the subsequently released shares as collateral security, the defendant holding a second mortgage. Here there was, then, the association, the older creditor, holding two securities, viz. the mortgaged premises and the shares of stock, and a second mortgagee, the junior creditor, with a lien upon the mortgaged premises alone. The right of the latter to demand of the former that he should apply the security peculiar to himself was clear, and the rule seems equally clear that if the older creditor, having knowledge of the junior incumbrance, released his peculiar security, he ran the risk of having its value charged against him if the common security is insufficient to pay both debts. Reilly v. Mayer, 12 N. J. Eq. 55; Association v. Beaghen, 27 N. J. Eq. 99. But the junior incumbrancer can successfully complain only when it appears that the security was released after the older creditor had notice of the existence of the junior incumbrance. There is nothing to prove that the association was chargeable, at the time of the substitution of the shares, with knowledge of the existence of the mortgages to Sudbury. Zane himself was a director, and he, of course, had notice, as the maker of the subsequent mortgages; but he took no part, as a director, in the transaction of which the substitutions were a part. In these transactions he was acting independently of the board. He was acting for himself, and the other directors were acting for the association. He was asking of the association that they should pay him the value of the shares which he individually held. Knowledge of his private transactions cannot, under these circumstances, be imputed to the association. Bank v. Christopher, 40 N. J. Law, 435. I will advise a decree for the complainant.