Opinion
10-25-1907
In re STATE MUT. BUILDING & LOAN ASS'N OF NEW JERSEY.
Harvey F. Carr, for petitioners. William M. Clevenger, for Samuel Kirby. Eli H. Chandler, for E. Bartine Johnson.
Petition to the Court of Chancery for instructions by the trustees in voluntary liquidation of the State Mutual Building & Loan Association of New Jersey. Instructions given.
Harvey F. Carr, for petitioners. William M. Clevenger, for Samuel Kirby. Eli H. Chandler, for E. Bartine Johnson.
LEAMING, V. C. The State Mutual Building & Loan Association of New Jersey is in process of voluntary liquidation under the provisions of P. L. 1904, p. 44. The question now presented for determination is: What credits shall be allowed to borrowing members who have executed mortgages and pledged their shares to the association as security for money borrowed? Two classes of borrowers are before the court. One class isthat wherein no default upon the part of the borrowing member existed at the time the association ceased the transaction of its regular business. The other class is that wherein the borrowing member had defaulted in his payments prior to the time named, and by reason of such default the association had become entitled to declare his entire mortgage indebtedness due.
Adjudications by the courts of this state fully define the rights of borrowers of the class first above named in instances in which building and loan associations have become insolvent. The rule which has been adopted is to charge the borrowing member with the amount of money actually received by him with lawful interest, and credit him with all interest paid and all premiums paid, and also with interest on all premiums paid from the date of each premium payment. All payments made as dues are applied to shares. This rule and the reasons supporting it are fully discussed and exemplified in the following cases in this state: Weir v. Granite State Provident Ass'n, 56 N. J. Eq. 234, 38 Atl. 643; Hoagland v. Saul (Ch.) 53 Atl. 704; Harris, Rec, v. Nevins, 68 N. J. Eq. 183, 58 Atl. 1051; s. c. 68 N. J. Eq. 684, 63 Atl. 172; Bettle v. Republic Sav. & Loan Ass'n, 68 N. J. Eq. 1, 58 Atl. 1053; Mercantile Cooperative Bank v. Goodspeed (Oh.) 59 Atl. 802.
It is urged that this rule should not be applied to this case because the association has not been decreed insolvent, but is engaged in voluntary liquidation through trustees appointed under the act of 1904, above cited. The act of 1904 is a supplement to the building and loan association act, and provides that whenever, in the judgment of the board of directors of any building and loan association of the state, it shall be deemed advisable and for the best interests of the shareholders that the same shall be dissolved and its business liquidated, the board may adopt a resolution to that effect and call a meeting of the shareholders to take action on the resolution. If two-thirds in interest of the shareholders present at the meeting so called shall vote that "a dissolution and liquidation of said association shall take place," and appoint three or more trustees to wind up and liquidate the affairs of the association, then the proceedings shall be certified to the office of the commissioner of banking and insurance of this state, who, upon being satisfied that the requirements of the statute have been complied with, shall issue his certificate to the trustees, and thereupon "said association shall be dissolved and its business liquidated by the said trustees." The act then proceeds to clothe the trustees with powers substantially the same as the powers of a receiver of an insolvent corporation. The act also makes provision for this court to remove the trustees and appoint others and to allow them a reasonable compensation. A further supplement to the building and loan association act (P. L. 1905, p. 264) provides that this court shall have complete jurisdiction over the trustees and over all matters arising or growing out of the winding up and liquidation of the association, and may make such orders and decrees in connection with any and all such matters as justice and equity shall require. I am unable to reach the conclusion that in the enforcement of obligations of borrowing members the trustees should adopt a rule different from that already defined for a receiver appointed under a decree of insolvency. The fundamental reason for the direction to a receiver to allow a borrowing member credit for all premiums paid is the fact that conditions have arisen to render it impracticable to carry out the original scheme as intended. The same conditions here exist. By a concurrent vote of the board of directors and shareholders, it has been declared that the best interests of the shareholders require that the association shall be dissolved, and its business liquidated, and trustees have been appointed under the act for that purpose. By the terms of the act it is now required that "said association shall be dissolved, and its business liquidated by said trustees." This building association scheme, as such, is at an end. It is now Impossible for borrowing members to discharge their obligations in the manner originally contemplated, and the same reasons here exist for allowing borrowing members credit for premiums paid as exist in like cases after a decree of insolvency. So far as nondefaulting borrowing members are concerned, I think it entirely clear that no justification can be found for departing from the rule of liability defined in the cases above cited.
The second class of cases referred to are those in which borrowing members have defaulted for such a period of time prior to the time business was suspended that under the terms of their contracts the entire amount of their mortgages are due at the option of the association. It is urged that in this class of cases obligations should be enforced in the same manner as though the association were a going concern. There is force in the suggestion that these defaulting members have contributed to the present misfortunes of the association to an extent that may be reasonably urged as appropriate to deny to them the equitable consideration extended to nondefaulting members. I am convinced, however, that the only equitable method of winding up the business at dissolution will be found in extending to defaulting borrowers the same credits that are allowed to borrowers who are not in default. The act of 1905, which bestows upon this court jurisdiction over the trustees, directs that such orders and decrees shall be made as justice and equity shall require. The power of the association to reinstate a defaulting borrower by permitting him to pay the amount in arrear has been destroyed by its suspension of business. Its power to appropriate the premiumspaid by him on the faith of the general scheme by the declaration of an option to that effect should not now be exercised. It does not appear in either of the cases before the court that the association exercised the privilege given to it by the terms of the contract to declare the whole amount of the mortgage due by reason of default in the payment of interest for 30 days; but, had such option been actually exercised by the association prior to its suspension of business, I incline to the view that the subsequent failure of the general scheme should operate to entitle a defaulting mortgagor to a credit on his mortgage for the premiums paid. This appears to have been the view entertained by Vice Chancellor Stevenson in the first conclusions stated by him in Co-operative Bank v. Goodspeed (N. J. Ch.) 59 Atl. 802. I find no essential difference between a voluntary liquidation, under the statute, brought about by internal conditions which render the further transaction of business inconsistent with the best interests of shareholders, and a liquidation by a receiver of this court brought about by a condition of adjudicated insolvency.
I will advise an order directing settlements to be made in accordance with the rule defined in Weir v. Granite State Prov. Ass'n, 56 N. J. Eq. 234, 38 Atl. 643.