110 F. 281 | U.S. Circuit Court for the District of Maryland | 1901
The conclusions of the special master .may be summarized as follows: (1) Holders of the paid-up stock are stockholders of the defendant corporation, and are not its creditors. The defendant corporation had power to issue paid-up stock, and the holders of that stock cannot now question that it had such power. (2) Neither the corporation nor the holders of other classes of stock can now recover back from the holders of the paid-up stock the interest or dividend which has been'heretofore paid the holders
Counsel on behalf of the paid-up stockholders have, with great earnestness and industry, urged upon the court that the report of the special master denies to them rights to which they are entitled by the contracts made between them and the association. It is admitted that, in most of the cases in this country in which holders of paid-up stock in insolvent building associations have asserted a claim to preferential payment out of the assets, their right so to do has been denied by the courts. It has been here argued, however, that the contracts in such cases could be distinguished from those at bar. In argument much reliance was placed by the counsel for the paid-up stockholders upon the decision of the supreme court of Georgia in the case of Cook v. Association, 104 Ga. 815, 30 S. E. 911. The special master has pointed out in his report that the United States circuit court for the Northern district of Georgia has,, in the recently decided case of Alexander v. Association, 110 Fed. 267, declined to regard the decision in Cook’s Case as conclusive of the point now in controversy. It so happens that, three days before the exceptions to the master’s report were argued before me, Judge Lumpkin, of the superior court of Georgia, who had presided at the trial of the case of Cook v. Association, was called upon, in the case of Robinson et al. against the Southern Mutual Building & Loan Association, to pass upon the question now before me. The auditor had held that the holders of paid-up stock were creditors, having reached that conclusion because he felt himself controlled by the decision in the case of Cook v. Association. Judge Lumpkin points out that the rights and status of the paid-up stockholders were only collaterally involved in the decision of Cook v. Association; that case having been, as the special master shows in his report, a controversy between a borrowing stockholder and the association as to the proper method of accounting between them. Judge Lumpkin further calls attention to the fact that in Cook’s Case not only had the holder of paid-up stock the rigid: to withdraw it, but the association reserved the right to call it in or redeem it. This right was not reserved by the defendant association in the present case. Judge Lumpkin says:
“I should hesitate long before holding that a number of people can join a building and loan association, take shares in it (regardless of whether they pay in advance or by installments), call themselves ‘shareholders,’ have the privilege of voting as such, be subject to the by-laws, and in fact be part and parcel of a concern which has no right to exist and do business and make, loans on the usual plan of building and loan associations, without coming in conflict with the usury laws of the state, except on the basis of mutuality and equality, and yet, when the enterprise fails, discover that*292 they are creditors, with the right of priority of payment of the full amount of their share.”
He adds:
“While the substance rather than the form is to be regarded in determining whether a certificate represents a debt or shares of stock, yet what the contracting parties call the paper, and what they intended and meant it to be, and the duties and rights conferred by them upon the holder of it, fur-. nish indicia as to its nature.”
I concur in these views. Nearly all building associations draw up their by-laws’ and make their agreements upon the assumption that they will succeed. They promise to each class of persons with whom they seek to do business those things which are likely to prove most attractive to people so situated. When disaster overtakes the association each class of its stockholders insists that the association shall be required to carry out its contract with them, no matter what happens to its agreements with the other classes of stockholders. In any such case, to enable any class of stockholders successfully to assert a right to be paid in full in preference to other stockholders, they must rest their claim upon a positive, unambiguous contract, specifically giving them that priority. A court of equity, when winding up an insolvent association and distributing its assets, is compelled to look at all the engagements into which the association has entered. If the association has undertaken to do more than its assets will enable it to do, the court must apportion its assets among those having claims upon it in conformity with the principles of equitjL The court of appeals of Maryland, speaking of this defendant association, said:
“As a mutual association based on the mutual plan, it is bound to treat its members equally, and any by-law or contract made by it in contravention of such mutuality would be ultra vires and void. While we are of opinion that an examination of all the by-laws must be made to ascertain their meaning and effect, we must not allow too much weight to attach to any one alone, so that it shall unduly preponderate against the other.” Baltimore Building & Loan Ass’n v. Powhatan Imp. Co., 87 Md. 59-64, 39 Atl. 274.
It does not seem to me that the contract of the paid-up stockholders in .this case gives them the right to be paid in full in preference to the installment stockholders, and that to allow them to be so paid would be inequitable.
Ror these reasons,- I will sign a decree overruling the. exceptions and confirming the special master’s report, and dismissing the petitions of the full-paid stockholders; the costs to be paid, in accordance with the recommendation of the special master, and for the reasons by him stated, out of the general assets of the association.