Claffy v. Mechanics Building & Loan Ass'n ( 1941 )

The opinion filed in this case, holding that the preferential status accorded Series 36 should not be disturbed as to payments already made, and should be given effect in the further distribution of the assets of the association, is vigorously challenged in a petition for a rehearing. In this petition it is asserted: "Today, the courts, without exceptions, hold that a stockholder whose stock has matured is not transformed into a creditor by virtue of the maturity of his stock."

The contention implies that the opinion filed holds to the contrary of this proposition. We think that this view is utterly untenable.

The petitioners concede that notwithstanding the general rule as to the status of a stockholder whose stock has matured, such stockholder does become a creditor of the association, with the incidental preferential rights of that status, as against the holders of unmatured shares in the association, where notice of withdrawal has been given the association.

That point was explicitly decided by this Court in the case of Moore v. Southern Mutual Building Loan Association,50 S.C. 89, 27 S.E., 543, 545. In that case, after quoting with approval an authority to the effect that a member of the association immediately becomes a creditor when notice of withdrawal has been given to and accepted by the association, the Court says: "The position taken by counsel for appellant that the plaintiffs still remain stockholders until their certificates were actually canceled is manifestly untenable. After the plaintiffs had done all that they were required to do to entitle them to claim the withdrawal value of their stock, the association certainly could not be allowed to defeat such claim by delaying or refusing to formally cancel the certificates of stock."

Series No. 36 matured in 1932. Any issues of law and fact respecting that conclusion that may have been presented in the appeal in this case are settled by the opinion filed. The point is not contested in the petition for rehearing. At that time and for some years thereafter the solvency of the association was not seriously questioned. Its assets, however, were "frozen." They consisted principally of real estate and real estate mortgages. There were no funds with which to pay off the holders of Series 36. If a formal demand for payment or withdrawal had been made, it would have been a futile gesture. Recognizing this, the whole body of the membership of the association nevertheless immediately and continuously gave expression to the realities of the situation, and took precisely the measures which would have been taken if demand for payment had been made, and action had been instituted to enforce this demand. The first steps resulted in the procurement of a loan from the Reconstruction Finance Corporation on assets belonging to the entire association. Out of the proceeds of this loan, which was made for the sole and express purpose of providing funds to pay the holders of Series 36, 67 per cent. of the amount of the claims of that series were paid in 1932.

In subsequent proceedings of the association, without contest at any time prior to the institution of the present action, additional payments by way of preference were made to the holders of Series 36. In a further effort to settle with the holders of Series 36 on the same preferential basis, the association offered to exchange property and securities held by it for the claims of the holders of Series 36, and the proposal was that they receive credit at the rate of a hundred per cent. of the balance due them, including interest. In the case of the holders of shares in other series, no such exchange was offered.

In circulars distributed to the stockholders of the association from time to time setting forth the progress of the liquidation of the association the preference accorded to the holders of Series 36 was expressly set forth. For example, in the circular issued by the Executive Committee under date of April 15, 1935, it is explicitly stated that "no cash dividends will be paid to investing shareholders in subsequent series until investing shareholders in Series No. 36 have been settled with in full."

The view that the holders of Series 36, by reason of the extraordinary economic conditions under which their shares matured, should be given the status of shareholders who had made demand for payment of their claims was recognized by the association membership, by the representatives of the association who were in charge of the liquidation of the same, by the State Banking Department, and by the Receivers; and until the institution of the present action the assets of the association were consistently handled in that light. Predicating our holding that Series 36 is entitled to preferential payment on such a state of facts is far different from holding, as the petitioners imply we did, that a stockholder whose stock has matured becomes a creditor by virtue merely of the fact of the maturity of his stock.

While in one paragraph of the opinion it is stated that the maturity of Series 36 changed the status of the holders of stock in that series from stockholders to creditors, obviously this must be related to the facts and equities to which reference was previously made in the opinion.

It should be unnecessary to emphasize that the decision in this case rests upon and is limited to the facts before the Court. In that light there is no departure from any accepted principle of law, or any resulting injustice to the holders of the stock of the association in the series following Series 36.

The petition for rehearing alleges that certain errors were made in the statement of facts as contained in the opinion. None of the matters thus adverted to bear upon the disposition of the case or involve any conclusions on the part of the Court that will affect the administration of the receivership estate.

Let this order be published with the opinion heretofore filed.

The petition for rehearing is refused.

MR. CHIEF JUSTICE BONHAM, MESSRS. JUSTICES BAKER, FISHBURNE and STUKES and MR. ACTING ASSOCIATE JUSTICE SEASE concur.