Watson v. Alice Anna Street Loan & Savings Ass'n

Pabke, J., delivered the opinion of the Court. The present' appeal involves the right of the corporate mortgagee, under a loan made and mortgage taken pursuant to section 169 of article 23 of the Code, to charge the mortgagor, according to a provision of the mortgagee’s by-laws, with the loss occasioned to the mortgagee by the redemption of the mortgage debt before its maturity. George W. Watson and Teresa M. Watson, his wife, the plaintiffs, applied for a loan of the Alice Anna Street Loan & Savings Association of Baltimore City, the defendant, an association incorporated under the laws of Maryland. The practice in matters similar to' that in litigation is for the company to1 issue stock to the borrower in the amount of the loan, and then to< purchase or redeem the stock by making a loan to the borrower to> its full agreed amount, and taking a mortgage lien on the borrower’s property to secure the money advanced, paid or borrowed in this fictional issue and redemption of the stock.

See Border State etc. Assn. v. Hilleary, 68 Md. 52, 55 . This stock, so issued and thus redeemed, is called redeemed stock, and the process is a technical compliance with the statutory law on the subject of ³⁴¹ building or homestead associations. Code, art. 23, secs. 161-170. "When the stock is so redeemed, it- is cancelled by statutory mandate, »and the corporation may issue an ecpial number of new shares in their stead.

Section 169. The defendant advanced to the plaintiffs as such temporary members of the defendant association the sum of $25,000 on 250 shares of the defendant’s stock at the same time the-plaintiffs executed a mortgage lien on their real estate to secure the payment of the loan. At this stage the shares of stock issued to- the plaintiffs became redeemed and cancelled stock; and the plaintiffs no longer thereafter held any shares in the association. So, with the delivery of the mortgage deed on December 13th, 1927, the plaintiffs, by statutory declaration, ceased to be stockholders, and could not vote for any purpose nor be eligible for any of the offices of the corporation.

Section 169. Moreover, the constitution of the association prescribed as a qualification for membership the possession of one or more shares. The several rights and obligations of the plaintiffs, therefore, are not the result- of membership in the association, but are fixed and determined by the provisions and stipulations of the mortgage deed or by agreement. If the measure of any right or promise is to be found in the constitution, regulations, or by-laws of the defendant, it is by force of an appropriate term of the mortgage deed or of contract.

Without possessing a single share of the defendant's stock,, with no right to dividend nor to participate in the earnings, accumulations, or profits of the association, but obligated by the mortgage deed to pay the full amount of the sum borrowed, with interest, in small weekly installments extending over a period of seven years and eight months, the plaintiffs have no interest in the assets or funds of the association, and no liability to bear their proportion of the losses, and the relation between them and the corporation is simply that of mortgagors and mortgagee. Williar v. Balto. Butchers' etc. Assn., 45 Md. 546, 560-563 ; Venable’s Syllabus of Heal Property (Brodie Ed.), 248-250. Since the plaintiffs are ³⁴² .not members of the association, they are, therefore, not bound by its by-laws, unless through an agreement to that effect or made so by statute. 1 Machen• on Corporations, secs. 733-737.

Section 169 of article 23 of the Code declares that the .association shall have the power to enforce the payment of .all dues, legal interest, or premiums from its borrowers by such fines or forfeitures as the directors may from time to time provide in the by-laws; and to take a mortgage on the property securing the loan that is conditioned for the repayment in weekly installments by the borrower to the corpo-.ration of the money loaned or advanced, including dues, interest, premium on each share and all fines, assessments, .and penalties incurred according to the by-laws in respect thereof. Accordingly, the provisions of the by-laws with respect to these fines, assessments, and penalties are statutory ■conditions of the mortgage transaction. • Again, if there are expressly incorporated in the mortgage ■deed provisions which show that the covenants were with reference to all or certain of the corporate by-laws; or, if the mortgagors had actual knowledge of particular terms of the by-laws prescribing the conditions upon which the mortgagor would have the right to anticipate by payment in full the maturity of the mortgage debt, and the parties are found to have contracted with reference to such terms, the parties, in either ■case, are bound by these provisions of the by-laws. 1 Machen on Corporations, sec. 736. Examining first the mortgage, and omitting the terms which are not essential to the present inquiry, it will be found that the parties covenanted with respect to the by-laws in several matters. Thus the mortgagors stipulated that, in case of any default, the whole mortgage claim “as ascertainable under the provisions of the constitution and by-laws” of the ■defendant should be due and payable.

In addition, the mortgagors covenanted to pay to the mortgagee weekly (1) the sum of twenty-five cents on each of said 250 shares of stock .as dues, until these continued weekly payments of dues shall ³⁴³ equal $100 for each of said 250 shares or, in. other words, $25,000, the principal of the loan; and (2) the further sum of twelve cents for each of said shares as interest and premium until the pax value of every one of said shares shall successively be paid, with an abatement of twelve cents for every $100 as and when paid on the principal; and (3) the additional sum of $15.50 to be applied to the payment of the-taxes, ground rent, water rent, insurance and other public-dues and charges, provided, if this third weekly sum shall not be sufficient in any one year to discharge these current expenses, the mortgagors would pay the difference, but, if the yearly aggregate of the last mentioned weekly sum be mo-re-than enough, the excess should be credited by the mortgagee on the fines imposed by the mortgagee in accordance with its constitution and by-laws, and the interest and principal of the mortgage debt. The mortgage debt and the amounts of the weekly payments required to discharge the principal and interest of this, debt, together with the premium, distributed in weekly payments, charged for the loan, are known and definitely specified in the mortgage; and the third weekly amount of $15.50' is the estimate of what will be sufficient to meet the enumerated current expenses usually chargeable against a property in a city. So, the explicit terms of the mortgage provide the measure of the mortgagors’ obligations, except with respect to one item alone, and that is a contingent and incalculable amount, as it relates to the fines and penalties lawfully imposed upon the mortgagors by the mortgagee for some minor-breach of performance. To know the occasion for the imposition' of such fines and penalties, and the amount to be inflicted, recourse must be had to the by-laws, and so the mortgage incorporates by reference the appropriate portions of the by-laws, which is as the statute anticipated.

Gode, art. 23, secs. 169, 162. As there was no default on the part of the mortgagors and no fine or penalty imposed and unpaid, the provisions of the by-laws, which are made a part of the mortgage deed by reference, had not accelerated the maturity of the whole un ³⁴⁴ paid debt and do not affect the question on this record. At the time of the negotiations for the loan of December 13th, 1921, to the plaintiffs, there were, however, two provisions of the by-laws which do relate to the pending controversy. The first of these in that: “The board of directors make a charge for the repayment of loans prior to maturity, the charge to be left to the discretion of the board.” This by-law purports to have been an amendment, which was passed on March llth, 1925.

There was no proof of its adoption, and it was not .authenticated so as to be accepted as prima facie evidence under the provisions of Code, art. 23, sec. 16. The record does not show clearly how this paper became a part of the record. At the close of the plaintiff’s case the defendant ■offered a prayer demurring to the legal sufficiency of the ■evidence. The court then inquired If “all these by-laws and constitution are in evidence.” The by-law in question had not been offered in evidence by the plaintiffs, but counsel for the defendant suggested that all the by-laws should be; and the record shows an argument followed, and the court then granted defendant’s prayer.

The only way in which the bylaw could have been considered by the court as in' evidence would have been by an agreement of counsel, which does not appear. However, the plaintiffs were not members of the association, and the proof is clear that the printed by-laws given by the defendant to the plaintiffs did not