Meares v. Finlayson

• Decision Date: 08 May 1899
• Citation: 32 S.E. 986,55 S.C. 105
• Parties: MEARES et al. v. FINLAYSON.
• Court: South Carolina Supreme Court

32 S.E. 986

(55 S.C. 105)

MEARES et al.

v.FINLAYSON.

Supreme Court of South Carolina.

May 8, 1899.

Building and Loan Associations—Receivers— Actions in Foreign Jurisdictions—Liability of Stockholder — Contracts—Usury—Penalties—What Law Governs.

1. The relation existing between a building and loan association and a borrower who is a stockholder when the loan is made is that of debtor and creditor.

2. A stockholder of an insolvent building and loan association, domiciled in a foreign state, cannot be held liable on an assessment on his stock made by the receivers to cover losses and expenses pursuant to an order, in an action in such foreign state to which he was not a party, where the order recited that it was not to be binding on any one concerned therein, without his consent, and such party had assigned his stock to the association prior to its insolvency.

3. A stockholder of a foreign building and loan association cannot be held liable in an action by its receiver for an assessment on his stock for losses, where no evidence is adduced as to what the losses were, and what assessment was necessary to meet them, except the proceedings of a court in such foreign state, to which he was not a party.

4. Where receivers of a foreign building and loan association invoke the aid of courts of the state to enforce a contract of a foreign state, usurious in both states, they are bound by the penalty fixed by the laws of the state, since it is a matter pertaining to the remedy.

Pope, J., dissenting.

Appeal from common pleas circuit court of Chesterfield county; Ernest Gary, Judge.

Action by Iredell Meares and another, as receivers of the Carolina Interstate Building & Loan Association, against Henry W. Fin-layson, to recover a sum loaned to him by the association. There was a judgment from which plainnrfs appeal. Affirmed.

R. T. Casion, for appellants.

Edward McIver and Stevenson & Matheson, for respondent.

POPE, J. In July, 1895, at the suit of one William H. Strauss, the Carolina Interstate Building & Loan Association (located at Wilmington, in the state of North Carolina, and doing business in that state and in the states of South Carolina and Georgia), in the superior court of New Hanover county, was declared insolvent, and its affairs ordered to be wound up. For this purpose the present plaintiffs were duly appointed by said court as the receivers of said building and loan association, and they have accepted, qualified, and entered upon the discharge of the duties of such office of receivers. The defendant, Henry W. Fin-layson, in the year 1891 became a stockholder, by having issued to him 30 shares of loan stock; and upon these shares, as a basis, he borrowed $3,000 of such building and loan association, and to secure such loan he assigned his 30 shares of the said stock to said building and loan association, and also executed a mortgage on real property located in Cheraw, in the state of South Carolina, to said building and loan association, as an ad ditional security for said loan. One Lawrence H. Fesperman also became the holder of 7 shares in said building and loan association in the year 1891, and in the year 1892 he borrowed $700, executing an assignment of his stock, and a mortgage of a house and lot in Cheraw, S. C, to the building and loan association; but on the 4th February, 1893, the aforesaid Finlayson purchased from the said Fesperman the land so mortgaged, and his 7 shares of said stock, together with all his rights and interests therein and thereto, and assumed the obligations of the said Fesperman, as set out in the act incorporating the building and loan association and in its by-laws. Finlayson continued the payments on his own 30 shares of stock and the 7 shares purchased from Fesperman until the 5th day of March, 1895; but nothing was done between 5th March, 1895, and July, 1895, touching Finlayson's failure to pay, although this three months were out on 5th June, 1895. The plaintiffs, as receivers, were directed by the superior court of New Hanover, in North Carolina, to settle with the borrowers of the bankrupt building and loan association, in these words of the complaint herein: "That the court in said cause further ordered and decreed that the receivers, these plaintiffs, in ascertaining the value or amount of stock of the respective stockholders, should credit each stockholder with all that he had paid on his stock, whether held as borrowing or non-borrowing shares, including all payments of dues, fines, and all amounts, under whatever name, paid, and that in addition thereto he should be credited with an average interest of six per cent, thereon, and that the aggregate so ascertained should constitute the value of his stock or claim against the association as of the date of July 24, 1895, and that, upon this aggregate so ascertained he should be permitted to participate pro rata in the dividends declared from time to time; that the court in said cause further directed these receivers, in settling with the members of the association who have borrowed upon their stock, and either given their bond and mortgage or the said stock as collateral therefor, to charge them with the actual amount they have borrowed, with interest at the rate of six per cent, per annum to the 24th day of July, 1895, and to credit thereon a percentage of the value of their stock, after ascertaining the value in the manner hereinbefore alleged, as such stock would be entitled to receive as its pro rata dividend in the distribution of the assets of the association; and that upon the payment of the balance found to be due, with interest upon such balance from the 24th day of July, 1895, to the date of payment (such interest to be at six per cent.), to release and cancel the bonds and mortgages of the member so paying and settling his indebtedness to the association." Upon these orders the defendant Finlayson, paid on his indebtedness for $3,000 borrowed by himself, and for $700 borrowed by Fesperman and assumedby defendant, the sum of $1,200. After such payments, made in the year 1897, he refused to pay any more; alleging that the $3,700 which he and Fesperman had borrowed had already been paid in full. The receivers then brought this suit to enforce against Finlay-son what they conceived he owed. It should be stated just here that the suit of Strauss against the said building and loan association had, as ancillary to that in the state of North Carolina, been brought in the county of Richland, in the state of South Carolina, wherein Judge Witherspoon on the 4th September, 1895, appointed the plaintiffs as receivers, and directed them to file copies of the orders made in the original suit, in North Carolina, in the court in South Carolina, for the information of the court, and all persons interested in said cause. The answer of the defendant denied that the suit of Strauss against the Carolina Interstate Building & Loan Association was brought on behalf of all the shareholders of said association; denied that the plaintiffs, as receivers, were empowered to deduct 30 per cent, from the payments made by this defendant, because of losses made by the association; denied that the contract of the association with the defendant was a North Carolina contract, so to speak, but alleged, on the contrary, that it was a contract to be construed as contracted for performance in the state of South Carolina; alleged that the contract was usurious; and also alleged that the indebtedness of the defendant had been fully paid. Judge Ernest Gary, who heard the action upon the pleadings and an agreed statement of facts, decided, by his decree, that the contract of defendant with the Carolina Interstate Building & Loan Association was usurious under the laws of both the states of North and South Carolina; that the plaintiffs had no right to deduct 30 per cent, from the aggregated payments of defendant for and on account of losses of the association, for the reason that defendant is not bound by the uecree in North Carolina, and was not before that court.

The plaintiffs appeal from the decree of Judge Gary on the following grounds, namely: "(1) His honor erred in not holding that the contracts of the defendant with the Carolina Interstate Building & Loan Association, of Wilmington, N. C, were North Carolina contracts, and should be enforced under the laws of that state as construed by its supreme court. (2) That he erred, after it was admitted that Finlayson was a stockholder in said association, and that the losses upon stock had been found by the North Carolina court to be thirty per cent, in not making said Fin-layson responsible for his share of said losses. (3) He erred in holding that because the defendant, Finlayson, was not personally served with process in the Strauss case, that he was not bound thereby, under the decisions of the supreme court in said case, to the same settlement that all members of said association were held to be bound to make,, and in not deciding the case under the law as stated by said supreme court. (4) He erred in holding that the courts of North Carolina, in equitably winding up the affairs of an insolvent corporation created by and under the laws of North Carolina, cannot decree an equitable adjustment and settlement, which will be binding upon all the corporators, unless all of said corporators were individually served with process, and made parties to the suit. (5) While each corporator must be sued, and process be served upon him before he can be made to settle his indebtedness to the association, he erred in holding that in such suit this defendant was not bound, as to the legality and construction of his contract, by the decisions of the supreme court of the state of the contract, and of the jurisdiction to which he voluntarily subjected himself by becoming a corporator in said association and borrowing money therefrom. (6) He erred in holding that the settlement directed by the courts of North Carolina...