Towle v. American Bldg., Loan & Inv. Soc.

• Decision Date: 06 February 1894
• Parties: TOWLE v. AMERICAN BLDG., LOAN & INV. SOC.
• Court: U.S. District Court — Northern District of Illinois

60 F. 131

TOWLE v. AMERICAN BLDG., LOAN & INV. SOC.

United States Circuit Court, N.D. Illinois.

February 6, 1894

Jesse A. Baldwin, for complainant.

Collins Goodrich, Darrow & Vincent, for defendant.

Moran Kraus, Mayer & Stein, for former receiver.

C. H Aldrich, for present receiver.

GROSSCUP District Judge.

The original bill in this case discloses that the American Building, Loan & Investment Society was a corporation organized under the building and homestead acts of Illinois with a capital stock of $50,000,000, divided into 500,000 shares of $100 each, of which 70,000 shares had already been issued to upwards of 7,000 shareholders; that upwards of $800,000 had been paid into the treasury of the society by the shareholders, of which $54,000 was deposited with the state officials of Massachusetts, and the balance has been loaned out on real-estate securities throughout the United States, about $300,000 of these loans being made on real estate in Illinois, and the remainder in Minnesota, Indiana, Ohio, Massachusetts, and other states; that for some reason the value of its assets is not to exceed $600,000, and its liabilitites to the stockholders amount to about $900,000; that more than 1,700 stockholders have already demanded the withdrawal value of their shares, amounting to nearly $200,000; and that attachment suits against the assets of the company have been begun in Indiana, and others are threatened in New Hampshire, Ohio, Kentucky, and Indiana. The bill is brought by a shareholder of the company, residing in Indiana, on behalf of himself and all other shareholders joining him, and its object is to surrender to the court the administration of the remaining assets of the corporation. The answer of the society, filed with the bill, admits all the allegations therein set forth, and consents to a surrender of the assets to the administration of the court. On the presentation of this bill and answer, a receiver was, on the 1st of January, 1894, appointed by this court, who has since taken the assets of the corporation into his keeping.

On the 15th day of January following, the circuit court of Cook county, on the motion of the attorney general of Illinois, appointed another receiver for the assets of the same company, under section 17 of the act of June 19, 1893, amending sections 3, 15, 16, and 17 of the building and loan society act. The information under which this receiver was appointed is directed to the winding up of the affairs of the society, and charges that the insolvency of the society is due to the intentional and dishonest mismanagement of its officers; that the officers of the society have substantially abstracted large amounts of its assets, through pretended loans to nominal borrowers upon pretended real-estate securities. Many specific instances of these transactions are set up in the information, and, if true, reveal a conspiracy upon the part of the officers to loot the treasury of the society. The receiver of the state court now asks leave to file his petition in this court, asking that the receiver appointed here should be ordered to surrender to him the assets of the corporation, and bases his motion upon the facts disclosed by the pleadings in this cause and in the state court.

It is urged that this court had no jurisdiction to appoint the receiver--First, because the case made out by the bill and answer does not, within the rules of equitable jurisprudence as recognized and enforced in the federal courts, justify the appointment of a receiver; second, because the requisite elements to confer jurisdiction upon the federal courts are not disclosed. I have no doubt that courts of equity have the ultimate power of administering the assets of insolvent corporations. Whether a case is made out for the exercise of that power, or the parties before the court are in a position to invoke it, is altogether another question. The supreme court has, in a number of cases, recognized the existence of such a power while pointing out the care with which it should be put into exercise. Sage v. Railroad Co., 125 U.S. 361, 8 S.Ct. 887; Railroad Co. v. Humphreys, 145 U.S. 82, 12 S.Ct. 787; Hollins v. Brierfield Coal & Iron Co., 14 S.Ct. 127. The last case above cited was that of an unsecured creditor against the corporation, suing on behalf of himself and all other creditors, and asking, in effect, that the assets of the insolvent corporation be brought into court, to be distributed among the creditors, as their interest might appear. Speaking for the court, Mr. Justice Brewer says:

'It cannot be doubted that the final decree, providing for a settlement of the affairs of the corporation and distribution among creditors, could not have been challenged on the ground of a want of jurisdiction in this court, and that notwithstanding it appeared upon the face of the bill that plaintiffs were simple contract creditors, because the administration of the assets of an insolvent corporation is within the functions of a court of equity, and, the parties being before the court, it has power to proceed with such administration.'

The relief was denied to the complainants in that case, not because of the want of power in the court, but because the creditor, not having reduced his claim to judgment, was in no position to invoke that power, or set it in motion.

Should the power be exercised in favor of the complainant herein? The case is a peculiar one. The complainant is, substantially, both depositor and shareholder. Under the constitution of the society, each member passed into the treasury, periodically, certain stipulated sums. The fund thus collected is loaned out upon realestate security. The interest of the member is not that simply of a depositor in a bank, or a creditor of a corporation. He holds no promise of the corporation for a return of his fund. He is a part owner of the fund,--has an interest directly in the fund,--and is entitled to a proportionate share, as owner, upon its distribution. The whole scheme of building associations is that of a corporate copartnership, whereby are gathered into a common fund, and loaned as such, the money of many individuals. The interest of each shareholder in the sums thus collected and loaned is as direct as if no corporation intervened. The corporation has no function or power, except to loan out these gathered sums, and return the avails thereof into the hands of the contributors. If the stockholder of a corporation or a partner in copartnership can rightfully invoke the aid of equity to administer the assets of the corporation or copartnership, when such power seems essential to the conservation of the assets, I can see no reason why the complainant is not entitled to a like aid.

That the relief will be afforded to stockholders and copartners upon a proper showing is not seriously denied. The need of such relief in this case seems to me to be imperative. The information of the attorney general in another court of equity is one of its most striking evidences. The society, I think, largely through the mismanagement of its officers, has so impaired the assets that there appears to...