Radalj v. Union Sav. Loan Ass'n. , 59 Wyo. 140 ( 1943 )

PETITION FOR REHEARING (No. 2234; Oct. 12, 1943; 141 P.2d 856) A petition for a rehearing has been filed herein, accompanied by an exhaustive brief. Perhaps the case may be said to be in the twilight of doubt. At least it gave the writer hereof considerable trouble upon the original investigation, so that the petition for rehearing is welcome herein, giving us an opportunity to again consider the questions involved and briefly review, herein, the main and essential points for ultimate decision, without saying that every statement in the original opinion was correct, for it presents a number of complicated points.

1. Counsel again argue that the defendant cannot collaterally attack its original articles of incorporation. But, these original articles no longer exist, and hence no attack could be, or is made, upon them. Sec. 17-119, Wyo. Rev. St. 1931, changed these original articles, and modified them in so far as inconsistent with the statute. We cannot ignore the plain reading of the statute.

II. Counsel also again argue that the deposit made by the defendant in court estops it to question the fact that the plaintiff is a creditor of the defendant. We think that the authorities cited in the original opinion show that counsel are in error. This case illustrates that error. From the very beginning of the case, commencing with the answer filed by the defendant, and throughout the trial in the lower court, and in this court, the defendant has insisted, and based its defense on the fact that the plaintiff is a member of the defendant association, and not a creditor. It would seem to be rather strange that such express claim, so insisted on throughout, could be wiped out by a deposit in court, which, at most, could be considered an implied admission. We do not think that the law recognizes such anomaly.

III. Counsel argue, as they did in the case originally, that even though the corporation borrowed money, without being authorized to do so, still it cannot question its power in that regard, and that under the doctrine of unjust enrichment, it must pay the money back. We conceded that in the original opinion, citing Lander State Bank v. Putnam, 40 Wyo. 312; 276 P. 926. At least we did not question that rule. But the whole comes back to the point: Was the money which was deposited by the plaintiff a loan, or did he become a member of the defendant association?

IV. The crucial questions in this case are (a) whether or not the defendant became, under the law of 1927, a building and loan association, and (b) whether or not the defendant is a member thereof, rather than a creditor. We discussed both of these questions exhaustively in the original opinion, and came to an affirmative conclusion in both instances. The difference of opinion between counsel for plaintiff and this court lies in the fact that counsel will not, or refuse to, give to our statutes the force and effect which this court has felt constrained to give them. In other words, the whole case hinges on a matter of statutory construction. We may briefly recapitulate the reasons why we feel compelled to adhere to these conclusions. The statute states that a corporation which issues savings certificates is a building and loan association. The evidence shows that the defendant issued such certificates, and apparently nothing except such certificates. These major and minor premises being unquestioned, it follows by the inexorable laws of logic that the defendant is a building and loan association under the statute, and no amount of argument to the contrary can overcome that inevitable conclusion. We are unable to see the force of the contention that the statute intended to affect only building and loan associations which were completing their existence under the act of 1890. No such indication is contained therein. In fact, as we pointed out in the original opinion, the bill for the act of 1927 was intended to supplant all legislation whatever on the subject and be inclusive of all corporations doing business like that, or similar to that specified in section one of the act, and by amendments, made only two exceptions, namely those relating to corporations organized under what are now articles 2 and 3 of chapter 17, Rev. St. 1931. Not only is section 17-101 of the Rev. St. 1931 all inclusive with the exceptions named, clearly embracing all hybrid organizations such as the defendant was, but it is further provided by section 17-119 that a corporation doing business similar to that specified in article 1 chapter 17 of the statute shall be a building and loan association and governed by the provisions of that article. Not only did the defendant do a business similar to that contemplated in that article, but it did the very identical business so contemplated. Counsel argue that the statute could have no such far-reaching effect, as, on its face, it has, for the reason that it would change the defendant association fundamentally, and that such fundamental change is not permissible. It may be mentioned in this connection, that the stockholders in control of the corporation at the time when the act of 1927 was passed are not here complaining of the change wrought by the statute. Aside from that, counsel conceive the main purpose of the defendant to be to have a fixed capital stock, and through it to have the control of the company. We may admit that the legislature would not be authorized to make a fundamental change in the corporate defendant, Drew v. Beckwith, Quinn Co., 57 Wyo. 140; 114 P.2d 98. But, the change mentioned by counsel is not such, we think, as to come within the definition of a fundamental change, at least so far as plaintiff is concerned. Articles of incorporation are amended daily changing the capital stock, or even changing the control of the association. A fundamental change would exist, if the business of the association were entirely changed — if, for example, a sugar company were transformed into one for ginning cotton. In this case, one at least of the purposes for which the corporation was organized, was to do business as a building and loan association. Its capital stock was left unimpaired by the statute; only additional, and different kinds of shares of stock were permitted to be issued, thus giving the control of the company to all of the holders of the various kinds, thereof. We think no fundamental change, of which plaintiff can complain, was made. See 13 Am. Jur. 240; Fletcher Cyc. of Corporations (Permanent edition) Vol. 7, sec. 3696.

In view of the fact that it cannot be disputed that the defendant association is a building and loan association, it would seem to be clear, that we must necessarily find that the plaintiff became a member of it. As we pointed out in the original opinion, the defendant (aside from the guaranty stock) issued nothing but saving certificates, either on the installment plan, or on the paid-up plan. That fact appears to be undisputed. Hence, unless they are members, there would be nothing, to which the theory applicable to building and loan associations of treating investors in such an association on a footing of equality, could apply. In other words, in such a case, the defendant, shorn of the power, or duty, of treatment of equality, could hardly be said to be a building and loan association, in spite of the fact that by express provisions of the statute it is made so. That would be an anomalous situation. But holders of savings certificates are, under the statute treated as share-holders. We made such an exhaustive analysis of the statutes relating to that point, that it seems to us that an unprejudiced study thereof, and of the statutes in question, must lead to the result at which we arrived. Savings certificates are only mentioned in section 17-101 and 112, Rev. St. 1931, in which, clearly, the holders of savings certificates are treated and considered as share holders, and as synonymous therefor. We can conceive of no purpose of mentioning savings certificates at all, unless that is true. Section 17-107 provides in detail, what "shares" the association may issue. The savings certificates issued by the defendant correspond to these shares, except only that they were not denominated as such. If these certificates had been intended to represent anything different from shares, it would seem to be clear, that in view of the fact that they are specifically mentioned in section 17-101 and 112, specific provisions would have been made for them, just as specific provisions were made for "shares". But, that was not done, leading, again, to the conclusion that the term savings certificate, was intended to be but another name for a certificate of shares. It is doubtless true that section 17-112 was partially intended to prevent a building and loan association from doing a banking business. But, it does more than that. It does not, as correctly contended, expressly forbid a corporation from borrowing money. But it clearly states that when it receives a deposit, (and it impliedly authorizes it) it shall either issue shares of stock or the equivalent thereof, namely savings certificates. In other words, the statute provides that a depositor shall not be considered a creditor, but a member, and, as we pointed out in the original opinion, Sundheim, Building and Loan Associations (3rd Ed.) sec. 44 appears to take the same view under such a statute. Counsel seem to argue, that even though the receipt of the money by defendant was ultra vires, it must be repaid. They insist that it is a loan; in their judgment there can be no question about that. We are sorry that, in the face of the statute, we cannot take that view of it. In view of such a statute, cases like Western Bond and Mortgage Co. v. Crown,112 Or. 663; 231 P. 138, upon which counsel lay so much stress, can obviously, have no application. What counsel for plaintiff have failed to recognize, or rather refuse to recognize, is the fact that in this case, all parties interested in the defendant association (outside of the holders of the guaranty-stock who do not seem to have any interest in it at all any more) are all situated alike — they are either all creditors or all members. That fact distinguishes this case from all those upon which counsel rely, and which we considered in the original opinion, as showing that plaintiff became a creditor. Even if it were true, as counsel contend, that the defendant was authorized to borrow money from parties other than a like association, as mentioned in section 17-109, Rev. St. 1931, still, section 17-112 provides that a depositor shall not be considered a lender, and, hence, definitely excludes the plaintiff, who unquestionably was a depositor, from becoming a creditor. Counsel say that 99 per cent, nay even 100 per cent, of men "would believe that the transaction carried on between plaintiff and defendant was a loan, and it requires a great deal of legal ingenuity to denominate these transactions as anything else but a loan." We do not think that it takes a great deal of legal ingenuity to say that a deposit is not a loan, when the statute says that it is not a loan. Counsel state that as early as 1923, the plaintiff "loaned" money to the defendant. That was upon one of the installment savings certificates, and counsel put that on the same footing as the paid-up certificates issued to plaintiff later. Now, it can scarcely be doubted that these installment savings certificates bear all the possible indicia of a building and loan association, except only that they do not state that they represent "shares". How it is possible for counsel to contend that under them the plaintiff thought he was making a "loan" to the defendant in the ordinary sense of that term, is beyond our understanding. And, as pointed out in the original opinion, the paid-up savings certificates in evidence in this case bear signs of savings certificates of a building and loan association, in view of the fact that the plaintiff must have known that the defendant was not a savings bank. If plaintiff thought that he was making a "loan" to the defendant, why did he not take a promissory note or bond, as men generally do when they are making a "loan," or, on the other hand, deposit his money in a savings bank? It stands to reason that in view of the fact that plaintiff knew that defendant was not a savings bank, he knew that it was doing, or at least was attempting to do business on the building and loan plan, and that as such, the "loan" had limitations attached thereto, leaving even out of consideration the fact that he must have known, that the defendant was lending money on the building and loan plan to the extent of a million dollars or more to doubtless numerous parties for building their homes, as provided in the by-laws of the defendant. We cannot agree that plaintiff is so innocent a holder of savings certificates, which he expected to be paid like a promissory note, as counsel would have us believe. The unfortunate part for plaintiff, in brief, is that he holds savings certificates, instead of promissory notes, and that these savings certificates make him, under the statute, a member of the defendant association and not a creditor. Moreover, if there were any serious doubt about it, how should this court, in all fairness, resolve that doubt? Here we have persons investing more than a million dollars in the defendant association. All, as the record indicates, are in the same situation; they all have certificates of the same general nature. The fundamental principle governing building and loan associations is to treat all situated alike on a footing of equality. Equity demands that. We think there can be but one answer to the question which we have put. We are, accordingly, constrained to adhere to our original opinion that the plaintiff became a member of the defendant association, and is entitled to stand upon the same footing as other shareholders, except those holding guaranty stock who are not entitled to anything until all others are satisfied. This states the gist of the conclusion in the original opinion and required the setting aside of the judgment herein, although there would have been no harm in letting the finding of the trial court stand in so far as it relates to the amount which the plaintiff deposited. There is, however, no dispute on that point, and never has been.

V. Various arguments are made by counsel in the sixth point of their brief in support of their petition for rehearing. Counsel take exception to our statement contained in the original opinion to the effect that we can see no reason why the defendant association should not be able to resist an unjust enrichment of plaintiff on behalf of its members situated like plaintiff. They have not cited any cases to the contrary. They say that they have found no case where a corporate defendant when sued, has been permitted to resist judgment on the ground that the judgment will give the judgment creditor an advantage over other creditors. But that does not answer our statement. We are not dealing in this case with creditors. We are dealing here with members of an association affected with a public interest, and whose rights are defined by statute. We can hardly believe that it is the duty of a corporation, particularly one affected with a public interest, as is a building and loan association, whose rights and duties are defined by statute, to stand idly by, and permit one of its members to gain an advantage over the others to which he is not entitled. And, there is ample authority in the books of law to sustain that view and to uphold the statement criticized by counsel. Allman v. Bldg. and Loan Ass'n., 100 Pa. Sup. Ct. 205; Weil v. Bldg. and Loan Ass'n., 100 Pa. Sup. Ct. 550; Stern v. Bldg. and Loan Ass'n., 100 Pa. Sup. Ct. 561. The last of these cases was cited in our original opinion. In all of these cases, the building and loan association, not in custodia legis, resisted a suit by a member who sought to obtain a judgment against the association, just as in this case, on account of the insolvency of the association. In all of them a judgment was rendered for the claimant, and in all of them the judgment was reversed, just as we set aside the judgment in the case at bar. In Stone v. Bldg. and Loan Ass'n., 302 Pa. 554; 153 A. 758, the court stated: "A withdrawing member can obtain no advantage or priority over his fellow members through suit, and judgment under such circumstances; * * * a judgment is ineffective for any purpose except that it may hasten further liquidation. If the association were liable to judgment and execution at the hands of every withdrawing shareholder, it would result in a race for judgment whereby the assets would be eaten up through forced sales." And see O'Rourke v. Bldg. and Loan Ass'n., 93 Pa. 308; Andrew v. Bldg. and Loan Ass'n., 98 Va. 445; Teller v. Wilcoxen, 110 Ia. 565; 81 N.W. 772. If, then, a judgment is ineffective, it was at least our duty to declare that in this case. But, that is substantially the same as setting the judgment aside, as was done in the three cases above mentioned. We are not certain that we understand some of the statements and arguments made by counsel in connection with their sixth point. They say, for instance, that in view of the fact that 92 per cent of the investors in the defendant association agreed to the liquidating scheme inaugurated in 1934, they cannot be said, though they receive only 64 per cent of their money, to have been injured, if the plaintiff receives 100 per cent. That statement, we cannot believe, was made seriously. They further argue that the question as to whether or not the plaintiff would obtain a preference over others situated like him cannot be determined without bringing all persons of that class into court; that a trial should be had as to the extent of the amounts which they have advanced to the defendant, what their relations were, and that the assets should be marshalled and distributed on an equitable basis. Apparently, counsel meant to exclude from this the parties who agreed to the liquidation, for they say that they should be permitted to go ahead with their liquidation, and that plaintiff, and others who did not agree to the liquidation should receive their money from the $50,000. held in the banks. No marshalling of assets would be necessary as to the parties who agreed to the liquidation, under the limitation mentioned by counsel, for they have agreements settling their mutual rights. Nor would it be necessary, on plaintiff's theory, to bring into court parties other than the plaintiff who did not agree to the liquidation, or marshall any assets as to them, for the evidence shows that the sum held in the banks is sufficient to pay them. So, we are somewhat at a loss to know why these arguments have been made.

Counsel say, in connection with their sixth point, that this is an action at law; that insolvency is not in issue in this case; that no equitable defense was set up; that if this court should hold that plaintiff is not a creditor, but a member of the association, as we do, the only order we should enter is to reverse the judgment, except as to the amount paid into court. Apparently, therefore, counsel object even to what we stated in connection with the allowance of interest to the plaintiff. Of course, if the insolvency of the defendant is not in issue in this case, then we were wrong in setting the judgment of the trial court aside. If the defendant is solvent, or must, for the purpose of this case, be so considered, then the judgment of the trial court should stand, since in that event no defense to the action would exist. It would make no difference in such case whether the plaintiff be considered a creditor or a member. In either case, the amount awarded would be due to the plaintiff under the facts in this case. But the question of insolvency was one of the main and basic defenses set up by the defendant, and is, we think, sustained by the evidence. In view of the fact that defendant was, as we hold, a member of the defendant, and in view of the statutory provision that such members must share the losses equally, the defense of insolvency, we think, was an equitable defense, for equality is essentially a principle of equity, and though the plaintiff commenced his action as one at law, it was, for practical purposes transformed into one of equity. When a similar contention as here was made in Novosel v. Sun Life Assurance Co., 49 Wyo. 422; 55 P.2d 302, we said:

"Counsel say that this is purely an action at law, and no equitable principle has been invoked. They are in error in both contentions. The facts which required the application of the rule were stated in the intervener's petition. Nor is this purely an action at law, as we have pointed out many times. The distinctions between actions at law and suits of equity were abolished and we have only a civil action. Sec. 89-301, Rev. St. 1931. Legal as well as equitable principles alike are administered in this action, depending upon the facts. When the facts present a case requiring the application of principles heretofore known as equitable, it is the duty of the court to apply them. If principles of law and equity both appear in the case, the latter must be given preference, unless, perhaps, a positive statute forbids."

And, what was stated in Urbach v. Urbach, 52 Wyo. 207; 73 P.2d 953 is apropos. There we stated:

"In this state, with its system of Code pleading, these courts administer all law — the common law, statutory law, and principles of equity, and all in the same suit. These branches of the law are of equal dignity; the rules thereof, if in fact in force, are on a parity, although the facts may require resort to one or the other, or others, of these branches. It is sufficient, in order that the court may act, that power exists under any of these rules, and that the pleadings and the facts warrant the exercise of power in a particular case. It may well be said that we have but one system of law, consisting of the common law, in so far as applicable, statute-law, and principles of equity. That is the objective field from which the court picks out those particular principles which are applicable in the particular case before it. The court reaches out into this broad field of law, and picks out the appropriate principles which fit the pleadings and the facts, whether such principles are found in one statute or another, or in the common law or among the rules of equity."

So, in this case the court was accordingly bound to reach out for and apply the principles of law or of equity warranted and required by the pleadings and the evidence herein. It appears in this case that 92 per cent of the investors, situated, as the record indicates, like plaintiff (aside from the fact that they agreed to the liquidation which cannot change the situation) received the sum of approximately $750,000 and that this constitutes but 64 per cent of their investments. Their total investment is, accordingly, approximately 36 per cent greater than that. Who the persons were who invested this money, or how much they severally invested is not shown, and was evidently not considered important, though, it would seem, that could easily have been shown, if the parties should have desired it, from the books of the defendant. At least, so far as the evidence produced was concerned, a clear case was presented that the plaintiff, as a member of the association, desired to obtain a preference over other members. If at that stage, the state examiner, or a receiver, had been in charge of the affairs of the defendant, it would have been clearly his duty to have raised the question of preference for a receiver — and we take it that the duty of the state examiner would have been the same — should protect the interests of all. See 45 Am. Jur. 154. As we have seen, the defendant had the right to raise the same point. And, the only question remains whether, under the peculiar circumstances, namely because of the fact that the defendant undertook to go into voluntary liquidation, instead of putting the property into custodia legis, the rule of equality, expressed by the statute, should be held not to apply. We have here a situation entirely different from any which we have found in the books. But, is equity, for the principles of which the court was required to reach out, when the pleadings and evidence in the case warranted it, powerless to meet the situation? We do not think so. We hardly think that the statutory requirement, that of equality, can be nullified by the mere fact that the association's property has not been put into custodia legis. We know of no reason why equity should be thus fettered. The case of Stern v. Bldg. and Loan Ass'n., supra, and the cases cited above along the same line, are clearly in point. The reversal of the judgments in these cases led, substantially, to the same result as the result which we reached in this case. The case at bar was tried upon the theory that the plaintiff, as creditor, was entitled to a judgment in full, on the one hand, or that, on the other hand, he, as a member of the defendant association, was entitled to the same percentage of his claim as was, or will be, received by all other members. When, accordingly, it appeared that the defendant is a building and loan association; that it is insolvent, that the plaintiff is a member thereof, that many others are situated as he is; that to allow him judgment for the full amount asked for would necessarily be detrimental to the interests of the other members, the court was bound to reach out for the principle of equity — that of equality — contained in the statute, and no other order was possible than to set the judgment below aside. Contrary to the contention of plaintiff's counsel, that order is strictly in conformity with the theory on which the case was tried, except, possibly, in one particular. We did not agree with the theory of the plaintiff, nor did we wholly agree with the theory of the defendant in taking the position that the plaintiff was entitled only to the amount which the 92 per cent of the investors had received, but believed that in order to equalize the situation of the parties, the plaintiff should be allowed some interest. We could not avoid discussing the point if we did not want our position to be misunderstood. Possibly, we went further than absolutely necessary, but a discussion to some extent was unavoidable. That is not to say that we meant our decision to be resjudicata as to the amounts which the persons interested severally invested in the corporation, or even the total amount thereof, or whether they are all actually situated similarly to the plaintiff. We but established the principles on which the assets of the corporation, past, present, or future, should be distributed. If plaintiff thinks that the actual amount which he would receive under these principles, would be greater by, for instance, having the state examiner now take possession of the affairs of the defendant and having these affairs wound up while in custodia legis, under the rules laid down by us, that presents another matter with which we were not authorized to deal in our original opinion, since, in that opinion, we were confined to the pleadings and the evidence produced in the case, and the theory on which the case was tried.

In view of the fact that we must adhere to our decision heretofore rendered on the controlling questions in the case, we can see no good purpose in a rehearing of the case, and the petition for it must, accordingly, be denied.

Rehearing denied.

KIMBALL, Ch. J., and RINER, J., concur.