Engelhardt v. Fifth Ward Permanent Dime Saving & Loan Ass'n

• Decision Date: 28 January 1896
• Court: New York Court of Appeals Court of Appeals
• Parties: ENGELHARDT v. FIFTH WARD PERMANENT DIME SAVING & LOAN ASS'N.

148 N.Y. 281

42 N.E. 710

ENGELHARDT

v.FIFTH WARD PERMANENT DIME SAVING & LOAN ASS'N.

Court of Appeals of New York.

Jan. 28, 1896.

Appeal from superior court of Buffalo, general term.

Action by William Engelhardt against the Fifth Ward Permanent Dime Saving & Loan Association. From a judgment of the superior court (25 N. Y. Supp. 835) reversing a judgment of the municipal court for defendant, defendant appeals. Reversed.

Henry W. Brendel, for appellant.

Benjamin F. Folsom, for respondent.

ANDREWS, C. J.

The defendant is a saving and loan association organized February 25, 1890, under the act (chapter 122 of the Laws of 1851) entitled ‘An act for the incorporation of building, mutual loan and accumulating fund associations,’ and acts amending the same. Its general purpose was to encourage small savings, and, to accomplish this purpose, it was provided in the articles of association that the membership should consist of persons who should subscribe for one or more shares of $100 each, to be paid for in weekly payments of 10 cents on each share; and each member was entitled to a loan, to the amount of the share or shares held by him, out of any money in the treasury of the association, secured by mortgage; and, in case of a loan, an additional weekly payment of 10 cents a share, called ‘interest,’ was to be paid by the member securing the loan, to continue until the payments on the shares and of interest should cancel the loan. The association had no paid-up capital, and its only resource for paying the expenses of management and for making loans was the small weekly payments expected to be made by members, and premiums on loans. A member not taking a loan, when his share or shares were fully paid up by the aggregate of the weekly payments, was entitled to surrender his stock, and receive from the association the amount thereof. But the articles of association accorded to nonborrowing members the further right to withdraw from the association at any time, on one week's notice, and in case of withdrawal it was provided as follows: ‘The dues actually paid in, together with such accrued profits as the directors may deem prudent for the interest of the association, will be refunded to them when the necessary funds are collected. Members who wish to withdraw have preference to those wishing to procure loans.’ The plaintiff was a member of the association, and a subscriber for 20 shares of its stock, and up to the 4th day of October 1892, had paid weekly payments thereon amounting in all to $189. On that day he filed his application to withdraw the amount paid in by him. Prior to that day 78 members had also filed their applications to withdraw the amounts severally paid in by them. The applications were entered in a book of the association provided for that purpose, in the order of presentation. The prior applications aggregated $8,500. The association proceeded to pay them out of collections made, in the order of presentation, and, up to the time of the commencement of this action, had paid the sum of $6,671.74, exhausting by such payments all the money then in its treasury. It had outstanding loans to the amount of $21,857. The amount owing the plaintiff not having been paid, this action was brought to recover the sum of $189, it being an ordinary action as upon a debt presently due and payable.

It seems to be very plain that the clause in the articles of association, that the dues paid by withdrawing members ‘will be refunded to them when the necessay funds are collected,’ operated as a qualification of the liability to them when the necessary funds are collected,' It was essential to the practical working of the scheme and purpose of the organization. The association, if the plan was followed, could have no assets of any considerable amount available for immediate repayment of dues paid in by withdrawing members. It was not a moneyed corporation, in any proper sense, and would not, in the ordinary course of its business, have assets readily convertible into money. Its assets would be represented in the main by loans to members on mortgages payable in small weekly payments. If no restriction existed preventing withdrawing members from immediately maintaining actions to recover their dues and enforcing judgments obtained, it is evident that this and similar associations would have a precarious existence. They would be in peril at almost any moment to have their operations arrested, and to be thrown into a receivership, by the conjoint action of a few withdrawing members. The beneficial purpose of the statute for the encouragement of small savings would be frustrated, and the assets of the association subjected to costs and expenses which would seriously impair the general fund contributed by the members. The articles of association, which showed the scheme of the organization, and defined the obligation of the association and the rights of members, are binding upon each member thereof. They establish the relation between the association and the stockholders, and constitute a contract between them. The association only bound itself to return the dues owing to a withdrawing member ‘when the necessary funds are collected.’...