Opinion
February, 1905.
Charles R. Hall, for the appellant.
Charles W. Dayton, for the respondent.
We think the application was premature, and that the prescribing of any fixed rule at the present time is unnecessary, and may in the end embarrass rather than aid in the final distribution of the assets of this insolvent corporation. Thus with regard to the subject of dues, which were in substance payments upon the shares held by the petitioner, the conclusion of the Special Term that this amount should be credited to the petitioner and should serve "as a basis for the fixing of his pro rata share of the net assets as a stockholder" is undoubtedly correct. In regard to the claim for the entire amount paid as premium, however, there is considerable conflict as to whether, by reason of the insolvency of the company, the latter forfeits its right to any part of the amount paid, or whether all or some part of it should be regarded as earned by the company.
There are cases which support the rule applied by the Special Term, that some part of the premium agreed to be paid should be regarded as earned by the company. (See Hannon v. Cobb, 49 App. Div. 480; Riggs v. Carter, 77 id. 582; Breed v. Ruoff, 54 id. 142; Choisser v. Young, 69 Ill. App. 252; MacMurray v. Gosney, 106 Fed. Rep. 11.)
On the other hand, we find in Endlich on Building Associations (2d ed. § 531) the rule stated as follows: "Upon the basis of all the decisions examined, it may be safely laid down that the clear weight of authority rejects the enforcement of any part of the premium And in reason and fairness this must be so. The premium is not a payment in advance. * * * Hence, if, at any stage, the society breaking down fails to perform its part of the bargain, the promise to pay it the premium loses the consideration upon which it was based, and ought to be regarded as wholly abrogated. To attempt to apportion the premium is simply to treat it as additional interest. To regard it as something with which the borrower has parted, as something which the society has earned, as assets in its hands before it has done that which entitled it to retain the premium, is to misconceive its true character and office." In support of this view we have the following cases: Strohen v. Franklin Saving Loan Assn. (115 Penn. St. 273); Weir v. Granite State Provident Association ( 56 N.J. Eq. 234) ; Moran v. Gray (38 Atl. Rep. 668); Rogers v. Rains ( 100 Ky. 295); Bank Commissioners v. Association ( 68 N.H. 554); Curtis v. Granite State Provident Association ( 69 Conn. 6); Hale v. Kline ( 113 Iowa 523); Coltrane v. Baltimore B. L. Assn. (110 Fed. Rep. 293); Coltrane v. Blake (113 id. 785); Barry v. Friel (114 id. 989); Riggs v. Capital Brick Co. (128 id. 491).
While the statement of the rule to be applied is thus couched in language seemingly opposed and conflicting, we think the authorities can to some extent be reconciled by having in mind the time when and the facts upon which the courts are required to decide the questions presented. Where, in the course of the administration of one of these insolvent building and loan associations or corporations and before the final accounting, it becomes necessary to adjust the rights of the receiver and the claimant, the courts in this State have been careful to apply a rule which would be perfectly just as between the receiver and the claimant, and have been equally careful not to apply any method or rule which would impair or affect the rights of other claimants upon the final distribution by the receiver.
By way of illustration, to take the cases which have most frequently arisen in this State and from which the learned judge at Special Term deduced the rule which he thought should be here applied, we find that the judges while compelled to determine the then existing rights of the parties before it, were sedulously careful to avoid applying any rule which would destroy the rights of others who were not parties before the court and who, therefore, could not be heard.
Thus in Riggs v. Carter ( supra; affd., 173 N.Y. 632), where an action was brought by the receivers of an insolvent savings and loan association against a borrowing shareholder to foreclose a mortgage executed by him, it was held (head-note) that "the court is not, in the absence of any proof upon the subject or any request in regard thereto, required to approximately determine the value of the shareholder's stock to the end that he may be relieved from his mortgage to the extent of his interest in the assets of the association." And in Roberts v. Cronk ( 94 App. Div. 171), wherein a similar action was brought, it was held (head note) that "the shareholder is not entitled to be credited upon the mortgage in the foreclosure action with the amount of dues paid by him to the association or with the amount of the monthly premium which he paid as a bonus for the loan. He will, however, upon the final adjustment of the affairs of the association be entitled to credit for such payments, the amount of such credit depending upon the amount of the net assets of the association."
In Hall v. Stowell ( 75 App. Div. 21) it is said: "In such cases the better rule seems to be that the borrower be charged with the money received from the corporation and the legal rate of interest thereon and be credited with such payments as are referable to the loan itself and not to the stock. This rule is based upon the theory that the relations of a member as a shareholder and a borrower are separate and distinct; that as shareholder he should bear his proportionate share of the loss, but as borrower he should have the benefit of the rescission of the contract, and should repay what he has received less what he has paid on account thereof." ( Strohen v. Franklin Saving Loan Assn., 115 Penn. St. 273; Post v. Building Loan Assn., 97 Tenn. 408; Endl. Building Assn. [2d ed.] §§ 514, 515, 531; Rochester Savings Bank v. Whitmore, 25 App. Div. 491; Hannon v. Cobb, 49 id. 480.) Breed v. Ruoff ( 54 App. Div. 142) was cited with approval in Roberts v. Cronk ( supra), but the conclusion reached was that the shareholder was not entitled to be credited upon the mortgage in the foreclosure action with the amount of dues paid by him to the association or with the amount of the monthly premium which he paid as a bonus for the loan. As therein said: "The defendant cannot now be credited upon his loan with the amount paid by him as dues or premiums. When the affairs of the association are finally wound up he will, of course, have credit for all of the payments so made by him, the amount to be then credited being dependent upon the amount of its net assets."
On the other hand, we have in other jurisdictions cases where the rule stated by Endlich on Building Associations ( supra) has been applied. Thus in Strohen v. Franklin Saving Loan Assn. ( supra), where the action was brought by a receiver of an insolvent building association to foreclose a mortgage given to secure the payment of a loan, the court, among other things in the opinion, said: "In view of the failure of the company, the consideration or inducement for giving this large premium has failed, or at least has failed in part. * * * The insolvency of the company, as before observed, puts an end to its operations as a building association; to a certain extent it also ends the contract between it and its members respectively, and nothing remains but to wind it up in such a manner as to do equity to creditors and between the members themselves. * * * The damages should be assessed by charging the defendant with the sum actually received on his mortgage, with interest for the same, and crediting him with all actual payments of interest. But his payments upon his stock are not to be credited on the mortgage as payments of either principal or interest."
The only difference between this case and the others relied upon by the appellant and the decisions in our own State where the question arose during the course of administration and had to be settled is, that in the former the court undertook to apply the rule with regard to adjusting what credit should be allowed to the member or shareholder for the premium paid, while in our own jurisdiction the rule that has been applied has been to reserve this question until the determination can be reached as to what will be the net assets applicable to payment of the liabilities of the corporation. When that time comes, depending entirely upon the amount of assets and the rights and equities of the different claimants, the court will be in a position to apply such a rule in determining the rights of the respective claimants as will do equity as between them and adjust the burdens equally.
In marshaling the assets and liabilities of this insolvent corporation it will be admitted, we assume, that it should be done upon an equitable basis, and it is axiomatic that equality is equity. In the administration of an insolvent corporation where there are different claimants who stand upon a different footing and who have diverse and conflicting claims, it is difficult to apply the principles of equality and equity without having all the facts with respect to the condition of the insolvent estate before the court. It is only where the assets are realized and when upon an accounting with a view to final distribution, the assets can be fully marshaled, that it is practicable to determine upon a basis of settlement which will be fair and equitable to all creditors. Upon marshaling the assets of this corporation for the purpose of final distribution we assume there will be a fund which is applicable to the payments of claims which fall within the class of which the petitioner is a member, and it is but just that every member should be treated alike.
It will be noticed that the learned judge at Special Term deemed it prudent after applying the rule which he thought was just to direct that the amount "should not be paid until final accounting, when it can be determined whether or not there is money sufficient to satisfy the claims of all others similarly situated."
Upon such final accounting it may appear that the condition of the assets is such as to require the application of a different rule from that prescribed by the Special Term in order that equity be done as between all the claimants. We think that the proper disposition to have made of the motion would have been to dismiss the application, refusing, because unnecessary at this stage, to lay down any rule or to determine the state of the account as between the claimant and the receiver.
We think, therefore, that the application was premature and that the order should be modified by dismissing the application, and as so modified affirmed, without costs.
INGRAHAM, McLAUGHLIN and HATCH, JJ., concurred; VAN BRUNT, P.J., concurred in result.
Order modified as directed in opinion, and as modified affirmed, without costs.