Steinberger v. Independent Loan & Savings Ass'n

Russum, J., delivered the opinion of the Court. Frederick Keller filed his bill in the Circuit Court No. 2, of Baltimore City, against the appellee, alleging that it had issued notes, under its -corporate powers, for the purpose of borrowing money to carry on its business of lending money to its members ; that some of said notes'were overdue and unpaid; that the said corporation had become greatly embarrassed, and was without means to meet them; that it was indebted to the complainant in the sum of $1,800.00, on its promissory note, which was past due and unpaid; [633] that the said corporation was embarrassed at the time of the loan by him, and afterwards became still further embarrassed ; that the said corporation was insolvent; that the secretary had defaulted to a large amount, and that unless its affairs were taken out of the hands of its officers by the Court, the available assets would be wasted and dissipated. The prayer of the bill was for an injunction, and a receiver and for general relief. Afterwards, Joseph Steinberger, John Krepp, Joseph Bitzelberger, Mary Krepp and Jesse Marsden, the appellants, were made parties complainant. The answer avers that Frederick Keller had, by an order filed in the cause, dismissed the bill; denies the insolvency of the corporation ; denies that the then complainants were creditors; and avers that they are free shareholders, who had failed to give notice in writing of their withdrawal, as required by Article 12 of the constitution of the association. A number of witnesses were examined, and the facts proven by the testimony are (1) that the claim of Frederick Keller had been settled and that he had dismissed the bill, as to him; (2) that the alleged indebtedness consisted in the subscriptions of the “ free shareholders,” and five thous and dollars owing to “ bills payable,” none of which were held by the complainants ; and (3) that an overwhelming majority in number and in value of the free shareholders desired that the business of the association should be continued. At the hearing of the cause below the complainants prayed leave to amend the prayer of the bill, so that, in addition to the relief prayed for therein, they should have the benefit of the prayer “that the said corporation shall be adjudged to be insolvent, and to have surrendered its corporate rights, privileges and franchises and may be adjudged to be dissolved,” which was granted, and the amendment ordered to be “ treated as made, in the form and words set forth” in the petition. The contention of the appellants is that they have proven all that is necessary to absolutely entitle them to a decree determining that the corporate rights, privileges and fran [634] chises of the appellee have been forfeited; to have it adjudged to be insolvent and dissolved; to have an injunction restraining its officers and agents from further conducting its business, and to have a receiver appointed to take charge of its affairs—and this, too, without regard to the consequences. With this contention we cannot agree. In our opinion the proof is legally insufficient to establish, the insolvency of the appellee, in the absence of which such action by a Court of Equity would be unwarranted by reason or authority. It is conceded that the appellee is incorporated under the laws of this State governing building associations, and the proof is that the relations of the appellants were those of “free” shareholders—that is to say, subscribers to its capital stock, who were not borrowers from the association— and that they had not given notice of their withdrawal, as required by Article 12 of its Constitution. Their relations to the association were essentially one of partnership for a definite time, entitled upon its expiration to the profits of their investments, and with the right to withdraw upon notice in writing to the directors as required by Art. 12 of its Constitution. Their membership does not terminate until the notice has been given and accepted, and, until then, they could not assume the position of creditors. As shareholders' they do not stand on an equal footing with creditors. Their claim begins only after every creditor has been satisfied. Endlich on Building Assoc., secs. 127, 511, 512; Towle v. Am. Build. Loan., &c., Co., 61 Fed. Rep. 447; Ibid, 60 Fed. Rep. 131; Davis et al. v. Gemmell, 73 Md. 537. The free shareholders who have not given the required notice not being creditors, and there being no proof that any of them had done so, it follows that the sum of sixty thousand dollars, the amount of their holdings, as stated in the argument of appellants’ counsel, cannot be considered an indebtedness due by the association; and that, instead of a deficit in the assets, there remains the sum of fifty [635] thousand nine hundred and fifty dollars available for the payment of “about” five thousand five hundred dollars owing on “ bills payable ”—which is the only indebtedness proven in the testimony, or claimed to exist, in the argument of the cause. The Act of 1894, ch. 263, has not changed the relations of shareholders to the corporation of which they are members ; nor has it established any new rule relative to the character of the proof necessary to prove the insolvency of a corporation. It is just as necessary now as before that Act to prove that a corporation is unable to pay its debts in the ordinary course of business, as persons in trade usually do, before there can be á decree adjudging it to be insolvent. This requirement has not been met in this case, because the appellants, and all others in like relations to the appellee, are not creditors. By their own showing, the actual debt owing by the appellee does not exceed five thousand five hundred dollars, “ in bills payable,” to meet which there are nearly fifty-one thousand dollars of assets. The holders of these “ bills payable ” do not appear to be wanting in confidence in the safety of their debts, and about five hundred of the shareholders, who own over seventy-four thousand dollars in “ free ” shares, and who are exactly in the same position with the appellants (whose holdings amount only to $544.42) desire to continue the association, believing that it will, thereby, be more likely to get rid of its difficulties, and the shareholders be more likely to receive their proper proportion of its assets. Moreover, the proof shows that, before the depositions were taken, the affairs of the appellee had been placed under the management of new officers, who are both honest and capable; and that, instead of being guilty of waste, fraud or negligence, they are making active and earnest efforts, and had been partially successful in recovering the loss incurred, partly through an incompetent and unfaithful officer; and partly by the payment of. dividends largely in excess of the [636] earnings; and a part of which went into the pockets of the appellants. It has been definitely settled in this State that the power to appoint receivers is a discretionary one, to be exercised with great circumspection, and only in cases where there is fraud, spoliation or imminent danger of the loss of the property, if the immediate possession should not be taken by the Court, and these facts clearly appear. Davis et al. v. Elect. Power, &c., Co., 77 Md. 40. (Decided January 6th, 1897.) To declare the appellee to have forfeited its rights, privileges and franchises, to be insolvent and to be dissolved, and to place its affairs in the' hands of a receiver, in the absence of some controlling rule of law imperatively demanding it, and which does not here exist, would be lending the aid of a Court of Equity to the wrecking of a corporation, entailing great and useless loss and injury to its shareholders. And, this, too, .where it is conclusively proven that a course so destructive of the interests of the many is not'necessary to protect the interests of the few. In re Prof. & Com., &c., Building Soc., L. R. 6, Ch. App. 863; B. & O. R. R. Co. v. Cannon, 72 Md. 498. Fully concurring with the learned Judge below, that the appellants are not entitled to the relief prayed for, the decree appealed from will be affirmed with costs.