Fagan v. People's Savings & Loan Ass'n , 55 Minn. 437 ( 1893 )

Mitchell, J.

Dora Haugen executed to defendant (then called the-People’s Building & Loan Association) a first mortgage on certain real estate, and then executed a second mortgage on the same property to the plaintiff. Default having been made in the conditions, of the first mortgage, defendant sold the premises under a power,, itself being the purchaser at the sale. Plaintiff brought this action to recover an alleged surplus of the proceeds of sale over and above-the amount due on defendant’s mortgage, claiming that he is entitled to the same as second mortgagee.

1. The first question is whether there was any “surplus”; that is, whether the amount bid by the defendant exceeded the amount due-on its mortgage. The defendant is a corporation organized under 1878 G. S. ch. 34, title 2, and claims to be a “building association;” but its articles of association and by-laws disclose that, while it has adopted some of the features of building associations, it is rather-what its present name indicates, — a savings and loan association.. As the. question how much was due to the defendant must be settled by the terms of the mortgage itself, there being nothing in the articles of association or by-laws which, by being referred to in the mortgage, affects its construction, it is not necessary to refer-to either the articles or the by-laws, except two or three provisions of the latter,' which may throw light on the meaning of some of the provisions of the mortgage.

The by-laws provide that each shareholder in class one (1) shall pay fifty eig’ht (58) cents each month on each share of stock owned by him until such share shall mature, or arrive at the par value of $100;. also that if he shall be in default in the payment of any of these-installments for more than three days, he shall pay a certain specified fine on each share for every month thereafter while thus in-default. They also provide that any shareholder borrowing money from the association shall give his non-negotiable note for the same,. secured by mortgage, and shall until his loan is repaid, or his stock matures, pay, in addition to the monthly installments on his stock, a monthly premium of the number of cents per share bid by him on each share for his loan, and interest on the loan at six per cent, per annum. They also provide that any borrowing shareholder may at any time, when not in default, on thirty days’ notice, release his mortgage by repaying his loan and the expense of satisfying the mortgage.

Mrs. Haugen, being the owner of 150 shares of stock of the association of class 1, of the “par” or “paid-up” value of $15,000, made a loan of the association of $15,000, and executed a contract, of which the following are the material provisions:

“Received of the People’s Building and Loan Association, $15,000, as a loan on 150 shares of stock owned by me in said association. And I agree to pay to said association on the 1.4th day of each month $27^-00, which shall be applied as follows: First. To the payment of any fines or other assessments made against me in pursuance of the by-laws of the association. Second. To the payment of the premiums for preference due on said loan, amounting to $112.50 per month. Third. To the payment of the interest due on said loan, amounting to $75 per month. Fourth. The balance of said payments shall be credited as dues on said stock. Said payments shall be continued until the dues credited on said stock, together with the dividends thereon, shall equal the amount of the loan. Should I fail for six months to pay said monthly payments, then the whole amount of said loan shall, at the option of said association, at once become due and payable.”

Haugen also executed to the association the mortgage referred to, the conditions of which, after setting out the contract, were that, if default should be made in the payment of said sums, or any part thereof, at the time and manner specified in the contract, the association was authorized to sell the mortgaged premises at auction, “and out of the moneys arising from such sale to retain the principal, interest, and premiums which shall then be due on said contract, and all fines and penalties due and payable in accordance with the by-laws of said association, * * * and pay the surplus, if any, to the mortgagor, her heirs, representatives, or assigns.”

In determining how much was due on the mortgage at the date of tbe foreclosure sale, of course tbe question is, wbat was it security for? and upon tbis it seems to us that tbe controlling provision of tbe mortgage is tbe one last quoted, — as to wbat tbe mortgagee was authorized to retain out of tbe proceeds of sale. Tbe controversy in tbe case is as to whether tbe mortgage was security for tbe monthly “dues” of 58 cents per share on tbe stock. It seems to us that tbe express terms of tbe mortgage conclusively settle this in tbe negative. All that tbe mortgagee was authorized to retain out of tbe proceeds of sale were tbe principal, interest, and premiums then due, and all fines and penalties due and payable according to tbe bylaws. “Dues” or “subscriptions” on tbe stock are not included.

Originally and legitimately a “loan” by a building association to a member was merely an advanced payment to him of tbe par or mature value of bis stock. No repayment of tbe “loan” was provided for or anticipated, and tbe mortgage was merely security for (1) tbe payment of stock “dues” during tbe existence of tbe association, or of that particular series of stock, which, if paid, would raise tbe value of tbe stock to an amount equal to tbe sum advanced; (2) interest on tbe advance during tbe interval between tbe date of tbe advance and tbe maturity of tbe stock, tbe “premium” or “bonus” bid by tbe advanced member being usually taken out of tbe “advance.” Under such a mortgage tbe “principal” secured would be the stock “dues,” and, in case of default on part of tbe mortgagor, tbe amount presently due on tbe mortgage, aside from interest on tbe advance, would be tbe amount of stock dues, not merely to tbe date of sale, but up to tbe expiration of tbe duration of tbe association or of that particular series of stock. Tbe reasons why tbe mortgage should so provide in such a case are quite manifest. Tbe “borrowing” member having been paid tbe matured value of bis stock in advance, and there being no provisions for tbe repayment of tbis “advance,” it is quite evident that to protect tbe association it should have security for tbe payment of stock “dues” up to tbe date of tbe maturity of tbe stock; for it is tbe payment of these dues which is relied on to ultimately raise tbe value of tbe stock so as to equal tbe sum advanced.

But no such reasons existed in the present case, and tbe mortgage is entirely different in its provisions. In case of a default on part of tbe mortgagor, tbe association on foreclosure obtains repay-merit of the principal sum loaned, and all interest and premiums (which is but another name for interest) up to the time of sale, together with all fines and penalties then due the association.

No reason exists, in the nature of things, why, under such circumstances, a borrowing member shall give security for the payment of stock “dues” or “subscriptions,” any more than a nonborrowing member. The same may be said of “fines” and “penalties,” but it is enough that as to them the mortgage so provides.

The mistake of some writers on this subject is that they start out having in mind what a building association “loan” originally was, and what a mortgage, in such' a case, secured, and then interpolate the same terms into all modern so-called “building asociation mortgages,” regardless of the terms of the contract. But in ■every case the question is not, what contracts did such associations once make? or, what legitimately ought to be the provisions of such contract? but, what contract have the parties in fact made? The mortgage in this case not being security for “dues,” and the •defendant having no right to retain them out of the proceeds of the sale of the premises, it follows that the amount bid at the sale was in excess of the amount due on the mortgage according to its terms in a sum equal to the amount of the verdict.

2. Belying on a line of decisions commencing with Bidwell v. Whitney, 4 Minn. 76, and on Dickerson v. Hayes, 26 Minn. 100, (1 N. W. 834,) it is contended that plaintiff, having, without objection, suffered a sale by foreclosure for the amount claimed in the notice, cannot now recover the alleged surplus; that he should have enjoined the sale. But we have repeatedly explained, and especially an Seiler v. Wilber, 29 Minn. 307, (13 N. W. 136,) that these cases have no application to a case like the present.

The doctrine of Bidwell v. Whitney, and of cases following it, ■only applies where the amount claimed to be due is according to the •express terms of the contract, although more than the law would •enforce. The basis of these decisions is that, if a man expressly agrees to pay more than the law will enforce against him, he may, if he chooses, abide by the terms of the contract, and that he does so by remaining silent while the other party is enforcing the contract according to its terms. Dickerson v. Hayes merely holds that where the party is asking equitable relief by setting aside the sale, or by allowing Mm to redeem by paying less tban tbe amount bid,, be must show an excuse for not enjoining tbe sale.

But we have invariably sustained tbe right of tbe mortgagor or bis assigns to recover tbe amount bid, although claimed in tbe notice, in excess of tbe amount due on tbe mortgage according to its terms. Bennett v. Healey, 6 Minn. 240; Bailey v. Merritt, 7 Minn. 159; Spottswood v. Herrick, 22 Minn. 548; Seiler v. Wilber, supra.

In such a case tbe mortgagee’s only escape from liability for the-excess is to show some ground, such as excusable mistake, entitling him to equitable relief by having tbe sale set aside, and a new foreclosure ordered. See Lane v. Holmes, ante, p. 379, (57 N. W. 132.)

3. It is further contended that plaintiff is not entitled to recover this surplus, because, by its terms, tbe debt secured by bis mortgage is not yet due. But be is not suing on tbe debt, but to recover the-proceeds of bis mortgage security. When land is sold on a first mortgage, which is subject to a subsequent lien, tbe lien is transferred from tbe land to tbe surplus money. Tbe proceeds of the-sale, after satisfying tbe first mortgage, stand in place of the-equity of redemption to those who bad title to or lien upon it. Tbe right to this surplus passes to tbe grantee or assignee of tbe mortgagor by a conveyance of or mortgage upon tbe equity of redemption; and tbe court will always direct tbe application of tbe money according to the rights of tbe parties as they existed previous to tbe alteration of tbe estate. In case of future installments to become-due on tbe first mortgage; or, in case of a second mortgage, not due, tbe mortgagees would be entitled to tbe surplus to tbe extent necessary to pay their mortgages in full. If tbe debt was on interest, that would be saved; if not on interest, a deduction would be made-by way of rebate of interest. Our statute, (1878 G. S. cb. 81, § 4,)-which is but declaratory of what tbe law has always been-, expressly provides for this being done in case of future installments on the-same mortgage. But tbe principle is tbe same in tbe case of second' mortgages. Barber v. Cary, 11 Barb. 549.

Although not necessary, perhaps the safer practice in such cases is for the second mortgagee to join tbe owner of tbe equity of redemption as a party defendant. Undoubtedly such owner might intervene, and in a proper case the defendant holding the surplus-might require him to be interpleaded. But no such question is in-volvéd in this case.

(Opinion published 57 N. W. Rep. 142.)

It can hardly he necessary to say in conclusion that it does not concern defendant whether plaintiff’s mortgage was without consideration or not, and hence that the court was right in excluding-’ evidence as to the fact.

Order affirmed.