
    Common Pleas Court of Montgomery County.
    In Re Liquidation of The Miami Savings & Loan Company, of Dayton, Ohio.
    Decided December 23, 1933.
    
      John Bricker, Atty. General, Turner & Turner, L. H. Mattern, Herbert D. Mills, for Supt. of Building & Loan Associations.
   Snediker, J.

Under favor of Section 687-11, General Code of Ohio, the superintendent of building and loan associations of the State of Ohio, who is in charge of the liquidation of the Miami Savings & Loan Company, has filed an application to the court for instructions as to the manner in which he should exercise his powers and discretion in certain particulars. Evidence was taken which among other things consisted of exhibits of different manners of and kinds of deposits in the Miami Savings & Loan Company, together with copies of its constitution and by-laws and also the constitution and by-laws of the Buckeye Building & Loan Association whose business the Miami Savings & Loan Company had purchased.

Five questions are now submitted to the court as follows:

1. Under which of the following conditions, if any, has the owner of each or any of the above described types of deposit (referring to those introduced in evidence) the right, either in law or in equity, to require the superintendent of building and loan associations to set off the amount owing by the association by virtue of such deposit against indebtedness due or owing by said owner to the association: (a) where the amount sought to be set off was owing by the association to such owner before the superintendent of building and loan associations of Ohio took possession of the business and property of said association on April 18, 1933; (b) where the amount sought to be set off was not owing by the association to such owner until after the superintendent of building and loan associations of Ohio took possession of the business and property of said association on April 18, 1933?
2. Under which of the conditions set forth in paragraph 1, if any, has the owner of each or any of the above described types of deposit against whom there is a contingent liability to the association arising out of the assumption of mortgage indebtedness, stock ownership, or otherwise, the right in law or in equity to require the superintendent of building and loan associations to set off the amount owing by the association by virtue of such deposit against indebtedness due and owing by such owner to the association regardless of the existence of such contingent liability ?
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5. Has the owner of a certificate of claim the right in law or in equity to require the superintendent of building and loan associations to set off the amount owing by the association as evidenced by such certificate of claim against indebtedness due and/or owing by said owner to the association?
6. Has the owner of a certificate of claim against whom there is a contingent liability to the association arising out of the assumption of mortgage indebtedness, stock ownership, or otherwise, the right either in law or in equity to require the superintendent of building and loan associations to set off the amount owing by the association as evidenced by such certificate of claim against the indebtedness due and/or owing by such owner to the association regardless of the existence of such contingent liability?
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9. Which of the above described types of certificate of deposit, if any, are negotiable?'
The Miami Savings & Loan Company is a domestic building and loan company duly incorporated under the laws of Ohio which, after its incorporation, did business in the city of Dayton until it was taken over by the superintendent of building and loan associations on April 18, 1933 because it was in an unsound condition. When it was so taken over, in compliance with his duties under the provisions of Section 687-1, General Code, the superintendent filed with the clerk of the Court of Common Pleas of this county a notice to the effect that he had taken possession of the business and property of the company for the purpose of liquidation. This notice was entitled, “In the matter of the liquidation of the Miami Savings & Loan Company of Dayton, Ohio”, and was numbered 76310 by the clerk of this court, as required by law, “as an original action.”

From and after such filing the Miami Savings & Loan Company was in litigation for liquidation, and under the provisions of Section 687-3, General Code:

“the possession of all assets and property of such building and loan association of every kind and nature, wheresoever situated, shall be deemed to be transferred from such ássociation to and assumed by the superintendent of building and loan associations; and such posting shall of itself and without the execution or delivery of any instrument of conveyance, assignment, transfer-, or endorsement, vest the title to all such assets and property in the superintendent of building and loan associaions. * * * Such posting shall also operate as a bar to any attachment, garnishment, execution, or other legal proceedings against such building and loan association or its assets and property or its liability. The privilege of withdrawing stock deposits or matured stock shall cease as of the time of such posting and all withdrawal values shall then be fixed, and interest on deposits shall thereupon cease to accrue at the rate specified in the contracts of deposit but without prejudice to the rights of depositors to receive - interest with other creditors from the date of such posting out of the. funds produced by the liquidation of such shares before distribution thereof is made to the shareholders on their shares. Such posting shall also terminate the authority of such building and loan association to issue or sell its stock or receive subscriptions therefor or payments thereon, or to receive deposits.”

The effect of all of which is to deprive the Miami Savings & Loan Company of its assets, its right to continue to operate under its constitution and by-laws, and to subject it to complete liquidation.

A corporation may be said to be insolvent in an official sense when state officers having supervision of it declare it to be unsound, take over its properties, and proceed to liquidation, distributing its assets to its creditors and finally deposit its records with the clerk of courts, as required by the code.

Endlich is his work on Building Associations, at Section 522, says:

“It is manifest that when the affairs of a building association have reached such a state that it is obviously impossible for it to continue its operations with any prospect of achieving the purposes for the accomplishment of which it was incorporated and when, because of that impossibility, its property is distributed among its creditors and members, it is, so far as the latter are concerned, to all practical intents dissolved.”

Such unsoundness is a sufficient ground to invoke the equity jurisdiction of the court, which may be exercised in conjunction with the sections of the General Code controlling the superintendent of building and loan associa-. tions in his liquidation.

The superintendent is not a receiver appointed by this court but is acting in a capacity very similar thereto, and such rules of equity as are available in the case of a receivership are applicable here. And we regard ourselves as dealing with equities only, in answering the questions put to us. The superintendent takes the assets of the Miami Savings & Loan Company subject to all equities existing at the time he posts his notice to the effect that he has taken possession of its business and property. One of these is the relief of equitable set-off.

We are in accord, therefore, with the position taken by counsel for the superintendent that in this proceeding legal set-off need not be considered.

The several forms of deposit included in the inquiry are: special deposits on certificate, of both the Miami Savings & Loan Company and the Buckeye Building & Loan Association ; and saving deposits on which credits and withdrawals were entered, evidenced by deposit book or special deposit book. All these constitute a debt of the association to the depositor.

In many cases the depositor himself, by reason of his contract relations with the association, is indebted to the association. The indebtedness is mutual and the claims are opposing.

It has long been the rule that in liquidation of assets one who at the time the properties of a corporation are taken over therefor is both a creditor and a debtor of the estate may claim a set-off. At first blush a set-off in case of unsoundness, or failure of the assets to meet all the demands against the corporation, gives to the creditor to whom it is allowed a seeming preference over other creditors whose equities are expressed in the rule that in the distribution of the estate equality is equity. The solution of the matter has been given in the following argument: Equality is equity. But equality of what and among whom? Clearly, of the assets among the creditors. In case of cross indebtedness the assets consist only of the balance of the accounts; that is, all of the fund which the association would have had to satisfy the creditors in case the corporation had not been taken over for liquidation. And there is no equality and no equity in putting a debtor who had a just legal set-off as against the corporation in a worse position and the creditors in a better position by the appointment of the liquidator. And it has been held that the claim which a debtor to the estate offers to set off against his debt need not be liquidated at the inception of the liquidation if it is nevertheless a provable claim against the estate.

It will be seen here that, we are using the rules with respect to the allowance of set-off in a receivership, We have paraphrased the language used in Tardy’s Smith on Receivers on this subject.

If we are correct in using these rules, all questions as to the limitations on the right of the depositor to withdrawal under the constitution and by-laws of the association cannot be insisted upon against a set-off of his deposit against any indebtedness due or owing to the association.

Our answer, then, to division (a) of question 1, is that where the amount sought to be set off by a depositor was owing by the association to the owner of the deposit before the superintendent of building and loan associations took possession of the business and property of the association, on April 18, 1933, such amount should be set off against any indebtedness due or owing by the depositor to the association.

As to division (b) of question 1, counsel representing the superintendent, as well as other counsel who have furnished briefs, cite pertinent authorities on this inquiry; the most recent of which is 44 Ohio App. 272. All these authorites are to the effect that such a set-off should not be allowed, and the court finds therefrom that where the amount sought to be set off was not owng by the association to such owner until after the superintendent of building and loan associations of Ohio took possession of the business and property of the association, on April 18, 1933, the superintendent is not required to set off the amount so owing by the association by virtue of such deposit against the indebtedness due or owing by said owner to the association.

Question 2 is discussed by counsel for the superintendent of building and loan associations as comprehending only a possible statutory liability on stockholders of building and loan association under the law of Ohio..

As to this we may say that the first act which was passed in this state enabling associations of persons for raising funds to be loaned among their members for building homesteads and other purposes to become bodies corporate was passed on February 21, 1867, and is found in the 64 Ohio Laws at page 18. That law provided, in Section 2:

“All stockholders of any such association shall be deemed and held liable to an amount equal to their stock subscribed, or by them at any time held, in addition to said stock, for the purpose of securing the creditors of said association.”

This same double liability, as it is ordinarily called, was imposed, as we understand, upon the stockholders of corporations for profit at that time in this state.

The law of 1867 was repealed by an act found in the 65 Ohio Laws at page 137, and an act was passed for the same purpose, containing the same stockholders’ liability. This, however, did not continue. Double liability was abrogated generally in this state. In 1912 a constitutional convention of Ohio submitted to the people for their ratification Section 3 of Article 13, which relates to the subject of stockholders’ liability and which,' so far as necessary for our case, reads as follows:

“Dues from private corporations shall be secured by such means as may be prescribed by law, but in no case shall any stockholder be individually liable otherwise than for the unpaid stock owned by him or her; except that stockholders of corporations authorized to receive money on deposit shall be held individually responsible, equally and ratably and not one for another, for all contracts, debts, and engagements, of such corporations, to the extent of the amount of their stock therein at the par value thereof in addition to the amount invested in such shares. * * * *”

This amendment was subsequently adopted by a vote of the people and has been held by our Supreme Court to be self executing.

In order to determine what is meant by the phrase “corporations authorized to receive money on deposit,” it is helpful to examine the proceedings of the constitutional convention which passed and submitted the amendment. We understand that the debates which may occur in a constitutional convention are not conclusive in interpretation of their acts, but the acts themselves are worthy of consideration. We think an examination of the proceedings of that convention as found in Volume 2, from page 1165 to 1185, definitely establishes the fact that building associations were not comprehended by the terms of the amendment but were in fact, though not expressly by its terms excluded therefrom, and that the stockholders of state banks only were intended to be “held individually responsible,” etc.

The interpretation of the legislature appears in the following:

Section 710-2 of the General Code of Ohio reads:

“The term ‘bank’ shall include any person, firm, association, dr corporation, soliciting, receiving, or accepting money or its equivalent on deposit as a business, whether such deposit is made subject to check or is evidenced by a certificate of deposit and pass book, a note, a receipt; or other item, and, unless the context otherwise require, as used in this act, includes commercial banks, savings banks, trust companies, and unincorporated banks; provided, that nothing herein shall apply to or include money left with an agent pending investment in real estate or securities for or on account of his principal, nor to building and loam associations or title guaranty and trust companies incorporated under the laws of this state.”

In Section 710-75 the legislature imposes individual liability on stockholders of banks. Nowhere in the code does it impose such liability on stockholders of building associations.

The Supreme Court of Ohio, in the case of Bates v. People’s Savings & Loan Association et al, found in the 42 Ohio St. at page 655, held that the act authorizing building and loan associations'to receive deposits of money was not an act granting banking powers within the meaning of the constitution.

So that, we are of the opinion that no such liability as is found in the constitutional provision, and is ordinarily designated double or statutory liability, exists in the state of Ohio as against the owner of stock in a building, association; although, of course, he is always liable for any unpaid subscriptions on his stock.

Counsel representing the superintendent of building and loan associations say: “Insofar as the question refers to liability arising out of .the assumption of mortgage indebtedness, said question should be withdrawn inasmuch as such liability is not contingent.”

It is evident that counsel are here referring to the liability of a grantee of property who assumes and agrees to pay the mortgage thereon, and construe the words “assumption of mortgage indebtedness” as applying to his, the grantee’s, liability. So taken, the position of counsel for the superintendent is the correct one. But if the words, “arising out of the assumption of mortgage indebtedness,” may include the original mortgagor, then contingent liability of such a mortgagor who is also the owner of some of the types of deposit about which this inquiry is made ought to be considered. And we are of the opinion that in the event of or anticipation of such contingent liability (if it may be so called) on the part of the original mortgagor who is a claimant the superintendent ought to have the opportunity to first ascertain definitely as to the amount of such contingency before he is required to pay such claimant; and, when he has so ascertained it, ought to allow a set-off of the claim against such contingent liability.

With reference to questions 5 and 6, we are in accord with the view of counsel for the superintendent and with the bar committee to the effect that the issuance of certificates of claim to depositors in no wise affects their substantial rights existing at the date of the state intervention but is merely evidence of such rights. And our answers are the same to these questions as to questions 1 and 2. The certificates of claim which are issued by the superintendent are, as said by counsel, auditing detail of the department, required for definiteness.

By the 9th question the superintendent seeks the opinion of the court as to which of the above described types of certificate of deposit, if any, are negotiable.

We here also find ourselves in accord with all of counsel filing briefs, to the effect that none of these certificates of deposit are negotiable.

All of counsel will understand that in this opinion we are advising on the very questions submitted, and with respect only to the instruments offered in evidence; that is to say, certificates of special deposit, certificates of deposit, pass books of special deposit, and deposit books; and our views are expressed having regard to the liquidation of the Miami Savings & Loan Company which is now in progress.

Counsel representing the superintendent say that they “feel that the decisions on questions 11, 12 and 13, should be deferred until such time as they arise, if at all, in the course of subsequent liquidation. Counsel therefore request leave of court to withdraw the same from consideration at this time.”

These questions may be withdrawn from our consideration, on request of counsel, and will be for future decision under proper conditions.  