Craycraft v. National Building & Loan Ass'n

• Decision Date: 08 January 1904
• Citation: 117 Ky. 229,77 S.W. 923
• Parties: CRAYCRAFT et al. v. NATIONAL BUILDING & LOAN ASS'N.
• Court: Kentucky Court of Appeals

77 S.W. 923

117 Ky. 229

CRAYCRAFT et al. v. NATIONAL BUILDING & LOAN ASS'N.

Court of Appeals of Kentucky.

January 8, 1904

Appeal from Circuit Court, Jefferson County, Chancery Division.

"To be officially reported."

Action by the National Building & Loan Association against George Craycraft and another for specific performance of a contract to purchase real estate. Judgment for plaintiff. Defendants appeal. Reversed.

Strother Hardin & Strother and H. M. Johnson, for appellants.

Woolfolk & Klein, for appellee.

O'REAR J.

Appellee is a building and loan association organized and operating under the laws of Kentucky, and subject to the provisions of the present Constitution and statutes. Appellee found it was unable to prosecute its business with success, and, in the course of its business, by investment in real estate and the purchase of real estate for debts, it acquired real property of the value of about $140,000 at its book value; that is, at the price which the property cost appellee. It had a large number of stockholders, holding a large amount of its capital stock, which, at its book value (that is, the aggregate of dues paid on stock, and of the dividends which had been declared and credited to the stock), amounted to a sum much in excess of the value of the real estate. Its assets consisting of notes secured by mortgages and by pledges of stock, together with the book value of the real estate practically balanced the liabilities of the company to its stockholders. The pleadings claim, and proof in this case indicates, that this real estate could not be sold in the ordinary and usual way of selling for as much as $140,000, by practically one-third of that amount; that is, the real estate could not have been sold in the usual way for more than $93,000 or $94,000. To sell this property, therefore, in this way, would have made the company unable to pay its stockholders in full, by the sum of $46,000, if the result should be as anticipated. Taking into account depreciations in value and losses which must necessarily result in collecting its personal assets, the company, in the usual way of winding up, is probably insolvent. With this condition confronting them, the directors, through a committee, while in process of liquidation, conceived a plan of disposing of this real estate to its stockholders by adding to the cost value of the real estate arbitrary amounts, not exceeding 8 per cent. of any one piece of property, and accepting in payment therefor stock of the stockholders at its book value, with the stipulation that in the event the assets, upon final distribution, were sufficient to pay to the stockholders who did not purchase real estate more than was received by the stockholders who exchanged stock for real estate, such surplus should be distributed to all of the stockholders alike. It will be observed that there was no final surrender of the stock, or of the rights of stockholders, upon the exchange of stock for real estate. In order to ratify this plan, a meeting of the stockholders was called, and was attended by the holders of a bare majority of stock-- a bare quorum--and the plan was ratified by a bare majority; and, of this bare majority of the stock, 26 shares attending the meeting voted against approving the plan. Under the plan adopted, offers for the property by stockholders, to be paid in stock, were authorized to be made up to the 1st of February, 1903, at which time the right of stockholders to make such exchange expired, under the terms of the plan. After such approval as was made by the stockholders of the proposed plan for disposing of the real estate, printed propositions containing the substance of the above plan, and a list of real estate of the appellee, with its price, were mailed to each of the stockholders. Prior to the 1st of February, 1903, the company received propositions under the plan for about $30,000 worth of its real estate, and no more. About the time this plan was adopted by the directors, a resolution was adopted by the corporation, in substance, that it would proceed to dispose of its assets, pay its liabilities, and wind up the business. This did not legally put the company in liquidation. See Economy, etc., Association v. Paris Ice Company (Ky.) 68 S.W. 21. In the meantime, however, a consent such as is required by section 561, Ky. St. 1899, was signed by the necessary number of stockholders, and lodged with the directors in the latter part of January, 1903; and between that time and the 1st of February, at which time the plan above mentioned expired, the appellant Craycraft made a proposition to exchange stock of appellee of the book value of $648 for the lot described in the petition, upon condition that the corporation would convey the property to him by a good, merchantable, indefeasible, fee-simple title. This proposition was accepted by the appellee, and a deed was drawn and tendered to appellant, which he declined to accept. This suit was brought for the specific performance of that contract.

The question...