Coltrane v. Baltimore Building & Loan Ass'n of Baltimore City

• Decision Date: 17 June 1901
• Citation: 110 F. 272
• Parties: COLTRANE v. BALTIMORE BUILDING & LOAN ASS'N OF BALTIMORE CITY. In re CAULK et al.
• Court: U.S. Court of Appeals — Fourth Circuit

110 F. 272

COLTRANE v. BALTIMORE BUILDING & LOAN ASS'N OF BALTIMORE CITY.

In re CAULK et al.

United States Circuit Court, D. Maryland.

June 17, 1901

Joseph B. Seth, for intervening petitioners.

Russel & Winslow, Richard S. Culbreth, Morton Schaeffer, Fielder C Slingluff, and Randolph Barton, for defendant association and its receivers.

The petitioners allege that they were the holders of full-paid stock in the defendant association, and had given notice prior to the filing of the bill in this case that they desired to withdraw their stock. The petitioners alleged that by giving such notice they became creditors of the association, and were entitled to be paid in full out of its assets in preference to such stockholders as had not given such notice. On the 17th day of September, 1900, the special master filed his report, making 38 findings of fact, and reaching 7 conclusions of law. So much of these findings of fact as are material to the questions raided by the exceptions may be briefly stated as follows: The Baltimore Building & Loan Association was a Maryland corporation. Among the various classes of stock issued by it was a full-paid stock, for which the subscriber at the time of subscription paid its full par value in cash. In the early years of the existence of the association, upon this character of stock it contracted to pay interest or dividends at the rate of 8 per cent. per annum, payable semiannually. Subsequently it changed its by-laws so that upon all full-paid stock issued thereafter it undertook to pay but 6 per cent. per annum payable semiannually. The change of by-laws did not purport to affect the rate of interest or dividend payable on the full-paid stock issued before the change was made. The petitioners were the holders of full-paid stock, some of it being the 8 per cent. stock, and some of the 6 per cent. They had paid par value for that stock, and they had received the interest or dividends which the association had agreed to pay. Mrs. Norris had given notice to the association on the 28th of February, 1900, that she desired to withdraw the full-paid shares held by her, and Mrs. Caulk gave a similar notice on the 16th day of March 1900. The association acknowledged the receipt of these notices upon the days upon which they were respectively given. At no time subsequent to January 1, 1900, were the total assets of the association sufficient to have repaid to its stockholders the amount they had paid into it. On the 21st day of March, 1900, a receiver for the association was appointed by this court. The debts due by the association to persons other than its stockholders were trifling in amount. The by-laws of the association were amended from time to time. The provisions of such of them as are relevant to any of the questions in this controversy appear from the master's discussion of his conclusions of law. To the findings of fact no objection has been made. The intervening petitioners have excepted to the master's conclusions of law, which, with the reasons in support of them, were substantially as follows:

'First Conclusion of Law. If the amendments made in 1899 to the by-laws of the defendant corporation are binding upon the petitioners, the petitioners are not entitled; by reason of their having given notice of withdrawal, to any preference in payment over the stockholders who have not given such notice.

'Reasons for the First Conclusion of Law. The cases which give preference in the distribution of the assets of an insolvent building association to a member whose withdrawal notice has matured before the association stopped business do so upon the ground that the by-laws of such association clearly provide for such preference, and that under such by-laws the effect of a matured withdrawal notice is to terminate the membership of the member who gives it, and to convert him into a quasi creditor as against the other members who have not given such notice. Walton v. Edge, 10 App. Cas. 33. The language of the first paragraph of section 1 of article 7 of the by-laws of the defendant association, as amended in May, 1899, expressly declares that a withdrawal notice does not 'constitute a withdrawal or terminate the membership, or give to the person filing such notice the status of a creditor, or create any rights of action, legal or equitable, against the association, or in any manner alter or disturb his rights and duties as a member.' This by-law was evidently drawn by some one entirely familiar with the cases in which the right of a withdrawing member to preferential payment has been discussed by the courts. Its language is aptly phrased to negative every assumption upon which such preference has been based when such preference has been upheld at all.

'Second Conclusion of Law. That if the amendments made to the by-laws of the defendant corporation in May, 1899, are not binding upon the petitioners, their withdrawal notices had not matured at the time of the appointment of a receiver in this cause.

'Reason for the Second Conclusion of Law. By the express terms of the certificates of paid-up stock held by the petitioners, they were redeemable,--that is, withdrawable,-- subject to the provisions of the by-laws of the association, 'thirty days' notice of intention to redeem being necessary.' The requirement that a stockholder desiring to withdraw his or her stock shall give thirty days' notice of his or her intention so to do is found in section 2 of article 6 of the by-laws of 1891. It appears that only five days elapsed between the filing of the notice of withdrawal of one of the petitioners and the appointment of the receiver in this cause, and only twenty-one days between the filing of the notice of the other petitioner and the appointment of such receiver. It is obvious that, if the by-laws of 1899 are not binding upon the petitioners, their rights as against the association are governed by the by-laws in force when they became members, and by the terms of their certificates of stock, and that thirty days' notice was required from them of their intention to withdraw before their withdrawal notices matured.

'Third Conclusion of Law. That the court of last resort of the state of Maryland has never decided whether or not a stockholder of an insolvent building association, who has given notice of withdrawal of his stock before the declaration of insolvency, is entitled, when the association is being wound up by a court of equity, to a preference in the distribution of the corporate assets over those stockholders who have not given such notice.

'Reasons for the Third Conclusion of Law. The counsel for the petitioners in the argument before the special master strenuously argued that the court of appeals of Maryland had decided that under the circumstances mentioned in the third conclusion of law, and existing in this cause, stockholders who had given such notice of withdrawal before the declaration of insolvency were entitled to priority of payment over those stockholders who had not given such notice. They relied upon the following cases: Gaehle's Piano Mfg. Co. v. Berg, 45 Md. 113; Hennighausen v. Tischer, 50 Md. 583; Association v. Price, 88 Md. 155, 41 A. 53, 42 L.R.A. 206; Baltimore & O. Relief Ass'n Cases, 77 Md. 566, 26 A. 1045; Failey v. Fee, 83 Md. 83, 34 A. 839, 32 L.R.A. 311. A careful examination of each of these cases shows that the precise question was not necessarily involved in any of them; and was not decided. In the case of Gaehle's Piano Mfg. Co. v. Berg, 45 Md. 133, the association was still a going concern. It was sued at law by a stockholder who had exercised the right given him by its charter and by-laws to withdraw his stock. The court of appeals held that the by-laws said that a withdrawing member had the right to withdraw, and to receive what he had paid for his stock, without any abatement for the losses incurred by the corporation. It further held that this by-law was valid and binding upon the corporation, and that therefore the stockholder was entitled to be repaid what he had paid in on his stock; and this, too, although the corporation, before he had given notice of withdrawal, had suffered losses. The other stockholders were still carrying on the business of the corporation. All that the decision of the court of appeals in this case amounted to was that if the stockholders chose to guaranty by their by-laws to any of their number the right to withdraw and take out all he had paid in, whether the corporation had suffered losses or not, they were bound, so long as they continued to operate the corporation, to carry out the agreement they had made. In the case of Hennighausen v. Tischer, 50 Md. 583, the corporation was a building association, strictly, as the Gaehle Manufacturing Company was not. It was being wound up by a court of equity. The appellee in the case was a member of the association who had borrowed money from it, and who had given a mortgage to it. He had also bought the unredeemed shares of certain members who had given notices of withdrawal. He claimed the right to credit against his mortgage indebtedness the amount which should have been paid on these unredeemed shares, according to the by-laws, at the time the notices of their withdrawal matured. The receivers denied his right to such credit, and said he ought to file his claim as a holder of these unredeemed or free shares with the other stockholders or creditors. The court said: 'The withdrawing members had given written notice of their withdrawal, and the secretary had entered on their books the sums they were entitled to withdraw. As shareholder, a member is liable for his proportion of losses, but as creditor he is entitled to recover the amount due him, independent of all losses.

...