Opinion
November 1, 1932.
January 25, 1933.
Building and loan association — Stockholder — Stock pledged to association as security for loan — Attachment execution by creditor of stockholder — Association as garnishee — Withdrawal value — Appropriation of stock — Rule for judgment against garnishee — Act of April 10, 1879, P.L. 16 as amended by the Act of April 30, 1929, P.L. 901.
In an attachment proceeding against a solvent building and loan association, the record established that the plaintiff had obtained a judgment against a member of the association and that it issued an attachment execution against the association. The association, in its answers to interrogatories, admitted that the member held certain stock and that a part of it had matured and that the balance had a definite withdrawal value. Furthermore it averred that the member was indebted to it and that it had appropriated the matured stock in partial payment of the debt. It appeared, however, that the value of the matured stock and withdrawal value of the other stock exceeded the debt of the member to the association. The court below, on a rule for judgment, entered judgment against the association, as garnishee, for the excess sum. Held: (1) That the execution-plaintiff stands in the position of a withdrawing stockholder and succeeds to his rights, (2) that the attachment execution by such execution-plaintiff may be treated as a demand for the withdrawal value of the stock over and above the amount of the debt owed by the member to the association and (3) that a judgment entered in favor of the execution-plaintiff for such excess sum will be sustained but the court below will control the judgment, and any execution issued upon it, so as to permit no injustice to the association and other stockholders.
Stockholders in a building and loan association are regarded, in a sense, as partners in a mutual savings association and the stock of a building and loan association differs from the capital or corporate stock in an ordinary corporation for profit.
Under the Act of April 10, 1879, P.L. 16, as amended by the Act of April 30, 1929, P.L. 901, a member of a building and loan association who has pledged his stock therein as security for a loan is entitled to receive the withdrawal value of such stock, less the amount of his debt to the association.
Attachment execution — Costs — Fee for garnishee's attorney.
The costs of an attachment proceeding and a reasonable fee to the garnishee's counsel, are payable out of the fund attached.
Appeal No. 208, October T., 1932, by garnishee fom judgment of C.P., No. 3, Philadelphia County, June T., 1931, No. 12738, in the case of Morris Resnick Building Loan Association v. Marcellus B. Barnes and William L. Craven Building and Loan Association, Garnishee.
Before TREXLER, P.J., KELLER, GAWTHROP, CUNNINGHAM, BALDRIGE, STADTFELD and PARKER, JJ. Modified.
Rule for judgment against garnishee in an attachment execution. Before FERGUSON, P.J.
The facts are stated in the opinion of the Superior Court.
The court made absolute the rule. Garnishee appealed.
Error assigned, among others, was the making absolute of the rule and the entry of judgment.
Paul Reilly, for appellant. — Stock pledged by a member of a building and loan association can only be sold on a fi. fa. Selikowitz v. Merchants B. L. Assn., 103 Pa. Super. 453; Duquesne Bond Co. v. American Surety Co., 264 Pa. 203; Glazier v. Jacobs, 250 Pa. 357.
A.L. Hodes of Polish Wachs, for appellee. — An attachment creditor stands in the position of his debtor as against the garnishee and whatever the stockholder of a building and loan association could require the association to do the attaching creditor can also require: LeBarre v. Doney, 53 Pa. Super. 435; Seligman v. Kearns, 91 Pa. Super. 413.
Argued November 1, 1932.
The plaintiff obtained a judgment against Marcellus B. Barnes and issued an attachment execution, summoning this appellant as garnishee.
In its answers to interrogatories the garnishee admitted that at the time the attachment was served on it (August 19, 1931) the defendant, Barnes, held five shares of its stock (Book 2307) which had matured on the first Thursday in September, 1931, of the value of $1,000; and five shares of stock (Book 2406) in a later series, which had a withdrawal value of $824; that at the time the writ of attachment was served these ten shares of stock were held by it as collateral security for stock loans aggregating $1,400, and that the defendant was indebted to it by way of dues, interest and fines on said stock and loans, in the sum of $34.14, which had since been increased; that the maturity value of said five shares (Book 2307) $1,000, had been appropriated by it to said loans; that the five shares (Book No. 2406) had not been appropriated by it or the defendant in the execution. The solvency of the garnishee was not disputed. On plaintiff's rule for judgment for the amount admitted to be due the court adjudged that the garnishee had in its hands stock belonging to the defendant of the value of $330.76, in excess of all claims of the garnishee; being the withdrawal value of the five shares of stock (Book 2406), less the balance due by the defendant on said loans, $400, and arrears of dues, interest and fines. The garnishee appealed.
The appellant contends that on attachment execution against a defendant, as respects his stock in a building and loan association, all that the attaching creditor can do is to attach the stock, and, upon a scire facias against the garnishee, have a determination therein that the defendant was the real owner of the stock, with the right to proceed by execution and sell the stock as the property of the defendant, as was contemplated by the Act of June 16, 1836, P.L. 755, sections 32-38, with respect to attachments on stock. That was the method prescribed by that act and it was, at least until recently, the method in force as respects attachments on capital stock of corporations in general: Glazier v. Jacobs, 250 Pa. 357 (1915), 95 A. 532. Until 1859 it was the only course available in attaching shares in building and loan associations, although they were liable to be sold on fieri facias under the Act of March 29, 1819, P.L. 226-7, 7 Smith's Laws 217, unless assigned to the association as collateral: Early Lane's App., 89 Pa. 411, 413. For the reasons given hereafter we need not refer to the effect on the Acts of 1819 and 1836, relative to the levy on and sale of corporate stock, made by the Uniform Stock Transfer Act of May 5, 1911, P.L. 126, which provides that no attachment or levy upon shares of stock for which a certificate is outstanding shall be valid until such certificate be actually seized by the officer making the attachment or levy, or be surrendered to the corporation which issued it, or its transfer by the holder be enjoined.
Until the Act of April 12, 1859, P.L. 544, the law made no provision for a withdrawal value of building and loan association shares. But that act recognized the fundamental difference between capital or corporate stock in an ordinary corporation for profit and stock in a building and loan association. Ordinarily a share of stock in a corporation represents the right which its owner has in the management, profits and ultimate assets of the corporation: Cook on Stock and Stockholders, sec. 12. The capital stock is the property or means contributed by the stockholders as the fund or basis for the business or enterprise for which the corporation was formed: Bailey v. Clark, 21 Wallace 284. If the stock is all common stock every share represents an aliquot part of such property, and is equal in value to every other share; as long as it is outstanding it cannot be determined or ended during the life of the corporation. It has no withdrawal value, no matured value at which the corporation is required to pay its holder a specific principal sum. While the interest which a member of a building and loan association has in such corporation is called `stock' and has some of the attributes of stock in an ordinary corporation it is rather a share or part in a mutual cooperative savings association, under which the members contribute monthly, or at other stated intervals, stated amounts, which being lent to the members, by the accumulation of monthly interest, premiums and fines will produce a fund, which is equitably apportioned at stated intervals among the series outstanding until the share amounts to a certain full paid or matured value, at which time the series of `stock' so matured is paid off, and the member ceases to be a stockholder unless he subscribes again to a new series. Each share is not an aliquot part of the association's property, is not the same in value as every other share, and is intended to be terminated and paid off when it reaches the fixed matured value; and it has, in the meantime, a withdrawal value which may be drawn out in accordance with law and the by-laws of the association It resembles less in character the stock of an ordinary business corporation than it does an endowment policy in a mutual life insurance company. Stockholders in a building and loan association are regarded, in a sense, as partners in a mutual savings association: Brown v. Victor Bldg. Assn., 302 Pa. 254, 259, 153 A. 349. Ordinarily certificates of stock are not issued but a pass book in which the monthly payments may be credited is issued, which is retained by the member even after he has borrowed on the `stock' from the association.
Following the Act of 1859 and clause 2 of section 37 of the Corporation Act of 1874, (P.L. 73, p. 97) which in effect reenacted the former's provisions, the decisions show two methods of attaching in execution stock of building and loan associations: The one, the old method, (Erthal v. Glueck, 10 Pa. Super. 402; Economy Bldg. Assn. v. Hungerbuehler, 93 Pa. 258) ; and the other, by regarding the withdrawal value of the stock as a debt due by a solvent association to its stockholders following the attachment, which in connection with the rule for answers to interrogatories may be treated as a demand by the judgment creditor, — who stands in the place of the defendant stockholder and succeeds to his rights (LaBarre v. Doney, 53 Pa. Super. 435) — for its appropriation and withdrawal, (Germania Bldg. Assn. v. Neill, 93 Pa. 322, 323; Egolf B. L. Assn. v. Cleaver, 228 Pa. 60, 77 A. 245). If this second method is warranted by law it seems, especially in view of the change effected by the Uniform Stock Transfer Act, to be, at present, the more efficient and desirable way; for a purchaser of the stock must keep up the payment of dues, interest, etc. (Orient B. L. Assn. v. Freud, 298 Pa. 431, 436, 148 A. 841), and is liable for the fines and consequences of default which may ensue in the time between the attachment and the sale. On the other hand no harm can be done the association or the defendant by the second method. Upon the issuing of the attachment and the filing of interrogatories the suit is treated as an election to appropriate the withdrawal value of the stock to the debt, if any, due the association and as a demand for the excess of such withdrawal value over and above such debt, made by one who stands in the place of the stockholder by virtue of his attachment. If the association is solvent, (See Kurtz v. Bubeck, 39 Pa. Super. 370; Stone v. Schiller B. L. Assn., 302 Pa. 544, 552, 153 A. 758) the withdrawal value, or the excess of the same above the debt due the association, becomes payable to the creditor only as and when its payment could be required by the stockholder in due course under the law, and the court will restrain execution until that time has arrived. If the association is insolvent when the attachment is served, the judgment creditor will take no more under his process than the defendant stockholder could have obtained, by a withdrawal notice as of that date, and the court will see that he secures no preference or advantage over the other stockholders. A suit or action has frequently been recognized as a form of demand. This second method has been in use since 1880 (Germania Bldg. Assn., v. Neill, supra) and if the attachment and the filing of interrogatories, with a rule on the garnishee to answer, be regarded as a demand, the practice is fully warranted under the Act of 1836 as an attachment upon a debt: Sections 35 and 38 (II) of the Act of 1836, supra.
The appellant also relies upon the provision of Section 37 of the Corporation Act of 1874, P.L. 73, p. 97, "that no stockholder shall be entitled to withdraw whose stock is held in pledge for security"; and section 14 of the association's by-laws: "And provided also that no stockholder shall be entitled to withdraw whose stock has been assigned to the Association as security for a loan until such loan and all arrearages and charges or other sums due the Association have been paid in full", and asserts that, in any event, the utmost a borrowing stockholder can receive on such `withdrawal' is the amount of dues he has paid in. Counsel apparently has overlooked the Act of April 10, 1879, P.L. 16, (yet in force and amended by Act of April 30, 1929, P.L. 901), which provides in section 4, that "A borrower may repay a loan at any time, and in case of the re-payment thereof before maturity of the shares pledged for said loan, there shall be refunded to such borrower, (if the premiums, bonus or interest shall have been deducted in advance) such proportions of the premiums, bonus or advance interest bid as the by-laws may determine, unless the same amounts to two per centum or less of such loan, in which case no return shall be made of such premiums, bonus or interest so deducted in advance...... And further provided, that such borrower shall receive the withdrawing value of the shares pledged for said loan, and the shares shall revert back to the Association." We applied the Act of 1879 in Hockfield v. Woloderker B. L. Assn., 85 Pa. Super. 336; and in Frisby v. The Armenian-American B. L. Assn., 107 Pa. Super. 313, our Brother PARKER has gone into the matter fully with the same result. It was recognized as being in force in Lepore v. Twin Cities Nat. B. L. Assn., 5 Pa. Super. 276, 279, though not referred to in Folsom B. L. Assn., v. Gogel, 24 Pa. Super. 539, but in the last named case the borrowing shareholder was in default and arrears on his payments for four years, and a different rule was applied, which was, however, equitable in the circumstances of that case. The defendant here was not a defaulting stockholder. The case of Watkins v. Workingmens' B. L. Assn., 97 Pa. 514, although decided in 1881, was concerned with facts which occurred before the Act of 1879 was passed. In Wadlinger v. Washington-German B. L. Assn., 153 Pa. 622, 26 A. 647, the withdrawal value of the shares was credited on the judgment debt. A borrowing stockholder cannot, of course, be a withdrawing stockholder, in the sense that he is entitled to the withdrawal value of his shares free of the debt due the association; but, where the association is solvent, he can direct the withdrawal value to be applied to his debt to the association and receive the excess, if any, in the same way as a withdrawing stockholder: B. Podol B. L. Assn., v. Polak, 102 Pa. Super. 36, 136 A. 556.
The plaintiff, as respects the excess of the withdrawal value of the defendant's stock over and above his indebtedness to the garnishee association, stands in the position of a withdrawing stockholder, and the court below will control judgment, and any execution issued upon it, so as to permit no injustice to the association and the other stockholders.
The assignment of error is overruled. The costs in the court below, including a reasonable fee to garnishee's counsel, are payable out of the fund attached. As thus modified the judgment is affirmed.