Intermountain Building & Loan Ass'n v. Gallegos

• Decision Date: 06 September 1935
• Docket Number: No. 7516.,7516.
• Citation: 78 F.2d 972
• Parties: INTERMOUNTAIN BUILDING & LOAN ASS'N et al. v. GALLEGOS et al.
• Court: U.S. Court of Appeals — Ninth Circuit

78 F.2d 972 (1935)

INTERMOUNTAIN BUILDING & LOAN ASS'N et al. v. GALLEGOS et al.

No. 7516.

Circuit Court of Appeals, Ninth Circuit.

August 5, 1935.

Rehearing Denied September 6, 1935.

H. Van Dam, Jr., of Salt Lake City, Utah, and James R. Moore and Blaine B. Shimmel, of Phœnix, Ariz., for appellants.

Elizabeth G. Monaghan and Thomas W. Nealon, both of Phœnix, Ariz., for appellees.

Before WILBUR, GARRECHT, and DENMAN, Circuit Judges.

GARRECHT, Circuit Judge.

From two interlocutory orders, one appointing a receiver pendente lite for all assets of the appellant Association situated in Arizona, and the other enjoining the appellant Malia from removing such assets from the state, the present appeal is being prosecuted.

A somewhat detailed chronicle of the pleadings is necessary for a proper understanding of the conflicting claims of the parties, particularly since the pleadings make up by far the bulk of the record.

Alleging that they were "express contract lien" creditors of the Association, the appellees Gallegos, Gudmundsen, and Dexter filed an amended bill of complaint in equity against the Association on June 23, 1933. The bill averred that it was filed on behalf of the plaintiffs and on behalf of others similarly situated; that jurisdiction was based upon diversity of citizenship, the appellees being citizens of Arizona and the appellant Association being a corporation organized under the laws of Utah, but maintaining offices in Phœnix, Ariz., and owning property in Arizona; that the aggregate amount of the debts due to all the plaintiffs-appellees was $6,715.50, exclusive of interest and costs; and that the amount due to the appellees Gallegos was $1,155.

The facts forming the basis of the Gallegos claim were set out as follows:

On February 23, 1924, in Yavapai county, Ariz., the appellees Gallegos purchased an "Installment Savings Certificate" from the Association, upon monthly payments of $11 each, and paid thereon a total of $1,155, being the equivalent of 105 payments of $11 each. The Association issued to those two appellees its "Installment Savings Certificate," dated February 26, 1924, for $2,000, payable at the expiration of 126 months from that date. No loan is outstanding against that certificate, and no other certificate has been issued in lieu thereof.

The bill then sets out the certificate verbatim. The material recitals of that document are in substance as follows:

1. The issue is denominated variously "Installment Stock Certificate," "Installment Savings Stock Certificate," and "Installment Savings Certificate." The words, "Maturity Value $2,000 — Number of Shares 20," appear at the top of the certificate.

2. In consideration of the payment by the appellees Gallegos of $11 monthly in advance, for ten and one-half years, the Association "promises to pay" to the record owner of the certificate, at the expiration of that period, at its general office in Salt Lake City, Utah, the sum of $2,000.

3. The certificate is issued subject to the provisions of the articles of incorporation and the by-laws of the Association.

4. Among the "Privileges and Conditions" set forth on the back of the certificate appear the following:

"Security. As security for the performance of the obligations of the Association hereunder, the Association will hold intact, subject to the constant examination and inspection of the banking department of the State of Utah, first mortgages on improved Real Estate in an amount equal to at least one hundred per cent of its liabilities hereunder, less the amount of any loans made on this and like certificates or any certificates issued in lieu hereof."

"Loan Value. Upon depositing this certificate with the Association as collateral security, the Association will lend up to * * * 90 per cent of the then withdrawal value," etc.

"Neither dividends nor interest shall be credited or allowed upon any certificate during the period that payments * * * are suspended," etc.

"It is agreed that unless otherwise ordered by the Board of Directors, not to exceed 50% of the money received by the Association on stock payments in any one month shall be used to pay cash and death withdrawal values on stock certificates, and it is agreed that loans on stock certificates may be made in the order of the filing of application."

The certificate contains a detailed "Schedule of Payments and Withdrawal Value." In the assignment forms that are included in the certificate, references are found to "the within shares of stock," "the shares of stock represented by this certificate," etc.

Details relative to the certificates acquired by the other original plaintiffs are then set out in the bill. Save for differences in names, dates, and figures, those details are similar to those with respect to the certificate held by appellees Gallegos.

The bill further alleges that the Association is insolvent, and that its liabilities exceed its assets by more than $400,000; that the assets of the Association are hopelessly "mingled and entangled" with the securities to which the appellees are entitled; that it is necessary that a receiver be appointed to make an equitable segregation and distribution of securities and recover securities "wrongfully disposed of" by the appellant corporation; that the controlling interest in the stock of the Association has been acquired by a rival corporation, and that the affairs of the Association "are being run in the interest of said rival corporation," etc.; that the Association has from its inception been mismanaged "hopelessly"; that the expenses incurred in the operation thereof have each year been far in excess of its income, after deduction from its gross income of the interest liability incurred by it on its obligations; that in no single year during its operation has the Association made its expenses; that as a consequence it has never accumulated any profits, and has been hopelessly insolvent for more than seven years; that despite the fact that the Association has thus been conducted at a loss for all of these years, it has declared and paid dividends to its stockholders; and that in no year since its inception has the maximum amount of income that it would have been entitled to collect from the mortgages and other securities which it owned, or of earnings derived from any other source, been sufficient to pay its expenses and the accumulated interest due to the plaintiffs and others similarly situated.

The bill alleges that the various plaintiffs complied fully with the terms of their respective contracts until certain dates in 1932 and 1933. On June 8 of the former year, the appellees Gallegos gave due notice of their intention to withdraw, but the Association failed to carry out its contract, etc. As to the appellees Gudmundsen and Dexter, it is averred that, having fully complied with the terms of their respective contracts until March, 1933, on learning that the Association was insolvent they declined to make any further payments.

The Association has paid large sums of money to withdrawing certificate holders while it was insolvent, with the result that some of such holders have been paid in full while the appellees and those similarly situated "will receive under any circumstances" only a portion of the money due to them, according to the bill. It is also asserted that the Association has transferred many of its assets to other corporations and will continue to do so unless a receiver is appointed, etc.; that the Association is advertising that, together with other corporations known as "Intermountain Building and Loan Group," it has a paid-in capital surplus of more than $8,000,000, and is inducing the public to invest its money by such false representations, thereby imperiling the Association's assets and subjecting it to actions at law and suits in equity; that suits and actions have in fact been filed against the Association, and others are threatened; that many creditors will obtain judgments, etc.; that an "imperious necessity" exists that a receiver be appointed immediately and without notice to prevent such multiplicity of suits, etc.; that the Association is not functioning for the purpose for which it was incorporated; that it is doing practically no new business, or "any profitable business"; and that it has "lost the confidence of the public to such an extent that it can never be profitably conducted, and has lost all right to do any new business in Arizona."

The bill then sets out in extenso article VI of the articles of incorporation, as amended on October 18, 1921, dealing with the issue and nature of the Association's stock. Comparison of the text of the article as transcribed in the bill with the text as given in an exhibit attached to the answer of the Association, discloses that in 1924, when most of the original plaintiffs-appellees purchased their respective certificates, article VI had again been amended. Accordingly, we will defer a discussion of the articles of incorporation and their amendments.

The bill also contains a copy of article VII, dealing with the conditions under which directors may be elected, etc.

The bill prays for the immediate appointment of a receiver, to avoid the loss of $6,000 per month "that is now being expended as expenses of the defendant in excess of its monthly earnings"; to take possession of the real estate owned by the Association in Arizona, etc. The appellees also pray for an accounting between the Association and each of them, to ascertain the amounts due to them from the Association; for the establishment of liens upon the real mortgages; for a temporary restraining order enjoining the Association and its agents from removing, concealing, etc., its property now in Arizona, etc.

In its answer, the appellant Association alleged that the bill fails to set forth facts sufficient to constitute a cause of action, either at law or in equity, and averred that the Bank Commissioner of the State...