Canadian-American Loan & Building Ass'n v. Quimby

Mb. Justice Seaes delivered the opinion of the court. The contention of counsel for appellants is based upon the assumption that the building and loan association is a solvent corporation. The argument proceeds upon the theory that such an association has the right, as a solvent and going concern, to exchange its assets for stock or stock liability; that the provisions of the statute for effecting liquidation contemplate the direction of such liquidators in the discharge of their duties by resolution of the association; and that the association here did by its resolution direct their liquidators to thus exchange assets, i. e., real estate of the corporation, for stock, or in extinguishment- of stock liability of the association. One difficulty of the argument lies in the fact that it assumes the solvency of the association, while the verified allegations of the bill of complaint, upon which the chancellor acted in granting this order, distinctly aver the insolvency of the same. The bill of complaint alleges that at the annual meeting of the association held in April, 1897, it was announced by the president that between forty and fifty thousand dollars of the assets of the association had been misappropriated by certain officers of the association, and alleges that “ by reason of the defalcation of its officers the association became insolvent and unable to continue its operations as a building association,” etc. There is another element in the bill of complaint which is in effect ignored by counsel for appellants in their argument, viz., the allegation that certain of the stock of the association was fraudulently issued as matured, when in fact it was not properly matured stock, and the further allegation that the liquidators were about to accept this fraudulent stock in exchange for the real estate, i. <?., the assets of the association. Whether the method of distribution of assets of an insolvent corporation, here sought to be followed by the directors of'this association, is lawful or not, it is at least certain that it should not in equity be permitted when the carrying of it out involves the acceptance of stock fraudulently issued in payment for such assets. Counsel for appellants contend that appellee, having notified the association of her intention to withdraw as a stockholder, she became thereby a creditor of the association, entitled to sue as upon a simple contract claim—citing Prairie State Ass’n v. Gorrie, 167 Ill. 414; to which might be added The Granite S. P. Ass’n v. Sonderman, 48 Ill. App. 433, and The Granite S. P. Ass’n v. Lloyd, 145 Ill. 620. And that, being a simple creditor, without judgment, she can not maintain this bill. But this doctrine, as announced in the cases cited, would not apply to determine appellee’s relation to the association as a stockholder, her liability as such, or her right to question a distribution of its assets, where the association was, as here alleged, insolvent before the withdrawal is made. Chapman v. Young, 65 Ill. App. 131. Upon the allegations of the bill of complaint that the association -was insolvent, and that the stock, which it was proposed to accept in lieu of cash payment for the assets, was in part stock fraudulently issued, we think that the chancellor was fully warranted in issuing the restraining order. We do not regard the circular presented at the hearing as evidence which was at all conclusive upon either the question of insolvency or fraud in issuing of the stock. The order is affirmed.