
    James A. Roberts, as Receiver, etc., of the Metropolitan Mutual Savings and Loan Association of Buffalo, N. Y., Respondent, v. Adelbert D. Cronk, Appellant, Impleaded with Others.
    
      Insolvent savings and loan association—foreclosure of a mortgage by its receiver — credit for dues or premium paid by the mortgagee — it must be found in the final adjustment of the affairs of the association—what saving clause in the foreclosure judgment protects that right.
    
    In an action by the receiver of an insolvent savings and loan association to' foreclose a mortgage executed to the association hy a shareholder who had assigned his shares to the association as security for the performance of the conditions of the mortgage, the shareholder is not entitled to he credited upon the mortgage in the foreclosure action with the amount of dues paid hy 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.
    What provision in the judgment rendered in the foreclosure action fully protects the shareholder’s rights in this respect, considered.
    Spring, J., dissented.
    Appeal by the defendant, Adelbert D. Cronk, from a judgment of the County Court of Erie county in favor of the plaintiff, entered in the office of the clerk of the county of Erie on the 23d day of LTovember, 1903, upon the decision of the court directing a foreclosure and sale of the premises described in the complaint.
    The action was commenced on the 17th day of September, 1902, to foreclose a mortgage for $1,000 given by the defendant to the Metropolitan Mutual Savings and Loan Association of Buffalo, ÍL Y, of which the plaintiff is receiver.
    
      I. W. Cole, for the appellant.
    
      G larh H. Timerman, for the respondent.
   McLennan, P. J.:

‘ The facts in this case are not in dispute. The Metropolitan Mutual Savings and Loan Association is a domestic corporation and Was organized under and pursuant to chapter 122 of the Laws of 1851 and the several acts amendatory thereof and supplemental thereto.

On the 11th day of July, 1898, the defendant Adelbert D. Cronk, who was the owner of the premises described in the complaint, subject to a mortgage of $3,000, became a member of the association by subscribing for forty shares of its stock, known as Class A, of the par value of $4,000, and on the same day applied to it for a loan of $4,000, and thereby agreed to be governed by and to comply with “ the conditions and provisions of the articles of association.” He stated that he wished to borrow on the mortgaged property, and agreed “ to assign and pledge as security for this loan 40 shares in Class A, and to promptly pay regular dues or monthly installments thereon, and also bid and agree to pay a premium of 25c per month on each share so assigned and pledged, together with interest payable monthly at the rate of (6) six per centum per annum on the amount loaned until the full amount of said loan be paid.”

' The application for the loan was granted; the forty shares of stock were transferred to the association as security “ for the due and timely performance of all and every of the terms, conditions, covenants and agreements herein, and in the said bond and mortgage so executed to said association, contained incumbent upon him to perform.”

On the same day Oronk executed and delivered to the association the bond and mortgage in suit conditioned for the payment, of $4,000. The bond, among other things, provided :

“ Whereas the said obligor Adelbert D. Cronk is a member of said association, as defined in its Articles of Association, the provisions of which shall be deemed a part of this instrument as fully and completely as though set forth at length herein, anS the owner and holder of forty (40) Shares of Class A ’ Stock * * * of the par or face value of four thousand ($4,000) dollars, the monthly dues upon which amount to ten ($10) dollars and upon the security thereof and a proposed bond secured by mortgage upon real property * * * heretofore applied to said association for a loan or advance,' and, in accord with and pursuant to said articles agreeing to pay interest, monthly at and after the rate of six per centum per annum and * * * a premium of twenty-five cents per share per month on the stock so assigned, payable monthly at the same time and place as the regular dues on said stock.”

The bond further provided that the appellant shall well and truly pay, or cause to be paid, unto the said association, at its principal office aforesaid, on the third business day of each month the said monthly dues upon said shares and the interest and premium aforesaid for one month, calculated at the rates aforesaid upon said sum of four thousand ($4,000) dollars, together with all fees and fines lawfully charged against said shares or against dues credited thereto under said articles,” “ until the maturity of said shares and a sufficient sum is to the credit thereof in dues- paid and apportioned profits to fully pay said principal sum, together with all fines and fees that are or may be lawfully under said articles charged to or against said shares.”

Also, It is further agreed that should default be made in the payment of said interest, premium, dues, fines or fees, " * * and the same or either or any of them or any part thereof remain unpaid and in arrears for three months * * * the whole of said loan or advance and all sums secured by this bond and said mortgage and said assignment of said shares, shall at the option of the Board of Directors of said association become due, and it may proceed to enforce collection upon the securities held by the association.”

By the agreements and instruments referred to the defendant Cronk, in express terms obligated himself to pay to the association $40 each month, $20 thereof as interest on the $4,000 loan, $10 as premium and $10 fees and dues. The association, in consideration of the undertaking and agreements upon the part of the defendant, agreed that it would pay the interest upon the prior mortgage of $3,000 as the same became due, and that if the defendant, according to the terms upon which his stock was issued to him, should pay such premiums, etc., which, with the earnings of the stock, would amount to the face value thereof, until such payments and accretions should be sufficient to mature such stock, it would thereupon cancel and discharge the indebtedness represented by the said bond and mortgage. As a matter of fact, the defendant Cronk received only $1,000 from the association. The balance of the loan, to wit, $3,000, was retained by it as against the prior mortgage of that amount, and out of the payments made by Cronk the association paid the interest on such mortgage. The parties continued under the agreement until October 1,1901, the defendant paying. $40 each month as provided by it, and'in the meantime paid in accordance with the by-laws and rules of the association $390 by way of dues and a like sum as premiums. He had also paid the interest upon such loan at the rate of $20 per month, amounting to $780. At that time the defendant ceased to make payments, and on the first day of May following the plaintiff was duly appointed receiver of the association, and this action was brought by him for the foreclosure of the mortgage given by the defendant.

The only issue presented by this appeal is as to the amount due and owing upon snch mortgage.

The learned County Court charged the defendant with the $1,000 concededly advanced to him by the association, with the interest which became" due and payable on the mortgage from October 1, 1901, until May 1, 1902, $140, with the monthly premium which the defendant agreed to pay for the use of the money loaned to him, to wit, $70, which amounted to $1,210, and deducted therefrom the sum of $139.50, which the association failed to pay as interest upon the $3,000 mortgage, leaving, as found by the trial court, $1,070.50 due and owing upon such mortgage. The defendant insists that he should be credited with the amount of dues paid-by him- to the association and also with the amount of the premium which he paid for such loan, amounting in the aggregate to $780.

In our opinion none of the payments of either of those classes should be credited upon the loan. The dues were paid by the member (defendant) for the purpose of maturing the stock issued to him, and the premiums were paid as an additional compensation or bonus for the loan, and also became an asset of the association and enhanced the value of the stock issued by it. 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. Such .distribution cannot be made in this action, because no suggestion is contained in the answer that such relief can or should be granted, and there is no proof to indicate what amount, if any, the defendant will be entitled to receive. (Riggs v. Carter, 77 App. Div. 580; affd., 173 N. Y. 632.)

The judgment appealed from does, however, contain the following provision, which affords full protection to the appellant: And it is further ordered and adjudged that if at any time the plaintiff herein shall receive a dividend on said above-mentioned stock (being the forty shares assigned to the association by the defendant) he shall credit the amount thereof on the judgment herein.”

This action is for the foreclosure of the obligation of .the appellant to the association as a borrower, one, perhaps, of many others, which the receiver must necessarily institute in order to gather in the assets of the association for the purpose of eventually distributing the same equitably as we have suggested. The premium for the loan which the defendant bid and afterwards paid monthly to the association cannot now be credited against the principal of the loan. It was a payment in excess of the legal rate of interest, and it was paid each month with the interest as an extra .return for the use of the. money loaned to the defendant. -The nature,pf the payment or exaction is aptly characterized in the language of Mr. Justice Williams in Hall v. Stowell (75 App. Div. 21, 22): “It was an exorbitant compensation agreed to be paid for the use of the money, considering all the payments to be made by the defendant, but the Legislature has legalized such agreements, and if parties will enter into them they must take the consequences.” The premium in that case which was thus characterized differed from the one in this only in that it was paid in a gross sum by being added to the amount of principal actually loaned, while here it was paid in smaller monthly installments.

We cannot express our view of the law defining the rights of the parties in the circumstances in which they are now placed better than to reiterate the words of Mr. Justice Williams in the case of Hall v. Stowell (supra): “When the corporation making the loan goes into the hands of a receiver, and it is no longer able to carry out the agreement, the borrower is relieved also from compliance with the terms thereof, and an equitable adjustment between the parties must be made. 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.” Citing Strohen v. Franklin Saving & Loan Assn. (115 Penn. St. 273); Post v. Building & Loan Assn. (97 Tenn. 408); Endl. Build. Assn. (2d ed. §§ 514, 515, 531) ; Rochester Savings Bank v. Whitmore (25 App. Div. 491); Breed v. Ruoff (54 id. 142), and Hannon v. Cobb (49 id. 480).

We do not concur with the learned counsel for the appellant in his contention that there is in the decision of the case of Hall v. Stowell (supra) an apparent departure from the principle adopted by this court in Hannon v. Cobb (supra). Such is not the interpretation we give the decision in the later of the two cases referred to.

So far as the principle which controlled the decision of the case of Roberts v. Murray (40 Misc. Rep. 339) is in conflict with the views above expressed, as indicated by the opinion of the learned. County Court therein, it must be regarded as overruled, notwithstanding the judgment in that case was affirmed by this court (89 App. Div. 616; 85 N. Y. Supp. 1145).

We think the method adopted by the learned trial court to ascertain the amount due from the defendant to the plaintiff in this case was absolutely just and fair to both parties, and must be regarded as the correct rule for the determination of the rights of litigants in this class of actions.

It follows that the judgment appealed from should be affirmed.

All concurred, except Spring, J., who dissented.

Judgment and order affirmed, with costs.  