Rogers v. Hargo

Caldwell, J. C. H. Rogers, as receiver of the Hew South Rational Building and Loan Associa [36] tion, filed this bill to collect from ,J. "W\ Hargo, one of the share-holders of that corporation, an alleged debt of seven hundred dollars, evidenced by a certain loan- note, and secured by mortgage on real estate. The Chancellor heard the cause finally on pleadings, exhibits, and an agreed statement of facts. From his decree both parties have appealed. It appears from the “agreed facts,” so far as necessary to be here stated: First. — That the defendant, being the holder of ten shares of capital stock in said corporation, “obtained a loan” of money from it, and executed the note in suit therefor; and that for several months he paid certain “dues upon his stock,” and certain other sums as “interest and premiums upon his said loan.” Second. — That within two years after the organization of said corporation, it was dissolved by decree of Court in another cause, wherein the complainant in this cause was appointed receiver, with direction to collect all debts due to the corporation — that decree not specifying, however, what credits, if any, should be- allowed borrowing members on their notes. Third. — “That said corporation is insolvent; by which is meant that it is not able to ,pay its debts or the amounts paid in by its stockholders of all classes in full, but that a loss in a final adjustment -of its affairs will have to fall upon i'ts stockholders, who will receive something -upon their [37] stock, but tbe exact amount o'f loss cannot yet be definitely known.” Tbe contention of eacb party to tbis litigation is then stated, as follows: “IJpon these facts tbe defendant insists that, in repaying bis loan to tbe complainant, he should be charged with tbe amount of money received by him from said corporation, with interest thereon at tbe rate of six per cent., and be credited ■ with tbe full amount paid by' him upon his stock in said corporation, and upon interest and premium upon bis loan, upon tbe principle of partial payments. Tbe complainant insists that tbe defendant should not be credited, in tbe payment of bis loan, with tbe sums that he paid upon bis stock, but that bis payments upon 'stock should remain to bis credit, to be paid him upon final settlement of tbe affairs of tbe corporation, upon tbe same ratio as payments on account of stock shall be made to other stockholders, both borrowers and investors, tbe payments to be made to all alike.” Tbe insistence in behalf of tbe defendant is in accord with tbe view of Mr. Endlicb, as expressed in Section 496 of. bis work on the Law of Building Associations. In tbe concluding part of that section tbe author, in laying down tbe rule for settlement with a borrowing member of a dissolved association, says: “ He is to be charged, therefore, only with ' tbe amount be has actually received, with, legal interest, and credited with all bis pay [38] ments upon stock and interest, upon the principle of partial payments.” But to the contrary, and in support of complainant’s insistence, is the case of Strohen v. Franklin Saving Fund and Loan Association, decided hy the Supreme Court of Pennsylvania, in 1887, and reported in the Atlantic Reporter, Vol. VIII., pages 843-845. The Court, in that case, said: “ The insolvency of the company, as before observed, puts an end to its operations as a building association. To a certain extent, it also ends the contract between it and its members respectively, and nothing remains but to wind it up in such a manner as to do equity to creditors and between the members themselves. As regards the latter, care should be taken to adjust the burdens equally, and not to throw upon either borrower or non-borrower more 'than their respective share. 'That result may be reached by requiring the borrower to repay what he actually received, with interest.( He would then be entitled, after the debts of the corporation are paid, to a pro rata dividend with the non-borrower for what he had paid upon his stock. He will thus be obliged to bear his proper share of the losses. To allow him to credit upon his mortgage his payments on his stock, would enable him to escape responsibility for his share of the losses, and throw them wholly upon the non-borrowers. In other words, the borrower would escape without loss. It will not do to administer the affairs of an insolvent corporation in this manner.” [39] This latter authority announces the sounder of the two rules. The reasoning of the Court, as there given, fully indicates the conclusion reached. To our minds it seems unanswerable. "Without further discussion or elaboration, we are content to adopt and follow the decision of the Pennsylvania Court. Charge defendant with money actually received by him, treating same as due and drawing interest from time received; and credit him thereon by payments of interest and premium when made. Ascertain balance due, making calculation upon principle of partial payments, and give recovery for such balance. Let amount paid by defendant as dues on stock stand to his credit on the books of the corporation until time for final adjustment, when he and all other stockholders, borrowers and nomborrowers, will be paid fro rata from the fund for ultimate distribution. Thus the loss will be apportioned equally. Modify decree accordingly.