The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1892-04-24
Eight Per Cent. Association Stock.

Etgnt fer Cent. ASSOCIATION StOck.
The 8 per cent. stock question is being
discussed with much vigor among building
association men just now. One of them
them writes to the Journal as follows: IAN
attorney recently gave you some advice
that q certain association here. in the city,
issued guaranteed dividend stock. which
is illegal. as it was preferring q class of
stockholders. and advised that investors
take paid-up stock In associations like his.
which pay s per 9 interest on large
sums lett with them. and that they issue
therefore paid-up stock, which. he says, il
authorized by statute. This s per cent. in
terest, which they bin themselves to pay,
is paid annually. The article was a cap
tious one, and recklessly charged illegallty
against the officers of the attacked associa-
ton. and would pass unnoticed but for
hat.
IF the statute authorizes pald-up stock
aud the creation of q stakeholder Of that
description, it certainly must be in an un-
published volume in the exclusive control
of the attorney. The statute does not au-
thorize the paid-up stock. Paid.up stock
is issued legally. but not by authority Of
statute. and, In fact. stock such as his as
ISOLATION issues Ia not stock In law. The
party holding it has nothing more than o
certificate of Indebtedness against the as
ISOLATION. An association has the power
to borrow money for corporate purposes.
and power TO assign its mortgages as COL
lateral security. This has been expressly
decided. and is admitted by the attorney.
An English case goes still further and
holds that a lender can follow mp the
money In the mortgages and hold q claim
against them. The association the attOr-
ncy cites issues certificates of stock which
are merely. IN legal effect, certificates of
indebtedness, just as his paId-up certif-
Gates are. and then 1t guarantees. just
lawful interest-On these certificates. and
1t secures the repayment of the money
borrowed thus. by an assignment of mort
cages In trust. The association goes abso-
lutely upon the theory that il is borrowing
money. and only borrows it when it needs
to loan to members. and then reserves
the privilege of retiring il, when it has
idle money on hand. What Is the sub
stantial difference between this transac-
ton and going into bank and borrowing
5000 to meet demands of borrowing men,
bers, paying 8 per cent. interest. N leav-
ing ges as collateral security The
fact is that this attorney is borrowing
money and does not know it. Just as the
association he cites is doing, but it does
know it. But take this captiOus critic on
his own theory, and he says. in effect.
that bis association issues untaxa-
bic paid.up stock on which it agrees 10 pay
s per cent, interest. The statute does not
make the holder of q stock certificate q
stockholder, and there is no way in law to
make q person % stakeholder. unless it ia
provided for in law. but admitting that he
Is a shareholder, this attorney says his as
ISOLATION agrees 10 pay him 8 per cent. in.
terest. Is this not giving one class OF
shareholders a preference over another' If
his misht law applies it covers that trans
action as we'll. and he Is guilty of an Iile-
gaiitv. as he characterize II very properly,
because preferential stockholders are for
eign TO the building association scheme;
yet, upon mis- theory. hls association is
preferring q class or Its stockholders be-
cause the profits may not equal s per cent.
and the association has bonnd itself. legal
ly. to pay s per cent. interest. But this
mlsinfOrmed attorney does not un-
derstand bis own situation. evi.
denIly. His paid-up stockholders are not
stockholders, and Yet they are lawful
creditors. and the assets OF the association
are pied ged IN law to the of every
one OF them.
80 that while he has m~isapplicd bis law
he has nd vised TO go in his association and
take paid-up stock will get their money. az
the association has the power to contract 81
debt. Take this attorney by his state
mcnt and he saws his association issues
~non-taxable paid up stock. In view of the
fact that he is searching for IL
legalities. it would be well for hin
To explain TO his directors why
he nd vertises that his paid-up stock is non
taxable. upon which his association agreed