Freemansburg Building & Loan Ass'n v. Watts

Opinion by

Mb. Justice Fell,

The judgment appealed from is clearly right, and it is fully sustained by the reasons so well stated by the learned judge of the common pleas. The obligation which the borrower gave to the association provided for the payment of the principal debt in equal monthly instalments until the whole was paid, “ according to the act of assembly and the terms and provisions of the constitution and by-laws of said association.” Only one meaning can be given to the obligation without ignoring entirely the relation of the parties to each other. In carrying out the plan on which building associations are organized and conducted, it is not intended that a stockholder who borrows of the association will discharge the debt he incurs by direct payments on account of it. He pays at stated periods the dues on his stock, the interest on the money borrowed, and, when the premium bid for the loan has not been deducted, the instalments on it. When by the receipt of dues, interest, premiums and fines for nonpayment of dues, all of the stock of the association or of the series to which the borrower’s stock belongs, becomes full paid or matured, the value of his stock equals the amount of his debt, and the transaction is then ended by the surrender of the stock by him and the cancellation of his obligation by the association.

Frequently, the obligations taken by building associations from borrowing members very imperfectly express the true relation of the parties to each other, as determined by the object in view and the rules for the government of the association, but they should never be considered as establishing a new relation at variance with the fundamental principles on which such associations are organized and conducted, unless the language used will admit of no other construction. A member who borrows of the association remains a stockholder, under a duty to pay the dues on his stock regularly, and subject to a penalty for non-payment. The payment of these dues is an indirect payment on account of the loan, as the payment increases the value of his stock and thus adds to the collateral pledged by means of which payment is to be made in the end. But if these payments are considered as direct payments, the result is that he has paid nothing on account of his stock notwithstanding his obligation to do so; he has been charged with fines for non-payment when payment was not required; his instalments of interest have remained the same although his debt has been gradually reduced by regular payments ; his stock, on which he has paid nothing, has participated in the profits which have accrued to all the stock alike; and in the case of the insolvency of the association, we have the rank injustice that the burden of the whole loss is cast upon the non-borrowing members.

York Trust, etc., Co. v. Gallatin, 186 Pa. 150, which is relied on by the appellant, was decided on the ground that by agreement of the parties an express appropriation had been made of all payments by the borrower. That case stands on its own facts, and it is not one to be reasoned from.

The judgment is affirmed.