Magness v. Loyola Federal Savings & Loan Ass'n

Markell, J., delivered the opinion of the Court. This is an appeal from an order sustaining a demurrer to a second amended bill for discovery and accounting, without leave to amend. The Court was advised that there were no new or additional facts which the complainants (appellants) desired to show by further amendment. Though the order does not in terms dismiss the bill, it is in order in the nature of a final decree and is appealable.

McNiece v. Eliason, 78 Md. 168, 174, 175 , 27 A. 940 ; Hendrickson v. Standard Oil Co., 126 Md. 577, 582 , 95 A. 153 ; Maas v. Maas, 165 Md. 342, 345 , 168 A. 607 . On June 14, 1929, complainants executed a mortgage to the defendant (appellee) on leasehold property, No. 14 East Read Street, in Baltimore. The mortgage recites that complainants, “being members” of defendant, have received from it “an advance of $12,000 on 96 shares of stock standing in their names, being the full par value of said 96 shares * * * when fully paid up and completed, and in order to secure the full payment and completion of said shares * * * in accordance with the Constitution and By-Laws” of defendant the mortgage is executed. If complainants “shall perform the covenants herein on their part” the mortgage shall be void.

Complainants covenant, inter alia, to pay every week [1] “25 cents as dues” on each share “as provided by the Constitution and By-Laws,” [2] 15 cents on each share “as interest or compensation” to defendant “for the advance made,” and [3] a sum to create a fund for payment of ground rent, water rent and taxes; “all of which” payments and covenants shall continue “until the weekly dues aforesaid and the pro rata dividend of profits” of defendant “to which said shares shall be entitled shall have fully paid up and completed said shares of stock and a proportionate part ⁵⁷² of any loss” defendant “may sustain before the completion of said shares.” Article VIII, Section 1, of the bylaws provided that “the profits of the Association shall be ascertained semi-annually” as of the end of June and December, may be held for six months in the discretion of the directors, and “shall thens>be divided pro rata among all redeemed and free shareholders according to the amount that stood to their credit * * * when said profits were ascertained and which the holders thereof have not withdrawn in the meantime.” Article VI, Section 3, provided for the weekly payments of “15 cents per share as innterest.” Article II, Section 5, provided that “whenever in the case of redeemed shares the weekly dues paid by a member, together with the dividends thereon, shall amount to the sum of $125 for each share so redeemed, the property mortgaged * * * shall be released, and the party shall cease to be a member of the Association by virtue of such redeemed shares.” Defendant was originally incorporated under the laws of Maryland as a building association, Loyola Perpetual Building Association of Baltimore City. The bill alleges that in November, 1942, defendant “became Federalized,” i. e., presumably, it “converted itself into a Federal Savings and Loan Association” under the Home Owners’ Loan Act of 1933, as amended, as permitted by federal and Maryland statutes. Home Owners’ Loan Act of 1933, as amended, Sec. 5 (i), U. S. Code, Title 12 Chapter 12, Sec. 1464 (i), 12 U. S. C. A., Sec. 1464 (i) ; Maryland Code of 1939, Art. 23, Sec. 173; Hokpins Federal Savings Association v. Cleary, 296 U. S. 315 , 56 S. Ct. 235, 80 , L. Ed. 251, 100 A. L. R. 1403. Neither the Federal Charter nor the by-laws are set out in, or filed with, the bill.

The mortgage and complainants’ pass books, two with the Maryland corporation (which contain its bylaws) and one with the federal corporation, are filed as exhibits with the bill. In the bill, at the argument and in the briefs, no provision of any federal statute, rule or regulation was mentioned or referred to, and no right or defense was asserted on the basis of any such provision. ⁵⁷³ Both parties have assumed that the questions raised by them depend upon Maryland law in force at and since the date of the “advance” and the mortgage. The bill alleges that payments were made regularly until the “financial depression,” during which period complainants “fell back in their principal payments, but continued to pay the interest and expense account payments in such amounts as were required on the unpaid balance of said mortgage.” The pass books show that: until March, 1931, both “interest” and “dues” were paid with substantial regularity, each interest payment being §14.40, i. e., 15 cents each on 96 shares; from March, 1931, interest was paid at 15 cents a share, but irregularly, usually for two, three, four or eight weeks at a time; from April, 1934, until October, 1935, no interest at all was paid; irom May, 1936, interest was usually paid in amounts larger than 15 cents a share, evidently on account of the back interest unpaid; from March, 1931, dues were paid in decreased amounts; from April, 1932, to February, 1942, none at all were paid, and from February, 1942, dues were paid in irregular amounts at irregular intervals. The only regular credits towards “payment and completion” of the shares were dividends, in varying amounts (each less than interest at 6 per cent on dues paid in), every six months from December, 1929, to December, 1942, inclusive.

The bill alleges that when defendant “became Federalized” in November, 1942, the federal pass book “does not show any dividends paid from that time on.” The book does show a credit of $56.61 which (though not so designated) evidently was a dividend as of December, 1942. On May 10, 1943, the balance of $7,568.76 to “pay up and complete” the shares was paid and the mortgage released. The bill alleges, with argumentative repetition, that: “On many occasions * * * complainants noted that the interest entries in said pass books were not properly credited, in that [defendant] continued to charge * * * interest at * * * more than six per cent * * * on the original ⁵⁷⁴ borrowed amount of $12,000 without giving * * * credit * * * in the computation of said interest, of the principal payments made by * * * complainants, which payments constantly reduced the original amounts borrowed * * *; when * * * complainants continuously brought this to the attention of the officers and representatives of [defendant], they * * * were unable to secure a satisfactory explanation of this improper method of accounting * * *. This unsatisfactory situation continued until May 10, 1943, when * * * complainants, not securing from [defendant] the proper credits due them * * *, were compelled to undergo expense in securing another mortgage loan from another association, in order to pay off, under protest, the then balance claimed by * * * defendant, * * * $7,568.76,” which “complainants were forced [to pay], under threat of foreclosure of the mortgage.” “Complainants and their solicitor have since requested an accounting from * * * defendant, as to these overcharges, but * * * have not received the same, the position taken by * * * defendant being, that since some dividends declared by [defendant] had been credited to * * * complainants’ account, * * * complainants were shareholders, and were therefore chargeable with interest on the full original amount of $12,000 borrowed * * *, without * * * credit [for] all principal payments made by them.” Complainants “contend that they are entitled to * * * credits of all principal payments made by them * * *, in the determination of the actual interest due on said mortgage loan, and that * * * failure * * * to properly credit said payments * * * produces a situation whereby they have been charged interest at * * * more than six per centum * * * on the original amount of $12,000 borrowed * * *, during the entire period * * * from the date of borrowing * * *, June 14, 1929, to the date of payment of said mortgage * * *, May 10, 1943, without allowing * * * complainants any interest credits on all principal payments made by them, except some dividends credited * * *, which dividends, in amount, are far inferior to the interest credits to which they are entitled.” ⁵⁷⁵ The bill also alleges that: “Complainants have no way of determining whether” “the various credits for dividends set forth on said pass books” “are all the dividends to which * * * complainants are entitled * * * or whether they are based on profits and losses sustained by * * * defendant, * * * since the determination” of “the various amounts so set forth” “and the figures, facts, records and books containing same are entirely within the sole possession of * * * defendant and are not accessible to * * * complainants * * *; complainants had requested of * * * defendant these facts and figures, but * * * defendant has failed and refused to furnish * * * complainants with the same, and such records, facts and figures are not obtainable elsewhere. * * * complainants * * * never had an opportunity of determining whether the dividends allowed were the proper dividends paid to all other borrowers and free shareholders, similarly situated * * *; complainants were not real and bona fide stockholders of * * * defendant * * *, and * * * under the law they could not have participated in the affairs of the corporation as full fledged and bona fide stockholders on the basis of the 96 shares which they were alleged to have purchased, in that, as each share was redeemed and when all shares were finally redeemed they no longer were members or stockholders of said corporation. * * * it is * * * believed and therefore averred by * * * complainants that Article 8, Section 1, of the by-laws of defendant * * * were not complied with, nor did * * * complainants receive the proper credits to which they were entitled.” The bill prays (1) discovery “in detail [of] all sums * * * received from * * * complainants * * * on account of their mortgage transaction,” from June 14, 1929, to May 10, 1943, and “all records and figures necessary to properly ascertain wh ether the dividends declared and credited during that period constitute the entire number and amount of dividends to which complainants are entitled, [and] the profits and losses, if any, during the * * * period, obtained and sustained by * * * defendant, which would, ordinarily determine the amount and num ⁵⁷⁶ ber of such and similar dividends,” and an accounting “with * * * complainants for all their interests in the business, issues and profits of * * * defendant’s business during the * * * period,” (2) payment of “all sums ascertained to be due” complainants “on account of said mortgage transactions” and (3) general relief.

The original bill was filed March 22, 1944. Although complainants say they were unable to secure a “satisfactory” explanation of the computation of interest, they show that defendant made clear to them how interest was computed and that the computation was based on the terms of the mortgage, viz., the same 15 cents a share was to be paid every week until “payment and completion” of the 96 shares, and meanwhile complainants were to be credited with dividends earned—and consequently not with interest—on “dues” paid. Indeed, as complainants “noted,” the entries in the pass books showed that interest was computed in this way. Likewise, although complainants say they have no way of determining whether the amounts of the dividends credited to them were proper, and they “believe and therefore aver” that they did not receive the proper credits, they show no basis for such a belief and no new information acquired by them since they made payment in full.

The fact that dividends credited after the “crash” in 1929 were substantially less than 6 per cent, per annum, is no reason for suspecting the computation of earnings and dividends. If,