In re Puget Sound Savings & Loan Ass'n.

• Decision Date: 04 April 1931
• Docket Number: No. 31632.,31632.
• Citation: 49 F.2d 922
• Court: U.S. District Court — Western District of Washington
• Parties: In re PUGET SOUND SAVINGS & LOAN ASS'N.

49 F.2d 922 (1931)

In re PUGET SOUND SAVINGS & LOAN ASS'N.

No. 31632.

District Court, W. D. Washington, N. D.

April 4, 1931.

McBurney & O'Brien, Byers & Byers, and A. J. Westberg, all of Seattle, Wash. (Leopold M. Stern, of Seattle, Wash., of counsel), for petitioners.

Lewis & Black and Colvin & Rhodes, all of Seattle, Wash., for alleged bankrupt.

John H. Dunbar, Atty. Gen., of Washington, and Greene & Henry, C. E. Gates, Miller & Weiss, and Moore & Higgins, all of Seattle, Wash., for objectors to petition.

Caldwell & Lycette, of Seattle, Wash., amici curiÊ, for temporary receiver.

Grinstead, Laube, Laughlin & Meakim, of Seattle, Wash., amici curiÊ, for Washington Savings & Loan League.

NETERER, District Judge.

In this memorandum the alleged bankrupt will be referred to as the saving and loan association.

Involuntary adjudication in bankruptcy is sought by three shareholders and one intervening shareholder of the alleged bankrupt, alleging payment of money within three years, that over withdrawals and offsets there remains $2,063.54, $1,698.94, $5,350, and $98.10, respectively; that the said association is insolvent and within four months next preceding committed an act of bankruptcy when a "receiver was put in charge of its property" by the state court. Objections and answers have been filed by the alleged bankrupt, and many shareholders, and by the receiver as amicus curiÊ, and a memo brief by the Washington Savings & Loan League as amici curiÊ, a voluntary group representing savings and loan associations operating under the laws in this state.

The association, receiver, and appearing shareholders deny petitioners are creditors, and all parties deny insolvency. The association admits its capital is impaired, and that it was in an "unsound condition within the meaning of the statute," and upon this admission the receiver was appointed. At bar it is stated that there are 27,000 shareholders, and between fourteen and fifteen million dollars in assets, and an impairment of approximately $2,000,000. The issue now submitted is whether the petitioners are creditors, and, if so, was the appointment of a receiver an act of bankruptcy?

On February 7, 1931, the board of directors of the savings and loan association, acting within its powers, passed a resolution that no withdrawals of shares be permitted, unless previous notice be given, and only then on further order of the board.

The basic principle underlying the methods and business of savings and loan associations under the Washington statute is mutuality. The purpose is to create a fund by periodic payments by its members. It has no function save to gather contributions to justify loans to such of its members as desire to avail themselves of the privilege. Payments made by members "at any time shall be deemed to be the authorized capital." Laws of Washington 1925, pp. 397, 398, ß 1 (g). Each petitioner signed a membership card "consent (ing) to the rules, regulations and by-laws." The passbook issued to each shareholder, as evidence of the holder's shares, has this provision, "The holder of this passbook is subject to the rules and regulations appearing herein and to the by-laws of this association," and the following: "The legal holder of this passbook owns one-one hundredth part of a paid up share of the capital stock of the association for every dollar standing to his or her credit on the books of the association, subject to the by-laws." A statement as to withdrawals and that money paid for credit of a member "on or before the fifth of the month will earn dividends from the first day of the month. In January and July this date is extended to the fifteenth, * * *" and statement as to juvenile accounts.

The shareholders are a collection of individuals united under a collective name, sharing equally profits and losses, and enjoying privileges and immunities in their collective character which do not belong to the individuals composing it. The entire membership composes a distinct entity. See City of Los Angeles v. State Loan & Trust Co., 109 Cal. 396, 42 P. 149; Wells v. Black, 117 Cal. 157, 48 P. 1090, 37 L. R. A. 619, 59 Am. St. Rep. 162. The relation is sui generis. It has been styled a corporate copartnership. Towle v. American Building, Loan & Inv. Co. (C. C.) 61 F. 446. The policy of the state in its provision for savings and loan associations is to promote the general welfare by accumulation of the "small savings belonging to the industrious and thrifty." Mercantile Nat. Bank v. New York, 121 U. S. 138, 7 S. Ct. 826, 838, 30 L. Ed. 895. Any person may become a shareholder on approval of his application and payment of the membership fee and dues. The membership of the association shall consist of those holding shares. Section 3720, Rem. Comp. Stat. Minors may hold shares free from the control of lien of all other persons (section 3721, Rem. Comp. Stat.), and shares held by members shall be free from taxation (section 3732, Rem. Comp. Stat.). A contingent or reserve fund equal to 5 per cent. of its capital must be maintained (section 3721); when losses exceed the contingent and reserve fund and undivided profits, the director of efficiency may proceed to wind up the affairs of the association as provided by section 3729, Rem. Comp. Stat. No cause of action is saved to the shareholders, as such, by the provisions of the statute.

No "demand" or "commercial checking account" shall be carried, nor shall any savings account be received without issuing shares of stock for the same. Section 3727, Rem. Comp. Stat. The term "deposit" or "depositor," when used, must be considered in the sense of operation of the association, since the "deposits" furnish the only capital which is invested and employed. Bank of Redemption v. Boston, 125 U. S. 60, 8 S. Ct. 772, 31 L. Ed. 689; Aberdeen Savings, etc., Ass'n v. Chase, 157 Wash. 351, 289 P. 536, 290 P. 697.

A distinguishing difference between a savings and loan association and a commerical corporation is that a shareholder of a savings and loan association has a right to withdraw (section 3755, Rem. Comp. Stat., and by-laws of the association) by giving notice of withdrawal and be relieved from further payments (Merchants' Nat. Bank v. Continental Building & Loan Ass'n (C. C. A.) 232 F. 828), and on demand for payment of matured shares the collective relation is severed, and that of debtor and creditor created.

It is obvious that petitioners, as shareholders, bear the same relation to the corporation and general creditors, except as to earned dividends, as does a shareholder, or stockholder in a commercial corporation. After general creditors are paid, a stockholder in a commercial corporation and in a savings and loan association is entitled to his distributive share of the assets of the corporation. Sections 3277 and 3721, Rem. Comp. Stat. Each is entitled to his pro rata portion of its assets. Huber v. Home Savings, etc., Ass'n, 99 Wash. 593, 169 P. 979.

A "creditor" is one who has a "claim provable in bankruptcy." Section 1a (9), Bankruptcy Act, 11 USCA ß 1 (9). If claims in issue are provable debts under the Bankruptcy Act, it must be (section 63a (4), 11 USCA ß 103 (a) (4) "founded upon an open account, or upon a contract express or implied." It is obvious that it is not an open account, and upon the record and statute, the only contractual relation is statutory, and until the withdrawal or demand on matured shares there is no obligation to pay. A method of payment is specifically provided: "* * * Shares may be withdrawn at any time after one year from the time of issuance. The withdrawing shareholders shall be paid the amount of withdrawal value of the shares, as shown by the last prior distribution of profits, together with all dues paid thereon since such distribution. * * * Withdrawals shall be paid in the order of their filing * * * not more than two-thirds of the receipts of the association in any one month shall be applied to the payment of withdrawals and matured shares without the consent of the board of directors. Whenever an application for withdrawal shall have been on file or the payment of matured shares demanded, and either shall have remained unpaid for a period of six months, all receipts of the association in any one month from dues, loans repaid and the proceeds of all other investments shall, after the payment of expenses and general indebtedness be applied to the payment of withdrawals and matured stock, and the board of directors, or the state auditor (director of efficiency), in his discretion may direct that withdrawals be paid upon a ratable and proportionate basis. * * *"

The contract was fully executed; the membership fee and capital stock paid, and certificates, or passbooks, issued. Nothing remained but to await the fruits of the investments, "profits and losses," profits to be paid June 30 and December 31 of each year. Section 3722, Rem. Comp. Stat.

Before a right of action accrues to the shareholder, notice of withdrawal must be given and demand for matured shares made, and money be in the treasury, as provided by section 3731, and the directors withhold payment. Heinbokel v. Nat. Savings, etc., Ass'n, 58 Minn. 340, 59 N. W. 1050, 25 L. R. A. 215, 49 Am. St. Rep. 519; Stilwell v. People's, etc., Ass'n, 19 Utah, 257, 57 P. 14.

The Circuit Court of Appeals of the Fifth Circuit, in Curtis v. Dade County Securities Co., 30 F.(2d) 325, 326, in passing upon a Florida statute similar to the Washington statute, said: "Rights possessed by one by reason of his relation to a corporation as a stockholder do not make him a creditor of the corporation, and liabilities of a corporation to its stockholders on account of their stock are not debts of the corporation, within the meaning of the above-quoted provision referring to the Bankruptcy Act, ß 1a (15), 11 USCA ß 1 (15)." And further in the same case said: "But, whether appellants did or did not, as between themselves and the...