Neuman v. New York Mut. Savings & Loan Ass'n

The avowed purposes of this corporation, as disclosed by its articles, require it, its trustees and authorized agents, to exercise the utmost good faith towards all of its borrowing members, and, in case representations are made respecting existing conditions dr the results of past experience which are untrue, and are relied on by the borrower, he becomes entitled to rescind his contract upon paying to the corporation such a sum as is just and equitable. - By the 179th section of the banking act (chapter 37, Gen. Laws) it is provided:

A borrower may repay a loan, anti all arrears of Interest, premium, if any. and fines thereon (or one or more shares thereof) at any stated meeting or at any time (but the by-laws may otherwise provide); when not made at a stated meeting, he shall pay interest up to the .first stated meeting after such payment, or he may, by a proper notice, and directions as to the application, have the withdrawal or holding value of the shares borrowed upon, applied in payment or part payment, as the by-laws shall determine.

Section 9 of the defendant’s by-laws provides a scheme for the withdrawal of unpledged installment shares, but our attention has not been called to any provision in the by-laws for the payment, before it becomes due, of a loan secured by mortgage, and the withdrawal of shares pledged as security for the loan. This corporation assumes to be organized and conducted on just and equitable principles, to "promote the welfare of borrowing members, and that its chief purpose is to enable those who earn small sums to obtain loans to be repaid in small amounts, and thus secure homes, and pay off liens on their homes, by the payment of a low rate of interest. The trustees occupy a fiduciary relation towards the members, and are bound to exercise not only vigilance, but the utmost good faith, in securing members and in conducting the business. When this plaintiff secured his loan, he paid $79.40 expenses thereof, and between May 1, 1891, the date of the loan, and March 1, 1894, he paid the following sums:

Entrance fee, $1.00 per share...................................... $ 26 00

Unes, twenty cents per share, monthly............................ 176 SO

Additional dues, forty cents per share, monthly..................... 3.13 60

Interest on $2,600 at six per cent, for 34 months..................... 442 00

Amounting to .............................................. $998 40

$998.40 paid on this mortgage is equivalent to upwards of 13.55 per cent, interest per annum on the sum loaned. Interest at 6 per cent, per annum for 34 months on $2,C00 is $442, which, deducted from the sum paid, would leave $554.40 applicable to the reduction of the principal, provided the amount had been borrowed of an individual. The defendant, in computing the amount which it required the plaintiff to pay to redeem his mortgage, makes the *900sum $2,409.14 as of March 1, 1894, which, deducted from $2,600, leaves $190.86 as the total reduction of the principal during this period, which is equal to $5,613 and a fraction per month, at which rate of reduction it would take upwards of 38 years to redeem this mortgage, assuming that the future prosperity of this corporation will be equal to its past success. With such unexpected results it is apparent, I think, that this inequitable contract should be canceled in case any fact was misrepresented which induced the plaintiff to enter into it- The court found, as. before stated, that the defendant represented that it had made from 15 to 20 per cent, every year. This was a representation in respect to an existing fact. If it were false, the plaintiff is entitled to rescind his contract, at least upon paying the sum loaned, with the legal rate of interest. It is true, as a general rule, that collateral false representations, not amounting to warranties, are not actionable unless they relate to existing facts or conditions; but, in case false representations are stated to be made on past experience, and are not ■expressed as a prediction or prophecy, they may be considered in ■an action to rescind an executory contract; and, in case any of the material statements on which the representations were based are untrue, a case for relief is made out. When the rule that only misrepresentations in respect to existing facts were a ground for relief was established, enterprises like the • one under consideration were unknown; and new conditions often require the modification of ancient rules to meet the changed conditions of modem business. It is not settled in this state, in an action to be relieved from the performance of an executory contract, that a positive statement of results, based or. mathematical calculations of past experience, if groundless, may not be, in a case like the one at bar, a basis for relieving a party from the performance of such contract, entered into on the reliance of the truth of such representations, made by persons owing a duty to the person deceived, and relating to a .subject of which the person making the representations assumes to have superior knowledge, and assumes to be an expert in the business to which the representations relate. In the case at bar the statement of results was not expressed as a prediction or prophecy, but was stated to be based on the past experience of the ■corporation; and it was not shown, nor was it attempted to be ■shown, that any unforeseen condition, like a default, unexpected losses, or any other unexpected- event, had intervened to prevent the realization of the assured results. The expenses of the defend.ant for 1890, as shown by its statement, amount to upwards of $5,-■000, and its earnings to less than $3,000, showing a deficiency of more than $2,000 for that year, and upon no theory was the statement that it made 15 to 20 per cent, during that year justifiable. The defendant seeks to cover this deficiency by taking $5,444.51 from the funds paid in by the stockholders and transferring that sum to an expense fund, pursuant to a by-law, and then assumes to call this sum earnings. The defendant’s expert testified that taking this amount from the fund contributed by shareholders amounted to an assessment of that amount upon their shares, which nec*901essarily reduced the value oí their shares by the sum subtracted; and upon wbat theory this sum, which was contributed by the shareholders, and not earned by the moneys which they had paid in, can be called earnings, is not made apparent to this court by the record in this case.

The learned trial court, in disposing of this case, failed to find whether the material representation that “the defendant had made from 15 to 20 per cent, every year” was true or false. The evidence in this case would not only justify, but I think requires, a finding that the representation was false; and because of the failure of the trial court to find upon this question the judgment must be reversed, and a new trial granted, with costs to abide the event. All concur.