Wyman v. McKEEVER, REC'R

¹³² Hammond, J., delivered the opinion of the Court. Presently presented for determination is whether holders of free shares in a building association now in receivership, who were given checks by the association which were not paid on presentation, in the amount of all, or the greater part of, the par value of their shares at times when the association was insolvent, are creditors of the association entitled to prior payment, or are still shareholders on an equal basis with non-withdrawing shareholders, entitled to payment only after creditors have been paid. The court auditor asked the court for instructions as to the right to propriety of payment of the claims of some thirteen individuals. Each says that prior to the hour on January 3, 1962, when a receiver was appointed for the Association and it was put under jurisdiction of the court, he or she had filled out withdrawal slips provided by the Association for withdrawing money and received checks “in the amounts requested.” Five of such checks were received on January 3, five on January 2, one on December 21, and two on December 14.

Each payee of a check, except one who was advised before he had a chance to do so that it would not be honored, presented the check which had been received and was refused payment. The trial judge found as a fact, and the appellants do not seriously challenge the correctness of the finding, that the Association was insolvent when each of the checks was given, within the accepted definition of insolvency of building associations, that unlike an ordinary business corporation which is insolvent if its assets are insufficient to pay its creditors, a building association is deemed to be insolvent when it cannot pay general creditors and its shareholders the amount Of their contributions, dollar for dollar. Sundheim, Building and Loan Associations (3rd Ed., 1933), Sec. 188. The appellants claim that when the checks were given them, they ceased to be shareholders and became creditors, holding writings obligatory of the Association which were debts that it must pay before it could pay anything to shareholders.

They rely on Rickert v. Suddard (Ill.), 56 N. E. 344 , wherein it was held that the recipient of a check of a building association, ¹³³ given in payment for the value of his shares in the association a month before the court declared the association insolvent, was a creditor. The receiver of the Association argues that because the withdrawals were made and the checks given when the Association was insolvent, the recipients remained members of the Association who had only the same rights and must bear the same burdens as all other shareholders of the same class. The lower court agreed that this was the law, and held that the appellants had no' priority over other shareholders and must bear their proportion of the losses suffered by the Association. We think the decision was correct.

The case of Rickert v. Suddard, supra, relied on by the appellants, cited no authority bearing on the law of building associations or the rights of their shareholders when the association is insolvent, and the case stands almost alone. 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, op. cit., Sec. 158, says: “Building and loan associations are democratic institutions, and all members stand upon an equal footing, and the rights of one member are the rights of all the members. * * * “* * * if when notice was given, the association although in operation was actually insolvent, or * * * whether the withdrawing member knew of it or