Gunby v. Armstrong

• Decision Date: 21 November 1904
• Docket Number: 1,242,1,301.
• Citation: 133 F. 417
• Parties: FRANKLIN OPERA HOUSE CO., Limited, v. ARMSTRONG. GUNBY v. SAME.
• Court: U.S. Court of Appeals — Fifth Circuit

133 F. 417

FRANKLIN OPERA HOUSE CO., Limited, v. ARMSTRONG.

GUNBY v. SAME.

Nos. 1,242, 1,301.

United States Court of Appeals, Fifth Circuit.

November 21, 1904

Gunby v. Armstrong is an appeal from the Western District of Louisiana, and Franklin Opera House Company v. Armstrong comes up from the Eastern District of that state. The principal issues are alike in both cases, and hence they were submitted at the same time. In both suits Armstrong, as receiver of the New South Building & Loan Association, is a party, and the litigation results from a failure to agree upon terms of settlement after the association passed into the hands of the receiver. A scheme or plan of settlement, as between the insolvent association and its borrowing stockholders, was formulated by Mr. E. B Kruttschnitt in an elaborate report submitted by him as special master to the court of primary jurisdiction, sitting in the Eastern District of Louisiana, and by an order duly passed by Judge Parlange the plan recommended was adopted. The report of the master and the order of the court will be found textually reported in Miles v. Association (C.C.) 111 F. 946-972, to which reference is made in connection with this statement of the case. It is admitted by counsel that since the submission of the master's report a large number of the outstanding loans have been collected pursuant to the order of the court, thus considerably reducing the amount of the indebtedness against borrowing members. The association continued its operations as a going concern in Louisiana, Mississippi, Georgia, and several other states until June 2, 1899, when, owing, it is alleged, to adverse decisions, mainly by the Supreme Court of Mississippi, on the question of usury, Mrs. Feliciana R. Miles, one of its stockholders, filed a bill in the United States Circuit Court for the Eastern District of Louisiana praying the appointment of a receiver. On the following day an order was made by Judge Pardee, and concurred in by Judge Parlange June 5th, appointing the appellee, Armstrong, receiver of the association, pursuant to the prayer of the bill. On October 25, 1899, the receiver presented to the court a petition requesting instructions as to how he should deal with borrowing members of the association, and on October 31st, following, an order was made by Judge Parlange referring the petition to Mr. Kruttschnitt as special master, with directions to ascertain and report 'what would be a proper basis for the adjustment, settlement, and collection, at this stage of the cause, of the obligations of the borrowing members of the defendant, the New South Building & Loan Association. ' On February 16, 1900, the master submitted his report, which was, as above stated, approved and confirmed by the court. As to the parties represented at the hearings before the master, it is said in the report: 'The application of the receiver is necessarily one made ex parte. The action which the receiver seeks to take is approved of by the complainant, and apparently acquiesced in by the defendant, as it did not appear before the master, although duly notified. Neither the American Trust & Banking Company, which has filed a bill in the United States Circuit Court for the Northern District of Georgia, seeking to control the administration of almost all of the assets belonging to the series stock fund and in the hands of the receiver, nor any other creditor of the defendant association, is a party to these proceedings. Only one stockholder, and that one a borrowing stockholder, voluntarily appeared before me. I state these facts very fully, in order to show the extreme care which should be exercised by the court in the premises, and the great caution to be observed in dealing with a large amount of assets in the hands of the receiver, in which so many persons are interested, none of whom, with the one or two exceptions above named, have been heard. ' The foregoing statement applies generally to the two appeals. Reference will now be made to such parts of the record as are deemed applicable to each appeal, separately considered.

(1) A. A. Gunby v. Johnston Armstrong, Receiver.

The appellant, Gunby, was a borrowing stockholder, having subscribed for 25 shares of series stock, class B, and executed his note, December 26, 1894, to the association for $2,500, payable November 1, 1906, at its office in New Orleans, La., with interest at the rate of 6 per cent. per annum, payable monthly, from date, until paid. To obtain the loan it was necessary to become a stockholder in the association, a preliminary application being required by the rules before the certificate of stock issued. The appellant duly made his application for stock, and a certificate therefor issued. He also applied for a loan of $2,500, to secure which an act of sale was executed as hereinafter mentioned, and his stock deposited as additional security. The following statement touching the application for stock and loan, the certificate of stock, and the act of sale, is taken from the brief of appellee's counsel:

'The application starts out by declaring that applicant, by occupation a lawyer, hereby subscribes for twenty-five shares of series stock, class B, and applies for membership in the New South Building & Loan Association of New Orleans, La., and understands and especially agrees to the rules of the association governing said class B series stock, and particularly as to the withdrawal value of the shares and as to the relinquishment of all participation of the shares applied for in the profits or dividends or earnings of the association (except as to so much of the profits as may be necessary to mature the stock after 142 payments). The applicant further declares that this relinquishment is in consideration, among other things, of the right to apply for a loan on terms stated in the application, and of the right to receive the amount of such loan without discount, and to pay on the same interest at the rate of 6 per cent. per annum, payable monthly, and of the right to pay no premium on the loan whatever, unless the applicant wishes to repay the loan before the expiration of 142 months, and that in case of such voluntary repayment applicant agrees to pay a premium on the full amount of the loan at certain rates stated in the application. For instance, if he desired to repay the loan and withdraw the stock in the fifth year of his loan, he agreed to pay a premium of 8 per cent., or $200. The applicant further specially agreed that all payments should be made to the home office and that agents had no authority to promise loans or to make any other contract binding the association. The certificate of stock is headed, 'Class B, Series No. 55, 25 Shares.' It certifies that A. A. Gunby, of Monroe, state of Louisiana, is a stockholder in the New South Building & Loan Association of New Orleans, La., and is the owner and holder of twenty-five shares of series stock, class B, therein, of $100 each; that the certificate is issued and accepted by the stockholder subject to all the conditions and limitations contained in the charter and by-laws of the association; and that such conditions and limitations form a part of the certificate. The certificate states the obligation of the stockholder to be to pay 70 cents per month on the first of each month for each share held for a period of 142 months or until the certificate is canceled or withdrawn under the rules of the association; that all moneys due shall be payable at the home office in New Orleans, provided, however, that payment may be made to a local treasurer for transmission to the home office, but in such case the local treasurer shall be deemed the agent of the local stockholder, and not of the association; that 60 cents of each monthly payment, all interest, premiums, fines, and forfeitures, shall go into the series stock loan fund; that when the stock is matured it shall be received by the association in liquidation of the indebtedness of the owner in accordance with his agreement with the association; that the contract between the association and its members is contained in its charter and by-laws, and cannot be changed or altered by any agent or officer of the association; that agents have no power beyond that specially given them in their certificate of authority. The certificate contains an indorsement, signed by appellant, that, in conformity with the rules and regulations of the association, he has transferred the certificate, with all rights thereunder, to the association, in order to further secure the association the advance made him on the shares of stock evidenced by the certificate. The date of the application for stock is November 24, 1894, the date of the certificate is December 24, 1894, and of the indorsement December 26, 1894. Appellant's application for a loan begins with the declaration that Mr. Gunby, the undersigned, hereby applies to the New South Building & Loan Association of New Orleans for a loan of $2,500 on 25 shares of the association on the terms and conditions, under the rules and regulations of the association, and in accordance therewith. The following paragraph occurs in the application: 'It is thoroughly understood and agreed by me, in making this application: First, that this loan, if made, will be made by the New South Building & Loan Association of New Orleans, Louisiana, and accepted by me, on the terms and conditions and subject to all the regulations contained in the charter and by-laws of said association, and subject to all the rules of the association, and on the terms and conditions to be further stipulated by said association; and I agree to comply with the same and to accept the loan at the date the same is allowed by the board of directors of the

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