Woodlawn Federal Savings & Loan Ass'n v. Williams

• Decision Date: 19 January 1939
• Docket Number: 6 Div. 368.
• Court: Alabama Supreme Court
• Parties: WOODLAWN FEDERAL SAVINGS & LOAN ASS'N v. WILLIAMS, SUPERINTENDENT OF BANKS.

187 So. 177

237 Ala. 446

WOODLAWN FEDERAL SAVINGS & LOAN ASS'N v. WILLIAMS, SUPERINTENDENT OF BANKS.

6 Div. 368.

Supreme Court of Alabama

January 19, 1939

Rehearing Granted Feb. 21, 1939.

Further Rehearing Denied March 23, 1939.

Appeal from Circuit Court, Jefferson County; E. M. Creel, Judge.

Suit in equity by J. H. Williams, as Superintendent of Banks, engaged in liquidating the Woodlawn Savings Bank, against Woodlawn Federal Savings & Loan Association, to require repurchase of stock by the Association, in which there was a cross-bill by respondent. From a decree for complainant, respondent appeals.

Affirmed.

FOSTER and KNIGHT, JJ., dissenting in part.

Wm. S Pritchard and David R. Solomon, both of Birmingham, for appellant.

Frank A. Wilkinson and Wilkinson & Wilkinson, all of Birmingham for appellee.

Bradley Baldwin, All & White and Irvine C. Porter, all of Birmingham, amici curiae.

FOSTER Justice.

This litigation is in equity, and relates to the rights of the parties in respect to certain shares of stock in a building and loan association incorporated under the laws of Alabama, and later reincorporated or converted into a federal savings and loan association under Act of Congress and the statutes of Alabama. Act of July 8, 1935, page 222.

Under section 7109, Code, shares of stock were required to have a definite withdrawal value prescribed in the by-laws.

After its conversion, the charter provided for a repurchase at the instance of stockholders as follows: "Shareholders shall have the right to file with the association their written application to repurchase their shares in part or in full, at any time and upon the filing of such written application, to repurchase, the association shall number and file the same in order received and shall, after thirty days after the receipt of such application to repurchase either pay the holder the value thereof, in part or in full as requested, or apply at least one-third of the receipts of the association from its shareholders and borrowers to the purchase of such shares in numerical order."

On January 1, 1927, one Richards became a stockholder, and his rights as such became vested in the converted enterprise without special action for that purpose. He purchased one hundred shares of the aggregate value of $5,000. The agreed facts state that Richards "endorsed and delivered over to said association as payment for said shares of stock certain notes specifically described as follows: "it then describes the notes aggregating $6,001.44, less discount of $1,001.44, leaving a balance of $5,000. They include notes of Richards personally of $750.72. But they have all been paid. Payments have been made on the others, leaving a balance unpaid of $3,559.68. The association issued to him a certificate of stock, on the back of the stub there is a notation showing "balance due on notes principal amount" on the first of January of each year, up to January 1, 1937, when it was said sum of $3,559.68.

In 1929, Richards became indebted to the bank and we infer from the agreed facts assigned the stock to the bank as collateral security. See Richards v. Montgomery, 230 Ala. 307, 160 So. 706.

In 1926, the association had sold and issued its certificates for seventy shares all paid for in full, for $3,500. They were likewise assigned to the bank as collateral security. We will call that the Hershey stock.

On July 6, 1929, the bank went into liquidation under state laws, and the assets taken over by the superintendent of banks of Alabama, and a liquidating agent. On October 24, 1932, the superintendent of banks foreclosed and sold both issues of said stock and became the purchaser, and on November 8, 1932, a new certificate was issued for the seventy shares representing the Hershey stock, but no new certificate was issued for the Richards stock.

It was after this that the association was converted into a federal corporation. The superintendent of banks has given notice of his election to have all of the stock so held repurchased by the association in accordance with the charter power which we have quoted. This suit is in equity by the superintendent of banks to force the association to comply with such charter duty.

The association contests this right on the ground that it has a lien under section 7000, Code, for the debt due it by Richards, either as a part of the purchase price or on his indorsement of the notes assigned to it as a payment of the price.

And in the alternative, both as to the Richards stock and also as to the Hershey stock, that under section 7000, Code, the superintendent of banks was a stock holder of the association first by pledge to it of the stock and then by the foreclosure of that pledge by the superintendent of banks (see Ensley Mortgage Co. v. Chadwick, 223 Ala. 468, 136 So. 821, 80 A.L.R. 1334), and further in the alternative, that the association has a right to set off against its liability to the bank by virtue of its charter duty to repurchase the stock, the amount of the balance unpaid of its deposit with said bank existing since prior to the time when the bank went into liquidation.

In that connection the facts are that when it did go into liquidation the association was a depositor and had a balance in that account of $12,840.25. On account of it, dividends have been paid the association pending liquidation aggregating $2,054.36, leaving still unpaid an amount in excess of its obligation to the bank on repurchase of the stock.

The cause was submitted for final decree on the agreed facts. The court held that the association had no lien on the Richards stock for the unpaid purchase price, because the agreed facts show that it accepted notes in payment and had no claim by virtue of the indorsement of those notes by Richards, because it was inferred from the circumstances that he did not intend to bind himself by his indorsement; and that the bank was not the owner of stock in the association when the bank went into liquidation, and that the association had no lien on any of the stock under section 7000, Code. The court did not allow any claim of right to set off.

We proceed now to consider the claim of a lien by the association on the Richards stock under section 7000, Code. As we have said, that is predicated upon three aspects. One is that the notes assigned to the corporation did not pay the obligation of Richards; the second is that, if so, his indorsement is sufficient to create such a debt under section 7000, Code; and, third, that the bank was a stockholder and owed the amount of the deposit.

The first point is expressly covered by the agreed facts. It states specifically that the notes were given in payment of the debt. The second theory is based upon the indorsements.

The description of the notes so indorsed is that they are such as to be negotiable. Section 9029, Code. The indorsement creates a contract in writing whose obligations are defined by statute, section 9090, Code, and not subject to be varied by parol evidence nor extraneous circumstances. Pointer v. Farmers' Fertilizer Co., 230 Ala. 87, 160 So. 252; Dean v. Lyde, 223 Ala. 394, 136 So. 857; 9 Alabama Digest, Evidence, + 403, 423(6).

But the indorsement is a conditional obligation. Any suit which undertakes to enforce it must show a compliance with those conditions. O'Neal v. Clark, 229 Ala. 127, 155 So. 562, 94 A.L.R. 589; O'Neal v. Mason, 229 Ala. 142, 155 So. 567; Falkner v. Protective Life Ins. Co., 228 Ala. 57, 152 So. 34; Section 9114, Code.

The lien created by section 7000, Code, is to secure the collection of a debt presently payable. There is no such debt created by an indorsement unless the condition precedent to such liability has occurred. Notice of dishonor is one such condition, and knowledge otherwise acquired is not sufficient. O'Neal v. Clark, supra. The nearest approach to a compliance with this requirement is a statement in the agreed facts that the association had no notice of the claim of the bank until 1930, when its secretary, "being unable to collect the notes heretofore referred to, called on W. M. Richards for payment." That was intended merely to fix a collateral date. The cross-bill makes no allegation of notice of dishonor and no relief is sought in it on that account. It was properly denied.

As to the third contention, we agree with the trial court that when the bank went into liquidation it was not a stockholder of the association, but only a pledgee of stock. The subsequent foreclosure of the pledge does not relate back to the date of liquidation so as to change the status of the bank as a pledgee, and not owner of the stock at that time.

The only other question argued is whether the association may set off against its obligation to the bank under its repurchase clause the amount the bank owes it as depositor. We will treat this obligation as one to pay money by virtue of its charter.

The association was organized under Article 17 of Chapter 274, Code, as amended by the Act of August 26, 1927, page 431. Under its provisions the corporation had the right to make and alter all needed by-laws, rules and regulations and the right to amend its charter existing under section 238, Constitution. Under the Act of 1927 (page 432), it is provided that repayment to the shareholder shall be made when accumulated to full par value. And section 7109, Code, provides as follows: "All shares of stock in said association, upon which all dues and charges for one year or more have been paid, shall have a definite withdrawal value, which shall be set out in the by-laws of said association or in a duly adopted resolution of the stockholders."

The charter provision under the federal act, which we have heretofore quoted, is but the...