Claffy v. Mechanics Bldg. & Loan Ass'n

• Decision Date: 16 May 1941
• Docket Number: 15263.
• Parties: CLAFFY et al. v. MECHANICS BUILDING & LOAN ASS'N et al. Ex parte CALHOUN et al. (Appeals of Series 36 and 37).
• Court: South Carolina Supreme Court

15 S.E.2d 142

197 S.C. 198

CLAFFY et al. v. MECHANICS BUILDING & LOAN ASS'N et al.

Ex parte CALHOUN et al. (Appeals of Series 36 and 37).

No. 15263.

Supreme Court of South Carolina

May 16, 1941

On Petition for Rehearing June 12, 1941.

See also, 192 S.C. 164, 5 S.E.2d 865.

Carlisle Brown & Carlisle and Evans, Galbraith & Holcombe, all of Spartanburg, for Calhoun and others.

DePass & DePass, of Spartanburg, for Mrs. Bertha R. Claffy and others.

Perrin & Tinsley and Horace L. Bomar, all of Spartanburg, for Mechanics Building & Loan Ass'n and others.

BAKER Justice.

There is but one Circuit Court order deciding the issues arising out of the litigation in the two above-stated cases. Hence, one opinion.

On June 4, 1938, receivers were appointed for Mechanics Building & Loan Association of Spartanburg, S.C., by an order of Honorable T. S. Sease, Circuit Judge, not for the reason that said Building & Loan Association was insolvent but for the purpose of liquidation and conservation of its assets. In the order of Judge Sease appointing receivers it was stated that Mechanics Building & Loan Association was solvent and in a jurisdictional dispute between the State Board of Bank Control on the one side and Mrs. Bertha R. Claffy et al., in their own right, etc., and Mechanics Building & Loan Association and the receivers appointed by Judge Sease on the other side, this court stated: "Indeed it has been juridically determined that Mechanics Building & Loan Association is solvent (order of Judge Sease of June 4, 1938). There are no depositors or creditors in the sense that the words 'depositors and creditors' are used in the 'State Board of Bank Control Act [Act May 9, 1936, 39 St. at Large, p. 1484]."'

See Ex parte Miller et al. (Claffy et al. v. Mechanics Building & Loan Association), 191 S.C. 260, 1 S.E.2d 512, 515, decided March 3, 1939, for a history of this litigation to that date.

The order appointing receivers directed the master to take testimony "upon all issues arising upon any question made as to claims filed or the rights and priorities of any stockholders or class of stockholders." Thereafter, the master in equity for Spartanburg County advertised for claims in accordance with an order of Judge Sease dated March 31, 1939.

On June 6, 1939, Julian Calhoun and others, in behalf of themselves and others of a class, filed their verified petition alleging that stock Series 36 duly matured and that holders of stock in said series should be accorded priority in payment of the balance due on principal together with interest at 5% on the unpaid portion. Such claim on the part of the stockholders of Series 36 arose by reason of the fact that in August, 1932, the directors of the Association had declared Series 36 matured by the 80th payment, that is, worth $100 per share. The Association was not able to pay in cash the holders of certificates in Series 36, but out of the proceeds of a loan from the Reconstruction Finance Corporation, a dividend of 67% was paid in November, 1932. In January, 1933, the directors of the Association voted to allow "5% interest on deferred payments due the stockholders of this Series." Thereafter, other installments on principal were paid between December 16, 1935, and October, 1937, sufficient to make a total of 92.87%, but nothing was ever paid on interest.

On February 5, 1935, a liquidating committee for the Association was appointed, and it was this committee that paid the last-mentioned additional dividends to stockholders in Series 36.

On August 8, 1932, the directors of the Association met and the minutes show that the officers of the Association were authorized to "wind up" Series 36. On October 24, 1932, the directors again met and the minutes show that the president, treasurer, and attorney for the Association were instructed to go to Charleston and make arrangements for a $150,000 loan, "and upon their return to call another meeting of the board of directors for final action as to settlement with maturing stockholders in Series 36." On November 15, 1932, the directors met and according to the minutes, the treasurer of the Association was instructed to endorse the certificates of stock in Series 36, "which has now matured, with a payment of 67% upon payment of same to the stockholders, and the certificate to be returned to the stockholders, and the Association to give no other evidence of indebtedness, and the balance to be paid on order of the board of directors without interest." On January 17, 1933, the stockholders held their annual meeting and according to the minutes the stockholders recommended to the board of directors that "the shareholders in Series 36, which has matured, and on which a payment of 67% has already been made, be allowed 5% interest on deferred payments due the stockholders of this Series." Following this recommendation, the board of directors voted this interest from November 16, 1932, until the full amount on this stock was paid.

On February 5, 1935, a stockholders meeting was held and by resolution the affairs of the Association were placed in the hands of an executive committee for the purpose of making as equitable a distribution of its assets as it is possible for them to do. While it is true that members of Series 36 participated in this meeting, they were not asked to relinquish any right to priority of payment and there is no such implication. As stated by the master in equity in his report "the vote of Series 36 was necessary on a decision to liquidate and thereby discontinue further installment payments by holders of unmatured stock." Continuing, the master says: "Their vote was also necessary on the decision to liquidate by an executive committee out of Court, rather than by directors under the statute law or by receivers under Court supervision. The giving of assent in those particulars could not imply assent to surrender other substantial rights, and the further record fails to show that it was so understood by any interested party. The records show affirmatively that it was not so understood."

Again quoting from the master's report:

"On February 11, 1935, the executive committee met and according to their minutes 'the secretary and treasurer was also instructed to consolidate all series and employ Mr. A. L Broadwater to set up a new system of books, doing away with individual series except Series No. 36.'

"On April 15, 1935, the executive committee sent out a circular to all stockholders enclosing a list of properties to be offered for sale on May 1, following. The following excerpts are taken from the circular:

"'All fully paid-up shareholders in Series No. 36 will be credited with $100.00 per share, less the 67% already paid on same, plus interest on the balance, as agreed, at 5% until paid. Fully paid-up shares in Series No. 36 have the advantage of getting credit for one hundred cents on the dollar for what they have paid in, plus $20.00 per share, plus interest, as agreed, on the deferred balance at the rate of 5%.

"'No cash dividends will be paid to investing shareholders in subsequent series until investing shareholders in Series No. 36 have been settled with in full. All shareholders in series subsequent to Series No. 36 will be credited with the full amount paid into the association.

"'If, and when, sufficient assets of the association have been converted into cash to reimburse the remaining shareholders, the association will then reimburse such shareholders the actual amount paid into the association.

"'If any assets remain after all investing shareholders have received the full amount paid into the association, these profits shall be divided among all the investing shareholders (except shareholders in Series No. 36, who will already have been settled with in full), based on the amount paid into the association by all investing shareholders who have turned in their stock to the association during the liquidation, beginning February 5th, 1935, ***

""'The recent audit of our association by the State Bank Examiners, who are now examining all the building and loan associations of the state as well as all state banks, is very gratifying. Their audit reveals the fact that our association is in a solvent condition, with no obligations other than to our stockholders. The examiners spent more than two weeks going into minutest details in order to get for us the true condition of the association.

""'Every piece of real estate owned by the association and all properties covered by mortgages held by the association have been appraised to ascertain whether we have any loss in them or not. As a result of these appraisals, our auditor has set aside as a reserve for losses on our own real estate and on the mortgages we own, a total of approximately $110,000.00, and after setting aside this amount for losses, the audit shows that we have a surplus left of $153,710.33. Our auditor's statement shows the amount due the investing shareholders to be $565,145.05, and the $153,710.33 surplus gives us a margin in excess of 26% over and above the amount paid in by the investing shareholders.'"

"On June 17, 1935, the executive committee circularized 'the investing shareholders in Series No. 36,' informing them:

"'On Monday, July 1st, 1935, the Mechanics Building and Loan Association will offer for sale to the shareholders of the association in Series No. 36, for stock in that Series $25,000.00 worth of 2 3/4% Home Owners' Loan Corporation bonds that are guaranteed as to principal and interest by the United States Government, and also $3,000.00 of the Town of Chesnee 5 1/2% tax free bonds due July 1st, 1948. Home Owners' Loan Corporation bond denominations as low as $25.00 will be offered, but the Chesnee bonds are only in...