Where a mortgage given to a building association by a borrowing member thereof was matured by the insolvency of the association, the member as mortgagor could not be charged with any part of the running expenses of the association imposed only by the laws of the association and expressly limited to the stock, nor could he be charged with any sum as a reduction charge in the book value of his stock as-ants gave it their bond and mortgage for signed as collateral; the expenses and reduction charges relating only to the value of the stock not involved in determining his liability under the mortgage.

Where a mortgage given to a building association by a borrowing member was matured by the insolvency of the association, the member, as mortgagor, was to be debited only with the amount of his loan and interest thereon, and was to be credited only with interest and premiums paid, and interest on such premiums calculated by the application of the rule of av-mortgage debt, as set forth in the complainerage payments, and he could not be credited ant's bill of complaint, as in equity said with dues paid on his stock, and dividends al- master should have done. lowed thereon before the association became insolvent.

[Ed. Note. For other cases, see Building and Loan Associations, Cent. Dig. § 66; Dec. Dig. § 42.*]

ed the amount for which the mortgaged
premises should be sold. And the said de-
fendant claims the right to require that the
said stock should be sold by the complain
ant, and the proceeds applied to the payment
of the amount due on the said bond and
mortgage, before recourse is had by the com-
plainant to the said mortgaged premises.
"Fifth Exception. For that the said mas-
ter in his report should have credited on
the said bond and mortgage only the inter-
est that had been paid on the said bond and
mortgage, and the premiums that had been
paid at the rate of $10 paid monthly for
89 months, together with interest on said
premiums so paid, and the said master errec.
in crediting the said bond and mortgage with
the whole amount that had been paid for
dues, interest, and premiums, and also a cer-
tain sum amounting to $52.64, stated to be
for dividends allowed, and the said defend-
ants claim that, on account of the matter
mentioned in this exception, the said master
has not reported properly in accordance with
the principles of equity.'

"The third and fourth exceptions charge that the master failed to credit the defendants' mortgage debt with the value of the stock which the complainant held as collateral security for the payment of such loan.

"The master credited such debt with 89 monthly payments of dues, interest, and premiums, which was all that they had paid into the association, either as borrowers or shareholders, also the whole of the dividends allotted on their shares. The value of the shares could be no more than had been paid on account thereof plus their share of the net earnings. If the defendants were entitled to a credit on their bond of the value of their shares, the master's allowance exceeded the value of such shares, for the evidence taken in this cause shows that the dividends declared were made on the supposition that the premiums paid by the borrowing members as well as the earnings therefrom were assets of the association to be distributed among the shareholders.

"In Harris v. Nevins, 68 N. J. Eq. 684, 63 Atl. 172, the Court of Errors and Appeals "The master in his findings acted upon the held that 'in the computation of the amount theory that in this foreclosure all the rights payable upon a mortgage made to a building of the parties, whether arising out of the and loan association by one of its members, defendants' relation to the association as and which has become due by reason of the shareholders or as borrowers, should be set- insolvency of the association, the mortgagor tled. The exceptions are predicted on a is entitled to have credited upon the princilike theory; the exceptants contending, how- pal of the mortgage all sums paid by him as ever, that the master erred in the applica-premiums for the loan.' It follows as a nection thereof to the defendants' prejudice.essary deduction that, if the association had The first and second exceptions attack the not considered the premiums paid by bordebit side, and the remaining exceptions the rowers as assets of the association, the divicredit side of the master's computation. dends allotted on the defendants' shares am of the opinion that the theory adopted would have been considerably less than deby the master and approved by the except-clared. By the assignment of the defendants is untenable as far as this foreclosure ants' shares to the association as collateral is concerned.

security for the payment of said loan, in"As to the first and second exceptions, dorsed on the defendants' said bond, the there is nothing in the bond and mortgage association was authorized to make sale or that requires the obligors to pay any por- withdraw the same in case the defendants tion of the running expenses of the associa- defaulted in payment of dues, interest, etc., tion. This liability is created by article 18 and to apply the proceeds of such sale or of the association articles and by-laws, but withdrawal to payment of said loan. This it is expressly limited to the stock, and sec- authorization, as well as the obligation of tion 1, as amended, directs that five cents be the bond and mortgage of the defendants to deducted from the monthly installment on pay dues and premiums, was of force only each share of such stock; and section 4 as long as the association was a going condirects that one per cent. of the maturity parcern. In Weir v. Granite State Provident value shall be deducted from the first year- Association, 56 N. J. Eq. 234, 38 Atl. 643, aply payment. These shares of stock owned proved in Nevins v. Harris, supra, it was by the defendants are properly chargeable considered as settled law that in case of with their proportionate share of such ex- bonds and mortgages given by borrowing penses, but in this controversy, which re- members of such association which afterlates only to the defendants' liability as bor-wards became insolvent that such insolvency rowers, such expenses amounting to $64 may not be added to the loan. The reduction charge of $56.83, being a reduction of 141⁄2 per cent. in the book value of the shares, is untenable for the same reason. Both these expenses and reduction charges relate only to the value of the shares, and are not to be considered in a foreclosure suit, where the rights of the defendants as shareholders are

worked a rescission of the contract, and that the sums borrowed became immediately due and payable, regardless of the terms of payment fixed by the contract. By the assignment to the association of such shares as additional collateral for the payment of the mortgage debt, such association had the right in case the loan became due to resort to either the mortgaged premises or such stock

if it became necessary so to do. In such and reasoning of V. C. Reed in Weir Case, case the defendant could not control the as-supra. The facts in both cases were subsociation as to which collateral should be stantially alike. Both associations were first enforced. In what respect is their posi- insolvent; both defendants were borrowing tion superior now that the association is in- members; both had paid dues, on account solvent? There is nothing in the terms of of the stock as well as interest and premitheir contracts, as borrowers or shareholders um on the loan; each sought to obtain credthat entitles them to first have their shares it on the mortgage debt for such payment of of stock disposed of before the mortgaged dues. In both cases the right to credit the premises are resorted to. Before insolvency, dues on such debt was denied, but in the the association had the right to waive any Saul Case the learned Vice Chancellor pracdefault of the borrowing members and ex- tically allowed such credit by requiring the tend the time of payment. With the advent stock held as collateral to be sold, and the of insolvency, however, the duty to conver. proceeds to be applied to such debt before the the assets into cash in order to liquidate its taking of final decree. In this latter case the obligations became imperative. While the as- learned Vice Chancellor sought to adjust sociation was a going concern, the value of the rights of the defendant as a shareholdthe outstanding shares was a mere matter er as well as a borrower, seemingly overlookof bookkeeping. The total of installments ing the distinction between the two clearly paid on the shares plus net earnings con- pointed out in the Weir Case and the conclustituted the value of all the shares, and the sion there reached that the borrowing memvalue of any given number of shares was bers' rights as a shareholder were in no reeasily determined by computation. Insolven- spect superior to those of a nonborrowing cy, however, changed all this. Considerable shareholder, and that the borrower must, of what were assets before are now liabili- like them, await the final wind-up of the ties. Before insolvency, all premiums paid insolvent association before obtaining the by borrowers and the earnings therefrom be- value of their shares of stock. By section longed to the shareholders, and were so treat-2, art. 14, of association's articles, it is proed and formed a part of all dividends that vided that shareholders in good standing had been declared on the stock. Not so after may withdraw amount paid in monthly inthe advent of insolvency. From that time stallments on their stocks; and by section under the cases last cited, all premiums 3 of the same article it is provided that on paid by borrowers with interest had to be such withdrawals members shall receive 6 credited on their loans. All previous decla- per cent. interest per annum for the average rations of dividends, which entered into the time such payments have been made to the book values of the shares, are now proven to company. Manifestly these provisions as to be erroneous. A new listing of assets and the right to withdraw and the terms upon restatement of values must be made, and, as which such withdrawals are to take place a closing up of the association's business is are dependent upon the association being a now the only thing left, such values cannot going concern. They cannot apply during be determined till all the assets shall have insolvency. Insolvency at once abrogates been collected, the costs of liquidation paid, such provisions of the contract between the and the amount left for distribution among association and the shareholders. In addithe shareholders ascertained. tion to cases cited, see those noted in 6 Cyc. 130. The loan fund into which such installments of dues were paid, as well as other assets of the association, must be held till the losses of the association and the cosi of liquidation have been ascertained.

"In Weir v. Granite, etc., Ass'n, supra, a similar claim was denied. In that case the insolvent association held the stock of the borrower as collateral security. The borrower sought credit for the dues paid by him on such stock. V. C. Reed held that the borrowing member was not entitled to credit on the mortgage debt for any of the dues paid on account of the shares of stock, and that the only equitable rule is to require such borrower to await the final distribution of the assets of the association, and then take what his shares are proved to be worth.

"In Hoagland v. Saul (N. J. Ch.) 53 Atl. 704, it was held: 'On foreclosure of a mortgage given to a building and loan association, the stock held by the mortgagor, and assigned as collateral to the mortgage, should be sold, and the proceeds credited on the mortgage debt, before recourse to the mortgaged premises.'

"This holding, and the reasoning of V. C. Gray in support thereof, to my understand

"In the very nature of the case it cannot be otherwise. If the borrowing, member could withdraw from the association and receive the so-called value of his shares, every other member (borrower or nonborrower) could do the same. Upon what basis could such values be determined? Certainly no rational basis is suggestible. At best, the amount fixed would be a guess, with a strong probability that either the withdrawing member or those who awaited the final accounting would suffer loss. To force a sale of the stock with the purpose of crediting the bond with the proceeds would necessarily entail a loss upon some one. Insolvency having abrogated the express contract between the parties, neither party should be permitted to force the sale of the stock,

"As to the fifth exception: This challenges the principle adopted by the master in making his credits, and in effect charges that he erred in crediting the bond with the whole amount paid for dues and dividends declared, and further that he erred in not crediting such bond with interest on the paid premiums.

the final act of winding up the insolvent con- | and Appeals, furnish the true rule to be cern. There can be no final accounting till applied on this question. For the reasons all the loans have been paid, and the bor- given in support of the conclusions reached rowing member cannot prevent a decree for in such case, and those herein mentioned, the amount due by him on his bond merely I am of the opinion that the defendants in because, in the final wind-up, he may be en- this case are not entitled to a credit upon titled to receive something on the shares this mortgage debt of the value of their owned by him. The borrowing member oc- shares of stock held by the association as cupies a dual relation. Some, but not all, collateral, and that the amount due by them of the terms of the contract with the as- to such association in this foreclosure suit sociation in both relations, are necessarily is to be determined by the relation such deabrogated by the association's insolvency. fendants bear to said association as borrowWith respect to his contract as a borrower, ers, and not as shareholders. he, as a result of the abrogation, is treated as if he were not a shareholder at all. Under the decisions of the Court of Errors and Appeals, in the Nevins Case, supra, he is charged with the entire amount of the loan secured, with legal interest, and is credited with all payments made by him by reason of such loan. His payments as interest are credited as such, and his payments of premiums together with interest to be calculated thereon are credited to him as made on account of the principal of such loan. Assuredly insolvency has worked no harm to him as a borrower. With respect to his contract as a shareholder, he must be treated as if he were not a borrower, and take his stand with the nonborrowing members, and share with them in whatever hardships or losses are ultimately to be charged against the stock of the company. The learned Vice Chancellor in Hoagland v. Saul, supra, in support of his conclusion that the stock of the borrower held as collateral by the association, should be sold and the proceeds applied in reduction of the mortgage claim before final decree should be made, cited Ass'n v. Patterson, 27 N. J. Eq. 223. In this case, as well as Ass'n v. Conover, 14 N. J. Eq. 219 relied upon in the Patterson Case, the association was not insolvent. Furthermore, in both of these cases there were subsequent mortgages, and, as neither of these second mortgages had any lien upon the shares of stock which the mortgagors had assigned to the first mortgagee as collateral, a marshaling of the assets to preserve the equities of these subsequent incumbrances was necessary.

"I am of the opinion that this exception must be sustained. The case of Weir v. Granite State Provident Ass'n, supra, is directly in point. It expressly decides that such borrower is entitled to interest on premiums paid on account of loan, and that he is not entitled to any credit for dues paid on account of his stock; and inferentially such case decides that no profit (dividends) derived from the stock payments inure to the borrower as such, but only to him as a stockholder.

"Summarized, my conclusions are as fol

lows:

"First. That the master whose findings are here under review on such exceptions erred in debiting the borrower with the expense and reduction charges, and in crediting them with the dues paid on the shares of stock, and the dividends allowed thereon before the association became insolvent and for failing to credit them with the interest on premiums paid.

"Second. That the borrower is to be deb

ited only with the amount of his loan and the legal rate of interest thereon, and is to be credited only with the interest and premiums paid, and interest on such premiums.

payments.

"Fourth. That the date of the report of the former master be taken by the witness who calculated the interest on such premiums as the date to which such interest was calculated, and, as this was acquiesced in by counsel for all parties, such date be adopted for the same purpose, and also because a ready comparison of the results here reached with those reported by the former master will thus be afforded.

"Third. That, as these premiums were paid at intervals, the interest thereon be calculat"In my opinion the cases of Weir v. Gran-ed by the application of the rule of average ite State Prov. Ass'n, and Hoagland v. Saul, supra, are not in harmony on this subject. If they were, I should be constrained to follow the latter without regard to my personal views. As I read them, however, they are irreconcilable on the right of the borrower to have his loan credited with the probable value of his shares of stock held by the association as collateral. With such a conflict of authority confronting me I am forced to adopt the case which appears to me to furnish the rule that best safeguards all the equities. In my judgment the reasons given by V. C. Reed in the Weir Case, and

"And I further report that the schedule hereto annexed, and making part hereof, contains a statement and account of the prin

plainant on its said mortgage found in ac-rectly applied to the facts of this case. The cordance with my conclusions as aforesaid, result is that the prayer of the petition must and to which I, for greater certainty, refer." be denied.

WALKER V. C. This is a foreclosure case. The defendant Anthony McNulty applies by petition to open the final decree, to set aside the execution, and to set aside the master's report so far as it denies to the petitioner the right to have certain shares of stock in the complainant company, an insolvent corporation, sold before the mortgaged premises are sold. The matter is presented in this form because no exceptions were filed to the master's report, the excuse given being that counsel for the defendant was to have had actual notice, by arrangement of the parties, of the filing of the report, which notice he did not receive, and a final decree was entered ex parte upon the report in due course and an execution issued before he became aware of the situation.

(81 Conn. 378)

FINNUCAN v. FEIGENSPAN. (Supreme Court of Errors of Connecticut. Dec. 18, 1908.)

1. GUARANTY (8 27*)-CONSTRUCTION-INTENT OF PARTIES.

A contract of guaranty is to be construed according to what is fairly to be presumed to have been the understanding and intent of the parties, and the language used will not be extended by any strained construction to enlarge the guarantors' liability.

[Ed. Note.-For other cases, see Guaranty, Cent. Dig. 28; Dec. Dig. § 27.*]

2. GUARANTY (§ 27*) — CONSTRUCTION - EVI

DENCE.

--

To discover the intent of parties to a contract of guaranty, their situation and the circumstances connected with the transaction may be considered, and their language interpreted with the help of that evidence.

[Ed. Note. For other cases, see Guaranty, Cent. Dig. § 28; Dec. Dig. § 27.*] 3. GUARANTY (§ 38*)-CONSTRUCTION.

Defendant having agreed to loan a person $450 and furnish him merchandise necessary for a saloon business, certain others agreed to guarantee to defendant payment for merchandise to be thus furnished and the repayment of the $450, not exceeding the sum of $750. Held, that the guaranty was not a continuing one. but only a guaranty of repayment of the $450 further amount which would bring the total of and of the purchase price of merchandise in a cash and goods up to $750, and, where the principal had made payments on the cash loan, the the payments with interest thereon, though his sureties' liability was diminished to the extent of indebtedness to defendant aside from the payments exceeded $750.

[Ed. Note. For other cases, see Guaranty, Cent. Dig. § 47; Dec. Dig. § 38.*]

Appeal from Court of Common Pleas, New Haven County; Isaac Wolfe, Judge.

Action by Martin J. Finnucan, administrator, against Christian Feigenspan, corporation. Judgment for plaintiff, and defendant appeals. Affirmed.

On or about December 5, 1896, one Martin J. Finnucan was desirous of engaging in the business of selling spirituous and intoxicating liquors in Ansonia. He did not have the nec

For the purpose of deciding the question here presented I shall assume that the ar-essary means, and applied to the defendant, rangement was as claimed on behalf of the defendant. The case then stands in the posture of an application to open a judgment by default, in order to accomplish which the party applying must show both surprise and merits.

Coming to the question of merits, I find that the petitioner is without them. The question presented on this application was fully tried out before the able master who made the report, and he supported his finding by the citation of authorities, and, in my judgment, his reasonings deduced from those authorities are correct, and were cor

a Newark, N. J., corporation, having an agency in Ansonia, to furnish them to him. In response to this application, the defendant agreed to loan Finnucan $450 in cash, and to furnish him certain merchandise of its manufacture necessary for the conduct of the business upon condition that security to indemnify it against loss for such loan and furnishing of merchandise was given. Finnucan thereupon appealed to Mrs. Corr and Mamie Finnucan to provide the demanded security, and thereupon they agreed with the defendant "to guarantee to the defendant payment for merchandise to be thus furnished by the

For other cases see same topic and section NUMBER in Dec. & Am. Digs 1907 to date, & Reporter Indexes