U. S. Bldg. & Loan Assn's Assignee v. Reed

Opinion of the court by JUDGE DuRELLE Reversing. In April, 1891, appellee subscribed for five shares of stock in the United States Building & Loan Association, and paid $3 per month upon his subscription until February, 1892, when he obtained a loan from the association, executing a note and mortgage for $400, and from that time until March, 1897, continued to pay $3 per month on his stock subscription, and in addition paid $4 per month [876] as interest and premium on Ms note. In February, 1897, the United State® Building and Loan Association made an assignment to the Columbia Finance and Trust Company, appellant, and the assignee instituted this action to collect the balance claimed to be due upon the note. After a demurrer to the petition as amended had been overruled, the appellee filed an answer, set-off, and counterclaim, seeking to have all payments made by him, whether on stock subscription, interest, or premium, credited upon the amount borrowed, with interest computed at 6 per cent., and for a judgment over for the amount so paid which was in excess of such debt and interest. Judgment was rendered dismissing the petition. Two questions are presented which have not been here-' tofore considered in exactly the present form. First, it is urged by appellee that the demurrer to the petition as amended should have been sustained, because it did not show that the owners .of a majority' of the shares of stock of the association had consented in writing that it should close its business, and wind up its affairs, in accordance with section 561, Ky. St. This section provides: ‘‘Any corporation organized under this chapter may, by. the consent in writing of the owners of the majority of its shares of stock, unless otherwise provided in the articles of incorporation -or amendments thereto, close its business and wind up its affairs.” This section does not in our opinion, in any way apply to a case of voluntary assignment for the benefit of creditors. It seems to have been intended merely to authorize the holders of the majority of the stock of a corporation to close out the corporation, and withdraw their capital, without respect to 'its solvency or insolvency. But it is unnecessary to [877] construe the statute. It is sufficient to say that it has no application to an assignment for the benefit of creditors. It is also insisted for appellee that the judgment of the trial court was correct, because, before the assignment was made, if all the payments which had for any purpose 'been made were applied as payments upon the debt and interest, they were moire than .sufficient to extinguish it, without reference to the fact that no such application had ever been made, or sought to be made, of such payments before the .assignment. It is argued that, while the company was .still a going concern, its debt had been extinguished, and its subsequent assignment did not authorize the company to retain the amounts paid as dues on stock in the stock account, because the payments had “by operation of law” been applied to the ex-tinguishment of the debt and interest. The foundation error in this is the claim of application by operation of law. The law does not operate to make such application without action by the parties. The law leaves thosu payments applied to the purposes for which they were made under the contract between the parties. It was held in the Simpson Case 19 Ky. L. R. 1176 (41 S. W. 570), (42 S. W. 834), that in a litigation between a borrowing stockholder and a going building and loan association, where no-showing was made by the company of expenses in excess of profits, the stockholder had the right to have all payments, made by him applied to the extinguishment of his debt-That decision did not in any way conflict with the decision in Rogers v. Rains, 100 Ky. 295 (38 S. W. 483), laying-down the rule to be followed in the equitable administration of the funds of an insolvent or assigned concern. The distinction is expressly recognized in the Simpson [878] case in the concluding sentence: “Nor have we before us' a case where the assets of the association in the hands of a receiver ,are for distribution by a chancellor. In such case his duty is clear to protect the interests of all parties alike.” In the present cáse the law made no change in the application of the payments which had been made by the parties themselves. It was not until after the assets of the company were in the hands of the assignee for administration that any effort was made to have a different application of the payments. It w.as then toe late. There is no reason in equity and good conscience why the chancellor administering the insolvent estate of a building and .loan association should distinguish between borrowing stockholders on account of the numlber of payments of dues on stock made by them respectively. If one stockholder subscribes in January, and another in March, and both borrow from the company, and it so happens that the corporation assigns at a time when the January subscriber had made sufficient payments of dues upon his stock to extinguish his indebtedness if such payments of dues be added to his payments of interest and premiums, while the March subscriber lacks two monthly payments of dues of having done the same thing, there is no reason which this court can perceive why the one should be excused from the payment of any part of the expenses of operation of the company of which he wias a stockholder and a proportionate part of that burden be thrown upon the other. Both of them are stockholders. Both of them were stockholders at the date of the assignment. Both of them are morally bound for their respective proportions of the expenses of the association. Both of them hav-e made payments which have been duly oar879 r.ied to tlie stock account for the purpose of paying the stock subscription, and such payments by both subscribers have come into the hands of the assignee for the purpose of extinguishing the debts and paying the expenses of the concern. After they have come into the hands of the assignee, they can not be diverted to any other purpose, except in so far as they are unnecessary for that purpose» — for that purpose for which they were appropriated by both parties át the time the payments were made. This doctrine, we think, is in full accord with the rule laid down in Globe Building & Loan Co.’s Assignee v. Wood (Ky.) 60 S. W. 859. It follows, therefore, that the trial court erred in applying the payments on stock subscription as credits upon the note, and to this extent the judgment is reversed, with directions to enter a judgment for appellant in accordance with this opinion.