In re Youths' Temple of Honor
| Decision Date | 14 July 1898 |
| Docket Number | 11,094 - (203) |
| Citation | 76 N.W. 59,73 Minn. 319 |
| Parties | In re YOUTHS' TEMPLE OF HONOR |
| Court | Minnesota Supreme Court |
John D. Laddy and others, holders of matured certificates in the Youths' Temple of Honor, an insolvent corporation, and C F. Williams and others, who had given notice of withdrawal from the corporation, appealed to the district court of Hennepin county from the allowance by the assignee of the claims of the unmatured certificate holders, and the unmatured certificate holders likewise appealed from the allowance by the assignee of the full amount of the claims of the matured certificate holders. The matter was submitted to Simpson, J., on a stipulation of facts, and he affirmed the decision of the assignee. From an order entered accordingly John Laddy and all other holders of matured certificates, and C. F. Williams and other members who had given notice of withdrawal, appealed. Affirmed.
Endowment Association -- Failure of Scheme not Insolvency -- Dissolution.
Where an endowment association, organized under the provisions of G.S. 1894, §§ 3296-3316, is simply unable, because of the general impracticability of its scheme, to carry out its plan, it is not "insolvent" in any proper sense of the word, and therefore should not make an assignment for the benefit of its creditors. It should wind up its affairs, and distribute its assets, under G.S. 1894, §§ 3430-3435, or in an equitable proceeding instituted for that purpose.
Classes of Certificates -- Holders not Creditors but Members.
Upon the winding up and dissolution of such an association, the holders of all classes of certificates are to be treated as members of the association, and none are to be treated as creditors, and the rule of distribution of its assets is necessarily different from the order of payment made by it while a going concern.
Classes of Certificates -- Endowment Fund for Benefit of All Certificates.
An endowment fund set apart under the by-laws for the payment of matured certificates as a trust fund is equally a trust fund for the benefit of all certificates, in proceedings to wind up the concern because it is unable to meet and pay its certificates as they mature.
Classes of Certificates -- Order of Payment upon Dissolution.
When the affairs of an endowment association, organized under the statute above referred to, are being wound up because of its inability to accomplish its purpose, and its assets are to be distributed in proceedings instituted for that purpose, the expenses incident to the proceedings are first to be paid, and then the general creditors, if any, in full; and finally the residue of the trust fund must be distributed pro rata among holders of certificates without regard to whether they have matured or not.
Benton & Molyneaux and C. R. Fowler, for appellants Laddy and others.
The claims on the certificates which had matured prior to the assignment were debts of the corporation, and should have been allowed. Vanatta v. New Jersey, 31 N.J.Eq. 15; In re Educational End. Assn., 56 Minn. 171; Freeman v. Children's End. Soc., 63 Minn. 393; Com. v. Massachusetts, 112 Mass. 116. Even if the assignment dissolved the corporation, and invested the assignee with power to wind up its affairs, it would be the duty of the assignee to convert the assets into cash, and first pay all the debts of the corporation, before he could distribute the residue to the members according to the amounts paid in by them on their certificates. In re Educational End. Assn., supra; Freeman v. Children's End. Soc., supra. But a corporation is not to be deemed dissolved until a forfeiture is judicially ascertained and adjudged. State v. Minnesota C. Ry. Co., 36 Minn. 246, 258; People v. President, 23 Wend. 254; Bradt v. Benedict, 17 N.Y. 93; Minnesota C. Ry. Co. v. Melvin, 21 Minn. 339; In re Oshkosh, 77 Wis. 366. The making of an assignment did not dissolve the corporation.
Money paid in on unmatured and unwithdrawn certificates does not constitute a valid claim against the estate. Vanatta v. New Jersey, supra; In re Educational End. Assn., supra; Wilder v. Peabody, 37 Minn. 248; Bordman v. Osborn, 23 Pick. 295; Mayer v. Attorney General, 32 N.J.Eq. 815; Com. v. Massachusetts, supra; Niblack, Mut. Ben. Soc. § 145; Stamm v. Northwestern, 65 Mich. 317.
The endowment fund is a trust fund, and is exempt from any debt due from a member or beneficiary of the association, or from any debt against the association itself. This fund must be applied primarily to the payment of matured certificates. G.S. 1894, §§ 3295, 3312; Lake v. Minnesota M.R. Assn., 61 Minn. 107; Brown v. Balfour, 46 Minn. 68, 72; In re Educational End. Assn., supra; Heinbokel v. National S.L. & B. Assn., 58 Minn. 340; In re Equitable, 131 N.Y. 354; Burdon v. Massachusetts, 147 Mass. 360; Fogg v. Supreme Lodge, 159 Mass. 9; Niblack, Mut. Ben. Soc. § 354; 2 Bacon, Ben. Soc. § 479. The withdrawal certificate holders are not entitled to share with the matured certificate holders in the endowment fund. The contention of the matured certificate holders is that to charge that fund with a further liability it would be necessary that a new trust be created as expressly and specifically as the old trust, and with the consent of those in whose favor the old trust was created, and that no charge against the endowment fund in favor of the withdrawal claimants is made or intended. 1 Pomeroy, Eq. Jur. § 572; State v. Conklin, 34 Wis. 21, 30; High v. Malloy, 67 Ill.App. 665; Heinbokel v. National S.L. & B. Assn., supra.
Ell Torrance, for appellants Williams and others.
The withdrawal certificate holders claim an equal right to share in the distribution of the funds in the hands of the assignee with the matured certificate holders, and to the exclusion of members whose certificates had not matured. The certificates having been surrendered and canceled, it would seem logically to follow that the certificate holders ceased to be members, and should be classed as creditors, if that relationship was ever to exist between them and the association. McNab v. Southern, 50 S.C. 89; 2 Am. & Eng. Enc. 625.
Isaac Peterson and Geo. M. Bleecker, for respondents.
Neither the matured certificate holders nor the unmatured certificate holders are creditors of the association. They are all members, and treated as such by law, particularly in the case of insolvent companies where the equities of the situation require such a course to be pursued. Endlich, Bldg. Assns. §§ 514, 515, 110; Appeal of Criswell, 100 Pa. St. 488; Towle v. American B. & L. Assn., 75 F. 938; In re Home, 3 Ohio N.P. 145; Heinbokel v. National S.L. & B. Assn., 58 Minn. 340; Gibson v. Safety, 69 Ill.App. 485.
The rules and by-laws of a mutual endowment association governing the distribution of its assets when a going concern, do not obtain when the concern is insolvent. Appeal of Criswell, 100 Pa. St. 488; In re Equitable, 131 N.Y. 354; Chapman v. Young, 65 Ill.App. 131; In re Sunderland, 24 Q.B. Div. 394; Williams v. United, 166 Mass. 450; Knutson v. Northwestern L. & B. Assn., 67 Minn. 201; In re Albert, 39 L.J. Ch. 539; Endlich, Bldg. Assns. § 514. Wherever a person appears as a claimant upon the estate of an insolvent endowment association, upon the ground of stock interest, he is to be treated as a member, and not as a creditor; and he is to share pro rata in the distribution of the assets upon the basis of the amount paid in, whether his stock is matured or not. Appeal of Christian, 102 Pa. St. 184; Endlich, Bldg. Assns. § 514; Sheeler's Appeal, 159 Pa. St. 594, 602; In re International, L.R. 5 Ch. App. Cas. 424; People v. Security, 78 N.Y. 114; Appeal of Criswell, supra; Relfe v. Columbia, 76 Mo. 594; Gibson v. Safety, 69 Ill.App. 485; Towle v. American B. & L. Assn., 75 F. 938; Kirkpatrick v. American, 170 Pa. St. 170; Williams v. United, supra; Lowne v. American, 6 Paige, 482; Endlich, Bldg. Assns. §§ 514, 515; Knutson v. Northwestern L. & B. Assn., supra.
If the endowment fund can be regarded as trust money for any purpose whatever, it is trust money for every individual who contributed to its creation; it stands for the equal benefit of every certificate holder, whether in the march of time his day of payment has arrived or not. Relfe v. Columbia, supra; People v. Security, supra; In re Equitable, supra; In re Albert, supra; In re Tonti, 173 Pa. St. 464, 483.
The defendant Temple of Honor was an endowment association organized in 1889, under the provisions of Laws 1885, c. 184, and amendatory acts (G.S. 1894, §§ 3296-3316.) To use the words of the court below, its "general scheme was impracticable, impossible of accomplishment, and must inevitably have resulted in failure"; but the general plan and avowed purpose of this association need not be enlarged upon.
January 19, 1897, it made an assignment for the benefit of its creditors. Its general creditors were few, and its indebtedness to these persons was but a small fraction of its assets.
When this assignment was made its members -- holders of its certificates -- were in three classes: First, those whose certificates had matured in accordance with the by-laws of the association, the number aggregating 16, and the face value of such certificates being $10,425.25; second, members who had given notice of cancellation and withdrawal pursuant to the articles of association, the number of such certificates being 34, and the face value aggregating $6,659.92, which, under the by-laws, had a cash surrender value; and third, members whose certificates had not matured, nor had they given notice of cancellation or withdrawal. Of these there were 782 in number, and they had paid into the treasury of the association over $95,000.
When the assignment...
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