Leeds v. Perpetual Building & Loan Ass'n , 61 Pa. Super. 542 ( 1915 )

Opinion by

Kephart, J.,

The facts in this case are somewhat complicated. Appellee secured from the appellant building and loan association, a loan on his property, No. 6217 Jefferson street, Philadelphia, and gave therefor his mortgage. The certificate of stock which was the basis of the loan, was issued without consent of the appellee in the name of Katz, an obligor on a collateral bond. This collateral bond was given to secure the payment of appellee’s mortgage, and two other mortgages assigned to the appellant building and loan association by Katz. The bond was joined in by one Abrahams, who was interested in this financial transaction. The appellee did not have title to the premises covered by these two mortgages assigned by Katz. Upon default in the payment of the monthly installments, the mortgage on the appellee’s property was foreclosed by the appellant. In entering judgment no credit was given appellee for the surrender value of the stock standing in Katz’s name. Appellant received from the sale of the mortgaged premises the full amount of the mortgage debt, delinquent fines, dues, and interest: This suit was brought by the appellee as the owner to recover the surrender value of the stock. Katz had pledged it as collateral for appellee’s loan and after the foreclosure sale it had been cancelled at the direction of Katz without the knowledge or consent of the appellee. All the dues, fines and charges on account of the stock had been paid by the appellee either directly or in the sale of the mortgaged premises. The appellant association retained the surrender value of this stock, as their solicitors say, for the protection of the obligors on the collateral bond above mentioned. '

Appellant endeavors to avoid liability for this surrender value by asserting.

(1) That it had no notice of the appellee’s beneficial or equitable interest in the stock. When the appellee’s loan was contracted, the solicitors, who had general control, were the duly authorized agents of the association. They examined the titles, prepared all papers in connection therewith, and received through other transactions the money that was applied on the monthly settlements on account of the loan and stock. They made all the adjustments in connection with the loan; they knew in what manner the stock had been issued, the rules governing their association with, reference to the issuance of stock, and that the appellee was entitled to this stock unless he had agreed that it might be otherwise issued. His money paid the dues on the stock. With all this knowledge and with their undoubted authority from the company, the association cannot now be heard to say that they had no knowledge of the appellee’s beneficial interest. Where a pledgee has full knowledge of an outstanding equitable interest in stock which has been pledged for a debt with the equitable owner’s consent, and the pledgee, without the consent of the equitable owner and at the direction of the person in whose name the stock stands, misapplies the pledged stock, the pledgee will be liable for such misappropriation and the Act of May 5,1911, P. L. 130, -will not protect the pledgee from such liability.

(2) The primary liability for the two mortgages assigned by Katz, an obligor on the collateral bond, to the building and loan association, was the property covered by the mortgages, the title to which was never in the appellee. The appellant issued forty shares of stock to Katz on account of these loans. These properties were sold by the sheriff at the suit of a second mortgage creditor and purchased by that creditor. When a default was made in the monthly payments on account of the two mortgages, which were still liens against the mortgaged premises, and a settlement was made prior to the payment of these two mortgages, the surrender value of the stock issued to Katz was rightly applied to the indebtedness due the association as created by Katz. Katz was liable under his contract with the association at least to the extent of this surrender value of this stock which he had assigned to the association as collateral. This real estate was subsequently conveyed to Abrahams, the other obligor on this collateral bond, and at the same time the two mortgages were paid in full by a trust company check. At no time does it appear from the record that either of these obligors were compelled to pay any money on account of the collateral bond. Had they paid any money on account of the loans it would have been because they were debtors under the original undertaking which brought this appellant into the transaction, or as the owners of the real estate mortgaged, in relief of the encumbrances for which it stood as primarily liable. It is clear, therefore, assuming that the appellee could have been held as a joint obligor, this appellant could not withhold from him the surrender value of his stock to apply it on a supposed liability arising from the collateral bond where none in fact ever existed. When, by payments and the sale of the appellee’s property under his own mortgage, without any deductions for the surrender value of his stock, appellee’s debt was paid in full, the purpose for which appellee’s stock was pledged was fully accomplished. The stock should have been returned to him in kind. While it is true that a creditor cannot release a part of the property held as security, without discharging a surety, the surety in this case was discharged from all liability as to this particular debt when it was paid, and the appellee’s stock here in question, having been specially pledged for that particular debt, was thereupon released. It could not be held pending the determination of a possible liability on a collateral undertaking for which it was in no sense pledged. Appellant might have deducted this surrender value from the debt due by the appellee on his mortgage. Had the association done so it would not have received from the sheriff the sum of money that it did. It saw fit to disregard this surrender value and liquidated its claim without considering it. When they, without authority, afterwards cancelled the stock and held its value to be applied as herein indicated to a possible liability on some other transaction, it committed an act in violation of the pledg- or’s rights, and is therefore liable for the value of the stock. The time when each of these several transactions took place occurred long enough before this suit was brought to have permitted a settlement with the appellee.

The case was fairly presented by the trial court in a charge free from substantial error. The seventh assignment is not according to the rules of this court. The assignments of error are all overruled and the judgment is affirmed.