Court Opinion

ID: 8073336
Source: CourtListenerOpinion
Date Created: 2022-09-09 11:40:31.949808+00
Date Added: 2024-06-11T16:38:15.508885
License: Public Domain

CHASE, J.
A careful consideration of the articles of association leads us to the conclusion that the possible insolvency of the association was not in the contemplation of the incorporators or of the members of the association, in changing the articles of association from time to time. The articles of association seem to have been prepared with entire confidence that the somewhat intricate system of stock certificates and the numerous classes of stock would be attractive to many investors, and that money would be received and continued with the association, and so invested that the profits therefrom would not only be sufficient to pay an expense account out of all proportion to the business transacted, but also sufficient to leave a large net balance for distribution. All classes of stockholders were given the right to withdraw from the association at the times and on the terms expressly stated in the articles of association. By the express terms of the articles of association, withdrawals by stockholders (all classes) were to be paid in the order of filing notice of intention to withdraw, but the association could not be required to pay withdrawing members in any month more than one-half of the receipts of the loan fund for that month. So long as the association remained solvent, no question could ever be raised in regard to a preference in the payment of the full or withdrawal value of the different classes of stock, either while the association continued in business as an association, or in case of its dissolution. There is not a word in the articles of association in any way expressly referring to the question of the distribution of the assets of the association in case of insolvency, and nothing that, in our judgment, can be construed as having any reference to such possible insolvency. Every person having a share of stock in the association became a member of the association, *694and entitled to vote on such share in person or by proxy at all meetings of the stockholders, without distinction among the classes of stockholders. Claimants were interested to a limited extent in the profits of the association, and were stockholders and members of the association. They are not general creditors of the association. In determining the withdrawal value of the several shares of stock, persons having fully paid stock were given by the articles of association a permanent, fixed, book value, while persons holding installment stock had its value for withdrawal or holding fixed as provided by the articles of association once in six months. So long as the association continued in business, therefore, the full-paid stock had a fixed value, while the installment stock had a withdrawal and holding value to be so determined.
The contract with the installment stockholders is as sacred and binding as that with the full-paid stockholders. When the association ceased to exist as an association, all contracts were equally incapable of being fulfilled; and equity now steps in to wind up its affairs, and make a ratable distribution of its assets among its members. The general principles relating to the distribution of the assets of insolvent building and loan associations is well stated in 6 Cyc. 165, as follows:
“After the ordinary costs of winding up the association are paid, interested parties occupying the position of general creditors are entitled to be paid in preference to those whose claims are founded upon the relation which they sustain to the association as members thereof, unless the irregular acts of the creditor caused the insolvency; but the courts are inclined to treat the rights of all those holding the relation of stockholders as equal, and to allow no priorities in their claims. This is true, notwithstanding the stockholder has given notice of withdrawal, although such notice .has matured, and he has received orders from the treasurer for the payment of the withdrawal value of his stock; but where the rules and by-laws of the association are held to govern the distribution in insolvency, the same as when the association was a going concern, the rule may be otherwise.”
Applying the principles thus stated to this case sustains the order of the Special Term. The claimants assert that from the articles of association it should be held that it was the intention of the incorporators to give to the claimants a preference in the distribution of the assets in case of insolvency. We do not agree with the claimants that the articles of association relating to the determination of the withdrawal value of stock were intended in any way to affect the question of the distribution of assets in case of insolvency. Claimants also assert that the word “guaranteed,” used in connection with classes E and K stock, must refer to the payment of the principal, in any event. It is not at all clear what, if anything, was intended by the use of the word “guaranteed” in connection with such stock. It would seem to refer to the income thereon, but, there being doubt about the income being absolutely guaranteed, the word may have been used with reference to the withdrawal value of such stock while the association continued in existence! To find that any particular class of stock should have preference in the distribution of assets in the case of insolvency, the articles of association should so state in a plain and positive mariner, free from ambiguity and doubt. Questions may arise as to the withdrawal value of the several classes of installment stock at the time this action was com*695menced, but, as the articles of association do not provide how the funds shall be distributed in case of insolvency, equity requires that the withdrawal value of the stock at the time the action was commenced should be the basis upon which the assets of the association should be proportionately distributed. The following cases,. among others, sustain the conclusion herein reached: Coltrane v. Association (C. C.) 110 Fed. 281; Coltrane v. Blake, 113 Fed. 785, 51 C. C. A. 457; Alexander v. Southern Home B. & L. Association (C. C.) 110 Fed. 267; Solomons v. American B. & L. Association (C. C.) 116 Fed. 679; Gibson v. Safety Homestead & Loan Association, 170 Ill. 44, 48 N. E. 580, 39 L. R. A. 202; Mutual Union Loan, etc., Association v. Stolz, 93 Ill. App. 164; Hohenshell v. Home Sav., etc., Association, 140 Mo. 566, 41 S. W. 948; Leahy v. National B. & L. Association, 100 Wis. 555, 76 N. W. 625, 69 Am. St. Rep. 945; Coltrane v. Baltimore B. & L. Association (C. C.) 110 Fed. 272; Towle v. Amer. B. & L. Association (C. C.) 75 Fed. 938; Teller v. Wilcoxen (Iowa) 81 N. W. 772; Bingham v. Marion Trust Co. (Ind. App.) 61 N. E. 29; Criswell’s Appeal, 100 Pa. 488; Strohen v. Franklin S. & L. Association, 115 Pa. 273, 8 Atl. 843.
We do not think that the Special Term so abused the discretion vested in it in regard to the payment of disbursements as to require interference by this court.
The order should be affirmed, without costs to either party. All concur.