Family Savings & Loan Ass'n Shareholders' Protective Committee v. Stewart

Prescott, J., delivered the opinion of the Court. The chancellor decreed below that the holders of “all Christmas Savings Accounts and all other similar accounts” be paid as general creditors of Family Savings & Home Loan Association, Inc., (the Association), before the distribution of any ⁴²⁶ of its assets to its shareholders, and the shareholders have appealed. The question which we must answer is whether the appellees, as the holders of Christmas Club accounts, 1 are entitled to priority in the payment of their claims over the “shareholders” of the association. The Association was incorporated in 1955, pursuant to Code (1951), Article 23, Sections 140, et seq., (and amendments and additions thereto made prior to said incorporation) to engage in the business of a mutual savings and loan association.

Commencing in 1955, it generally solicited and accepted from the public “savings share accounts.” 2 Persons who wished to open such acounts executed an application-signature card and were issued a passbook as evidence and record of their deposits, withdrawals and dividends. On the face of this booklet in large letters was written “SAVINGS-SHARE ACCOUNT.” Inside the front cover, inter alia, it was stated: “This certifies that: “[John Doe] holds a Savings-Share Account in [the Association], subject to its charter and by-laws, and to the laws of the State of Maryland.” Sometime thereafter (the record does not make the exact date clear), the application-signature card added to the above, in small lettering, the following: “The official proxy committee of the Association is authorized in my absence to cast my vote or votes at any meeting of the members from year to year until this proxy is cancelled in writing.” ⁴²⁷ Sometime in 1957, the Association began soliciting variously styled “club accounts,” one of which, as we stated in footnote one, was designated the Christmas Club. Persons could open such an account by signing a ledger card which merely stated: “I hereby agree to all the rules and regulations governing this Club.” The accounts were advertised and solicited by signs which contained such slogans as, “Don’t leave next year’s Christmas expenses to chance. Save for them in advance,” and “Fill the stockings — Trim the tree * * * Join our Christmas Club.” Appellants offered one exhibit dated in 1960, which was a form letter from the President of the Association to “Dear [Christmas Club] member,” which solicited future Christmas Club accounts and referred to “Christmas savings.” At the bottom of the letter is a printed form addressed to the Association requesting that it “reserve the following Christmas Club share accounts for 1960The record fails to make it clear when the Association began to use (or in fact ever did use) this language in its solicitation of club members, or that it ever produced any such members.

It was simply a form letter found by the receiver in the files of the Association. No special written rules were ever promulgated by the Association with reference to these Christmas Club accounts. The account holder was issued a coupon book containing fifty consecutively numbered coupons in the denomination ($1.00, $5.00, etc.) of his club, which served as a receipt for his deposits. This book also contained a form to show the disposition of the funds paid in by the depositor.

It first had a blank for the “amount paid in,” then a blank for the “dividend or interest added or service charge deducted,” and then a blank for the “Total.” This was followed by two blanks to show that the funds were either “TRANSFERRED To Savings Shares or Permanent Account,” or “Paid by Check or Cash.” The evidence makes it clear that the parties intended that ordinarily the club member should make fifty weekly payments on which the Association would pay “dividends or interest,” and thereafter the club member could transfer the account to a savings share account or obtain payment by check or in cash. Savings share account holders could withdraw their savings in any amount at any time. Christmas Club account holders ⁴²⁸ were not permitted to make partial withdrawals, and they could not make total withdrawals, without proper excuse, before the time named for the fiftieth weekly payment. All club account holders were paid the same “dividend or interest” rate — some 4y?, % compounded quarterly.

The by-laws of the Association provide for an annual meeting of its members to be held on the third Saturday in December. The record fails to disclose that any such meeting was ever held by the Association. Pursuant to Code (1962 Cum. Supp.), Article 23, § 160 L, a receiver was appointed for the Association on October 27, 1961, and, after intervening petitions and other pleadings had been filed and a hearing held, the chancellor decreed as we stated in the first paragraph of this opinion.

He based his decision on the fact that there was no provision of law, in the Articles of Incorporation, or in the by-laws that permitted the Association to accept “deposits as such”; hence the Christmas Club accounts were “unauthorized” and the holders thereof must be considered general creditors and given priority over the holders of savings share accounts in the distribution of the assets of the Association. We find it unnecessary to determine whether the Christmas Club accounts were permissible or unauthorized. For the purposes of this case, we shall assume, without deciding, that they were authorized. Although Mr. Sundheim names an early origin (about 200 B. C.) for building and loan associations, 3 there is a dearth of decisions directly in point on the question to be answered herein.

And those that bear an analogy must be carefully considered in the light of the statutory, charter and by-law provisions specifically relating thereto. Sundheim states that such associations are private corporations for profit, but hastens to inform his readers that it is impossible to define a building and loan association so as to include the different types throughout the world, or even in the United States. The ones that have been organized for the benefit of their shareholders encourage thrift, and in former times generally the purchase or construction of homes by members. At present, however, many of the associa ⁴²⁹ tions conduct their affairs so that the loans made by them are to others than their members and for purposes other than obtaining or constructing homes.

The learned author named above lists eight different classifications (in § 10) to describe some of the plans under which these corporations operate, and then explains them. 4 Membership in such an association may be acquired in the same manner in which membership may be acquired in other corporations; namely by becoming the holder of its stock. 12 C.J.S., Building & Loan Associations, § 16; Endlich, Building Associations (2nd Ed.), § 45; Sundheim, Building & Loan Associations (3rd Ed.), § 22. Cf. Ash v. Citizens B. & L. Ass’n, 225 Md. 395 , 170 A. 2d 750 . (For additional methods of becoming members in Maryland, but not here involved, see Code (1957), Article 23, § 157.) And there is no substantial difference between free shareholders and stockholders.

Ash v. Citizens B. & L. Ass’ n., supra; First Nat’l. Bank v. Dawson 213 P. 1097 (Mont.). Cf. Coltrane v. Blake, 113 F. 785, 787 (C. A., 4).

Every member or shareholder is entitled to the same rights and privileges, and must bear the same burdens as every other member or shareholder holding the same class of investment security. The shareholders have the same rights as stockholders in ordinary corporations for profit, except in so far as they may be enlarged or restricted by special legislation, the Statute under which the corporation is incorporated, its charter or its by-laws. Sundheim, op. cit., § 25. In other words, the members or shareholders own the association and are entitled to conduct its affairs through their officers and Board of Directors.

Cf. Code (1957), Article 23, § 157. There are, however, certain rights that are peculiar to members of building and loan and savings and loan associations not known in ordinary corporations, such as the right to withdraw at any time upon notice, if required, (when the association is solvent) and, under certain circumstances, the right to ⁴³⁰ receive a loan. Generally speaking, such associations are mutual enterprises with all members being under the same rules, sharing in the profits equally and bearing their proportionate share of the losses.

Endlich, op. cit., § 514. There are two additional differences between ordinary business corporations and mutual savings and loan associations that seem appropriate to be mentioned: in the former, the stock is usually paid for in full at the time of its purchase, whereas in the latter the stock is frequently purchased by installment payments; and in the former the stockholders are the proprietors of the corporation, while in the latter the shareholders are not only proprietors, but in the absence of insolvency, they have the right to withdraw, at any time in accordance with law and the by-laws of the association, the funds paid in by them dollar for dollar. This latter right makes the shareholder in the association, at least under certain circumstances, a creditor of the association as well as a shareholder thereof. As stated by Justice Holmes in Atwood v. Dumas, 21 N. E. 236 (Mass.) : “But the interest of the member of a corporation of this kind [a co-operative savings fund and loan association] is of a peculiar nature, and it does not follow, because the defendant is a member, that she may not be a creditor also in respect of her money paid in * * See also Benton’s Apparel, Inc., v. Hegna, 7 N. W. 2d 3 (Minn.), and compare Morris Resnick B. & L. Ass’n v. Barnes, 164 A. 358 (Pa.

Super.); Aberdeen S. & L. Ass’n v. Chase, 289 P. 536 (Wash.); Ohio Valley B. & L. Ass’n v. County Court, 26 S. E. 203 (W. Va.); In re Western States B-L Ass’n, 50 F. 2d 632 (D. C., Cal.). We turn now to a consideration of the actual question presented. Appellants are members and free shareholders of the Association (or representatives thereof) and they concede that the savings share account holders were owners and proprietors of the Association as well as creditors thereof (at least as long as the Association was solvent), but they contend that there is no material distinction between savings share account holders and Christmas Club account holders “either in the nature of the contract entered into by them, in their manner of treatment by the Association or under the applicable law.” In other words, they claim, in effect, that the Christmas Club account owners ⁴³¹ are also free shareholders of the Association, and, as such, were also owners and proprietors of the Association, and, therefore, are only entitled to share pro rata with appellants the assets of the Association, after the payment of proper costs and general creditors.