Folk v. State Capital Savings & Loan Ass'n

• Decision Date: 19 March 1906
• Docket Number: 34
• Citation: 214 Pa. 529,63 A. 1013
• Parties: Folk, Appellant, v. State Capital Savings and Loan Association
• Court: Pennsylvania Supreme Court

63 A. 1013

214 Pa. 529

Folk, Appellant, v. State Capital Savings and Loan Association

No. 34

Supreme Court of Pennsylvania

March 19, 1906

Argued February 28, 1906

Appeal, No. 34, Jan. T., 1906, by plaintiffs, from decree of C.P. Berks Co., dismissing bill in equity in case of George M. Folk, John T. Balsley, Edward W. Madden and W. H. Fisher v. State Capital Savings and Loan Association. Affirmed.

Bill in equity for an injunction.

ENDLICH J., filed the following opinion:

The plaintiff, suing for himself and others in like interest who may join him, is the holder of stock in the defendant building association, incorporated under Act April 29, 1874 P.L. 73. The par value of its stock is $100 per share. The ordinary installment stock issued by the association is to be paid for until matured by monthly dues of fifty cents. The by-laws, however, in article 8, provide for prepayment of the par value of stock subscribed for at the time of subscription and for its issuance upon such prepayment as "Full Paid Stock" bearing dividends not exceeding five per cent per annum payable out of, but not otherwise participating in, the profits of the corporate business. In the same article provision is made for voluntary withdrawals of stock, a definite and invariable charge thereon per share being established during the first and second years, which, as the answer explains, is in lieu of and fairly approximates the average share of expenses above earnings apportionable during that period to each share. In the prosecution and extension of its business throughout the state, the association employs agents to solicit and receive stock subscriptions and to collect and receipt for payments due the association allowing them a reasonable compensation for their services. It is contended by the plaintiff that (1) the issuance of full paid dividend bearing stock, (2) the deduction of a withdrawal fee, and (3) the employment of paid solicitors and collectors are contrary to law and prejudicial to the interests of the plaintiff and other shareholders in the association, and that its corporate existence will be jeopardized by the continuance of these practices. Upon these grounds it is prayed that they be restrained by injunction. The cause was set down for hearing and heard upon bill and answer.

1. The right of a building association to issue paid up dividend bearing stock has been put upon express statutory basis in England: see Acts 37 & 38 Vict. Ch. 42, sec. 13; and in Tennessee: see Wilson v. Parvin, 119 Fed. Repr. 652; 56 C.C.A. 268; Kirklin v. Savings & Loan Ass'n, 107 Ga. 313 (33 S.E. Repr. 83). It is denied in Illinois as contravening a positive statutory direction that stock "shall be payable in . . . . periodical installments:" see Rhodes v. Savings & Loan Co., 173 Ill. 621 (50 N.E. Repr. 998), and in North Carolina as inconsistent with the building association system as there legalized: see Meroney v. B. & L. Ass'n, 116 N.C. 882 (21 S.E. Repr. 924). It has been affirmed as existing in the absence of any statutory provision expressly authorizing or prohibiting it, in England (under a statute previous to that above referred to): In re Guardian Permanent Benefit Bldg. Soc. L.R., 23 Ch. D. 440, sustained on appeal to the House of Lords; Murray v. Scott L.R., 9 App. Cas. 519; in Alabama: Johnson v. Bldg., etc., Ass'n, 125 Ala. 465 (28 So. Repr. 2); Bell v. B. & L Ass'n, 140 Ala. 371 (37 So. Repr. 237); in Iowa: Tootle v. Singer, 118 Ia. 533 (88 N.W. 446), in Missouri: Hohenshell v. S. & L. Ass'n, 140 Mo. 566 (41 S.W. Repr. 948); State v. Loan, etc., Ass'n, 142 Mo. 325 (41 S.W. Repr. 916); Latimer v. Loan, etc., Co., 81 Fed. Repr. 776; and in New York: People v. Preston, 140 N.Y. 549 (35 N.E. Repr. 979). In Pennsylvania, in Criswell's App., 100 Pa. 488, on distribution of the assets of an insolvent building association, the holders of "cash matured stock, for which payment was made in advance," were adjudged to come in pari passu with other stockholders (that much being decided also in Wisconsin): Leahy v. Bldg., etc., Ass'n, 100 Wis. 555 (76 N.W. 625), and in Bldg. & L. Ass'n v. Linhart, 4 Pa. Dist. Rep. 620, it was held by Judge McILVAINE, that a building association incorporated under the act of 1874 has the power to issue, under its by-laws, paid up stock carrying a fixed annual dividend. The same view was expressed by Mr. Attorney General ELKIN in an opinion reported, 8 Pa. Dist. Rep. 567, whilst a contrary view is intimated by Mr. Attorney General CARSON in a recent opinion reported, 14 Pa. Dist. Rep. 80.

The act of 1874, with its supplements, provides for the incorporation and regulation of corporations generally. It declares, in section 1, that "each of them" shall by virtue of its existence as a corporation thereunder have certain powers, "unless otherwise specially provided." Following this section, with its enumeration in broadly comprehensive terms of powers thus common to all corporations, comes the division of these into classes building associations being included in the second class, and various provisions of a more or less general character regulating the mode and procedure of incorporation, the details of organization, conduct of business, etc. These provisions in turn are succeeded by a series of sections each containing special directions relative to a particular species of corporation, among them section 37 relating to building associations. This section has been modified and added to from time to time by later enactments, but in its essentials remains unchanged. Like all the other special provisions concerning particular corporations, those dealing with building associations, whether contained in section 37 as originally enacted or incorporated in or added to it by subsequent legislation, are of course to be read as part, and in connection with the general provisions, of the act of 1874. They were not intended and cannot be properly understood as denying or limiting any of the powers conferred upon corporations generally except in so far as the subject-matter of those powers has been specifically dealt with in such a way as to expressly negative or necessarily imply a curtailment of them -- as, e.g., concerning the purchase of real estate, the borrowing of money, the measure of fines, and the like. Apart from directions of this sort, the specific provisions on the subject of building associations are rather of an enlarging, enabling character, conceding to them exceptional powers by no means common to corporations generally and giving rise to no implication of an intent to deprive building associations of rights incidental, in the absence of special provisions, to their status as corporations under the general provisions of the act of 1874, and consistent with the character and objects of building associations generally. It is, indeed, to be noted that the legislature has attempted no definition of what constitutes a building association. It has assumed that certain features and methods are essential to it, and there is no room for doubt that without them no corporation, whatever its label, can claim to be a building association. But it has not excluded the possibility that, consistently with these essential features, the legitimate development of the business of these associations may add others which, at the date of the enactment, were not foreseen and against which, therefore, it is not to be taken as implying any prohibition. Thus it is well understood to be one of the differentiating characteristics of the building association scheme that it affords an opportunity to shareholders to subscribe for stock payable in small periodical installments. A society discarding this feature could hardly be looked upon as within any definition of building associations. In a society, however, which retains this feature, a provision enabling those who may wish to do so to acquit themselves at once of liability for periodical payments by an advance payment at the time of the subscription of the fixed par value of the shares subscribed by them, is manifestly not to be declared a departure from its fundamental purpose. It is but the affording of an opportunity for voluntarily anticipating a result eventually contemplated. And if upon such advance payment, the society agrees to allow to the paid up shareholder a periodical dividend reasonably within the margin of profit shown by experience to be likely to accrue to the society on the sum thus paid, which dividend is understood to be payable only out of the profits earned and in lieu of any share therein upon winding up, it is not clear how the principle of mutuality of profit and loss as among the whole number of shareholders is at all violated. It is settled that this principle justifies and requires dereliction in the payment of dues to be made good by fines, and that the lawful measure of these ordinarily is the real damage sustained by the society through the failure of payment, plus such slight excess as will make it more profitable for the member to pay promptly than to lag behind: Lynn v. B. & L. Ass'n, 117 Pa. 1, and the Act April 10, 1879, P.L. 16, section 6, has accordingly fixed the maximum fine at two per cent per month on all arrearages. If, however, the principle of mutuality requires compensation to the society by the member for deferring payment, it would seem equally to justify compensation by the society to the member prepaying. Nor ought the importance of this element in building associations to be overlooked. Doubtless it was originally supposed that every member would eventually become a borrower, and some accepted doctrines of building association law are traceable to that theory. Practically there never was a time when building associations generally could get along without...