Court Opinion

ID: 8745071
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:03:55.158614+00
Date Added: 2024-06-11T17:00:37.355276
License: Public Domain

MORRIS, District Judge,
after making the foregoing statement, said:
Notwithstanding the very able and learned presentation of the law by the special master under his eighth conclusion of law, I am not satisfied that there is any substantial difference in respect to the liability for losses by the borrowing shareholder between the contracts made in the present case and the contracts in the cases cited from the court of appeals of Maryland. The by-laws of the Baltimore Building & Loan Association, with regard to the rights of borrowers 'who paid off their loans, were quite frequently altered. Prior to 1896 the by-laws provided that a borrower could repay his loan at any time before maturity, and if at repayment he also canceled the shares on which the loan was based he should receive in settlement the full amount of dues paid, together with 6 per cent, per annum thereon for average time, but would receive no credit for premium or interest paid on account of the loan. In the by-laws of 1899 there appears an alteration by which the borrower, if he repays his loan and cancels his stock, is to receive the withdrawal value of his shares. With regard to the withdrawals prior to 1896 it was provided that the withdrawing shareholder should receive the amount paid in on his shares, together with 6 per cent, interest, but, if the losses had exceeded the profits, they should be charged up to the shares in good standing pro rata, and the amount so charged should be deducted from the amount to be paid upon withdrawal. The bonds executed by Blake and the deeds of trust executed by him provide that in case of the voluntary payment by consent of the parties, or of default and enforcement of the deed of trust, he was to be credited with the value of the shares of stock, to be determined by the board of directors according to the rule of valuation in the by-laws or by the vote of the directors. The present case is one to which the provision of the by-laws with regard to the voluntary repayment of the advance by the borrowing shareholder does not apply in terms. The considerations influencing a borrower to enter into a building association contract are principally the small periodical payments spread over a number of years. This, together with the large amount for which the property is accepted as security, are the advantages to be offset against the high rate of interest. When by insolvency' of the association the loan is prematurely matured the consideration is lost, and the borrower is not in the situation of one who for his own profit voluntarily asks to be allowed to pay his loan. The case principally relied upon by the exceptants as declaring the Maryland rule as to what results flow from the insolvency of building and lean associations incorporated under the Maryland statutes, and as to the liability of the borrowing shareholder to be charged with losses, is the case of Association v. Zucker, 48 Md. 448. That was a case in which Zucker, the borrower, had covenanted to pay the stipulated weekly dues until the association had sufficient funds on hand to pay .$100 for every unredeemed share of its stock, clear of all losses and liabilities. The contract made Zucker chargeable with losses, because the number of his payments was increased by *314every loss. But the court of appeals declared the Maryland law to be that losses could only be taken into’ account in a settlement with a borrowing shareholder when the association was a going concern, and then as an element in the estimation of how long the borrower’s payments would have to continue in order to mature the stock as contemplated in the charter of the association, and that the only way in which a borrower under such a contract could be made to contribute to losses was by the prolonged or extended payment of weekly dues. In the present case the by-laws and the contract have provided for a settlement by consent of parties upon application of the borrower; also for a settlement if because of his default it became necessary to enforce the deed of trust; but no provision is made for the insolvency of the association, and its enforced winding up, and the sudden maturing of the repayment of the amounts advanced. In essentials, I can see no sufficient ground upon which to distinguish the present case from Association v. Zucker. The ruling in Zucker’s Case was reaffirmed by the court of appeals of Maryland in Association v. Jaecksch (1879) 51 Md. 198.
Building and loan associations are the creatures of state statutes. It is found by the special master that by no reasonable probability could the borrowers from the Baltimore Building & Loan Association have ever escaped paying at least 13 per cent, per annum for the use of the money advanced, and only by virtue of the statutes expressly legalizing building associations is it legal in Marjdand to exact over 6 per cent, for the use of money. What the state statutes allow, and what they have not granted the privilege of doing, is a question of construction, which, when settled by the Maryland courts, is controlling. And the question as to what are the mutual rights of shareholders as to each other, when such an association chartered under the Maryland law has to be wound up and its assets distributed, for the reason that such rights grow out of the special law of their incorporation, is, I think, a matter of local law, as to which the Maryland decisions control, when they have settled it. This is not a question of general commercial law or of general equity procedure, but it is a question into which enters the construction of the Maryland statute and the general policy of the Maryland law in respect to a peculiar class of contracts, only valid at all to the extent they are legalized by Maryland legislation. “The construction given a statute of a state by the highest tribunal of such state is regarded as part of the statute, and is as binding upon the courts of the United States as the text.” Leffingwell v. Warren, 2 Black, 599, 17 L. Ed. 261; Bucher v. Railroad Co., 125 U. S. 555-582, 8 Sup. Ct. 974, 31 L. Ed. 795. I think it may be fairly stated that since 1878, long before the incorporation of the complainant association, it was settled in Maryland that upon a winding up the borrowing shareholder did not contribute to the losses of a building association incorporated under the Maryland law. In City of Detroit v. Osborne, 135 U. S. 492-498, 10 Sup. Ct. 1012, 34 L. Ed. 260, it was said by the supreme court, “There should be in all matters of a local nature but one law within the state, and that law is not what this court might determine, but *315what the supreme court of the state has determined;” and in that case it,was held that the federal court was controlled by the law settled by the courts of Michigan, contrary to the general law, that municipal corporations in Michigan were not liable for neglect to keep streets in repair. City of Richmond v. Smith, 15 Wall. 429-438, 21 L. Ed. 200; U. S. v. Morrison, 4 Pet. 124, 7 L. Ed. 804; Association v. Rector, 38 C. C. A. 686, 98 Fed. 171. In McMurray v. Gosney, 106 Fed. 11, Circuit Judge Acheson, holding the United States circuit court in Pennsylvania, in a proceeding to foreclose a mortgage of lands in Pennsylvania given by a borrowing stockholder to an Illinois building and loan association, refused to follow the Pennsylvania rule of settlement, and was controlled by the rule in Illinois.
Holding these views, I am constrained to dissent from the conclusion of the special master that the Maryland court of appeals has not decided the question of the right of the intervening petitioner to have credit for the payments made as dues upon his stock, without deduction for losses, and to sustain the exceptions of the interveners to the conclusions of the special master on that question. The conclusion which I have reached, that the Maryland rule is controlling in the winding up of this association, renders it unnecessary to consider whether, if this court were not so controlled, I would adopt the conclusion reached by the special master in his ninth conclusion of law, and which he has most ably sustained by the citations and reasons submitted by him. That conclusion and the authorities cited in its support all rest upon the assumption that the enterprises under consideration were mutual associations. Before adopting the rule found by the special master in his ninth conclusion, I should have to consider most seriously whether or not, as the association in the present case was actually carried on, any real mutuality existed between the unredeemed and the redeemed shareholders. I am entirely satisfied of the correctness of the special master’s seventh conclusion of law, that the intervening] petitioner is entitled to credit for all the sums paid as premium, for the reasons stated by him, and the exceptions to that conclusion are overruled. All the exceptions to the special master’s findings of fact are overruled, and all the exceptions to his conclusions of law are overruled, except the exceptions to his eighth and ninth conclusions of law, and to his tenth, eleventh, and fourteenth conclusions, in which application is made of his eighth and ninth conclusions. The exceptions to such eighth, ninth, tenth, eleventh, and fourteenth conclusions are sustained to the extent indicated by this opinion.
The rule of settlement with borrowing stockholders will be as follows: (1) The amount due by the borrowing stockholder as of March 21,1900, is to be ascertained by charging him with the amount advanced to him, with interest théreon from the. time such, advance was made to him, and by crediting him with the amounts paid by him for dues, premium, and interest as of the date when paid by him, according to the rule for the application of partial payments prevailing in Maryland. No credit shall be allowed him for any sums *316paid as admission fees or fines. That is, the account between the defendant association and the intervening petitioner, Charles C. Blake, shall be stated in the manner in which the master has done in his report, upon the assumption that the rule in Association v. Zucker, 48 Md. 448, should be followed, a copy of which account is attached hereto as part of this opinion. By that account it appears that Blake had overpaid the association on his two loans the sum of $109.51. As to such overpayment it is equitable that Blake,, to that extent, should be considered as a stockholder, and should share with the other stockholders in the dividends which may be allotted to them. (2) Upon settlement being made in accordance with the rule above stated, his stock on which the advance was obtained shall be canceled, his bonds surrendered to him, and the property conveyed by his deed of trust shall be reconveyed to him. The special master will submit a form of decree in conformity with the aforegoing ruling.
Statement of Account.
Charles G. Blake in account with the Baltimore Building & Loan Association of Baltimore City for $1,000 advanced him by it, December 21, 1892. Account stated as in Association v. Zucker, 48 Md. 448:
Debit. No. of Days Since Last Transaction. Credit. Balaifce. Date. 1892.
$1,000 00 Dec. 21. •
1 64- $ 9 32 -$992 32 Dec. 31. 1893. M
16 00 980
16 00 969 40 Feb. 25.
16 00 958 50 Mar. 29.
16 00 947 38 Apr. 29.
16 00 935 74 27.
16 00 924 82 June 29.
16 OO 912 92 July 26.
16 OO 900 82 Aug. 21.
16 00 S90 74 30.
16 OO 878 84 Oct. 28.
16 00 866 88 Nov. 25.
16 00 855 87 Dec. 30. 1894.
16 00 16 00 844 25 831 70 Jan. 30. Feb. 24.
16 00 820 48 Mar. 31.
16 00 80S 26 Apr. 28.
16 00 796 25 May 28.
16 00 784 57 June 30.
16 00 772 18 July 28.
16 00 760 24 Aug. 29.
16 00 748 11 Sept. 29.
16 00 735 80 Oct. 29.
16 00 722 95 Nov. 24,
16 OO 711 35 Dec. 31.
*317No. of Days Since Last Transaction. Debit. Credit. Balance. Date. 1895.
Jan. 28. £
Deb. 20.
liar. 27.
29.
25.
June 24.
July 81.
Aug. 80.
Sept. 30.
Oct. 22.
Nov. 25.
Dec. 28.
.1896.
Jan. 27. -O) o o M
Feb. 26. o o <z> W
Mar. 30. í-o o en M
w o o co W
May 26. w o o v M
June 27. o < < : < i£ W
July 25. o o Q tí
Aug. 29. O O cs>
Sept. 26. ^ O O o
Oct. 31. vi O o W
Nov. 28. o O O ca
Dec. 20. oo O O oo
1897.
Jan. 30. ^ OI
GO
Mar. 27. 00
Apr. 24.
May 29.
June 26. tr
July 30. ££ tH CO
Aug. 28. O Oí (N
Sept. 25. oí 00 frí
Oct. 30. h-ÍO CO
Nov. 27. a 00 <M
Dec. 25. h-oo <N
1898.
Jan. 29. M Oí W
Feb. 26. K> 00
Mar. 26. fcS 00
Apr. 30. »-* W ül
May 28. I i
June 25.
July 30.
Aug. 27.
Sept. 24.
Oct. 29.
Nov. 26.
Dec. 31.
1899.
Jan. 28. cp
25. a>
Mar. 25. O c
$1,199 34 $1,209 32
Balance overpaid, $9.98, carried to account of advance of §300.
*318Charles G. Blake in account with Baltimore Building ¿ of Baltimore City for $300 advanced him by it June stated as in Association v. Zucker, 48 Md. 448: & Loan Association 21, 1895. Account
No. of Days Date. 1895. Since Last Transaction. Debit. Credit. Balance.
May 25. $ 1 80
June 21. 27 ísóó’óó 01 $298 19
June 24. 3 15 1 80 296
July 31. 37 1 80 5 70 292 64
Aug. 30. 30 1 44 5 70 288 38
30. 31 1 47 3 90 285 95
Oct. 22. 22 1 03 4 80 282 18
Nov. 25. 34 1 58 4 80
Dec. 28. 33 1 51 4 80 275 67
1896.
Jan. 27. 30 36
Feb. 26. 30 34 4 80 268
Mch. 30. • 33 46 4 80 265 43
27. 28 22 4 80' 261 85
29 25 4 80 258 30
June 27. 32 36 4 80 254 86
28 17 4 80 251 23
29. 35 45 4 80 247 88
Sept. 26. 28 14 4 80 244 22
Oct. 31. 35 40 4 80 240 82
28 11 4 80 237 13
Dec. 26. 28 09 4 80 233 42
1897.
35 34 4 80 229 96
Feb. 27. 28 06 4 80 226 22
Mch. 27. 28 04 80 222 46
Apr. 24. 28 02 80 218 68
May 29. 35 26 80 215 14
June 26. 28 99 80 211 33
31. 35 22 80 207 75
Aug. 28. 28 96 80 203 91
25. 28 94 SO 200 05
Oct. 30. 35 15 80 196 40
Nov. 27. 28 90 80 192 50
Dec. 25. 28 88 4 80 188 58
1898.
Jan. 29. 35 08 4 80 184 86
Feb. 26. 28 85 4 80 180 91
Mch. 26. 28 83 4 80 176 94
30. 35 02 4 SO 173 16
May 28. 28 80 4 80 169 16
June 25. 28 78 4 80 165 14
July 30. 35 95 4 80 161 29
28 74 4 SO 157 23
28 72 4 80 153 15
88 80 149 23
Nov. 26. 28 69 80 145 12
Dée. 31. 35 83 80 141 15
1899.
Jan. 28. 28 65 80 137 01
Feb. ■ 25. 28 63 80 132 84
*Mch. 25. 2S 61 14 78 11S 67
29. 35 68 20 80 98 55
27. 28 45 20 80 78 20
June 29. 28 36 20 80 57 76
35 33 20 80 37 29
28 17 20 80 16 66
Sept. 30. 35 08 20 80
$351 22 $355 28
*319Overpayments, with dates, number of days prior to the 21st of March at which they were made to the association, and simple interest thereon to March 21, 1900:
Dates. No. of Days. Int. Thereon.
Sept. 30. 168 $ 4 00 $0 11
Oct. 28. 140 20 80 40
Nov. 25. 112 20 80 37
Dec. 30. 77 20 80 25
Jan. 27. 49 20 80 17
Feb. 24. 25 20 80 09
08 $1 45
Interest . .. 1 45
Total interest and principal. .$109 51
*Note. From March 25, 1899, there is credited on this account the payments made by the intervening petitioner on both his loans, the loan of $1,000 having been, according to the account stated upon this theory, completely paid up by the payment made March 25, 1899.

See * note on opposite page.