Rogers v. Ogden Bldg. & Sav. Ass'n

STRAUP, J. 1. Tbe Ogden Building & Savings Association was a corporation organized in 1898 under tbe general incorporation act of tbe then territory of Utah, and, while not technically known as a building and loan association, to some extent it partook of tbe nature of such associations. Tbe purpose of this organization, as stated in its articles of incorporation, was “the accumulation of a fund by tbe savings of tbe members thereof sufficient to enable each shareholder to invest bis savings safely and speedily, and to purchase real estate, or to irívest tbe same as may be deemed by him most profitable, and that each shareholder may have tbe benefit of tbe aggregate capital which co-operation produces, and loaning money to shareholders for tbe purpose of enabling them to erect buildings, and otherwise loaning and investing money, and the purchasing and holding real estate for the purposes and benefits of the association.” It was also provided by its constitution and by-laws that “each and every shareholder, for each and every share of stock that he had subscribed for, paid the sum of fifty cents subscription fee, and the sum of one dollar each and every month thereafter, until the value of the stock in which the series to which the subscription was made became sufficient to divide to each share of the said stock the sum of one hundred dollars.” It was also shown that the association had separate, distinct, and consecutive series of stock numbered from 1 to 31. Subscribers purchased of said corporation shares of its capital stock, paying therefor in monthly installments until the amount paid, as aforesaid, together with the natural earnings of said association, equaled the sum of $100 or more per share, when, as is conceded by all parties, and as is alleged in their pleadings by the appellants, “the said shares of stock should be fully matured, and the association agreed to and with such stockholders to then and there pay them in lawful money of the United States the amount at which said shares of stock had matured.” About the year 1890 respondent Rogers took out and was the bolder of thirty-five shares of what is known as the “Fifteenth Series” of said capital stock, and from thence on continuously — 193 — made monthly payments thereon until the 30th clay of September, 1898, when said stock was fully paid and matured. All previous series, Having been therefore matured and paid for by the association and- retired, the association^ on the day last aforesaid, by resolution of its board of directors in a regular meeting, declared the said thirty-five shares of stock matured and then and there payable to the said Eogers at $102 per share, amounting in the aggregate to $3,570. Thereafter the association made partial payments thereon, leaving on June 26, 1903, a balance due and unpaid of about $2,700. Upon repeated demands made by respondent Eogers for his money, and upon failure of the association to pay it, on October 3, 1'903, he commenced his suit against said association for the collection of the same. The defendant association appeared and demurred to the complaint, and. its demurrer being overruled, on November 19, 1903, it answered. In the meantime, and on the 2d day of November, 1903, the appellant Driver commenced an action against the defendant association, alleging its insolvency, and asked for the appointment of a receiver. On the same day the defendant association, through appellant Crossman, its president, filed an answer admitting all the allegations of Driver’s said complaint, appeared in court, and consented to the appointment of a receiver, and on said day last named one Kelly was appointed receiver for said association. On November 9; 1908, respondent Eogers was given leave to file a complaint in intervention in said suit, which was done by him. Later appellant Grossman, who was a stockholder in a series subsequent to the fifteenth, for himself, and on assigned.claims to him of stockholders also in series subsequent to the fifteenth, except one Tracey, who was of the fifteenth series, also filed a complaint in intervention in the said action. The actions were consolidated and brought on for trial before the court. It appears from the record that, in the filing of the various pleadings in said causes, the defendant association, the plaintiff Driver praying for the appointment of a receiver, the intervener Crossman, and the receiver himself were all represented by — 194 — one and the same counsel. The principal contest at the trial was as to whether respondent Kogers was a creditor or mere stockholder of the association, and as to whether; by reason of the premises, his claim should be preferred, and therefore should be paid out of the assets of the association before paying members in series subsequent to the fifteenth. There were no so-called general or outside creditors. The constitution and the by-laws of the association were put in evidence, and evidence was also given with respect to its series of stock, and as to the manner in which prior series were treated and preferred by the association and its members over subsequent series. Among other things the court found as follows: “(3) The court further finds that from the inception of the business of said defendant association its uniform, exclusive, and continuous course of business and rule of corporate action, to which all of its shareholders have at all times assented, and under which they have subscribed for their stock in the corporation, was that it divided its subscription to its stock every six months into separate, distinct, and consecutive series, subscriptions being continuously solicited, and the subscribers in each semiannual period in which sufficient shares were subscribed being classed together as shareholders of a ‘series’ numbered from 1 upward to 37, commencing with the earliest subscriptions, and the subscribers to each separate series being treated alike in respect to the maturity and payment of their shares in said series, and separate from all other series; that up to the time the fifteenth series matured, as hereinafter found, the stockholders in each successive series of the fourteenth previous series of stock, at the time the said stock in any such series became of $100 or more in value per share by reason of the payments and profit, if any, theretofore made upon such stock, were treated by the association as sellers of their stock to the association, and as being creditors of the association who were entitled to have the matured value of their shares paid to them in money or by credit upon loans made by the association to any of the borrowing stockholders in such matured series; that the association paid off each sue195 cessive matured series in preference to any claims of its members in the subsequent or junior series (except that stock, withdrawn in accordance with the constitution and by-laws, upon notice of withdrawal given prior to the maturity of any series, was paid in preference to stock of an earlier series maturing after such withdrawn stock became payable under the rules of said company) and that after payment in full, as far as the shares in the matured series were concerned, the holders ceased to be either stockholders or creditors, while all the stockholders in all the unmatured series carried on the business of the association, and that on a number of occasions the association borrowed money to pay off the mature price of stock in matured series.” “(7) The court further finds that from the inception of its business the said association held out to its shareholders that, when the stock in a series matured, the association would purchase the said stock at the matured prices, and that the debt or obligation to pay for said stock in such matured series would have a preferred lien and preferred right of payment in cash or by credit on loans of any claims whatsoever of the stock in any subsequent or junior series, except stock with.drawn prior to maturity of an earlier series, and that this was the basis upon which L. R. Rogers subscribed and paid for his stock, and it was the condition under which all the shareholders in the association, including all the persons represented in this suit, including assignors of W. W. Crossman intervenor, subscribed for and made payments upon their stock, and that after the maturity of the stock on the said L. R. Rogers and said S. H. Tracey in the fifteenth series, as hereinbefore found, the association, with the full knowledge of all its existing stockholders, first paid certain balances due upon the fourteenth series of stock as a preferred claim and lien, and then commenced, and continued for several years up to the 26th day of June, 1903, the making partial payments upon said matured stock of L. R. Rogers and said S. H. Tracey as claims having a preferred lien and preferred right of payment ahead of any claims of the remaining stockholders of said association, including all persons interested in this suit; — 196 — and the court further finds that each and all of the said remaining stockholders were, during the time that said payments were being made on said fifteenth series, officers and directors of the said defendant association, and authorized the said payments upon the matured stock of said fifteenth series as preferred claims; that said association continuously dealt with said L. R. Rogers, after maturing his said stock, as a creditor having a perferred lien upon the assets of the association, and a preferred right of payment for the amount due him, and during the month of March, 1903, made a statement to him as a creditor who was then pressing his claim for payment, representing that the association was solvent and had a surplus profit of over $3,700.” The court also found that on the 30th day of September, 1898, Rogers had paid upon said stock the sum of $102 per share in cash, exclusive of any interest on payments, or any profits of the association, of which none had been paid or allowed or credited to said stock, and that on said day the association, by resolution of its board of directors in regular meeting, declared the said 35 shares of the said Rogers fully matured and then and there payable to him at the sum of $102 per share, amounting, in the aggregate, to the sum of $3,570, and that the association thereafter made payments on said stock from August, 1901, until Tune, 1903, at which time the last payment was made, leaving a balance due Rogers of about the sum of $2,700. The court also found that there was due the assignor Tracey the sum of about $600, and that he was also in said fifteenth series, and was similarly situated to Rogers. The court also found the amount of moneys paidin by members in the series subsequent to the fifteenth, who had made assignments to appellant Crossman. The court- also found that the commencement of the suit by Driver seeking the appointment of a receiver and all the proceedings had in the action with respect thereto, were collusive and for the purpose of preventing respondent Rogers from securing the preference of payment claimed by him. As conclusions from the findings, the court held that respondent Rogers and assignor, Tracey, were entitled to interest on their respective — 197 — claims from the time they became due and ought to have been paid, and that their claims were entitled to priority over claims of those in series subsequent to the fifteenth, and by the decree Rogers and Tracey were given priority accordingly. Crossman and Driver appeal and assign error as to portions of finding No. 7, and as to the court giving Rogers and Tracey interest on and priority of their claims. 2. It is not claimed that finding No. 3 is unsupported-by the evidence, nor is any error assigned with respect to it, nor is it in any manner assailed. Error with respect to finding. No. 7 is assigned because of a want of evidence to sustain that portion of the finding wherein it is found that the association agreed to purchase the stock at its maturity, and that the debt or obligation of a prior series was entitled to preference over a subsequent one. In regard to the agreement made by the association with its stockholders to purchase the stock at its maturity, we have but to look at the complaint in intervention of appellant Crossman, where he alleges as follows: “And one of its objects was to have its stockholders purchase of it shares of its capital stock, paying therefor monthly installments until the amount paid, together with the net earnings of the association, should equal the sum of $100 or more per share. Then the said shares of stock should be fully matured, and the association agreed to and with such stockholders to then and there pay them in lawful money of the United States the amount of which said shares of stock had matured.” In the complaint of appellant Driver, after stating the general purpose and business of the association, it is alleged : “And that in that connection said defendant’s business was to have the stockholders purchase of said defendant’s shares of its capital stock, paying therefor in monthly installments until the amount paid, together with the net earnings of said association, should equal the sum of $100 each or more per share, when the said shares of stock should be fully matured, and the association agreed with such shareholders to then and there pay him in lawful money of the United States the amount at which said shares of stock had matured.” Having thus admitted by their pleadings that there was such an agreement, appellants are not now in position to question — 198 — sucb fact. With respect to a preference of a prior series over a subsequent one, Kelly, wbo was secretary of tbe association from 1895 to tbe time of bis appointment as' receiver, and wbo was a witness for appellants, testified: “Since 1895 tbe earlier series of matured stock was paid in preference to tbe later series, and in tbe order in wbicb they matured. We opened a new series every six months, which were unlimited in amount, to be subscribed for.” Kespondent Rogers testified : “Stock was treated separate as to its maturity. Tbe stock in the series previous to tbe fifteenth were matured and paid off. I have no knowledge of any stockholder acting as sucb after bis stock matured, unless be bad stock in junior series. Tbe later series of stock continued the business. During all tbe time I was director or president tbe company treated matured stockholders as creditors, and borrowed money to pay them off. This was done from tbe Utah Loan & Trust Company. Each series of stock was treated independently of tbe other. I paid in tbe amount that my stock matured at.” We then have finding No. 8 confessed, because in no manner assailed; and wherein finding No. 7 is assailed, because of a want of evidence, it is fully supported by evidence. Upon these facts we think tbe court was warranted in bis conclusions that respondent Rogers and Tracey were creditors, and were therefore entitled to be paid out of tbe assets of tbe defendant association before payment to those in subsequent series. Appellants have cited numerous cases bolding that, in tbe absence of any provision in the constitution or tbe bylaws, giving one series or class of stock preference over others, mere holders of matured stock in a building and loan association are not creditors, but, in case of insolvency and winding up of tbe association, they can only share pro rata with tbe holders of unmatured stock, and that, where sucb association was insolvent when notices of withdrawal were given, tbe shareholders giving sucb notices were not creditors with claims entitled to be paid in full tbe amounts by them paid to tbe loan fund, before other stockholders were entitled to anything, but were on a parity with other stockholders. (Rabbitt v. Wilcoxen, 103 Iowa 35, 72 N. W. 306, 38 L. R. A. 183, 64 Am. St. Rep. 152; Coltrane v. Baltimore, etc., Loan Ass’n — 199 — (C. C.), 110 Fed. 272; Towle v. American, etc., Loan Assn. [C. C.], 75 Fed. 938; Hohenshell v. Savings Loan Ass’n, 140 Mo. 566, 41 S. W. 948; Leahy v. National etc., Loan Ass’n, 100 Wis. 555, 76 N. W. 625, 69 Am. St. Rep. 945; Gibson v. Safety, etc. Ass’n, 170 Ill. 44, 48 N. E. 580, 39 L. N. A. 202; Criswell’s Appeal, 100 Pa. 488; Christian’s Appeal, 102 Pa. 184; Endlich on Bldg. Ass’ns, section 514.) These principles 'of law, as applied to tbe facts in those eases, are all conceded. The findings of the court, however, here discloses a state of facts essentially different from those existing in the cited cases. Here it is found by the court that there were separate, distinct, and consecutive series; that the association agreed with its stochholders to purchase the stock of each series as it matured; that it, in effect, purchased from respondent Rogers, and he sold to it his stock in 18.98, when it matured, and, in recognition thereof, the association began paying therefor, and for several years thereafter made payments thereon in preference to other matured stock of any subsequent series; that it was the uniform custom of the association, and it was its course of dealing with its members, that, as a series matured, it was paid off in preference to any claim of members in junior or subsequent series; that from its inception the association held out to its shareholders that, when their stock in a series matured, the association would not only buy the stock at its matured value, but, also that the debt or obligation in such series would have a preferred right of payment over all and any claims of stock in a junior or subsequent one; and that upon this condition and understanding appellants and their assignors subscribed for stock of series subsequent to Rogers, and acquiesced in the association paying him and others, having matured stock of prior series, in preference to any claim of a subsequent one. Because of all these matters and conditions, as found by the court and more especially appearing in findings No. 3 and No. 7, we think the court was authorized in drawing the conclusion that the relation of respondent Rogers to the association, at the maturity of his stock and the purchase thereof by it from him in 1898, became and was that of a creditor, or at least gave — 200 — Mm equities superior to appellants. (U. S. v. Union Pac. R. Co., 91 U. S. 85, 23 L. Ed. 224.) Mr. Endlich in bis work on Building Associations at section 514, speaking of dissolutions and effects of dissolutions, among other things, says: “To permit one member, or one set of members, to be paid in full at tbe expense of others who get less, is not to carry out that scheme or agreement (mutuality, equality, and equal burdens) unless there is something which gives the former an equity superior to the latter, whereby they have a better and stronger claim upon the property of the association. Where one has subscribed to and paid up stock upon a distinct understanding that it is to be preferred over that of others who have paid less, there is such a superior equity.” Where, as here, each series of stock has been treated by the association and all its members as distinct and separate, the rights of members in a particular series, and their obligations to the association, or to members in other series, must be ascertained as of the date of the maturity of the stock of that series. (Thompson, Bldg. Ass’ns [2 Ed.] 742.) It is quite apparent to us that from the time when his stock matured, his claim liquidated in 1898, and then promised by the association to be paid, Rogers was no longer, in fact or in law, a stockholder of the association, and could not rightfully, as such, have any voice in the management or conduct of its affairs; neither as a stockhoder was he entitled to share in the profits of the association made thereafter no matter how great. All that he could exact was the payment of his claim, together with interest thereon from 1898. There is nothing in the constitution or by-laws of the association precluding it from making an agreement to purchase its stock from its members, and where such an agreement is made, and such a course of dealing transacted, with the assent of its stockholders, we see no reason why the stock cannot so be purchased by the association, if creditors are paid. (1 Cook on Corp. (4 Ed.), sections 3 and 311, and cases; Blalock v. Mfg. Co., 110 N. C. 99, 14 S. E. 501; Schilling, etc., Co. v. Schneider, 110 Mo. 83, 19 S. W. 67.) Such authority is not here questioned. The very business and pursuit of this association contem — 201 — plates tbe purchase of its stock issued to its members at the maturity of the stock or upon uotice of its withdrawal. 3. Furthermore, this case does not fall within the principles of the cited cases, for the reason that there is no finding by the court of insolvency of the association; nor do appellants at all complain because a finding thereon was not made, nor is any assignment made with respect thereto. It is, however, argued by appellants in their brief that the association was insolvent at all times since the year 1893. Upon a review of the evidence we are not satisfied that it so greatly preponderates in favor of a finding of insolvency as to preclude a contrary finding. In fact we are satisfied that the preponderance of the evidence is in favor of solvency. It will be presumed that the association was solvent until there is some evidence tending to show that it was insolvent. The only witness speaking on the subject, and who says that the association was insolvent, was the receiver, who at the time of his appointment was, and since 1895 had been, the secretary of the association. But the testimony of this witness was contradicted by the official reports . and records of the association made by himself, especially as made and reported by him in March, 1903, wherein he asserted that the association was solvent. In that year in his official reports he stated that the resources of the association consisting of bills receivable, fixtures, cash in the treasury, and real estate, amounted to $9,162.72; and that the liabilities, consisting of the 15th, 19th, 21st, 26th, 28th, 29th, 32d, 33d, and 37th series (all others having either matured or been withdrawn, and paid), amounted to $5,426, leaving an undivided profit of $3,726.72. While it was shown that in 1893, owing to defalcations of some of its officers, the liabilities of the association exceeded its resources, yet in 1895, the association had retrieved itself, at which time its resources over its liabilities, and its undivided profits, were the sum of $3,834.61 ;inl896, $2,415.18; in 1897, $3,384.42; in 1898 (when Rogers’ stock matured), $1,817.64; in 1900, $3,878.96; in 1903, $3,878.96. What the conditions of the association were in 1901 and 1902 does — 202 — not appear. These reports were certified to> approved, and submitted by tbe president, secretary, and auditor of tbe association. When bis attention was called to bis official reports, tbe receiver attempted to reconcile bis oral testimony therewith by tbe statement that tbe valuations of real estate, as reported by him and other officers of tbe association, were unreal and not true. It may be that tbe trier of tbe fact, having before him the appearance and demeanor of tbe witness, or some corroborating circumstance, may be persuaded that tbe truth of tbe fact is as was orally testified to by the witness on tbe stand, and not as appears from bis official declarations and conduct covering a period of eight years; but as tbe record is made to appear to us, were we to weigh this testimony and determine tbe fact, we would be disposed to take tbe official declarations and conduct of tbe witness with respect to solvency of tbe association in preference to bis testimony of insolvency on tbe stand at a time when purpose and motive may have prompted him to have the facts different from those disclosed by bis official records and books. When we find tbe defendant association, tbe plaintiff Driver, asking tbe appointment of a receiver, tbe receiver himself, and tbe intervener Crossman, who as president represented tbe company, and also as assignee represented claimants in different and conflicting series of stock, all represented by one and tbe same counsel, and also find appellants testifying that upon a discussion of tbe matter they bad concluded “that it would be better for tbe association if all the members clubbed together and try and stand off Rogers’ suit,” and tbe finding of tbe court that tbe application for a receiver and all the proceedings had with respect thereto were collusive to defeat tbe claim of respondent Rogers, we are not at all impressed with tbe equities of appellants, nor with tbe oral testimony of their witness. Appellant Crossman is in this position: He, as president of tbe association, in the suit brought by Driver against the association for tbe appointment of a receiver, filed an answer admitting all tbe allegations contained in tbe complaint, went into court and consented that Nelly be appointed receiver, and, upon such appointments being made, thereafter — 203 — filed a complaint in intervention in'the same suit, and, among other things, alleged that the. said action brought by-Driver was not brought or maintained by him in good faith, and “is a fraud upon the jurisdiction of the court,” and then comes to this court and complains because the trial court found that said action was not brought in good faith. It is, however, said that the earnest and repeated demands of respondent Rogers on the association for the payment of his claim, its reply that it had not sufficient money on hand with which to, and for that reason could not, pay it, are of themselves sufficient evidence of the insolvent condition of the association. It must be borne in mind that the stock, as it matured, was not payable out of any special or particular fund, as was the fact in some of the cited cases; but here the agreement to pay was absolute and unconditional. The mere fact, therefore, that the association had not on hand money in its treasury is not at all determinative of its insolvent condition. Insolvency is not alone determined from the amount of money on hand or cash coming in, but from a comparison of assets and resources, including all kinds of property, real and personal, with liabilities. The term “insolvency” denotes the insufficiency of the entire property and assets of an individual to pay his debts. (16 A. & E. Ene. L., 637.) Here it was shown that when stock prior to the fifteenth series matured, and the association had no money on hand with which ■to pay it, it borrowed money for that purpose. In this instance, although th® claim of Rogers became due and payable in the year 1898, and although he made repeated demands for payment, and the association often acknowledged its indebtedness to him and made repeated promises to pay him, nevertheless, so far as it appears from the record, no attempt was made to borrow money with which to pay it; nor was there any inability on the part of the association to obtain a loan at all shown. It is in effect argued that notwithstanding the agreement of the association to purchase the stock, and the liquidation of Rogers’ claim in 1898, the association, as matter of fact, did not purchase the stock because Rogers did not indorse nor surrender it to the association, but retained pos — 204 — session of it, and therefore he still remained and was a mere stockholder. While his retention and possession of the stock was evidentiary of ownership in him, yet itwas notconclusive. Under the circumstances, his retention of the stock was not at all inconsistent with the fact of its sale to- the association, for it was the most natural thing for him to retain it until it was paid for. Rogers, however, in 1902 offered to surrender his stock to the association upon its executing to him a secured note for its indebtedness to him; but this the association declined to do, not because of any claim that said indebtedness was not due and owing to him, but because, as stated by it, “It would tie up the property and make a great detriment to the handling of the same when it came to selling it,” and, further, because it “would make all efforts, consistent with the condition of things to pay your indebtedness,” and that it was willing to pay him as fast as the money came in. But, as before observed, the demand of Rogers was payable not outof a particular fund or out of a percentage of receipts or funds coming in, but his demand was payable without qualification or condition. Rogers, in May, 1903, wrote to the association: “I have waited now for this payment nearly five years, and respectfully say to you that I will not wait any longer. You have property which you can sell and pay me the proceeds of such sale, which I insist that you do at once; otherwise, I shall take such action in the matter as will, in my opinion, speedily procure me my money. I trust you will not drive me fi> this step.” Again, in September, 1903, he wrote that he was not disposed to wait longer, and to advise him what the association proposed to do. The record shows similar demands were made by him every year from 1898 to the commencement of his action. In the, correspondence between the parties both Rogers and the association treated the matter as an indebtedness of the association owing by it to him. It is conceded by all parties that the money due Rogers on this indebtedness was payable to him more than five years prior to the commencement of his action. After patiently waiting all this time for his money on an indebtedness acknowledged by the — 205 — association and all parties concerned to be dne him, and npon tbe failure of tbe association to pay it, when Rogers brings suit to collect it, tbe association and appellants together colluded to throw tbe association in to tbe bands of a receiver, in order, as they themselves said, “to stand off Rogers’ suit.” Equity grants relief to him who does equity, not to him who comes into court and self-eonfesses that be was a party to an action, which was, in bis own language, “a fraud upon tbe jurisdiction of tbe court.” Appellants come within tbe maxim, “He that bath committed inequity shall not have equity.” 4. Having reached tbe conclusion that Rogers became a creditor in 1898, and that bis claim then was due and payable, abd tbe association having failed to pay it, we see no reason why be is not entitled to interest; and tbe ruling of tbe trial court in this respect, allowing him interest, is correct. (Godbe v. Young, 1 Utah 55; Young v. Gobde, 15 Wall. 562, 21 L. Ed. 250; 16 A. & E. Enc. L. 1004-1006.) Our conclusion, therefore, is that tbe judgment of tbe trial court ought to be, and it hereby is, affirmed, with costs. BARTOH, O. J., concurs. Footnotes [1] Godbe v. Young, 1 Utah 55.