83 N.W. 519 | N.D. | 1900
This action involves a foreclosure of a mortgage given to a building and loan association. It is the same association that was before us in the case of Hale v. Cairns, 8 N. D. 145, 77 N. W. Rep. 1010. The association is insolvent. Hale was the receiver appointed in Minnesota, which was the home of the corporation. The plaintiff in this case, Clarke, is the receiver appointed in Wisconsin; and he seeks to recover in this case upon an asset that was deposited by the association with the proper officers in Wisconsin under the laws of that state, which required a deposit as a condition upon which the corporation would be premitted to do business in that state. An interesting question is raised as to the power of the corporation, under its organic act, to thus deposit the assets, but we need not discuss the question at this time. Plaintiff seeks to recover in this action the amount borrowed by or advanced to the defendant, with certain interest thereon. The defendant insists that such is not the prop'er basis of recovery in this case; that, if liable at all, he was liable in the amount stipulated in his bond as liquidated damages for the breach thereof; and that by the express terms of his bond he is entitled to credit upon such amount for the sums that he has paid as monthly dues upon his stock. This contention was rejected by the trial court, and judgment and decree were rendered in accordance with the prayer of the complaint, and defendant appeals.
All the facts were stipulated. The case involves only questions of law. The trial court undoubtedly followed Loan Co. v. Shain, 8 N. D. 136, 77 N. W. Rep. 1006, and Hale v. Cairns, supra. In
Perhaps we can the sooner ascertain the real meaning of this bond if we first consider what would have been the rights of the association under the bond had it continued solvent. It will be noticed that the limit of time for payment was nine years. It might be paid sooner, but could not run longer. There is also an absolute provision that the bond may be paid by maturing the stock and surrendering the same in payment. Should the stock reach maturity in five years, it could then-be surrendered, and the bond taken up. But, as the limit was nine years, it is perfectly clear that it was the expectation of both parties that under no circitmstances would it require more than nine years to mature the stock. Any shortening of that time would to that extent lighten the burdens of the stockholder. It -will be noticed, also, that the amount fixed as stipulated damages is $1,036.80. This sum represents exactly the monthly dues of $9.60 on said 16 shares for nine years. In no event, then, could a defaulting borrowing stockholder avoid the payment of the full amount that it was estimated might be necessary under the most unfavorable circumstances to mature his stock. Now, if we assume that the association continued solvent, and that the defendant stopped the payment of monthly dues when he did, and refused to make further pajunents for the space of six months, what would have been the rights of the association? Learned counsel insist that the association would have had an option. They say that the bond unequivocally binds the defendant to pay the full sum of $t,6oo, either in cash, or by maturing his stock and surrendering it. Having defaulted in his payments, counsel say the association might claim the full $1,600 in cash, and enforce payment by sale of the mortgaged property; and, of course, on counsel’s theory, there could be no deduction 'for stock dues paid. Or, say counsel, the association might elect to foreclose for the stipulated damages, less stock dues paid. In this case the payments exceeded the damages, and necessarily, upon this basis, the association would take nothing. The contention therefore reduces itself to this: The association had its option to take $1,600 or to take nothing. We deem no argument necessary to refute' that position. The fact is, the option, so far as one existed, was entirely with the defendant. He might pay in cash the full face of the bond, or he might continue his payment of dues until he had paid 100 cents on the dollar on his stock, and then surrender his stock and demand his bond, or he might make his payment of dues until he had paid the sum of $1,036.80, and, the other conditions being complied with, he might safely stop. The proviso in this bond (and neither counsel nor court have found its exact equivalent elsewhere) modifies and changes, and to some extent defeats, all that precedes it. It declares: “And the sum of ten
We have in this case, then, the receiver of a corporation suing upon a contract under which it is certain the corporation would have no right of action against the defendant. It will be conceded that ordinarily a receiver would have no greater rights than the corporation. If a party borrow $1,000 from a bank, and give his note for the amount, due in one year, and secured by a mortgage, and if the following day the bank go into the hands of a receiver, such officer has no other or greater rights as against the borrower, than the bank had.- Any defense that could have been urged as against the bank can be urged as against the receiver, and, whether there be any defense or not, the receiver cannot sue upon the note until the expiration of the year. The plea that it is necessary to realize at once upon the assets of the bank will not avail. The borrower may stand upon the letter of his contract. These principles are elementary. See High. Rec. § § 201, 204, 205, 247, 315. It is also the universal holding in this country that the capital stock of a corporation is a trust fund for the benefit of creditors, to which they may look, and upon which they may rely for the payment of their claims, and their rights thereto are superior to any rights of stockholders therein. Creditors may always assume that stock subscriptions have been paid in full or are subject to call. Thomp. Stockh. §11; Cook, Stock, Stockh. &Corp. Law, § 42. From this doctrine it follows that were the note to the bank already mentioned given as the purchase price of stock in the bank, for which the party subscribed, and the bank was subsequently placed in the hands of a receiver, such receiver might at once proceed to collect the unpaid money on the stock subscription. But in so doing he repudiates the express contract for payment, and relies upon the contract which the law raises by reason of the subscription. Id. § § 71, 108. For the enforcement of that contract he must look to the subscriber’s general responsibility, and cannot rely upon the mortgage lien, because that is a part of the contract which is repudiated. Of course, the receiver might await the maturity of the note and enforce the express contract, but he need not do so. In this instance it may be that the receiver would have a right of action that was not open to the corporation, as it has been held that a safe of stock, to be paid for within a reasonable time, was valid between the corporation and the purchaser, Mitchell v. Beckman, 64 Cal. 117. But this ex
Counsel in this case insist that the equitable principles so often applied by courts in actions brought by receivers of insolvent building and loan associations to collect- amounts loaned or advanced to its members must be applied here, and that this defendant must be required to repay the amount advanced with interest thereon, and can claim no credit for stock dues paid. We need not question plaintiff’s right to recover back money advanced by the association to the defendant. We are not concerned upon that point. We are only concerned in determining whether or not this mortgage in the hands of this receiver can be held to secure such payment. This mortgage forms a part of the contract between the association and the defendant. As already stated, the mortgage was not given to secure the face amount of the bond, or to secure the amount advanced, but was given to secure what the association could recover under the bond in case defendant made default, and that was the monthly stock dues and interest payments for the space of nine years. The Supreme Court of Wisconsin, in Leahy v. Association, 100 Wis. 555, 76 N. W. Rep. 625, said: “Thus it seems that, as the corporation is defunct, membership ceases, and all contracts must therefore, of necessity, be set aside. It is upon the theory of the rescission and abrogation of the contracts that equity steps id and winds up its affairs, and makes a ratable distribution of assets.” And in Knutson v. Association, 67 Minn. 201, 69 N. W. Rep. 889, it was said: “Then in winding up such a corporation, we can see no principle on which to proceed in adjusting matters between it and its members, except the principle of rescission, so far as the same can be equitably and justly applied.” Yet we do not understand that these cases, or any other, treat the insolvency of the association as working an absolute rescission and extinguishment of the contract. But they do hold, and for reasons that have often been stated, that such insolvency necessarily works a modification of the contract. The modification usually introduced is to the effect that whatever is secured by the mortgage becomes presently due upon insolvency of the association. In those states where it is held that the contract of subscription and the contract of advancement or loan are indissolubly connected, and
But learned counsel earnestly contend that" the proviso in this bond containing the liquidated damages clause cannot avail as against this plaintiff, because it declares that “if at any time default shall be made,” etc. It is said that this proviso becomes operative only upon default, and it is conceded that defendant was not in default, hence the liquidated damage clause does not apply. Of course, when the bond was drawn it was supposed that no right of action could accrue thereunder without defendant’s default.' The language used was intended to cover any condition that enabled an action to' be brought upon the bond. We are cited to no case which has held that such clause would not apply whenever a cause of action accrued against defendant. Any other construction would be narrow, and would lead to most inequitable, not- to say absurd, results. ' Suppose that, on the day that defendant received his advancement and executed his mortgage another stockholder had received the same advancement -and executed similar papers. Suppose such other party had continued his payments for eight years and six months, and then ceased. Defendant continued his payments for six months longer, or until the expiration of the nine years. Immediately thereafter a receiver is appointed. When he sues such other party to recover the money advanced to him, such party might, on counsel’s theory, compel him to sue for the liquidated damages, because such party was in default for six months, and he would then be entitled to credit for monthly dues paid for eight years and six months. When the receiver sues this defendant no such claim can be made, counsel says, because there is no default. Hence defendant must pay his full advancement, and get no credit for monthly dues paid for nine years. In other words, the contract places an immense premium upon the default. We cannot so construe it.
But it is further insisted that this contract, under the construction which we give it, defeats the basal principle of mutuality upon which building and loan associations are founded. We fully recognized that principle in the Cairns Case, and we do not depart from it in the least. That principle requires us to assume that all contracts
SUPPLEMENTAL OPINION.
After the foregoing opinion had been handed down, our attention was called to the fact that a mistake had been made in the stipulation of facts upon which the case was presented, and that the full
As stated in the original opinion, the bond and mortgage here in suit, with other securities, amounting in the aggregate to over $100,000, were deposited by the American Savings & Loan Association with the treasurer of the State of Wisconsin, for the benefit of the members and creditors of such association in such state. Such deposit was a condition precedent, and upon which such foreign corporation was permitted to do business in said state. See Sanb. & B. Ann. St. Wis. § § 20x4-2017. It is urged that such deposit was in legal effect an assignment of the bond and mortgage, and as such was utterly destructive of the contract between defendant and said association, as such contract contemplated and was based upon the proposition that such association should receive and reinvest all stock dues and interest, and the same should inure proportionately to the benefit of defendant, and hasten the maturity of his stock. The premise upon which this contention is based is unsound. The deposit did not take away the legal title of $ie association to the securities. The statute of Minnesota under which the association was created, and which is now section 2860, Gen. St. 1894, required such association to keep all mortgages or other securities received by it on deposit with the treasurer of that state, or a duly chartered trust company, approved by the public examiner of such state, but also provided that when the association desired to do business in another state, the laws of which required a deposit in that state, sufficient of such securities to enable the association to do business in such other state might be withdrawn from Minnesota and deposited in such other state. The effect of the deposit was the same in the two cases, and the purpose in each was to secure the faithful application of such securities, and the legal title was not effected. The statute of Wisconsin expressly provided that all stock dues and interest paid upon securities deposited should be received, retained, or reinvested by such association so long as it remained solvent. This in no manner destroyed the basis of the original contract. It is urged however, — and this is the point upon which appellant chiefly relies, —that the deposit of the securities by the directors of the association