Prudential Building & Loan Ass'n v. Shaw

• Decision Date: 26 March 1930
• Docket Number: No. 1352-5489.,1352-5489.
• Citation: 26 S.W.2d 168
• Parties: PRUDENTIAL BUILDING & LOAN ASS'N v. SHAW, Banking Com'r.<SMALL><SUP>*</SUP></SMALL>
• Court: Texas Supreme Court

26 S.W.2d 168

PRUDENTIAL BUILDING & LOAN ASS'N v. SHAW, Banking Com'r.^*

No. 1352-5489.

Commission of Appeals of Texas, Section A.

March 26, 1930.

Original proceeding in mandamus by the Prudential Building & Loan Association to compel James Shaw, Banking Commissioner, to receive and pass upon application of relator to have its liabilities to its stockholders written down and reduced.

Writ of mandamus issued.

Turner, Rodgers & Winn, of Dallas, for relator.

Robert Lee Bobbitt, Atty. Gen., W. Dewey Lawrence, Asst. Atty. Gen., and John W. Goodwin, of Austin, for respondent.

CRITZ, J.

This is an original mandamus proceeding filed in the Supreme Court by the Prudential Building & Loan Association of Dallas, hereafter referred to as the Association, against James Shaw, banking commissioner of the state of Texas, hereafter referred to as the Commissioner, to compel him to receive, consider, and pass upon the application of the Association to have its liabilities to its stockholders written down and reduced, as provided under section 57, c. 61, Acts Second Called Session, 41st Legislature, 1929. The section in question is found at page 122 of said Acts. The undisputed record shows that the Association is a domestic corporation, duly incorporated, with its domicile and principal office at Dallas, in Dallas county. Tex.: that it has an authorized capital stock of $10,000,000, and that it is duly organized and doing business under and by virtue of the laws of this state governing such organizations on the usual building and loan plan.

It is further shown by the record that the Association is insolvent in the sense that its total assets, at their present fair cash market value, are insufficient to pay the stockholders 100 cents on the dollar of their investment; and, in this connection, it is shown that the present value of the Association's assets are $1,153,471.71, whereas its liabilities consist of amounts due for borrowed money, and accounts payable and reserves in the aggregate sum of $111,518.06. This leaves net assets at their present fair cash value available for liquidating its stockholders' accounts of $1,041,953.65, its liabilities to its stockholders being $1,291,903.47.

It also appears that on August 16, 1929, the governing officers of the Association, realizing its condition as to insolvency, and its inability to pay from its assets to its stockholders the full amount of their investment, sent a letter to each of the stockholders advising them that a meeting of such stockholders would be held on August 28, 1929, for the purpose of considering the writing down of its liabilities to its stockholders as provided in section 57, of the Acts of the 41st Legislature, supra. The meeting of the stockholders was held on the date named in the call. At this meeting there was a quorum of the stockholders present, representing 20,524 shares and $860,000 in the amount of their investment. The number of shares represented at this meeting was more than 50 per cent. of the total number of shares issued and outstanding, and was more than 76 per cent. of the total value of such shares so issued and outstanding.

At this meeting, the stockholders, after a full consideration and analysis of the affairs of the Association, made by its auditors, and after a full and detailed investigation by the stockholders present, and after a full and complete disclosure and discussion of the matters involved, by a vote of 99.98 per cent. of those present, adopted a resolution providing for the writing down of the liabilities of the Association under the provisions of section 57 of the Building and Loan Act, supra, and instructed the directors of the Association to prepare and present the petition of the Association to the Banking Commissioner of Texas in order that he might pass thereon and write down the liabilities of the Association to its stockholders to a point that would render the Association solvent, and thus enable it to continue its business as a solvent going concern, and liquidate its frozen assets in a proper and orderly manner.

In conformity with the above instructions from the stockholders, the Association, acting by and through its board of directors and executive officers, prepared and presented to the Commissioner the petition of the Association asking and praying that he approve the action of the stockholders, directors, and executive officers of the Association and write down its liabilities to its stockholders as authorized by section 57 of the act, supra.

The Commissioner declined to act on the above petition and declined to write down the liabilities of the Association as requested, because he doubted his authority to do so, in that he doubted the validity of the act in question for the following reasons:

(a) Because said section 57, supra, is illegal and void in that it is too vague and indefinite to be capable of understanding; and further it is too vague and indefinite to be capable of execution;

(b) Because said section 57, supra, is illegal and void, and is discriminatory by reason of authorizing a reduction of liability to several classes of stockholders without making the reduction apply equally to all members and stockholders; and

(c) Because said petition was not authorized by a requisite number of stockholders or members of the Association.

The petition for mandamus here is to compel the Commissioner to receive the petition of the Association and act upon it.

We shall now consider the objections to the validity and constitutionality of the law in the order above indicated.

Section 57 of the Building and Loan Association Act now under consideration reads as follows:

"Reduction of Liability to Members. Whenever the losses of any building and loan association, resulting from depreciation in value of its securities or otherwise, exceed its contingent reserve fund, undivided profits and current earnings, so that the estimated value of its assets is less than the total amount due its members, the Banking Commissioner of Texas upon petition of such building and loan association, may order a reduction of its liability to its members, except upon juvenile shares, in such manner as to distribute the loss equitably among such members. If thereafter, such association shall realize from such assets a greater amount than was fixed in the order of reduction, such excess shall be divided among members whose credits were so reduced, but to the extent of such reduction only."

The first objection offered to the validity of the act is that it is too vague and indefinite to be capable of understanding. We infer from the arguments that the Commissioner contends in this connection that the part of the act which provides, "upon petition of such building and loan association," etc., renders the act inoperative and void because it does not provide how or through whom the Association shall act in making the application to the Commissioner to write down its stock. It is our opinion that the act is sufficiently definite in this respect. A corporation, as such, usually acts through its board of directors and executive officers in transacting its business affairs, and, under this act, it is our opinion that when the board of directors ascertains that the stock of the Association is impaired and the Association for that reason insolvent, such board has the right, under the statute, section 57, to petition the Commissioner to act under the law, and write down the stock as provided therein. We think the board not only has the power, but that it is its duty, to make the application when it is ascertained that the stock is impaired, for the reason that the Association has no right to continue business as a going concern after it has become both legally and actually insolvent. In the case at bar the petition is made by the board of directors and executive officers acting on instruction from a majority of the stockholders. The petition therefore comes on ample authority from the Association, and the act is not too vague and indefinite to be capable of being understood in this particular.

The second objection urged is that the act, section 57, is unconstitutional and void, in that it is discriminatory. The argument made is that the provision in the statute exempting juvenile shares from being written down renders the act inoperative and void in that it discriminates in favor of juvenile shares. In the instant case it is agreed that this Association has no juvenile shareholders within the contemplation of the statute. Such being the case, that matter is not involved here. Furthermore, even if we did have juvenile shareholders here, and even if the provision of the act exempting juvenile shares should be held to be inapplicable to juvenile stockholders who became such prior to the passage of the act, still the act can be applied to those who become stockholders after its passage and the constitutionality of the act thus upheld.

We are further of the opinion, however, that even if this Association should have juvenile shareholders who were such prior to the passage of the act, the provisions of the act could be applied to them without violating any constitutional provision, either federal or state.

The Building and Loan Association Act in question, section 37(e), defining juvenile shareholders and their rights, reads as follows: "Juvenile shares which may be issued in the name of any minor. Such shares shall be held for the exclusive right and benefit of the minor and free from the control or lien of any other persons. The dues paid upon these shares, together with the dividends credited thereto, may be withdrawn in whole or in part by the person in whose name they were issued during his minority and his receipt or acquittance shall be a valid and sufficient release and discharge to the association for such accumulated dues together with the dividends credited thereon, or any part thereof. Juvenile shares shall not be subject...