Watkins v. Workingmens' Building & Loan Ass'n ( 1881 )

Mr. Justice Paxson

delivered the opinion of the court, May 2d 1881.

The plaintiff below was a building association. The defendant was a member, and had subscribed to four shares of its stock. The par value of said stock was $200 per share. By the law of the association each member was entitled to borrow $200 for each share of the stock so held by him. The defendant obtained a loan of $800, for which he was to pay a premium of 52 per cent. He received for said loan the sum of $384 in cash, the balance, $416, was the premium at which he bought the loan. To secure the money so borrowed he gave a judgment in the sum of $800, and also as a further security transferred his four shares of stock to the association as collateral. He then continued his payments to the association, as required by its charter, until he had paid $348, as interest on the loan, and the further sum of $376 on account of his stock, when his payments ceased, and the association issued an execution to collect the amount of the judgment. Upon the application of the defendant the court below opened the judgment, and an issue was framed to ascertain the amount due. This writ of error was taken to review the rulings of the court below upon the trial of said issue. A number of assignments of error have been filed by the defendant which will be considered in their order.

1. The court instructed the jury, in answer to the plaintiffs second point, that the burden of proof of the maturity of the association, as in other cases where the defence is payment, is upon the defendant. We are unable to perceive any error in this ruling. The defendant had no reason to complain of it in any event, as there was neither allegation nor proof that his stock had matured.

2. Nor was there error in affirming the plaintiff’s third point. It was no defence to the judgment that the association passed a resolution to accept advance payments up to 10S months, as it was not alleged the defendant ever availed himself of the privilege. Had he accepted the offer and made the advance payments required he would have brought his stock to par and thus paid his loan. Instead of doing this he defaulted in his payments, and his rights must be measured from tiiat standpoint.

3. The answer of the learned judge to the defendant’s first point was entirely accurate. There was no evidence of a change of the par value of the stock. That remained at $200 per share. The resolution which was referred to as affecting this change, as correctly stated by the court below, was based upon the supposition that the value of the stock would reach $200 in either 100 or 103 months, and it was for this reason the privilege was given to pay up in advance to that time. If the defendant had accepted the offer the par of his stock would not have been changed; it would have been paid up.

4. 5 and 6. These assignments may he considered together. They raise the really important question of the case, viz., was the defendant entitled to deduct from the judgment the value of the stock assigned by him to the association as collateral security, and if so, how was its value to bo ascertained? The learned judge conceded the right of the defendant to have the value of the stock deducted, but held that inasmuch as there was no evidence in the case of the value of the stock, the point, as presented, was not pertinent. The defendant further contended that certain shares of stock held by non-borrowers were forfeited for non-payment of duos by the rules of the association, and that the value of this stock should be taken into the estimate of the value of the remainder of the shares. The court negatived this claim in its answer to defendant’s fifth point.

These rulings, if not strictly accurate, were more favorable to the defendant than he was entitled to. All that he had a right to claim was allowed by the court. Upon the trial below the defendant offered in evidence the following notice :—

“ To the Workingmens’ Building and Loan Association of Hyde Park : I hereby notify you that I desire you to apply the payments made by me upon four shares of stock of your association assigned by me to you as collateral security for the loan for which the note in the above case was given, to the payment of said note, and upon your so applying them you may cancel said stock.

“(Signed) ThomIs T. Watkins.”

That the defendant had the right to so apply his stock was settled by Early and Lane’s "Appeal, 8 Norris 411. Nor did the court below deny him this right. Evidence was received showing the extent of his payments, and the precise amount — $376—under the charge of the court, was allowed by. the jury as payment pro tanto of the judgment. The defendant was not satisfied with this. He attempted to prove, by the secretary of the association, the actual value of the stock — i. e. how much it would be worth to wind up. This information the secretary could not give. Pie said he did not know the value of the stock; it would depend entirely upon what could be'collected upon the judgments held by the association. The failure of this attempt was natural. The secretary had not been notified that such an inquiry would be made, and had not therefore examined his books with reference thereto, while the notice given by the defendant to the company of his intention to apply the stock refers only to the payments thereon.

It needs but a moment’s reflection to see that the question of the value of the stock was irrelevant. Its value for the purposes of this case was just what the defendant had paid on account thereof. This was all the defendant claimed to apply on the judgment by his notice before referred to, and it was all the law gave him the right to apply. The value of the stock beyond this consisted mainly of the profits, in which a defaulting borrower has no right to participate. This arises from two causes — 1. The peculiar nature of the contract between building associations and their members; and, 2. The difficulty, if not absolute impossibility, of ascertaining the profits until the association is ready to wind up. A venture in a building association is a peculiar investment. It is much to be feared that many persons of slender means embark in such enterprises without a clear understanding of their practical working. The present case furnishes an apt illustration of the results in one class of cases. The defendant received but $384 in cash on his loan. At the end of eighty-seven months, a little over seven years, he had paid into the treasury the sum of $794. He now has a judgment against him in addition for the sum of $518.84. This disastrous result is a legitimate outgrowth of our building-association laws. Yet it is not worse than many other ventures in partnership and other transactions where persons embark in enterprises beyond tlicir means. The loss is not necessarily the fault or result of the law, but of the inability of the defendant to keep his contract with the association. Such investments are profitable or otherwise according to circumstances. Where the association is prudently managed, and is wound up within the prescribed period, it is always profitable to the non-borrowing members. They participate in the premiums which they do not pay. If the association were composed exclusively of non-borrowers there would be no profits ; they would get hack what they put in, with whatever interest had been earned, less the expenses of the management. If, on the other hand, it were composed exclusively of borrowers, the gain of the individual member would depend upon the amount of his premium. If he had paid less than the average there would bo a profit; if he had paid more there would be a loss. Where the association is composed of both classes of members the result to the borrowing member must depend to a great extent upon the relative proportion of the two classes, and upon the amount of premium which he has paid. There are of course other matters which in a minor degree affect the result, hut the foregoing are the two cardinal principles which underlie the whole matter. And it is further to be observed that the profits are reserved for those members who continue to the end. Eor borrowing members, who drop out by the way, there is nothing but disaster.

The defendant dropped out by the vray. There is nothing in the charter of the association, nor in his contract to entitle him at this stage to a share of the profits. The law provides for but one such caso and that is a withdrawing member. The Act of 12th April 1859, Pamph. L. 544, declares that a withdrawing' member, after having given thirty days’ notice of such intention, shall be entitled to receive the amount paid in by him or her, and such proportion of the profits as the by-laws may determine, less all fines and other charges: Provided, that at no timo shall more than one-half of the funds in the treasury of the corporation ho applicable to the demands of the withdrawing stockholders without the consent of the hoard of directors, and that no stockholder shall be entitled to withdraw whoso stock is held in pledge for security. Upon the death of a stockholder, his or her legal representatives shall be entitled to receive the full amount paid in by him or her, and legal interest thereon, first deducting all charges that may be clue on the stock. The provisions of the Act of 29th April 1874, Pamph. L. 96, as to associations incorporated under said act, are not essentially different, excepting that there is no provision that withdrawing stockholders shall be entitled to a share of the profits.

The defendant was not a withdrawing stockholder, nor could he have been so long as his stock was held in pledge. He is not entitled to the rights which the law confers upon such stockholders. Yet his claim far exceeds what the Act of Assembly gives to them. Withdrawing stockholders can only" claim of the profits such proportion as may be fixed by the by-laws. Such proportion might readily be fixed by a by-law so as not to work injustice to remaining stockholders. At most it would be an approximation. Here the defendant claims an absolute right to participate in the entire profits up to the hour of the trial of his case.' Such right is nowhere to be found. And if it existed, how can it be ascertained with accuracy at this stage of the association’s business ? Its assets consist chiefly of judgments for money loaned including some houses which were evidently bought in upon executions. The exact value of the houses can be ascertained only by a sale, and the judgments are worth only what can be realized therefrom. As such loans are made usually upon small margins they cannot be regarded as securities having a fixed value. In view of the fact shown by the evidence that a large number of members had ceased paying up their dues by reason of a supposed defect in the charter of the association, the difficulties of realizing the face of the judgments may be readily appreciated. The ascertainment of the real value of the stock can only be arrived at by closing up the affairs of the corporation. This the defendant has no right to demand. If, as was contended, he was entitled to it in this proceeding, the most that could be done would be to approximate it. The jury, and even the officers of the company might place a much higher value upon the securities than could be realized therefrom. In such case the defaulting member would receive more than the members who paid up to the end. Beside, the profits are composed chiefly of the premiums. They are made up in part of the premium which the defendant agreed to pay. I say agreed to pay, for it is a mistake to suppose,' as was claimed by the defendant, that he has paid the premium. He only promised to pay it; it was inserted in the judgment-note, and is now being collected. The building association law expressly authorizes the plaintiff to recover the premium from a defaulting borrower. Yet the defendant’s position if sustained would defeat this right in part.

We are of opinion that the right to apply the stock in such a case as this means only the right to apply the payments made thereon. This is all that was decided in Early and Lane’s Appeal.

7. We see no error in the portion of the charge referred to in this assignment. It was an instruction to the jury as to the method of arriving at their verdict upon the undisputed facts of the case. The ruling was fully warranted.

8. This assignment is practically covered by what has been already said. It was not error to reject- the evidence for the reason that the inquiry to which it referred was irrelevant. Aside from this the stock of the defaulting members could not be forfeited in this summary way by a jury. That could only be done by the association. When stock is in default by the charter or by-laws of a corporation, it may not be forfeited -without action on the part of the corporation itself. Non'constat that it will enforce such right, but may allow the defaulting member a day of grace.

We allowed an assignment to be filed at bar to the form of the verdict. As rendered it was: We find for the plaintiff in the sum of §514.84, provided that the defendant’s four shares of stock in the association (less §876 here credited) is not forfeited.” The court below struck out the clause referring to the stock, and entered judgment on the verdict for §514.84. We have no doubt of the power of the court to so mould the verdict. It is fully warranted by the rulings in Cavene v. McMichael, 8 S. & R. 441; Fisher v. Kean 1 Watts 259; and Bickham v. Smith, 12 P. F. Smith 45. That portion of the verdict referring to the stock was surplusage. Moreover it was erroneous. For how could the defendant possibly have a credit for the stock and yet retain it ? The learned judge correctly held that there was no question of the forfeiture of the stock before the jury. The allowance of a credit therefore upon the judgment compelled the plaintiff to accept the stock nolens volens. The legal effect was its extinguishment. This is fully sustained by the reasoning of the court in North American Building Association v. Sutton, 11 Casey 463.

We find no error in this record.

Judgment affirmed.

Sharswood, C. J., and Gordon and Trunkby, JJ., dissented.