Court Opinion

ID: 8654989
Source: CourtListenerOpinion
Date Created: 2022-11-24 21:15:01.115874+00
Date Added: 2024-06-11T16:56:39.787241
License: Public Domain

McCARTY, J.
(dissenting.)
I am not only unable to agree with my Brethren respecting some of tbe propositions of law announced in tbe foregoing opinion, but differ with them as to what tbe record shows some of tbe material facts to be in tbe case. Tbe record shows that in 1893 tbe association sustained severe losses. Its books were destroyed by fire, and it was uncertain as to what tbe financial condition of tbe company was at that time. An auditing committee was appointed to investigate tbe affairs of tbe company and report on its condition. Tbe report, which is in evidence, shows that tbe liabilities of tbe association exceeded its assets by nearly $10,000. As a result all of tbe stock was assessed fifteen per cent of tbe amount paid thereon by tbe stockholders. About this time Rogers, tbe plaintiff herein, was made president of the association for tbe purpose *206of retrieving some losses sustained by tbe association, wbicb position be held until March, 1899. Notwithstanding efforts were made to place the association upon a more solid financial basis, it continued to grow weaker in this respect, and after the losses, referred to were sustained no stock matured for a greater amount than that paid in by the stockholders as subscription fees and the regular monthly payments.
It appears from the uncontradicted testimony that long before Rogers’ stock matured, and while he was president, the policy was to carry on the business until the association could realize on its assets and wind up its affairs in such manner as would be least harmful to its stockholders. The auditor’s report of March, 1897, showing the financial condition of the association, concludes as follows: “Should we be able to obtain new stockholders to offset the decrease by maturing stock, we will be in a position to continue. If not, the best thing to do to protect all stockholders is to have a receiver appointed and close up our affairs.” To the same effect is the auditor’s report of July, 1897, wherein he states: “We must increase our subscriptions or close up the business, which we are now gradually doing.” One of the stockholders testified on this point as follows, and his testimony is not disputed: “At different times previous to 1898, the question of carrying the association along was discussed at meetings at which Mr. Rogers was president, and the question was discussed that, if we would go on and carry the association along, that there was a possibility of it paying out the money put in by realizing upon our assets. If Dot, the general opinion was that we would not get out even the money we put in. That was universally expressed by the stockholders as early as 1893 or 18'94r, and the policy agreed was to carry on the business with that end in view. We often discussed about winding up the company, and it was stated that a big loss would result to the stockholders if we attempted to wind up its affairs, but by carrying it on we would get our money out by an advance in the prices of real estate, and we held on for that purpose.” Another witness testified on this branch of the case, in part as follows.: “I attended meetings, after Mr. Rogers became *207president, at wbieb tbe financial condition of tbe company was discussed. We came to tbe conclusion that tbe company’s affairs were sueb that, if any one applied for a receiver, we would go to tbe wall and be unable to meet our liabilities in full.” Since 1895 tbe subscribers for stock, with a few exceptions, as shown by tbe undisputed evidence in tbe case, were old members of tbe company, wbo took stock to qualify them to serve as directors. Nor several years prior to tbe bringing of tbis action there were not sufficient number of stockholders to make a full board of directors. Tbe by-laws provided for thirteen directors, whereas the number did not exceed seven or eight. Prior and up to tbe maturity of tbe stock of tbe twelfth series, when tbe stock in a series matured and there were not sufficient funds in tbe treasury to redeem or pay it off, tbe company, on many occasions, borrowed money for that purpose. Tbe record r, shows that the last money borrowed by tbe association was used to pay off tbe twelfth series of stock, which matured in 1897, and tbe evidence further shows that tbe company has not loaned any money since October of tbe same year.
It is not charged that there has been fraud or mismanagement in tbe affairs of tbe company since the losses referred to occurred in 1893. In fact tbe record shows affirmatively that tbe officers in charge since said date have managed and conducted tbe business in an honest, straightforward manner, and have honestly endeavored to keep it a going concern until tbe assets were sufficient to pay each stockholder tbe full amount of bis investment. And notwithstanding they made every reasonable effort, as shown by tbe record, to pay off tbe different series as they matured, no payments were made on tbe fifteenth series until September 6, 1901, three years after the stock matured, and thereafter all money collected by or paid into tbe association, less tbe running expenses, was applied to tbe payment of tbis series^of stock. Tbe different payments made to Rogers on bis stock in tbe series up to June 26, 1903, when tbe last payment was made, aggregated $2,142. When tbe fifteenth series of stock matured (September 15, 1898), there was due and unpaid on matured *208stock of the thirteenth and fourteenth series, and on stock which had been withdrawn, $1,090. This is shown by the auditor’s report bearing date of September 15, 1898, introduced in evidence by respondent. And the president’s report of the financial condition of the association, bearing date of March 21, 1900 (2 1-2 years after the fifteenth series matured), which report was also put in evidence by respondent, shows that there was then due and unpaid on the fourteenth series $4,000. While the books of the association showed that at the time the Rogers stock matured it was solvent, and there were undivided profits, yet the undisputed evidence in the case shows there were in fact no profits, and that profits were made to appear on the books because of the over-valuations of real estate owned by the association. Plaintiff Rogers understood this, because the record shows that, during the time he was insisting upon and demanding payment of his matured stock, he stated to the secretary of the company that' the real estate held by the association was not worth more than one-half of its appraised value. And, again, in answer to a communication from the secretary, bearing date of June 16, 1903, in which he was furnished a copy of the company’s financial report which contained a list of the" real estate owned by the association, and the value of each separate parcel as fixed by a committee appointed for that purpose, he says: “I have had the property therein referred to appraised, and from said appraisement I would not take any of them at anything like the association’s value.” In fact the evidence, which is not denied or attempted to be denied, shows that after Rogers’ stock matured the sales of real property made by the association showed a net loss, according to its book valuations, of $3,741.39. The record further shows that another piece of real estate, known as the “Bates Farm,” which cost the association $2,339.92, and carried on its book at $2,000, would not bring on the market more than $400 or $500. And it is furthei' shown by the undisputed evidence in the case that the association has carried on its books several other pieces of real estate at prices far in excess of their true market value. The trial court did not find there were *209in fact any profits at the time Rogers’ stock matured, but did find as follows: “That at the time the said fifteenth series matured, .... the books of the association, which carried real estate of the association at the prices the same were taken in at, and not the true market value therof, showed a profit on its business of more than $5,000.” Now this finding as far as it goes, is in harmony with all the testimony given at the trial on this point. Nor the evidence conclusively shows that the “book values” represented the cost of the different properties to the association. Besides, the report made to the court by the receiver, which bears dates of November 14, 1903, shows that the entire resources of the association consist of the following assets: Cash and other personal property, $300; six pieces of real estate, sold under contracts on the installment plan, the title of which is still in the association, $3,682.50; and six pieces of real estate unsold, the aggregate value of which the undisputed evidence shows is not more than $1,390 — making the total resources but $5,372.50, whereas, according to the amounts due respondent and the other stockholders, as found by the trial court, the liabilities of the association exceed $7,000.
Appellant’s first contention is that Rogers cannot recover on his action at law for the value of his stock. The authorities all agree — in fact the doctrine is elementary— that in a corporation of this kind a stockholder holding paid-up or matured stock jjannot maintain an action at law for the value of his stock, but this rule cannot be invoked in this case, because Rogers intervened in the equitable action brought by J. J. Driver, on whose petition the receiver was appointed. The court, therefore, had jurisdiction to enter the decree from which this appeal is taken.
The next question presented is, did the court err in al--lowing interest on the claims for matured stock from the dates when the association declared such stock matured? I recognize the general rule to be that when the constitution or by-laws of a corporation of this kind provide that claims represented by matured stock *210shall be paid out of a special fund created for that purpose,, or provide that a certain pier cent, of the receipts and income,, or a specified proportion of the cash on hand, shall be used to liquidate this class of claims, the holder of matured stock is not entitled to interest on his claim until the association has the necessary funds- on hand with which to pay the claim in the order provided by its constitution and by-laws, and payment has been demanded and refused. Neither in the constitution nor by-laws of the association under consideration is there any provision limiting payment of claims represented by matured stock to any particular fund or certain per cent, of the receipts and income. The record, however, shows that it was the uniform and continuous policy and custom of the association, prior and up to the maturity of the fifteenth series, to pay off this class of claims at the time of the maturity of the stock or within a reasonable time thereafter, and, when there was not sufficient funds in the ' treasury to pay these claims, the association, on several occasions, borrowed money for that purpose. In other words, these claims were held by the association to be due and payable from the time the stock was declared to be matured. Not only did the- association so hold, but, as stated, it adhered to and followed this custom through the whole course of its business and dealings with the holders of stock. And failure to pay off the claims represented by the fifteenth and subsequent series of stock was not because of any change in the policy of the association in this respect, but was due to the fact that the money coming into the treasury was not sufficient for that purpose. From the time the stock of the fifteenth series was declared matured by the association, the claims of fixed and definite amounts represented by this series of stock have been regarded by the association, and in fact continually acknowledged by it, to be due and payable out of the general fund without any conditions or restrictions, with the exception that stock withdrawn before maturity, as provided by the articles of incorporation,, was paid off in preference to matured stock. For five years prior to the commencement of this action the association had the use and benefit of the money paid by respondent on his *211stock. And under certain provisions of tlie constitution and by-laws, hereinafter referred to, the holders of stock withdrawn before maturity were entitled to and presumably did receive six per cent, interest on the amounts paid on their stock; and that, too, since the time when there ceased to be any accumulation of profits. Under these circumstances and conditions, according to every rule of equity and fair dealing, I think that the holders of claims represented by matured stock are entitled to interest thereon from maturity. (Endl. on Bldg. Assn’s, 119; Appeal of Mechanics' & Workingmen's Bldg. Ass’n (Pa.), 7 Atl. 728.)
While the trial court failed to find on the question of insolvency, I think it is conclusively shown by the record and the evidence hereinbefore referred to that at the time respondent commenced his suit the association was insolvent. And the authorities uniformly hold that in case of insolvency of an association of this kind, and in the absence of any provision in the constitution or the by-laws giving one series of stock preference over others, all classes of stockholders shall share alike in the distribution of the assets, and neither is entitled to priority over the others, but each shareholder shall be entitled to receive his pro rata share of what is left after paying the expenses of winding up the concern, provided, as in this case, there are no outside creditors or other preferred claimants. In Endl. Bldg. Ass’ns, 514, 515, the rule is stated as follows:
“It is but a logical carrying out of this principle that, in cases of insolvency of associations, in which a question of distribution can arise between holders of matured and holders of unmatured stock — e. g., in a serial association — no preference is to be accorded to the former, but both classes are to share pro rata in what is left after satisfying outside creditors; other preferred claimants being out of the way. In short the order prescribed by the by-laws of a building association for the payment of money out of its treasury to different classes of holders of ordinary stock in the regular course of its business does not apply to the distribution of its assets when insolvent, and neither would that order apply, in such cases, to the payment of different individuals in the same class of preferred stock. The basis of distribution in such eases is not the rule of the association expressed by its' by-laws standing alone, but the supreme rule of equality and mutuality; and the controlling inquiry is the amount paid by the member, not the date of the issue of his stock, nor that of its maturity, or any notice to withdraw.”
*212“Whenever, therefore, a member appears as a claimant upon the estate of an insolvent building association, upon the ground of his stock interest, he is to be treated as a member, and not as a creditor.” (6 Cyc. 165.)
The eases cited by Justice Straup in the prevailing opinion declare this same rule. In fact it is conceded that such is the law. But respondent insists and the opinion in effect holds that when his stock matured he ceased to be a stockholder, and his relation to the association was that of a mere creditor only, and, as such creditor, is entitled to all the rights and preferences that the law gives to general creditors of an insolvent association of this kind. When his stock matured and was so declared by the association, Bogers maintained a dual relation to the association of both stockholder and creditor. (Endl. Bldg. Ass’ns, 142; Thomp. Bldg. Ass’ns, 282; Criswell's Appeal, 100 Pa. 488.) And at no time did he cease to be a stockholder, and the record conclusively shows that at no time did the association become the purchaser of-his stock, as contended by his counsel in his oral and printed arguments. On March 19, 1902, Bogers wrote to the secretary of the association respecting his claim, in part as follows: “I request that you lay before the board of directors that I insist upon, either payment at this time of my matured stock in the fifteenth series, or that the stock be taken up, and that I be given the secured note of the association. As I have explained to you orally, this stock is almost valueless to me, because it cannot be used or negotiated as collateral, and I want something which I can use.” On March 26, 1'9‘02, the association, speaking through its secretary, replied to the foregoing letter as follows: “At the last meeting of the board of directors of the Ogden Building & Savings Association, I presented your matter to them in the matter of securing the payment of your unpaid balance on your matured stock in the fifteenth series, and this they refused to do, for the reason that they never have done such a thing, and, if they had to secure the amount due when the stock matured it would tie up the property, so that it would work a great detriment to the handling of the property on the same when it came to selling it. They *213directed me to say that they would make all efforts consistent with the condition of things to pay your indebtedness, and anything further than that they would be unable to do.” And, again, on August 20, 1902, the secretary wrote him as follows : “At a regular meeting of the board of directors of the Ogden Building & Savings Association as of this date, I brought up the matter before them concerning the execution of the association’s note to you for the unpaid balance due on the fifteenth series, and the directors declined to execute the note. They say they have never done that before, and they can see no reason why they should do it now. They desire to treat you as well as any one else, and that they are doing the best they can; that they are willing to pay you as fast as the money comes in, and that is absolutely all they can do.”
From the foregoing correspondence, which was introduced in evidence by Rogers, respondent herein, it clearly appears that there was neither sale nor transfer of any kind, by him, of his stock to the association. The certificates of his stock themselves, which are in evidence, bear no mark or indorsement showing a sale or transfer, and were never offered or delivered to the association, but were held by Rogers as his own individual property. That Rogers neither believed nor acted upon the theory that he had sold and disposed of his stock to the association, and thereby ceased to be a stockholder, is evident from the fact that he does not base his right of recovery upon that ground. The allegation upon which "he bases his right to recover, so far as material here, is as follows: “That on said day [September 30, 1898] . . . defendant, by a duly passed and adopted resolution of its board of directors^ in a regular meeting thereof then and there duly held, declared said thirty-five (35) shares of stock fully matured and then and there payable to plaintiff at the sum of one hundred and two dollars per share. . . . That defendant has failed to pay said amount, etc.” Nowhere in his original complaint, nor in his complaint in intervention, does he allege a state of facts from which a sale can be inferred of his stock to the association. In fact the court did not find that the association purchased respondent’s stock, or that he at any time *214ceased to be a stockholder, and there is absolutely no evidence in the record which shows or tends to show that such a sale took place or was ever contemplated by the parties. Nor is there any provision in the constitution or by-laws of the association which gives the matured stock of one series preferred right of payment over the matured stock of another and subsequent series.
The only provisions of the constitution and by-laws which in any way relate to the time and order of payment of matured stock and stock withdrawn before maturity are the following :
“Section 1. Each and every shareholder, for each and every share of stock that he may hold in this association, shall pay the sum of $1.00 on or before the first Tuesday in each and every month thereafter, until the value of the whole stock shall be sufficient to divide to each share of stock the sum of $100.00.
“Sec. 2. When each and every shareholder, for each and every share of stock, shall have received the sum of $100.00, or property to that amount, this association shall close.”
“Sec. 5. Stockholders wishing to withdraw from the association after the lapse of one year shall be entitled to receive, after one month’s notice, the full amount of the money they have paid in, with six per cent, interest, first deducting their pro rala share for expenses and losses: Provided, however, that, if more shares shall be ordered withdrawn than the amount of money in the treasury at such time may be sufficient to pay, then the applicants for withdrawal shall receive the amounts due them in the order in which the notices required have been filed with the seeretarv.”
It will be observed that tbe foregoing provisions of tbe constitution and by-laws make no distinction whatever respecting tbe order in which matured stock of tbe same or different series shall be qiaid, but section 5 fixes tbe priorities and order of payment of claims held for stock that has been withdrawn before maturity. It would seem from this section that, if it were intended to give any preference or priority in time of payment to one set or class of stockholders over the others, such preference is in favor of the stockholders holding withdrawn stock. Now the record shows that during the time Kogprs was president of the association, and subsequent thereto, it was the continuous and uniform custom and course *215■of business of tbe association to pay off claims for withdrawn stock in preference to those held for matured stock, when there were not sufficient funds in the treasury to fully meet the demands made on it for these purposes; and that, too, regardless of the time when the paid-up stock matured, whether before or after the notice of withdrawal was given. Rogers understood and acted upon this custom, because the uncontro-verted evidence in the case shows that long after the fifteenth series matured, and was so declared by the association, he availed himself of this business rule of the corporation and received payment for stock held by him in the seventeenth and twentieth series, which he had withdrawn before maturity. These claims were paid by the association in preference to the unpaid balances then due on matured stock of the earlier series. Therefore, even though we should follow, instead of the law as I understand it to be declared by the text-writers and adjudicated cases, the “uniform, exclusive, and continuous course of business and rule of corporate action to' which all of its stockholders [including respondent] have at all times assented,” as found by the trial court in determining the equities in this case, respondent is clearly not entitled to any priorities in the payment of his claim over other stockholders. First, he would not be entitled to interest on his claim, because the record shows that the association never at any time paid interest on claims for matured stock, notwithstanding interest was often demanded, while Rogers was president, and shareholders on some occasions were compelled to wait more than two years for their money after their stock had matured. This was the case with holders of stock in the fourteenth series, which matured more than a year prior to the time Rogers ceased to be a director and officer of the association. Second, a portion of thé stock held by appellants matured more than two years before this suit was commenced, and the balance was withdrawn long before, and some immediately after, the bringing of the action. Now, it was the uniform “course of business and rule of corporate action” on the part of the asso ciation, when stock was withdrawn, to give it the preference in time of payment to matured stock, regardless of the time *216when the withdrawal was made. That Rogers was familiar with this rule is evident from the fact that he, as hereinbefore stated, took advantage of it. And, third, if, as held by the trial court and affirmed by this court in the opinion written by Justice Straup, Rogers, when his stock matured, ceased to be a stockholder, and his relation to the association from that time on was only that of a creditor, then, in that event, J. J. Driver and Emma J. Hindley, whose stock matured long before the suit was commenced stand in the same relation to the association as Rogers, and are creditors only, and are entitled to the same treatment in the distribution of the funds. Therefore, as heretofore stated, it matters not whether we follow the law as I understand it to be laid down by all the authorities, or use as a guide the course of business and rule of corporate action of the association in dealing with its stockholders, Rogers is not entitled to any preferences or priorities in the payment of his claim over the other stockholders.
After a careful review of the record in this case, and examination of the authorities bearing upon the questions presented, I am forced to the conclusion that the case should be remanded, with directions to the trial court to modify its findings and judgment, and enter a decree permitting all the stockholders to share equally in the distribution of the fund according to the irrespective interests, as asked for by all the parties to the action except respondent.