Coltrane v. Blake

• Decision Date: 04 February 1902
• Docket Number: 425.
• Parties: COLTRANE et al. v. BLAKE et al.
• Court: U.S. Court of Appeals — Fourth Circuit

113 F. 785

COLTRANE et al. v. BLAKE et al.

No. 425.

United States Court of Appeals, Fourth Circuit.

February 4, 1902

Wm Hepburn Russell (Wm. Beverly Winslow, Morton Schaeffer Randolph Barton, and Archibald R. Watson, on briefs), for appellant receivers.

Richard S. Culbreth, for appellant Coltrane.

Fielder C. Slingluff, for appellant Baltimore Building & Loan Ass'n.

William Pinkney Whyte, for appellee Powhatan Improvement Co.

This. Foley Hisky and M. N. Packard, for appellee Blake and others.

E. S Douglass and George H. Lamar (Joseph D. Wright, on briefs) for appellees Cummin and Gulliver.

Edwin J. Farber (David Stewart and E. Stanley Toadvin, on briefs), for appellee Wilkins and others.

Henry C. Kennard (Henry A. Whitaker, on briefs), for appellees Eunice R. Pearce and others.

Before GOFF and SIMONTON, Circuit Judges, and PURNELL, District Judge.

SIMONTON Circuit Judge.

This case comes up on appeal from the circuit court of the United States for the district of Maryland. There are now before us three separate appeals growing out of the settlement of the affairs of the Baltimore Building & Loan Association. The Baltimore Building & Loan Association is a corporation created under the laws of the state of Maryland. It conducted a large business for several years, had members, and had placed loans in North Carolina, Virginia, West Virginia, Pennsylvania, and the District of Columbia, as well as in the state of Maryland. The association having become embarrassed, proceedings were instituted in the circuit court of the United States for the district of Maryland by Daniel B. Coltrane, in behalf of himself and all other stockholders against the association, praying for the appointment of a receiver, and for the administration of the affairs of the corporation in that court. The cause coming on to be heard, Bird M. Robinson was appointed receiver, and subsequently Randolph Barton, Esq., was associated with him as co-receiver. Auxiliary suits were instituted in the circuit courts of the United States for the states above mentioned, and in the supreme court of the District of Columbia, and the assets of the association were put in process of collection. The receivers having made progress in this collection, and a goodly part of the assets having been realized, the court entered an order providing for the intervention in the cause of all stockholders, and investors in the association for the purpose of ascertaining and protecting their rights. At the same time John C. Rose, Esq., was appointed special master for the purpose of receiving proofs of claims, and he was instructed to report thereon, with his conclusions of law and findings of fact. A large number of interventions have been made. The special master has made his report. The claimants are all holders of stock in the association. Some have paid up their stock subscription entirely, and have been enjoying fixed semiannual dividends at the rates of 8 per cent. per annum with some, and 6 per cent. per annum with others. Some, having paid up their stock in full, have attempted to exercise the privileges of withdrawal given by the by-laws, and have in accordance with them given the required notice. The insolvency of the association defeated the payment of this withdrawal value. All of these two classes claim to occupy the position of creditors. Others are stockholders who have obtained an advance from the funds of the association and have given security therefor. They claim that in settling, ascertaining, and repaying this advance they are entitled to credit for all sums paid in by them by way of dues, premiums, and interest, and that on an adjustment so made they will be discharged from any further obligation as stockholders. Others are stockholders who have paid their dues regularly up to the insolvency of the association, and have never had any advance. They claim that they are entitled to be paid out of the assets of the association, realized and to be realized, the value of their stock, in equal proportion with all the other holders of stock certificates.

The special master, in an exhaustive and able report, discussed the claims of all these classes, and disallowed those of the first three set out above. He held that all holders of certificates of stock were stockholders, entitled to share in equal proportion the remaining assets of the association, the proportion to be measured by the number of shares held by each. And with regard to the third class, the advanced shareholders, he held that they were not entitled as a credit on their advances to the amount of dues on stock subscription paid by them. Exceptions were taken to his report, and the cause was heard by the circuit court. All the exceptions were overruled, except those to his conclusion as to the third class, the advanced stockholders. As to these the court differed with the special master, and held that they were entitled to credit their advance with the dues as well as with all other money paid by them into the association, by way of premium and interest. Appeals and cross appeals were allowed to the decree of the circuit court, and the whole case is here on many assignments of error.

Before entering in detail into a discussion of these assignments of error, a question underlying all of them must first be met. The court below felt itself bound by the decisions of the court of last resort in Maryland in the solution of all questions arising in the administration of the assets of this insolvent Maryland corporation. It held that these decisions led inevitably to the conclusion reached by it. On the other hand, it is earnestly contended that the questions involved in this case, establishing the relations between stockholders and the corporation the Baltimore Building & Loan Association, are questions of general law, determining the nature and obligation of the contracts growing out of these relations, to be solved according to the principles of equity governing the federal courts, and in no wise controlled by decisions of the state courts.

Building and loan associations differ from an ordinary corporation created to deal in money in this: They are allowed to lend out their money, and, under certain restrictions, as such, are exempted from the usury laws of the state. In many other respects they are as other corporations. Their stockholders, in their relations with the corporation as stockholders, enter into the same character of contracts, come under the same character of obligations as do stockholders in other business corporations. And these are regulated by the general law, unless modified by statute. The statute law of Maryland has not modified this relation in these respects. The Maryland statutes, so far as building and loan associations are concerned, have special provisions as to the lending of money by them. In this respect do the Maryland decisions control. A corporation of this character is in one aspect a limited copartnership. Each stockholder ventures a certain sum of money, the amount of stock purchased or subscribed by him. His liability is measured by the stock held by him. Usually, if the enterprise fails, and its assets are exhausted in the payment of debts, the stockholder loses the stock, then valueless, and his liability ends. Sometimes as stockholder he is subject to an additional liability, measured always by the stock held by him. As stockholder he shares in the profits of the association, and, of course, to the extent of his stock and any fixed liability beyond it, he must share the losses. 'Qui sentit commodum sentire debet et onus. ' Each stockholder stands on the same footing with regard to each share of his stock, and each is liable equally and in the same respect with every other for his subscription, according to the form in which he contracts to pay it, whether it be in an entire sum in cash or whether it be in installments at fixed intervals. All these are governed by general law,--the law merchant.

But when a building and loan association begins to exercise the purpose of its creation, becomes a lender of money, and any person-- a stockholder-- gets any of that money, such stockholder assumes a new relation to the association. Whether such a transaction is called an advance from the common fund, or whether it is called a loan, the transaction makes the corporation the creditor, and such person, though a stockholder, the debtor. He incurs a liability which must be discharged. This feature in the business of a building and loan association is regulated and controlled by the local law. Is such a loan or the incurring of such a liability legal? Does the question of usury arise? Are the general statutes against usury modified with respect to this building and loan association? Are the securities given in this transaction valid? All of these questions must be determined by the local law. Provisions as to such matters vary with the states in which they are made.

In the case at bar, each stockholder-- every stockholder in the Baltimore Building & Loan Association-- bound himself to pay his stock subscription. This was a contract in which every creditor and every other stockholder of the corporation was interested. He had the option of paying it in cash at once or he could pay it in certain installments at certain fixed times. All the money so paid under these contracts of subscription went into the common treasury, in which every stockholder had an interest. This transaction is perfectly legal, and not dependent for its legality on any social law. It comes within the general law of contracts. If any one, being a stockholder, because he is a stockholder, concludes to get from the common treasury money in it, and gets it, call it a loan or call it an advance, it has ...