McPherson v. Railway Sav. & Bldg. Ass'n

• Decision Date: 08 July 1933
• Docket Number: 13282.
• Citation: 93 Colo. 155,25 P.2d 388
• Parties: McPHERSON et al. v. RAILWAY SAVINGS & BUILDING ASS'N.
• Court: Colorado Supreme Court

25 P.2d 388

93 Colo. 155

McPHERSON et al. v. RAILWAY SAVINGS & BUILDING ASS'N.

No. 13282.

Supreme Court of Colorado, En Banc.

July 8, 1933

Rehearing Denied Sept. 25, 1933.

Error to District Court, Pueblo County; John H. Voorhees, Judge.

Suit by S. G. McPherson and another against the Railway Savings &amp Building Association. To review a judgment dismissing the suit, the plaintiffs bring error.

Affirmed.

CAMPBELL and HILLIARD, JJ., dissenting.

John W. Elwell, of Pueblo, for plaintiffs in error.

Adams &amp Gast and Sam Parlapiano, all of Pueblo, for defendant in error.

BUTLER Justice.

This is a test case brought by S. G. and Laura V. McPherson, in their own behalf and in behalf of other shareholders similarly situated, against the Railway Savings & Building Association referred to herein as the association. The plaintiffs prayed for a decree requiring the association to recognize its capital liability to them in the sum of $7,811.93 on the stock they now hold, and restraining the association from charging against the capital account of the plaintiffs any part of the moneys paid to them in maturing other shares 'formerly' owned by them. The association filed an answer; the plaintiffs demurred thereto; their demurrer was overruled; they stood upon the demurrer; and the court thereupon dismissed the suit.

Upon the application of the Attorney General, the court had appointed a receiver. Thereafter the court granted the receiver's petition for a decree 'to effect the readjustment' of the affairs of the association and to terminate the receivership. The court held that, Before any distribution of the assets could be made to shareholders, the association's capital liability to shareholders must be determined and the relative equities of the shareholders adjusted in accordance with the directions in the decree that, as that would be a lengthy task, and would not require supervision by the court, there was no reason for withholding from the board of directors the control of the association's affairs. The court decreed, in part, as follows: 'The capital liability of The Railway Savings and Building Association to each of its shareholders is the amount paid in by each member plus his proportionate share of earnings that should have been credited to his stock, but was improperly paid to other stockholders who are now members of the Association, minus so much of so-called dividends received as were in fact withdrawals of capital; and the Association and its officers are directed to so determine the amount of its liability to each of its members. In adjusting these capital accounts, the stockholders shall be credited with their proportionate part of semi-annual earnings and their shares in the earnings for the following period computed on their thus increased interest in the Association's capital. In making these adjustments, the Association and its officers shall not go back more than five years prior to July 6, 1932.' That decree is pleaded in the answer, not as res adjudicata, but merely as explanatory of the action of the board of directors. The receiver was discharged, and the duties ordinarily performed by a receiver were cast upon the board of directors. The board proceeded to perform those duties in accordance with the terms of the decree, whereupon this suit was commenced.

The association is a purely mutual enterprise. Its certificate of incorporation states, among other things, that the association is incorporated for the purpose of 'raising a funds by the collection of dues or stated payments from its members to be loaned among its members.' The by-laws required that all fully paid and installment stock should be credited semiannually with proper proportionate parts of the association's profits, and provided that, when the amount paid in by a shareholder, plus his share of the association's earnings, equaled the par value of his shares, his stock would be matured, and its face value of $100 a share would then be paid to the member, at which time he was required to surrender the matured certificate. The answer alleges that the shareholders were never credited with earnings to which they were so entitled; that the association's books show a capital liability to each of its shareholders of merely the amount paid in by him; that, instead of maturing stock in the manner required by its by-laws, the association appropriated the earnings that belonged to, and should have been credited to, other shareholders and portions of capital funds paid into the association by other shareholders, and used these funds to arbitrarily mature stock on the dates upon which the by-laws estimated that the stock would mature; that at no time within the period of five years preceding July 6, 1932, did the capital paid in by any shareholder, plus his pro rata share of the association's profits for the time required to mature stock as estimated in the by-laws, equal the matured or face value of such stock, and at no time within that period did the association's board of directors find, declare, or determine that any of the association's stock had matured or that the moneys paid in by any shareholder, augmented by his proportionate part of the association's earnings, equaled the face value of his stock; that all stock matured within that period of five years was matured by disbursing to its holders not only the capital paid in by them and their proportionate part of the association's earnings, but by also improperly paying to them a part of the association's capital paid in by other shareholders and earnings that should have been credited to other shareholders; that the funds of the association so paid without warrant during those five years to shareholders who are now members of the association aggregate a sum in excess of $500,000; that, if the capital accounts of shareholders who are now members of the association are not charged with the amounts heretofore improperly paid to them in maturing stock as aforesaid, and the association's capital liabilities are not thereby reduced to the extent of $500,000, the association cannot credit its members with the shares of the association's earnings to which its by-laws entitle them, and will be unable to meet its obligations to stockholders, even though it should realize on all its assets their full book value; that the plaintiffs' pro rata share of the association's earnings on the stock now owned by them with which, under the association's by-laws, they should have been credited, but which were paid to other stockholders who are now members of the associations, aggregates $1,323.60, which, when added to the net amount of $7,811.93 paid into the association by the plaintiffs, gives their stock a book value of $9,135.55; and that during the five years preceding July 6, 1932, the association matured 180 shares of its stock owned by the plaintiffs, and in so doing paid to them $5,972.81 in excess of the amount of the plaintiffs' investment, plus their pro rata share of the association's profits. The answer also alleges that during the period of five years next prior to July 6, 1932, the association was insolvent and unable to meet its obligations to its shareholders. All of this is admitted by the demurrer to be true.

Counsel for the association correctly say that, in a sense, it is but a stakeholder, whose only wish is to make an equitable distribution of its assets to its members. The plaintiffs invoked the equity jurisdiction of the court. In the circumstances presented by the record, what are their equities?

The controlling principle of the association is mutuality among its...