112 COURTNEY V. REAP. [184 COURTNEY V. REAP. Opinion delivered July 6, 1931. 1. BUILDING AND LOAN ASSOCIATIONS — INSOLVENCY—LIABILITY OF MEMBERS.—Where the stock of an insolvent building and loan association is worthless, a borrowing stockholder is chargeable with the loan plus interest and should be credited with payments on the loan but not with dues paid on the stdck. 2. BUILDING AND LOAN ASSOCIATIONS—LIABILITY OF MEMBERS.—The duty of a member of a 'building and loan association as stockholder is not changed because he borrows money from the association. Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor; affirmed. Carmichael cf Hendricks, for appellant. J. S. Utley and E. G. Shaffner, for appellee. . MEHAFFY, J. On December 3, 1930, the State Bank Commissioner took over the Citizens' Building & Loan AsSociation of Little Rock,-Arkansas, an insolvent building and loan association. The bank commissioner brought
ARK.] COURTN'EY V. REAP. 113 suit in the Pulaski Chancery Court alleging that the officers and directors had made illegal and unlawful loans without taking proper security. On. December .17, A. J. Reap was appointed receiver by the Pulaski Chancery COurt. for the Citizens' Building & Loan Association. On- March 19, 19.31, the appellant, Ethel Courtney, filed an intervention in the Pulaski• Chancery Court, alleging that about nine years ago she borrowed $4,000 from the building and loan association: She alleged that she intended to pay this back in installments, and did not intend to buy stock in the association. She received a little less than . $4,000 from the association, . and paid $53.35 monthly for 108 months, the total payments'being $5,761.80. She alleged that the receiver refused to credit her with any amount whatever, and that she was entitled to an offset in satisfaction of the loan. She also alleged that she paid more than 10 per cent. interest, and that the loan was usurious and void on that account. Answer and cross-bill Was : filed by the receiver. It was alleged at . the time that appellant borrowed the $4,- 000 she purchased 160 shares of stock of the par value of $25 per share, and that, as collateral security for the money borrowed, appellant hypothecated and pledged to the association the shares of stock ; that she at the time executed and delivered a bond to the association and a Mortgage on lot 5 in block 3 of W. B. Worthen AdditiOn to the city of Little Rock, Arkansas. • The receiver asked judgment against the ap,pellant, and that the real estate inclUded in the mortgage . be sold for the payment of said judgment. . The case was tried in the chancery court on an agreed statement of faCts. The court dismissed the intervention of appellant and decreed a foreclosure. The appellant had paid a total of $5,761.80. We do not deem it necessary to set out the agreed .statement of facts because, as stated by appellant, the main question is the right of set-off, or . whether the ap-
114 COURTNEY V. REAP. [184 pellant is entitled to any credit for dues paid, on the value of her stock against the loan. • It •is conceded by appellant that she is not entitled to a set-off unless the cases of 'Hale v. Phillips, 382, 59 S. W. 35, and 68 Ark. Taylor v.' Clark, 74 Ark. 222, 85 S. W. 231, should be overruled. ' • • • *Appellant calls' attention to the rules adopted by the 'different courts, but it would serve no useful purpose to disCuss these rules or to decide whether one or the other is more equitable and just because the cases referred to 'establish the rule in this State, and, the rule having been established • and followed for Many years, we think it should not now be departed from. We do not think the former decisioris should be overruled. • The facts in the case of Hale v. Phillips; supra, are the same as in this case, so far as this question is con.- cerned, and the court there said, speaking of the principle of the building and loan association : "Its principal object is to raise a fund to advance to Those of its members who may desire to borrow money., For this purpose each member subscribes for the number of shares in its stock he desires, and at stated times and short intervals pays upon the same small sums of money, called dues. He continues payments until they, with the profits derived from other sources, after deduction of expenses arid losses, equal the face value of the stock, when tbe stock is matured. The shares are then called in, and the owner receives the face value thereof in cash, unless he has received an advance on his shares, and in that event the obligation based upon such advance is canceled. * * The member who has received the advance on his stock still holds his interest in the common fund and in the management and success of the association. He is as much interested as the members who have received no advance. All are boUnd in' proportion to the amount of their shares for the payment of the expenseS and losses of the association. The latter class of members is interested in the increase of the common fund because upon it depends the payment of its shares ; and the former. is interested be-
ARK.] . cOURTI N TRY 1)..14AP. 115. cause upon it depends his discharge from the obligation to pay dues and interest until the maturity of his, shares.”> Whether one who. subscribes,for stock is a borrower or not yeally makes no difference. If one subscribesjor stock and is not a borrower, he .makes payment on, the stock in exactly the same way and the same amount that, one does who has subscribed for stock and pledged-it as collateral security io pay, the loan.. The : non-borrowing : stockholder ;may pay dues , for years, and jf the association becomes insolvent and. thei stock is , worthless, he loses a • l he has paid. The samejs true of ,the, borrowing: member. , He pays on his, stock,, and, if the 'association becomes insolvent, he loses all he has paid on his stock, hut, in addition to paying on stock, the i borrowing member pays interest on the, money he has borrowed, and if he has paid no , more, than the interest, on the loan, he of course still owes the, entire amount ,of his loan. Both the borrower and the investor lose all they have paid on the stock if the, , stock becomes worthless. There is no difference between the ,situation , of the borrower and the investor as to the stock. In case of insolveneY; if the stOck 'is worthless, the borrower should be charged with the amount- advanced to him, together with the interest agreed on, and should be credited with all the amount he has paid on the loan, but he should not be credited with the aMount paid on the stock. He owes the debt as a borrower, and as a stockholder, if the stock becomes worthless, he loses what he haS paid on the stock. SO far as the StOck concerned, and the payments thereon,• he bears his part of the burden in the same way that the , non-borrowing „ stockholder does. \ As said in Hale v. Phillips, supra: "Were . it' other-: ! wise, and he entitled to be cre . dit . ed w . i th . dues OA the , amount of his indebtedness for advances, it is evident , that he would receive the value of his shares, -so far as s that value is the result of d • ues, while , the 'menibers is who have received nothing wonld be compelled to ' bear 1 ‘ all the loSses." .,
116 [184 Ih 6ther words, 'if the • payments made on stock by the bcirrowing members Were 'applied on . the debt, the borrewing member . would receiVe 'for hiS'stock all that heThad 'paid on the 'stock if it Were -worthless, and the non-borrowing member , would loSe everything he had paid on• his stock. ' "The rule adopted hy s' corirt requires -each to bear his part of the burden, mid; so far. as the payments' On stock are concerned,• each stockholder, Whether he is a borrower or not, is treated like every . other 'stockholder. The borrowing member's duty as a stockholder is not changed because' he borrows money from the association. ' The court said in a later case : "The 'Court is . of the opinion that the rule adopted in Hale v. Phillips, supra, and here followed, more nearly' conserves •than ariy other the principles' . of equality, mutuality and fairness, uPon which' building and loan associations are supposed to be founded." Taylor V. Clark, 74 Ark. 220, 85 S. W. 232. The rule adbpted in Hale v..Phillips, Supra, l is fol7. lowed here, and . the decree is therefore affirmed. • Mr. Justice MCIIINEY not partiCipating. (
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