Opinion
01-03-1895
GRANITE STATE PROVIDENT ASS'N v. MONK et al.
Frank P. McDermott, for complainant. George W. McEwen, for defendants.
Suit by the Granite State Provident Association against George Monk and others to foreclose a mortgage. A reference to a master ordered to ascertain the amount due.
Frank P. McDermott, for complainant.
George W. McEwen, for defendants.
GREEN, V. C. This is a bill to foreclose a mortgage dated February 17, 1890, made by George Monk and Sarah A., his wife, William Gillies (widower), Joseph Shelley, and Norma, his wife, parties of the first part, to the Granite State Provident Association, a corporation organized under the laws of the state of New Hampshire, on certain property in West Hoboken, conditioned to pay to complainant, Its successors or assigns, the sum of $2 per month, monthly, in advance, on the 15th day of each and every month, on each of 15 shares of the building and loan fund of complainant, owned by the said parties of the first part, and standing in their names on the books of complainant; that is, $30 per month on said 15 shares, until the series of shares of which said 15 shares are part should be worth par, or $200 per share, when a proper satisfaction piece for the cancellation of the mortgage was to be duly executed. The mortgagors also assigned, as further security to complainant, the said 15 shares of stock in the building and loan fund of complainant, which assignment is indorsed on the certificate of stock, the latter being delivered to complainant. No part of the principal or interest money or dues upon the said 15 shares having been paid since May 15, 1892, this bill was filed to foreclose the mortgage. The answer of the defendants admits the execution and delivery of a mortgage to secure the payment of $1,000, but claims that at its date they were only indebted to the complainant in the sum of $400, and that the mortgage was given tosecure the payment of $400 only; that the consideration of the mortgage was the receipt by them of $400, and no more; claiming that this amount has been paid, and that they were induced to sign a mortgage for $1,000 to secure the loan of $400, upon a false and fraudulent representation that the complainant was a mutual building and loan association, entitled to do business under the laws of New Jersey, and that it was itself loaning to the defendants the sum of $2,400, and, further, that the installments paid to complainant on the mortgage would be applied by them to the said loan of $2,400, and would pro tanto reduce such loan by so much, which representations defendants assert were false and fraudulent. The answer charges that the complainant was not a mutual building and loan association authorized to do business in New Jersey; that the complainant was not itself loaning defendants $2,400, but only $400; that two mortgages were made for said sum of $2,400, and for said additional $600, premium and bonus for the loan of $400, viz. a first mortgage of $2,000, and a second mortgage of $1,000, for said loan of $400, and premium of $600 for said loan; that the said first mortgage was not to the complainant, but said loan was assigned by it to one Barthold Michaels, and was secured by a mortgage for $2,000, at 6 per cent. for five years, no part of which could be paid within five years, and that said $2,000 was advanced by said Michaels, and is now a valid, subsisting lien against said property, unreduced in amount, and is now held and owned by the executrix of said Michaels; that none of the payments made, or to be made, according to the terms and conditions of the loan, were ever applied by the complainant to the payment of said first mortgage, and that it was not reduced by said payments by the amount of those payments, or by any amount whatever; that the defendants have paid to complainant the whole amount of $400 so loaned to them, with lawful interest thereon to date. The defendants also plead that the agreement under which the said mortgage was given was usurious, alleging that the loan was of $400, for which a mortgage of $1,000 was given, with an agreement to pay interest on $1,000, and to pay $600 in addition to lawful interest for the loan of $400, together with interest on said $600 at the rate of 6 per cent. per annum; alleging that the said $600, together with the interest thereon, was agreed to be paid as a bonus or premium to the complainant for the said loan and forbearance; alleging that they have paid complainant the whole of the $400 loaned, with interest thereon for three years, amounting to $72, and, in addition thereto, $360 on account of the bonus and the interest thereon; and insist that the said mortgage is fully paid, and no lien or charge on said real estate. They admit that on the loth of February, 1893, there was justlydue on said mortgage $37, which they allege was duly tendered to the complainant, and was accepted, whereby the mortgage was wholly paid and discharged.
The complainant is a corporation of the state of New Hampshire, incorporated by a special act, approved August 11, 1881. A supplement thereto was approved September 30, 1887. The first section of its charter gives it the right, among other things, of acquiring by purchase, lease, mortgage, or otherwise, and of holding absolutely and unconditionally, lands, real estate, and personal property, and of selling, alienating, transferring, mortgaging, leasing, conveying, or in any way disposing of the same, and otherwise acting as a building association, enabling members to purchase or build their own houses. By the seventh section it is empowered to enact by-laws, to carry out the objects of the act, and for the organization, maintenance, and government of the association, as well as for the application of its funds and profits, such by-laws not to be inconsistent with the laws of New Hampshire or of the United States. Monk, Gillies, and Shelley, on January 18, 1890, subscribed for 15 shares in the building club fund of the complainant, the Granite State Provident Association, of the par value of $200 each, agreeing to pay, on account of the same, $1 a month on each share until it was worth par, and to be governed by the by-laws of the association. The by-laws are printed upon the back of the subscription paper, and provide that each shareholder shall pay on each share a sum not less than $1 a month, which payment shall continue in each series until the shares in that series are worth $200. Any member neglecting to pay monthly dues is subject to a fine of five cents per month on each dollar in arrears. Shareholders are entitled to a certificate of shares transferable by them. No member of the association could apply for a loan until the expiration of three months from the date of the certificate of shares, but this section could be waived by his paying four months' dues in advance. By section 14, borrowers refusing or neglecting to pay the dues, interest on their loans, incur a fine of 10 cents for each monthly neglect on each loan of $200 by them held. If they remain unpaid more than six months, the board of directors may compel payment of principal and interest by ordering proceedings on the bond and mortgage according to law. There is written on the face of the defendants' subscription paper as follows: "$60, being for four months' dues," which I presume was a payment to enable the defendants to apply immediately for a loan, which they did, under date of January 20, 1890, asking a loan on 15 shares of the Granite State Provident Association, and promising, on the approval of the application, to pay into the local guaranty fund in the hands of the trustees, as a guaranty premium commission, $40 for each $200 loaned upon the property therein described, authorizingthe association, when the loan was made, to deduct the amount, and hold the same subject to their own order. They received, as "Messrs. Monk, Gillies & Co.," a certificate for 15 shares of the Granite State Provident Association, dated Manchester, N. H., January 15, 1800, with a statement on the margin that the par value is $200 per share, and the monthly dues $1 per share, which certificate is indorsed with an assignment to the complainant, under date of April 24, 1890. The application for the loan, while not specifying it, was for the gross amount of $3,000, being $200 a share for 15 shares. The complainant, not having the ready funds for investment, effected a loan on the property for $2,000 from Barthold Michaels, to secure which the defendants executed a mortgage to him, which the complainant assumed, and agreed to pay off and have canceled of record, as part of the consideration for the mortgage in suit. This mortgage is not, as stated in the answer, for $1,000, but is conditioned for the payment of the sum of $2 per month on each of the 15 shares of the building and loan fund of the association; that is, $30 a month until the series of which their shares were part was worth par, or $200 per share. All the defendants received on the two mortgages was the sum of $2,400. The mortgage of $2,000, payment of which is assumed by the complainant, is still outstanding, and a first lien upon the property. This foreclosure is without reference to that incumbrance. The evidence failed entirely to substantiate the defense that the mortgage in suit was obtained by false and fraudulent representations. So far as this is a commercial transaction, I see no reason why the complainant may not have been a party to it in New Jersey.
The real question in dispute is whether this New Hampshire corporation could deduct the amount of premium from the loan without rendering the transaction subject to the objection of usury. I do not think the mortgage is tainted with usury. The transaction was simply this: The complainant agreed to loan to defendants $3,000, on which they agreed to pay a premium of $600. Not having the ready money, the complainant borrowed $2,000 from a third party, the payment of which was secured by a first mortgage on the property, and the complainant advanced $400 of its own money, and assumed the payment of the $2,000 mortgage. It then took the mortgage in suit, conditioned practically for the payment of $30 per month until those payments, with a share of profits, should amount to $3,000, which discharges the mortgage. All payments enhance the value of the stock until it amounts to par, which is a payment of the debt; there is no payment of interest as such. This transaction, was February 17, 1890. The monthly payments, if regularly made, without profits, would run for a period of 100 months, or 8 years and 4 months, to reach $3,000. The interest on $3,000 for that period would be $1,500, and on $2,400 would be $1,200. Treating the $600 in the light of interest, it was a deduction of less than the interest would have amounted to in the regular course of events, and may be considered simply as discount deducted. The loan would not run the full 100 months in consequence of the defendants' being entitled to share in the profits; but, as I understood on the trial, this would not reduce the time much more than a year, which does not affect the view taken of this branch of the case.
Neither do I think the contention of the defendants that this mortgage is to be held as security for only $400, which has confessedly been paid, can be maintained. The mortgage itself recites as follows: "That the said mortgagors, in consideration of the sum of $400 paid by said mortgagee to said mortgagors, the receipt whereof is hereby acknowledged, and in further consideration that the said Granite State Provident Association, the mortgagee as aforesaid, has assumed and agreed to pay off and have canceled of record a certain prior mortgage hereinafter mentioned, by these presents," etc.,—and contained this covenant: "And the said Granite State Provident Association, mortgagee as aforesaid, as part of the consideration hereinbefore expressed, hereby and by the acceptance of this mortgage, covenants and agrees to and with the said mortgagors, their heirs, executors, administrators, and assigns, to pay when due, according to the tenor and effect thereof, a certain prior mortgage on above-described premises, given by said George and Sarah Monk, William Gillies, Joseph and Norma Shelley, to secure the payment of a certain bond of even date therewith, conditioned for the payment of $2,000 and interest at six per cent., payable semiannually, which mortgage bears date 1 the 17th day of February, 1890, and was recorded ——, in—— county, register's office, in Book — of Mortgages, pages ————, and to have said mortgage properly canceled of record." According to the very terms of the mortgage, in consideration of this covenant, the mortgagors are, as a condition of the mortgage, to pay to said mortgagee, its successors and assigns, the sum of $2 per month, monthly, in advance, on the 15th day of each and every month, on each of 15 shares of the building and loan fund of said association, owned by said George and Sarah A. Monk, William Gillies, Joseph and Norma Shelley, and standing in their names on the books of the association, and known and described as certain shares No. 2,385; that is, $30 per mouth on said 15 shares, as provided for by the terms, rules, and by-laws of said association, which have been duly assented to by said mortgagors, and are made part hereof, until the series of shares of said association of which said 15 shares are part shall be worth par, or $200 per share, "when a proper satisfaction piece for the cancellation of this mortgage shall beduly executed and delivered to said George and Sarah A. Monk, William Gillies, and Joseph and Norma Shelley, their heirs or assigns, and said fifteen shares shall thereupon also be canceled. Then these presents and the estate hereby granted shall cease, determine, and be void." The condition of the mortgage then is that this payment of $30 a month shall continue until the shares are worth $200, and the payment of $400 cannot be considered as discharging the mortgage. Although the bill is filed for foreclosure of the mortgage for the whole amount of principal and interest, claiming a right to do so under the provisions of the by-laws that, after default in the payment of an installment for over six months, the trustees might elect to declare the whole amount due, there was no proof of any action on the part of the trustees of their having exercised such option; and, on this being suggested to counsel, he abandoned so much of the case as involved a decree for principal, and limited the claim to foreclosure for nonpayment of the installments. There is some difficulty in adjusting the amount which may be properly held in arrear, as it involves the question as to the surrender value of the shares now held by the complainant as collateral, and as to what amount of profits the defendants are to be entitled to. I shall therefore advise a reference to a master, to report the amounts which may be due, with reference to the different phases in which this case may present itself, and all further questions are reserved until the coming in of the master's report.