Case Name: Rochester Savings Bank, Plaintiff, v. William W. Whitmore and Andrew Holzwarth, Respondents, Impleaded with The Granite State Provident Association of New Hampshire and Others. Omar A. Jenks, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1898-02
Citations: 25 A.D. 491
Docket Number: 
Parties: Rochester Savings Bank, Plaintiff, v. William W. Whitmore and Andrew Holzwarth, Respondents, Impleaded with The Granite State Provident Association of New Hampshire and Others. Omar A. Jenks, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 25
Pages: 491–499

Head Matter:
Rochester Savings Bank, Plaintiff, v. William W. Whitmore and Andrew Holzwarth, Respondents, Impleaded with The Granite State Provident Association of New Hampshire and Others. Omar A. Jenks, Appellant.
Foreign loan association — rights of borrowing members—default of an association upon its assumption of a first mortgage upon a loan made to members upon a second mortgage — rights of an assignee of the mortgage given to the association — measure of damages of the borrowing members on the default of the association'.
In a proceeding taken to determine the disposition of surplus moneys resulting from the foreclosure of a bond and mortgage,.it appeared that in March, 1894, the mortgagors became, by subscribing for eight shares having a par value of-§200 each, members of a foreign homestead loan association, -which lent money to borrowing members in an. amount not exceeding the value of their shares upon an assignment of them and upon further real estate security, the borrowers stipulating to pay a fixed sum per month on each share until such payments and the dividends on their shares had equaled the par value of the shares pledged, whereupon the real.estate security was to be discharged. In August, 1894, the mortgagors gave, as of the same date and upon the same premises, the bond and mortgage foreclosed, the amount of which was §1,000, and also another mortgage to the foreign loan association, by"the terms of which they promised to pay §3 a month, upon their eight shares of §200 each, until they became worth par. The loan association, upon its part, paid them only §600 in cash, assumed the §1,000 mortgage, and promised to pay semi-annual interest upon, it, but, by a subsequent agreement made with the mortgagors, was not to be-required to pay the principal of the §1,000 mortgage until five years from the-date of the mortgage.
In March, 1896, the loan association became insolvent, went into the hands of an assignee in the foreign State and into those of a temporary receiver in the State of New York, defaulted upon the interest, due July, 1896, on the §1,000 bond and mortgage which it had assumed, and that mortgage was foreclosed in the present action. The temporary receiver assigned the bond and mortgage given to the loan association, and his assignee claimed, as against the mortgagors, the surplus moneys in question.
Reid, that the assignee of the receiver stood in the same position as the loan association;
That as it was insolvent and could no longer perform its contracts, and had defaulted in the payment of interest upon the §1,000 bond and mortgage which, it had assumed, neither it nor its assignee could enforce the bond arid mortgage given to it, the condition of which it had violated, against the surplus moneys realized on the sale under the first mortgage, the foreclosure of which had been, induced by its default — the mortgagors being first entitled to receive there from the costs of the foreclosure and the “premiums” or “dues” paid to the loan association with interest thereon;
‘That the stipulation, that the loan association need not pay the principal of the first mortgage until five years from its date, did not relieve that association from its duty to pay the accruing interest and thus prevent a foreclosure.
Appeal by Omar A. Jenlcs, a party to the surplus-money proceedings and a claimant to the fund for the distribution of which the same was instituted, from an order of' the Supreme Court, made at the Monroe Special Term and entered in the office of the clerk of the county of Monroe on the 19th day of August, 1891, directing the distribution of the surplus’ remaining after the foreclosure sale in the above-entitled action.
The surplus money amounted to $624.16. There were two claimants to this fund, the respondents, William W. Whitmore and Andrew- Holzwarth, who claimed as the owners of the equity of redemption in the mortgaged premises, and the appellant, Ornar A. •Jenlcs, who -claimed the fund as the assignee of a second mortgage. The Special Term awarded the entire surplus to the respondents. The mortgage that was foreclosed was executed by the respondents and their wives upon théir real estate located in the city of Rochester, on the 24th of August, "1894, to secure the payment of $1,000 in one year, with interest at the rate of five per cent,- payable half-yearly on the first day of January and July.
ffihe defendant, the Granite State Provident Association, was a homestead loan coloration created under the laws of the State of. New Hampshire, having its headquarters at Manchester-in that State, and permitted to do business in this State. The members of the association became shareholders therein by subscribing to shares, the par value of which was $200, which were divided into two classes known as the borrowers and non-borrowers. The association loaned money to the borrowers on interest at the rate of six per cent upon real estate security, the borrowers assigning their shares to the association as additional security for the amount of the loan which could not exceed the par value of the shares held by the borrower. The borrower stipulated to pay a-fixed amount on each share per month until such payments, with dividends on the shares under the rules of the association, equaled the par value of the shares pledged; to redeem the security; then the security was discharged and canceled.
The non-borrowing member paid a fixed monthly rate upon his shares until his payments, with dividends under the ■ rules of the association, equaled the par value of his share, when the amount thereof was refunded to him by the association. He had the privilege, also, of withdrawing from the association upon giving sixty days’ notice under certain conditions and receiving the cash value of his certificate of shares at that time.'
On or about the 1st day of March, 1894, the respondents subscribed for eight shares- in the homestead fund of the association, and received a certificate therefor and became borrowing members-in the association.
On the 24th day of August, 1894, the association loaned to the respondents $600 and received their bond in the penal sum of $3,200* with the following conditions: “ The condition of this obligation is-such that if the above bounden William W. Whitmore and Andrew Holzwarth, their heirs, executors or administrators, shall well and truly pay unto the said Granite State Provident Association, its successors, certain attorneys or assigns, at the office of said association in Manchester, New Hampshire, the sum of twenty-four dollars in advance, on the first day of each month, until the eight shares in the homestead fund of said association owned by said William W. Whit-more and Andrew Holzwarth, and standing in their name on the books of the association, and represented by certificate of shares-Number 20,677, shall be worth par ($200 per share), being three dollars per share monthly on each of said eight' shares, and shall comply with the conditions endorsed on said'certificate, and with all the rules and by-laws of said association which are made a part hereof, then the above obligation shall be void, otherwise in full. force and virtue.”
The conditions indorsed upon the certificate referred to .contained the contract between the association and its shareholders and defined their respective rights. The respondents with their wives executed a mortgage to the association, in connection with said bond and at. the same time, which recited in substance the condition contained in the bond, and that it was in consideration -of the sum of $600, and “ in further consideration, that the said grantee (the association) has assumed and agreed to pay off when due and have cancelled of-record a certain prior mortgage hereinafter mentioned . * * ■* (then describing the respondents’ premises in Rochester), subject, however, ■to a prior mortgage of even date herewith to the Rochester Savings Bank to secure the payment of one thousand dollars, payable in one year from- date with interest ait five' per cent per annum, payable semi-annually, which said prior mortgage the said grantee, the Granite State Provident Association, as a part of the consideration hereof, hereby assumes and agrees to pay.”
This mortgage, which will hereafter be called the “second mortgage,” contained the following provision: “That-after default in the payment of interest, taxes or assessments for six months, there shall he payable hereon the sum of sixteen hundred dollars and interest, together with such other sums as may he due under the conditions, rules and by-laws mentioned in said bond or obligation, less the withdrawal value of the grantor’s said shares, and less also such sums as may be due. and unpaid upon the prior mortgage above mentioned.”
The respondents also assigned to the association their certificate of the eight shares as further security, as required by a condition in their certificate.
In March, 1896, the association became insolvent and ceased to be a going institution. The Supreme Court of New Hampshire put the concern into the hands-of an assignee “ for the public safety,” and ordered that it should not continue to transact its business or exercise its corporate.franchise. In the same month the Supreme Court of this State, in a People’s action, enjoined it from exercising its corporate franchises and collecting and receiving any of its property and effects, and appointed a temporary receiver to take charge of its property in this State. This temporary receiver executed an assignment of the second mortgage and the bond accompanying it to one Minor H. Brown, who, on the 14th of October, 1896, assigned the same to the appellant Jenks. Up to April 1, 1896, the respondents performed all of their covenants and agreements with the association and made the monthly payments of $24 upon the second bond and mortgage, amounting to the sum of $504. ; The association never paid the first mortgage nor any portion of the same, except the payment of interest due January'!, 1896,. It defaulted in the payment of the interest due in July, 1896. The action to foreclose the first mortgage was commenced in August, 1896, and the. foreclosure sale occurred January 8,1897, when the surplus fund was created. The costs of the foreclosure were $189.28 which were collected .out of the sale of the respondents’ property.
When the- surplus fund was created, the account of the association and. the respondents was as follows:
The association had advanced the loan of $600. There was interest due on that loan to April 1, 1896, $57; interest paid on the first mortgage to January 1, 1896, $66.66 ; interest upon sums unpaid to. April 1, 1896, $2.75; total, $726.41.
The respondents had made monthly payments aggregating $504. Interest upon these payments to April 1, 1896, $41.12; interest on the first mortgage from January 1 to April 1, 1896, $12.50 ; fore-, closure costs collected, $189.28, making a total of ,$746.90. There had been collected from the respondents interest upon the first mortgage from April first until the date of the sale.
On the 1st day of September, 1894, the respondents executed and delivered to the association an instrument in writing reciting that the association had loaned to the respondents $1,600, and that on the 24th of August, 1894, the respondents had executed the second bond and mortgage ; and they referred to the covenant of the association to pay the first bond and mortgage with interest, reciting an understanding between the parties that the said prior mortgage was not to be paid until after the expiration of five years from the date thereof, and that, in consideration of the premises and of the loan of the $600, the respondents covenanted “that they will not demand or require the payment or cancellation of said mortgage executed by them to the Rochester Savings Bank * * * by said association Until after the expiration of five years from the date thereof.”
George P. Decker, for the appellant.
William W. Mumford, for the respondents.

Opinion:
Ward, J.;
The Special Term made an order referring the matter to a referee to ascertain and report as to the rights of the parties to. the surplus •money, and the single question before him was, which of the parties to this controversy is entitled to it. Proof was taken by.the referee, and upon the coming in of his report the court made the' order appealed from. Tiie investigation necessarily involves the validity of the. claim of the appellant under 'the second mortgage, which had been assigned to him through the instrumentality of the receiver in the People's action, and the right of the appellant to enforce it as a lien upon the fund. We think that the court had ample power to make this investigation'and determine the rights of the parties 'Under this mortgage. (Baker v. Baker, 70 Hun, 95; Bergen v. Carman, 79 N. Y. 146; Halsted v. Halsted, 55 id. 442; Mutual Life Ins. Co. v. Bowen, 47 Barb. 618.)
The respondents insist that the appellant did not acquire all the rights of the association in the bond and mortgage assigned to him. Without discussing that question, and assuming that the- appellant stands in. the place of the association as regards. this bond and mortgage, it follows that he is subject, to the same'disabilities and conditions that the associatio.n would be under growing out -of its insolvency and its failure to perform its contract with the respondents.
The second bond and mortgage grew out of the relation of the respondents as shareholders in the association and' is so connected with the reciprocal duties and rights of the respondents, and the association that wTe' must construe the second bond and mortgage with relation to that situation.
The $1,000 mortgage to the Rochester bank was assumed by the association as a part of the contract creating the second mortgage.
The association having-become insolvent and incapable of proceeding further as a corporation, and having committed a breach of its- contract with the respondents,, the situation changed, and the' right, of the respondents for-damages'for a breach of the contract by the association had accrued. Further payments -by the respondent's, as required by their bond and mortgage, was excused by the failure of the association. It was the implied contract, at least, of the association with its shareholders that it would continue its business, keep-on hand the fund required by law for their security, and remain in a condition 'so long .as its contract continued, which would enable it-to perform its obligations.- (People v. Empire Mutual Life Ins. Co., 92 N. Y. 195; Matter of the Attorney-General v. The Guardian Mutual Life Ins. Co., 82 id. 336; Matter of Equitable Reserve Fund Life Assn., 131 id. 354, 376; Cook v. Kent, 105 Mass. 246; Swift v. Allegheny B. & L. Assn., 82 Penn. St. 142; Second Amer. Building Assn. v. Platt, 5 Duer, 675 ; Brownlie v. Russell, 8 App. Cas. 235.)
The insolvency of the corporation and its ceasing to he a going, institution left the association without power to perform its contracts and excused the respondents from further performance on their part; hence new conditions arise, and the rights of the parties must be adjusted upon the equitable principles upon which the Special Term proceeded when it credited the association with what it had paid and charged it with what it had received from the respondents. Of this the association cannot complain, as the situation arose from its own default and incapacity to perform its contract.
The second bond and mortgage, therefore, could not be enforced against the respondents, and consequently, as against them, the mortgage was not available as a hen upon the surplus money in view of the equities of the respondents, and over their superior rights as the owners of the equity of redemption in the mortgaged premises. Primarily, when a surplus is created upon a mortgage foreclosure, it retains the character of real estate and goes to the mortgagor. If any intervening right or lien exist in behalf of another person superior to the mortgagor's claim to the fund, the burden is upon the person asserting such lien to establish it. The appellant has failed to establish this lien under the circumstances of this case.
The learned counsel for the appellant, however, contends that the association was not in default with' respect to the first niortgage because of the stipulation of September 1, 1894, that the- respondents would not demand or require the payment of the first mortgage by the association until after the expiration of five years from the date thereof. If we concede that this stipulation was given upon sufficient consideration, it must be construed in connection with the agreement of the association contained in the second mortgage to pay the first mortgage with interest semi-annually and with the purpose and intent of the parties with relation to that mortgage. The stipulation does not waive the obligation of the association to pay the semi-annual interest, nor does it excuse the association from the duty of protecting the respondents from the foreclosure of that mortgage and the sale of their property. The most that Can he claimed for that- stipulation is that, as long as the bank would permit the first mortgage to remain without foreclosure and the association . paid the interest thereon, the respondents would hot insist upon its payment under five years from its date.
Considerable discussion arises upon the points of the learned counsel as to the rights of various shareholders in the association other than the parties to this controversy ; and it is claimed by the appellant's counsel that it would be unjust to the non-borrowing shareholders to permit the respondents to be allowed their advances upon the- bond and mortgage and the costs and interest that they have paid; while it is insisted by the respondents' counsel that, in the adjustment of the equities bet ween. the. two classes of shareholders, the borrowers are the greatest sufferers under the scheme adopted by the association.
The record before us does not disclose the facts upon which we can intelligently pass upon the rights and equities of other shareholders, not parties to this controversy. Nor are we required to do so. The appellant has chosen to submit his claim to this fund to this proceeding, and not to test the rights of the parties by an appropriate action where all parties interested in the general funds of the association could be represented, with issues properly framed ; and he must stand or fall upon the conditions which appear in this record.
The appellant's counsel also claims that the "dues" which have been paid by the respondents' under their contract with the association have been lost and cannot be recovered back. These " dues " appear in the proceedings to be called " premiums " as well. The difficulty with this contention is that the association and its assignee cannot stand upon a contract which they have violated. The respondents are entitled to recover all that they have paid, whether it is called premiums, dues or payments and the-interest on the same, because the contract is at an end, and, as we have said, the rights of the parties are to be adjusted upon equitable principles. As a result of the failure of the association to perform its contract to protect the respondents from the bank mortgage a foreclosure has occurred and the respondents have been compelled to pay a considerable bill of costs. There is no reason why they should not be allowed the amount of these costs in this proceeding, and the court at Special Term properly made the allowance. .
These views lead to the conclusion that the order appealed from should be affirmed, with costs, which should be paid by the appellant personally.
All concurred, except Follett, J., who concurred in the result.
Order affirmed, with costs.