Latimer v. Equitable Loan & Investment Co.

• Decision Date: 09 July 1897
• Docket Number: 2,181.
• Citation: 81 F. 776
• Court: U.S. District Court — Western District of Missouri
• Parties: LATIMER v. EQUITABLE LOAN & INVESTMENT CO. et al.

81 F. 776

LATIMER v. EQUITABLE LOAN & INVESTMENT CO. et al.

No. 2,181.

United States Circuit Court, W.D. Missouri, Central Division.

July 9, 1897

Wm. S Shirk and Montgomery & Montgomery, for plaintiff.

G. W Barnett and J. H. Rodes, for defendants.

ADAMS District Judge.

The defendant is a loaned and building association, organized under and subject to the provisions of article 9, c. 42 Rev.St.Mo. Section 2810 of such statutes enacts as follows:

'The capital stock of any corporation created under this article shall at the time consist of more than 10,000 shares of not less than $100.00 each. The installments on these shares are to be paid at such time and place as the by-laws shall appoint. The by-laws or the board of directors may, if they deem it advisable, allow interest not exceeding eight per cent. on such installments as are paid in advance. Every share of stock shall be subject to a lien for the payment of unpaid installments, fines and other charges incurred thereon, under the provisions of the charter and the by-laws. The by-laws may prescribe the form and manner of enforcing such lien. New shares of stock may be issued in lieu of the shares that have been redeemed, forfeited or matured. The stock may be issued in one or in successive series, in such amount and at such time as the board of directors, the shareholders or the by-laws may determine. Any shareholder, or the legal representative of any deceased shareholder, wishing to withdraw from the said corporation, shall have the power to do so, by giving thirty days' notice of such intention to withdraw, such notice being given at a regular meeting of the board of directors. On the day following the next regular meeting or at any time thereafter, the member so withdrawing, or, if deceased, his legal representative, shall be entitled to receive, on demand, the amount paid in by him or her, and such proportion of the profits as the by-laws may determine, less all fines and other charges. Should there have been, however, a net loss, instead of a net gain, then such withdrawing shareholder shall receive the actual amount paid less his proportion of such net loss.'

From the foregoing it seems plain that the general legislative scheme contemplates the subscription for stock, after the act of incorporation, in several successive series, such as may be determined by the shareholders, board of directors, or by-laws. These subscriptions are payable in installments, according to the requirements of the by-laws. These installments, according to the requirements of the by-laws. These installments may be paid by subscribers in advance, and, when so paid, the subscribers, in the discretion of the board of directors, or as provided by the by-laws, may receive interest on such advance payments at a rate not exceeding 8 per cent. per annum. A peculiar feature of this scheme permits any stockholder who may have paid one or more installments to withdraw from the association at any time after having given 30 days' notice of his purpose so to do, and, on so withdrawing, to receive pack from the association the amount paid in by him, with his proper proportion of the profits if any may have been made, or less his proper proportion of loss if such loss has been sustained. Apart from some other peculiar features, not necessary now to refer to, corporations created under this law are subject to the general principles of statutory and common law governing corporations.

The defendant, claiming to act under the power conferred by the statute of Missouri, on the 4th of September, 1890, issued its series of stock B, containing 500 shares, each for $200, representing an aggregate of $100,000 in par value. This series was issued as full-paid stock. It was not paid in installments of any kind, but in advance, for the full amount of its par value. The certificates representing this series recited, in substance:

(1) That dues in full for all the shares represented by them, at the rate of $1 per month on each share for the full period of 200 months, had been paid, or, in other words, that the par value of $200 per share had been paid by the holder.

(2) That the shareholder was entitled to redemption of his share at par on, and not before, 100 months from September 4, 1890, the date of the certificates, and also to receive, as his share of the profits and earnings of the business, interest at the rate of seven per cent. per annum.

(3) That there had been deposited with a trustee, of whom the defendant Ittel is successor, securities, consisting of stock of the defendant corporation and deeds of trust on real estate, of the actual value of $110,000, to secure the ultimate redemption of this series of stock, and the payment of the agreed interest accruing thereon, semiannually, prior to its redemption.

The complainant is the owner of four of these certificates, each calling for five shares, or $1,000 in par value of stock. In his amended bill, the complainant sets for the facts already detailed, and avers, further, that, by the provisions of the by-laws of the defendant company, the owners of full-paid shares of stock, like those owned by complainant, were entitled to withdraw from the association, and receive back the amount paid in by them, at any time, on giving 30 days' notice of their intention to withdraw, in like manner as is provided for stockholders on the installment plan. Complainant next avers that he has given the required notice of his intention to withdraw, and that the defendant has refused to pay him back the amount paid in by him, and refused to recognize that he had any interest in the trust fund referred to in the certificates as pledged for the payment of the face value of these certificates. The bill prays for judgment against defendants, in favor of complainant, for the face value of his certificates, and that the trust fund aforesaid be specially charged with the payment of such judgment. To this bill a demurrer is interposed. This demurrer raises these questions: (1) Whether the certificates in question are for stock, and, if so, whether the defendant had power to issue full-paid stock, and obligate itself to pay a certain rate of interest thereon in lieu of profits. (2) Whether the holder of the full-paid stock has a right to withdraw from the company, and receive back his money paid, on giving the 30 days' notice prescribed by the statute, or whether he is concluded by the provisions found in the certificates to the effect that he is entitled to do so 'on and not before 100 months' from September 4, 1890, the date of the certificates. (3) Whether the holder is entitled to preferential right to the property undertaken to be pledged to secure the payment of these certificates.

Answering the first of these questions, it appears clearly that the parties to these certificates intended them to be capital stock, as distinguished from an evidence of money loaned. They are denominated capital. In the first place they confer upon the corporation power, averments of the bill, have, from the beginning, been treated as stock, with all the rights, in their holders, incident to ordinary stock, except as expressly limited in the certificate. This intention of the parties, unless outside the power of the defendant corporation, should be recognized and enforced. The question then, is, did the defendant corporation have power to issue and deliver full-paid, interest-bearing stock? The legislation already adverted to, constituting the organic law under which the defendant is organized, provides a scheme primarily and prominently for paying the capital in installments, so long as such payments, taken in connection with other income, arising from fines, dues, interest, and profits, are necessary in order to bring the stock, in actual value, to par. But I do not think this primary and prominent feature or method of paying for stock is exclusive. The statute supra, in terms, provides that 'the installments on these shares are to be paid at such time and place as the by-laws shall appoint. ' The by-laws or the board of directors may, if they deem it advisable, allow interest not exceeding 8 per cent. on such installments as are paid in advance. These provisions clearly contemplate a variation from the primary and prominent method of paying in the capital. In the first place, they confer upon the corporation power in and by its by-laws, to fix the time and place of paying the installments. Obviously, under this grant of power, the installments might be few or many, and payable at one time or more. It appears from the bill that, pursuant to this grant of power, the defendant adopted a by-law referring to and recognizing paid-up shares of stock, and providing for their treatment and final disposition. Again, a large and probably the largest source of income of associations like the defendant is in loaning their money. They are relieved from the usury laws of the state, and may, in the form of premiums and otherwise, receive interest far in excess of the legal rates otherwise permitted. A necessary prerequisite to loaning money is to get it. Accordingly, investors are encouraged to take stock, and pay the installments in advance. They are allowed a fixed rate of interest, not exceeding 8 per cent., and the association receives the installments, some or all of them, in advance, and loans them out at a greater rate of interest than it pays, and in this way hastens the day of maturity of the stock, for the general benefit of its members. The general scheme thus indicated,...