Aldrich v. Gray

• Decision Date: 31 July 1906
• Docket Number: 1,513.
• Citation: 147 F. 453
• Parties: ALDRICH v. GRAY.
• Court: U.S. Court of Appeals — Sixth Circuit

147 F. 453

ALDRICH v. GRAY.

No. 1,513.

United States Court of Appeals, Sixth Circuit.

July 31, 1906

D Forest Paine, for appellant.

J. C Harper and Jay W. Curts, for appellee.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

SEVERENS Circuit Judge.

The bill in this cause is a dependent bill filed by the complainant as receiver by direction of the court in a cause therein pending in which Edward W. Bishop was complainant and the Michigan Savings & Loan Association and George Lord were defendants, and the object of which was to wind up the affairs of the said association as an insolvent corporation. The bill in the original cause was filed March 30, 1901. Aldrich, the complainant in this dependent bill, was appointed receiver April 11, 1901, and was directed 'to take possession of all the property, rights, securities moneys, books, choses in action and assets of said association, and to collect and reduce the said assets to cash; and to that end, upon being directed or permitted by the courts, to bring such suits as might be necessary to collect the same. ' The parties defendant to the present bill were some of them persons who had been, or were at the time of filing the bill, directors or other officers of the association. Against these defendants charges of mismanagement and willful violation of duty or culpable neglect in the conduct of the affairs of the association, whereby it 'became insolvent early in its career and its capital wasted and lost,' were made. The other defendants had been stockholders or held other relations with the association, and it is alleged connived at such misconduct in the management of the association and profited thereby to the prejudice of the association. One of such stockholders was George H. Scripps, of whose estate the defendant, Gray, is administrator; and as his relation to and transactions with the association are the subject of the present controversy, we do not extend the narrations of the bill beyond the matters now involved.

The association was incorporated under chapter 206, Comp. Laws Mich. 1897, entitled 'Building and Loan Associations,' and began business about October 18, 1889, with an authorized stock of $25,000,000 in shares of $100 each, and continued its operations until April 11, 1901, the date of the appointment of the receiver. its stock was of three kinds, termed 'installment,' 'paid-up,' and 'fixed dividend' stock. The first two of these classes shared in the profits. The third received interest only at 7 per cent. in the form of fixed dividends. The business was for a time apparently prosperous. On June 30, 1896, a date about contemporaneous with the investments of Scripps, the active stock, for which the association was liable amounted in all kinds to $655,800, of which $122,600 was fixed dividend stock. On the dates following Scripps applied and paid for fixed dividend stock in the amounts mentioned and received certificates therefor:

1896-- February. One for . . .	$2,500.00
1896-- December. One for . . .	$4,000.00
1897-- February. One for . . .	$7,000.00
1897-- February. One for . . .	$2,000.00
1897-- February. One for . . .	$1,500.00
Total . . .	$17,000.00

The terms of the certificates were:

'(1) An acknowledgment by the association of the payment of the par of the shares, and an agreement to repay the money on or before five years from the date of the certificate.

'(2) An agreement on the part of the association to pay dividends semi-annually on the surrender of the coupons attached.

'(3) That the shares should be nonassessable.

'(4) That the shares should be payable when the last coupon was due.

'(5) That the shares might be retired by the directors in the inverse order of issue.

'(6) That the stock should be subject to the same limitations as other withdrawals under the law; and that interest at the rate of . . . per cent. per annum should be allowed in lieu of dividends for the period elapsing since the preceding semiannual dividend up to date of notice of withdrawal, provided, that a reduction of five dollars per share should be made for shares withdrawn within six months of date of issue.' After Scripps took his stock, he received interest in the way of dividends, how much does not very clearly appear. By section 6 of its charter provision was made in regard to withdrawals of stockholders as follows:

'Any stockholder wishing to withdraw from said corporation shall have the power to do so by giving thirty days' notice in writing at a stated meeting of his or her intention to withdraw, when he or she shall be entitled to receive the amount paid in by him or her, and such interest thereon or such proportion of the profits as the by-laws may determine, less all fines or other charges; but payments of the stock so withdrawn shall only be due when the funds applicable to the demands of withdrawing stockholders are sufficient to meet and liquidate the same, and then only in the order of the respective times of presentation of the notices of such withdrawals; provided, that at no time shall more than one-half of the funds of the treasury of the corporation be applicable to the demands of the withdrawing stockholders without the consent of the board of directors.'

The by-laws did not, as they could not, essentially vary these conditions. The financial condition of the association was growing worse at the times when Scripps became a...