Chevy Chase Savings & Loan, Inc. v. State

³⁸⁷ RODOWSKY, Judge. Chevy Chase Savings and Loan, Inc. (Plaintiff or Chevy Chase), a state chartered association, sues to recover funds it had been assessed for insurance of its accounts through Maryland Savings-Share Insurance Corporation (MSSIC). The defendants are the State of Maryland and the State of Maryland Deposit Insurance Fund Corporation (MDIF), a State agency and successor by merger to the insolvent MSSIC. As a member of MSSIC, Plaintiff had. been required by MSSIC’s rules to contribute to the capital used by MSSIC in carrying out its programs.

Having withdrawn from membership shortly after the MSSIC-MDIF merger, Plaintiff contends that MSSIC’s rules relating to the rights of withdrawing members literally oblige the defendants to repay the assessments paid by Chevy Chase. We shall principally hold that as to funds used for insurance purposes, there is no breach of contract and that, as to the funds used for liquidity purposes, the contract has been modified by a constitutional exercise of the State’s powers. MSSIC To understand Plaintiff’s claim requires a review of MSSIC’s purposes, structure, and operation. MSSIC was a product of the 1960 savings and loan crisis in Maryland. 1 See W. Preston, Report of the Special Counsel on the [1985] Savings and Loan Crisis, 33-35 and n. 5, 43-47 (1986) (Preston).

Created by Ch. 131 of the Acts of 1962, MSSIC was a nonstock, nonprofit corporation. Its members were state chartered savings and loan associations that had been accepted for membership under statutes most recently codified as Md.Code (1980), Title 10 of the Financial Institutions Article (FI). The purposes of MSSIC were to: ³⁸⁸ (1) Promote the elasticity and flexibility of the resources of members; (2) Provide for the liquidity of members through a central reserve fund; and (3) Insure the savings accounts of members. [FI § 10-103.] Until Ch. 479 of the Acts of 1968, Maryland law had never required that state chartered associations be insured. Chapter 479 mandated that on and after July 1, 1973, all free share accounts be insured by the Federal Savings and Loan Insurance Corporation (FSLIC) or by MSSIC.

See FI § 9-426 (“A savings and loan association shall become and participate as a member in [MSSIC] or a federal home loan bank.”). The powers of MSSIC were exercised by a board of directors composed of eleven persons, of whom three were appointed by the Governor and the remainder elected by the members. FI §§ 10-108 and 10-109. The directors could adopt bylaws and rules and regulations to carry out the provisions of Title 10, but such action by the directors became effective only if approved by the director of the Division of Savings and Loan Associations, a State agency within the Department of Licensing and Regulation.

FI § 10-111. MSSIC was not subject to Art. 48A of the Maryland Code, regulating insurance companies. FI § 10-114. It was exempt from taxation by Maryland or any of its political subdivisions.

FI § 10-115. FI § 10-116 specifically provided that “[t]his title does not, and [MSSIC] may not, pledge the faith or credit of this State.” The capital with which MSSIC carried out its corporate purposes was derived from its member associations. Each member was required to “make the investments and pay the assessments, premiums, and other charges that are required for participation in [MSSIC].” FI § 10-107(c). In its internal accounting MSSIC segregated two funds, the central reserve fund (CRF) and the insurance fund.

FI § 10-105 required MSSIC to “establish a central insurance ³⁸⁹ fund and through the fund [to] insure the savings accounts of members.” The statutory basis for CRF was FI § 10-103(2) by which MSSIC was to provide “for the liquidity of members through a central reserve fund.” By an amendment to the MSSIC statutes first made in 1974 (Ch. 152), the CRF was “not subject to any insurance claim against [MSSIC].” FI § 10-104(e)(4). These statutory provisions were fleshed out by bylaws, rules and regulations of MSSIC, discussed below. The full text of the MSSIC rules and regulations relied on by the Plaintiff is set forth in the appendix hereto. Pursuant to MSSIC Rule § 3-301, each member, as a condition of membership and thus of insurance on accounts, was required to contribute “as a capital deposit” an amount equal to two percent of its free share accounts.

Certificates of deposit evidencing these contributions were issued by MSSIC. Members could carry those certificates on their books as assets, but the certificates paid no interest or dividends. Rule § 3-306. In its accounting, MSSIC charged the liability on those certificates of deposit against the insurance fund.

Chevy Chase bases its claim to return of its capital contributions to the insurance fund on Rule § 3-503, which in relevant part provided: Any member withdrawing from [MSSIC] ... shall be entitled to receive from [MSSIC] payment of the certificate of deposit ... in the following manner: (a) A date shall be specified by [MSSIC] for the termination of insurance of free share accounts issued by the withdrawing members, which date shall not be later than twelve months from the date of the notice referred to in Section 3-501 (such date being referred to in these Rules as the “terminal date”). Rule § 3-501 in substance provided that any member which was not in default of its obligations to MSSIC might “withdraw from membership in [MSSIC] upon giving to it twelve months notice in writing of [the member’s] intention to ³⁹⁰ withdraw.” On the terminal date the withdrawing member was to receive its pro rata share of the cash of MSSIC, see Rule § 3-503(B) and (C), and a certificate of fractional participation which entitled the terminating member “to its proportionate share of any proceeds resulting from the liquidation of such remaining assets as they are liquidated by [MSSIC].” A fractional participation certificate does “not entitle the holder thereof to any control over the manner, amount or date of liquidation of such assets.” Rule § 3-503(D) and (E). The CRF was treated in Rule § 3-901, which recited that MSSIC “and its members authorize the formation of a Central Reserve Fund to provide for the liquidity of member associations subject to the following provisions[.]” Membership in the fund was mandatory and was effected by subscribing to “Capital Notes” issued by MSSIC. 2 The capital note subscription obligation of a member institution was one-half of one percent of assets for an association having less than $75 million in assets and one and one-half percent of assets for associations having greater assets. Subscriptions were adjusted semi-annually.

Capital notes are interest bearing. There was a CRF committee appointed by MSSIC’s board of directors which managed that fund. That committee, in its discretion, could make advances to members, with or without security, for a term of up to one year or, with the approval of the board of directors, for a longer term. Membership in CRF might be terminated by withdrawing from membership in MSSIC.

Three months notice to the fund prior to termination of membership was required. “In the event of such termination ... the capital notes shall be surrendered and cancelled and payment shall be made of the investment in said notes plus accrued interest, if ³⁹¹ any____” Rule § 3-901(B)(6). Rule § 3-901(K) further provided: Any member having given notice of its intention to withdraw from membership and requesting payment of its capital notes, in accordance with the provision of Section 3-901-B(6) shall be entitled to receive the face amount of the capital notes within six months after notice of its intention to withdraw; in the event the Central Reserve Fund does not have sufficient cash available to pay the withdrawing member the full amount of the capital note, then, in that event the Fund may make partial payments of funds received from maturing securities to the withdrawing member until the full amount due the member is paid. Any such deferred payments shall continue to bear interest as though the member were still an active participant in the Fund. MSSIC’s rules, following § 3-901(B)(8), stated: NOTE: The Central Reserve Fund shall not be subject to payment of insurance claims against the Corporation by member associations, or their Free Share holders, or otherwise.

For the year ending December 31, 1984, MSSIC’s balance sheet 3 reflected assets of $285,647,872, offset by $118,891,-754 of liabilities, by a $5,000,000 reserve for insurance losses, and by “Capital funds” 4 of $144,260,100, leaving retained earnings of $17,496,018. The auditors’ notes to the December 31, 1984, financials advise that “[i]t is the policy of [MSSIC] to establish a reserve for insurance losses at the time an association requires financial assistance or when ³⁹² such assistance is anticipated. These reserves are reviewed periodically and adjusted as required----” MDIF MDIF is a product of the 1985 savings and loan crisis in Maryland. On May 14, 1985, at 4:47 p.m. the Governor proclaimed a state of emergency and suspended withdrawals from state chartered associations insured by MSSIC.

The events leading to that proclamation are chronicled in Preston, at 19-29. Between February and mid-April of 1985, depositors withdrew approximately $875 million in a “silent run” on certain MSSIC insured associations. Those associations in turn were forced to borrow some $370 million from the Federal Reserve. On May 9, 1985, MSSIC’s announcement of a change in management at Old Court Savings and Loan Association (Old Court) caused the runs to escalate and spread to other institutions.

On May 10, depositors withdrew $3 million from Merritt Commercial Savings and Loan Association (Merritt). Old Court and Merritt were placed in conservatorship on May 13,1985, and on that day depositors withdrew $116 million from MSSIC insured savings and loans. By mid-May approximately $630 million had been withdrawn from MSSIC members in a three-month period. Between May 17 and 28,1985, an extraordinary session of the Maryland General Assembly was held to respond to the crisis.

One of the problems to be confronted was the MSSIC insolvency. The then Maryland law required state chartered associations to have their accounts insured either by FSLIC or by MSSIC, but because of the crisis solvent associations which were MSSIC members were not meaningfully insured. Public confidence in the state chartered savings and loan industry would be further shaken if MSSIC were placed in a liquidating receivership as had been done in 1960 with Security Financial Insurance Corporation when account insurance was not a state requirement. Public confidence would also be shaken if the requirement for insurance of accounts of state chartered associations were ³⁹³ eliminated.

The policy decision of the executive and legislative branches was that solvent state associations would have to obtain federal insurance in order to continue to operate as a savings and loan. It was also recognized that this could not be done immediately. It was decided that the State would take over MSSIC under statutorily defined circumstances. In this way continuity of insurance for associations which were not federally insured could be maintained for a limited time, and MSSIC could in effect be liquidated in an orderly manner while its members had the opportunity to procure federal insurance.

The legal mechanism effecting these objectives was the special statutory merger of MSSIC into MDIF. Chapter 6 of the Acts of the First Special Session of 1985, effective June 1, 1985, created MDIF, a nonstock, nonprofit corporation and a State agency within the Department of Licensing and Regulation. Chapter 6 repealed FI Title 10 (MSSIC) and enacted a new title, codified as Md.Code (1980, 1985 Cum.Supp.), Title 10 (MDIF) of the Financial Institutions Article (FI Supp.). The merger of MSSIC into MDIF was effected specifically by uncodified § 4 of Ch. 6.

That section further provided that all of the assets, including but not limited to capital deposits, reserves, and other tax attributes, all of the liabilities, including but not limited to taxes, incurred losses, and other insurance liabilities, and all of the rights, powers, duties, obligations, and functions of [MSSIC] are hereby transferred to [MDIF], to the extent consistent with this Act____ [Emphasis added.] Uncodified § 5 of Ch. 6 mandated that all MSSIC members “immediately prior to the enactment of this Act shall automatically become members of [MDIF] on the effective date of this Act.” The “moneys” of MSSIC are required to be “maintained in a special nonlapsing fund, to be called the ‘Maryland Deposit Insurance Fund.’ ” Purposes of that fund are: ³⁹⁴ insuring savings accounts of member associations; purchasing capital instruments issued by members to enable them to qualify for federal insurance on accounts; reimbursing savings account holders for loss incurred upon liquidation up to the amount of insurance; providing funds for liquidity and assisting in other specified ways in an emergency affecting a member; making capital contributions, under certain circumstances, to an entity acquiring a member association; and paying the net insured amount of accounts to receivers of members on final distribution. FI Supp. § 10-110(a) as amended by Chs. 3 and 4 of the Second Special Session of 1985, both effective October 25,1985. FI Supp. § 10-116 declares it to be “the policy of this State that funds will be appropriated to the Fund to the extent necessary to protect holders of savings accounts in member associations.” Pursuant to FI Supp. § 10-112(b) the CRF assets “shall continue to be segregated and maintained by the Fund to provide liquidity and are not subject to any insurance claim.” FI Supp. §§ 10-117 and 10-118 impose limits on membership in MDIF. In general, an association with total assets of $40 million or more could remain a member for not more than seven months after June 1, 1985, if it had applied for federal insurance on or before June 1, 1985.

FI Supp. § 10-117(b)(l)(i). An association having total assets of at least $15 million but less than $40 million may not be a member on or after July 1, 1987. FI Supp. § 10-118(a)(l). An association having total assets of less than $15 million may not be a member on or after July 1, 1989.

FI Supp. § 10-118(a)(2). MDIF insurance continues in effect for associations in receivership or in certain conservatorships. FI Supp. § 10-118(b). The MDIF board of directors, consisting of eleven persons, six appointed by the Governor and five elected by members, subject to the approval of the Secretary of Licensing and Regulation, can adopt bylaws and rules and regulations for the fund.

FI Supp. § 10-103. The Fund ³⁹⁵ Director, subject to approval of the board, can also adopt rules and regulations. FI Supp. § 10-113. FI Supp. § 10-112(b) addresses the rights of withdrawing members from MDIF.

It reads: Subject to the terms and conditions adopted by the Fund Director and approved by the Board, a member association may withdraw at any time from the Fund and have returned all or part of any capital advanced to [MSSIC] and all or part of any capital deposit required for membership in the Fund. All moneys and other assets of the former [MSSIC] central reserve fund shall continue to be segregated and maintained by the Fund to provide liquidity and are not subject to any insurance claim. [Emphasis added. 5 ] The balance sheet for MDIF as of May 18, 1985, the date of its creation, carried an allowance for estimated insurance losses of $325,100,000. Capital deposits to the insurance fund of $144,223,900, liabilities and the estimated insurance losses exceeded assets by $305,985,874. On that date the assets segregated to CRF were $89,847,878.

CRF liabilities consisted of $985,878 in accrued interest payable and $88,-862,000 of capital notes. However, $67,341,447 of CRF assets had been pledged by MSSIC as collateral to enable Old Court to borrow from the Federal Reserve Bank in order to meet the run. Of the remaining, unencumbered CRF assets more that $19 million consisted of notes receivable evidencing loans made in May 1985 to Merritt and to First Maryland Savings and Loan Association. The latter association was placed in conservatorship on November 20, 1985.

Consequently it appears that approximately $2 to $2.5 million was the maximum amount of CRF assets which ³⁹⁶ could have been both unencumbered and invested in a solvent entity at the end of the spring of 1985. As of June 30, 1985, MDIF had a negative net worth of $303,927,526 primarily due to estimated insurance losses of $325,100,000. At the meeting of the MDIF board held on October 24, 1985, the directors reviewed the status of the CRF. The liquidity fund has been utilized for liquidity loans to member institutions as the crisis developed last May and through this summer.

There was nothing in the MSSIC By-Laws to account for the type of crisis which we are presently experiencing. Due to this crisis, we ended up with major borrowing needs. About $51 million worth of securities from the liquidity fund have been pledged at the Federal Reserve Bank for our institutions. We have loaned $37,969,000.

We have a total of $90 million in the liquidity fund and have available cash of $739,000. The rest of the assets are encumbered assets of the liquidity fund.[ 6 ] At that meeting the MDIF board adopted resolution 85-1, which reads: A. Because of the extent of currently anticipated losses, MDIF will not return capital deposits in the insurance fund to withdrawing members until the amount of currently anticipated losses is determined. B. Because of the current illiquid state of the central reserve fund, the consideration of member contributions as assets by [FSLIC] and the payment of interest to members on the contributions, MDIF will not return contributions to withdrawing members before it has determined that there will be no loss to the fund in liquidating its assets and that the eontribu ³⁹⁷ tions will not be needed to assist members who are experiencing liquidity problems. On January 10, 1986, the State Administration presented its plan for financing troubled savings and loan associations and for making depositors’ funds more available.

The plan contemplated using $80 million in then existing MDIF liquid assets from the insurance fund. The plan does not call for using any CRF assets. In addition, the State budget as adopted for fiscal 1987 contains an appropriation to MDIF of $92,416,480 for the central reserve fund. The explanation accompanying the budget is that MDIF “[mjember deposits [to CRF] will be refunded by December 31, 1986.” 7 Chevy Chase Chevy Chase is the state chartered association with the greatest assets.

As a MSSIC -member for over fifteen years, Plaintiff had been required to contribute nearly $39 million to the insurance fund and nearly $43 million to the CRF. In August of 1984 Chevy Chase had applied for membership in FSLIC, and by letter of October 12, 1984, Chevy Chase had notified MSSIC of Chevy Chase’s intention to withdraw as a member of MSSIC on the effective date of FSLIC’s approval of that application. On May 22, 1985, FSLIC approved insuring Chevy Chase accounts. On May 24, Chevy Chase notified its depositors that MSSIC insurance had terminated May 23 and that their accounts were federally insured.

By letter of May 28, Chevy Chase made demand on MDIF for immediate repayment of $21,630,106.85 from the insurance fund, representing the net after offsetting from Plaintiff’s contributions to the insurance fund certain debts admittedly owed by Plaintiff to MSSIC. Plaintiff also demanded immediate repayment of $42,970,900, with interest ³⁹⁸ from April 1, 1985, representing its CRF contributions. Responding on June 13, 1985, MDIF took the position “that the Insurance Fund will be maintained to fulfill its purpose of insuring depositors against loss on their accounts” and that “[d]ue to the lack of liquidity of the Central Reserve Fund, there is presently no procedure to refund these monies to associations receiving federal insurance,” but that the latter issue would “be resolved by MDIF at the appropriate time.” Litigation and Issues The instant suit was filed on October 17, 1985, in the Circuit Court for Baltimore City. In Count I, Plaintiff complained that the State and MDIF had breached the contracts relating to the repayments of insurance and of CRF contributions which had been formed between Plaintiff and MSSIC, the obligations of which had been assumed by MDIF.

In Count II, Chevy Chase asserted that any abrogation of or change made in those contracts by the 1985 special session legislation was unconstitutional as an uncompensated taking of property. 8 Chevy Chase requested relief by way of damages, an injunction against expenditures, a declaratory judgment, and mandamus. After the Administration’s Plan of January 10, 1986, was announced, Chevy Chase moved in the instant case for an interlocutory injunction. It alleged that its contributions to the insurance fund were to be used as part of the $80 million contribution from MDIF to the plan. It further alleged that the remaining requirements of the plan would cause MDIF to invade, and perhaps totally deplete, assets available in the CRF.

Chevy Chase asked that MDIF be required to segregate the Chevy Chase contributions to the insurance fund and that MDIF be enjoined from expending, ³⁹⁹ or committing to expend, insurance fund monies which would cause that fund to drop below an amount needed to return in full Chevy Chase’s contributions to the insurance fund. Plaintiff further asked for an injunction against any expenditures from the CRF until MDIF had escrowed an amount sufficient to repay Plaintiff’s loans to the CRF. The request for an interlocutory injunction produced cross-motions for summary judgment on the claims in Counts I and II. The circuit court decided the matter on those motions.

It principally held that: (1) “Chevy Chase is not entitled to a return of its Insurance Fund contributions unless money remains in the Fund after losses are paid”; and (2) “Chevy Chase is entitled to a return of its Central Reserve Fund contributions when the liquidity problems of member associations are resolved”; and (3) “[N]o unconstitutional taking of Chevy Chase’s assets has occurred.” We agree. The circuit court also held that “the doctrine of sovereign immunity is a bar to Chevy Chase’s contract claims in this case[.]” In view of our analysis, explicated below, we do not express any opinion on the defense of sovereign immunity asserted by the defendants. Cross-appeals were taken from the circuit court judgment. 9 We issued the writ of certiorari prior to consideration of the matter by the Court of Special Appeals. The arguments will be considered separately as to each fund.

Insurance Fund Chevy Chase claims repayment of its contributions to the insurance fund with priority over the claims of depositors in MDIF member associations which have defaulted in ⁴⁰⁰ honoring depositor withdrawals. The argument is that the rules of MSSIC gave rise to a contract between Plaintiff and MSSIC. No party to this case argues that there is any difference, material to the outcome here, between corporate bylaws and what MSSIC labeled as rules. Corporate bylaws, particularly those of a mutual insurer, form part of the contract between the corporation and its policyholders or members.

See Condon v. Mutual Reserve Fund Life Association, 89 Md. 99, 123 , 42 A. 944, 950 (1889); John C. Grafflin Co. v. Woodside, 87 Md. 146 , 39 A. 413 (1898); Mutual Fire Insurance Co. v. Miller Lodge, I.O.O.F., 58 Md. 463 (1882); and Anne Arundel General Hospital v. O’Brien, 49 Md.App. 362 , 432 A.2d 483 (1981). Another premise of the argument is that MDIF and the State are obliged to perform the contract made by MSSIC. We shall assume that is correct. Plaintiff suggests that it acquired a “vested right” to its insurance contributions as of October 12, 1984, when it gave MSSIC notice of its intention to withdraw from MSSIC membership.

That notice by its terms was only to be effective upon Chevy Chase’s qualifying for federal insurance. Further, MSSIC Rule § 3-503 limited a withdrawing member’s first payment from the insurance fund to a pro rata share of the cash in the insurance fund as of the “terminal date” which was the date as of which MSSIC insurance terminated. The terminal date was to be specified by MSSIC, but it could be no later than twelve months after a member’s written notice of intent to withdraw. There is no evidence that MSSIC or MDIF ever specified a terminal date for Chevy Chase; thus the terminal date in this case would seem to be October 13, 1985.

In any event, no assets could be withdrawn by Chevy Chase until it had delivered to MSSIC proof of notice to the depositors of the termination of MSSIC insurance, as required by Rule § 3-504. Plaintiff gave that notice on May 23, 1985. Consequently, MSSIC had not been required to pay anything out of the insurance fund to Chevy Chase as of May 18, 1985, when Ch. 6 became effective. As of May 18, 1985, ⁴⁰¹ Chevy Chase had not withdrawn from MSSIC.

On that date it remained a member of the nonstock corporation. See Coltrane v. Blake, 113 F. 785, 790 (4th Cir.1902), aff'g Coltrane v. Baltimore Building and Loan Association, 110 F. 272 (C.C.Md.1901) (attempted withdrawal by shareholder not effected before corporate insolvency). Principally, Chevy Chase contends that it has priority over depositors’ claims to the insurance fund because its claim is payable earlier. Under the MSSIC bylaws, §§ 2-704 and 2-705, MSSIC had no obligation to pay depositors’ claims until the “net insurable loss” of each free share account of a member in default had been determined.

The bylaws contemplated determining net insurable loss after a sale of the assets of the MSSIC member in default had established the liquidating value of the assets. Chevy Chase says that monies became unconditionally payable to it by MDIF out of cash in the insurance fund on May 24, 1985, that participating certificates which should have been issued to it then would have been payable as the insurance fund assets were liquidated, and that the remaining assets in the insurance fund would not become payable to depositors until their net insurable losses on accounts' at defaulting MDIF member associations were determined. This argument ignores the fact that MSSIC had always established reserves for insurance losses and that the reserves for losses resulting from the 1985 run on certain MSSIC members had left MSSIC insolvent. Even though the depositors’ claims were not liquidated and were not required to be paid on May 18, 1985, they were then fixed as to liability and they were substantial in amount. 2A Couch on Insurance 2d (rev. ed. 1984) § 22:74, at 679 states: When a loss covered by the policy is sustained, the liability of the insurer is determined as of the date of the loss and according to the terms of the policy without regard to the fact that the insurer thereafter became insolvent or that the actual amount of the insured’s claim ⁴⁰² was not determined until after the insurer had become insolvent. [Footnote omitted.] The defaulting members’ depositors were creditors of MSSIC as of May 18, 1985. 10 Because MSSIC was insolvent on May 18, 1985, and because the special statutory merger of that date was in part a technique for liquidating MSSIC, the priority claimed by Chevy Chase over the depositors as creditors should be tested by the law relating to insolvents.

In insolvency distributions creditors have priority over shareholders. Applicability of this general principle to the facts here can be demonstrated by a number of analogies. The ordinary rule applicable to a nonstock corporation such as MSSIC is that the provisions of Md.Code (1975, 1985 Repl.Vol.), Corporations and Associations Article (C & A), Titles 2 and 3, governing corporations in general also govern nonstock corporations. See C & A § 5-201; Carter v. Glen Burnie Volunteer Fire Co., 292 Md. 165 , 438 A.2d 278 (1981).

Here the members of MSSIC are analogous to shareholders in an ordinary business corporation. The contributions to its capital which are required by MSSIC’s rules in order to operate the insurance fund and which are refundable to a member who has withdrawn are analogous to redeemable stock in an ordinary business corporation. C & A § 2-311 prohibits a Maryland corporation from purchasing or redeeming “any of its stock if the corporation is insolvent or the transaction would cause the corporation to become insolvent.” By a parity of reasoning, Chevy Chase’s contributions to the insurance fund were not repayable by MSSIC after the latter became insolvent. Inasmuch as MSSIC was insolvent before Chevy Chase satisfied the conditions for withdrawal from member ⁴⁰³ ship, Chevy Chase’s demand for payment when it had satisfied those conditions did not convert Chevy Chase into a creditor, much less a creditor who enjoyed a priority in payment over insured depositors.

Illustrative are the cases in which policyholders in mutual insurance companies or members of fraternal benefit societies seek death benefits or endowment payments from an insolvent insurer. These cases make a distinction based on whether the event which satisfies the policy condition for payment occurred before or after the mutual insurer became insolvent. The common law rule is that unless the policy “matured,” i.e., the right to benefits became fixed, before the insolvency, the claimant does not become a creditor who is to be paid in full before payment of other certificates maturing after insolvency or of certificates which have not matured. See Failey v. Fee, 83 Md. 83, 95-96 , 34 A. 839, 842 (1896); Baltimore & Ohio Railroad Co. v. Baltimore & Ohio Employees’ Relief Association, 77 Md. 566, 573 , 26 A. 1045, 1047-48 (1893).

See also Gilbert v. Washington Beneficial Endowment Association, 21 App.D.C. 344 (1903); In re Educational Endowment Association, 56 Minn. 171 , 57 N.W. 463 (1894); Vanatta v. New Jersey Mutual Life Insurance Co., 31 N.J.Eq. 15 (1879); Hagerling v. Pension Mutual Life Insurance Co., 68 Pa.Super. 170 (1917); In re Advance Beneficial Order’s Assigned Estate, 48 Pa.Super. 197 (1911); 2A Couch, supra, § 22:73. The rationale of these cases is well expressed in Mayer v. Attorney General, 32 N.J.Eq. 815, 820 (1880) which this Court cited favorably in Failey, supra, 83 Md. at 96 , 34 A. at 842 . The New Jersey court said: I agree with the chancellor in thinking that claims founded on policies that matured before insolvency, should be preferred to claims simply for reserves. This conclusion is clearly required, I think, in a mutual company, by the difference between the character of a matured claim and the character of a policy reserve.

It is in substance the difference between the claim of an outside creditor against a firm for a debt, and a claim of a member of the firm for his share of the assets invested in ⁴⁰⁴ its business. It is true that the company, in this case, was not an ordinary partnership. It was a corporate body whose members were changing, and their liability for the company’s losses was of limited extent; but as between the parties whose claims are now under consideration, the relation which the owner of a matured claim held to the corporation and to the remaining members, was, to the extent of the company’s assets, the relation of an outside creditor to the partners of a firm. As partners can claim no part of the partnership assets on a settlement till the partnership debts have been paid, so here those who were members of the company when insolvency occurred, must be postponed to those who had previously become creditors, and ceased to be members.

This results from the manner in which the company was organized and its business conducted. The rule is the same in the field of savings and loan corporations. Wyman v. McKeever, 239 Md. 130 , 210 A.2d 537 (1965) involved such a corporation which had been placed in receivership. Prior to the order for receivership, but while the corporation was in fact insolvent, various free shareholders had presented withdrawal requests and had received checks which were dishonored on presentment.

Judge Hammond, writing for the Court, rejected the contention that those account holders were to be treated as creditors in the distribution and said: The general rule, now firmly established by the great majority of the cases on the subject, is that after a building association has become insolvent in fact, even though this is not known, the right of every shareholder to equality in the distribution attaches as a paramount equity and no shareholder has the right to defeat that equality by withdrawing, perfecting an incompleted attempt to withdraw, or retaining the fruits of a completed withdrawal. Sundheim, [.Building and Loan Associations (3d ed. 1933) ], Sec. 158 says: ⁴⁰⁵ ... “The right of withdrawal, which is a peculiar feature of building and loan associations, is not given to the member for the purpose of enabling him to evade his just share of the losses incurred by an insolvent association.” [Id. at 133, 210 A.2d at 539 .] In the matter sub judice Chevy Chase is in effect reading in a vacuum MSSIC Rule § 3-503 concerning withdrawing members’ obtaining return of insurance fund contributions. The rule is subject to an implied condition that MSSIC is solvent. This equitable rule of construction is illustrated by Lacy v. State Banking Board, 118 Tex. 91 , 11 S.W.2d 496 (1928) (Tex.Comm’n App. opinion adopted).

Depositors in bank A which had failed on September 29, 1926, made claim against the guaranty fund for state banks administered by the banking commissioner. Their claims were ultimately approved. In the period between October 31, 1926, and January 7, 1927, banks B through I also failed, causing the guaranty fund to become insolvent to a degree beyond cure by assessments on other member banks which had not failed. Statutes governing the guaranty fund provided that “[i]f the Commissioner takes possession of any bank” its depositors should first be paid out of cash on hand in the insolvent bank “and if not sufficient, the remainder shall be paid out of the Depositors’ Guaranty Fund through the banking board.” The claimants contended that their right to payment from the fund became vested when the commissioner took possession of bank A and that priority in time of accrual of the right to payment governed fund distribution.

The Supreme Court of Texas rejected that argument by reasoning that [t]he provision that the remainder due to depositors shall be paid out of the depositors’ guaranty fund through the banking board, of course means in the regular and orderly method of administering the law. This contemplated solvency, an ample reserve fund, and a liberal power of assessment of member banks. But, when the machinery by which these affairs are administered have broken down, the plan made impossible of further execution, the ⁴⁰⁶ available fund wholly insolvent, and the law creating the scheme itself repealed, that orderly process of payment is no longer practicable or even possible, according to the original contemplated means and method of performance, but rather is controlled by the principles of equity applicable to trust funds and administrations generally. [Id. at 103-04, 11 S.W.2d at 502 .] Chevy Chase relies heavily on Ruden v. Ruden, 60 S.D. 447 , 244 N.W. 775 (1932) to support its asserted priority over creditors. That case is distinguishable from the one at hand.

Ruden’s facts were that in 1922 corporation A, a bank, had failed. Corporation B was organized as a bank using the same name as A. B and the South Dakota Bank Guaranty Fund agreed that B would honor the withdrawal demands of A’s depositors, that B would reimburse itself first from the assets of A, and then, to the extent of any deficiency, the fund would reimburse B in cash. The fund disputed B’s claim to reimbursement at a time when the fund was able to pay B’s claim in full. That dispute was ultimately resolved by a 1930 judgment in B’s favor.

In the meanwhile a series of bank failures beginning in 1923 had caused the fund’s liabilities to exceed its assets by 35 to 1. The fund had been issuing certificates of indebtedness to depositors of failed banks in anticipation of acquiring additional resources through assessments. In 1925 the South Dakota legislature enacted that money in the guaranty fund should be distributed by pro rating the same upon outstanding certificates of indebtedness in proportion to the unpaid principal amounts thereof after crediting proceeds of liquidation of the individual banks without priority by reason of due date. B claimed priority over holders of fund certificates and the court agreed, reasoning that “[b]ank depositor claimants have no right to demand or expect that money which [B] advanced to the guaranty fund, and which should and could have been repaid, and was not, should be distributed to them.” Id. at 454 , 244 N.W. at 778-79 . ⁴⁰⁷ In the Ruden case the monies claimed by B were not capital contributions made by B as a fund member.

The monies claimed were advanced by B in lieu of payment by the fund directly to depositors and were used for the purpose of the fund in making depositors whole. Chevy Chase’s contributions to the MSSIC insurance fund were likewise for the purpose of paying depositors’ losses in failed member associations. Depositors in failed MSSIC insured associations have a right to expect that contributions by MSSIC members to the insurance fund will be applied to depositors’ claims. But if Chevy Chase may presently withdraw its insurance contributions, in full, without regard to depositors’ claims, the statutory purposes of the insurance fund will be defeated.

The circuit court was correct when it declared that Chevy Chase was “not entitled to a return of its Insurance Fund contributions unless money remains in the Fund after losses are paid[.]” Inasmuch as there has been no breach of contract by not refunding insurance fund contributions, relief for that claimed breach of contract was properly denied. Central Reserve Fund The circuit court held that “Chevy Chase is entitled to a return of its Central Reserve Fund contributions when the liquidity problems of member associations are resolved[.]” The State does not dispute this conclusion so that we are not concerned with whether the contributions are refundable. The issue on this phase of the case is whether the delay in payment constitutes a taking of Chevy Chase’s property. The terms of the contract with MSSIC on which Plaintiff rests this claim are found in MSSIC Rule § 3-901.

Subsection (B)(6) of that rule states that “[membership in the [CRF] may be terminated should any member withdraw from membership in the Corporation[.]” It provides that “[i]n the event of such termination, whether as a result of withdrawal or expulsion ... payment shall be made of the ⁴⁰⁸ investment in said [capital] notes,” and sets forth a notice requirement which is incorporated into subsection (K) of the rule. We shall assume that the required notice had been given. Subsection (K) then provides that a withdrawing member shall be entitled to receive the face amount of the capital notes within six months after notice of its intention to withdraw; in the event the Central Reserve Fund does