On January 10, 1921, the appellant purchased ten shares of paid-up capital stock of the Twin City Savings and Loan Association, and on said date paid therefor the sum of one thousand dollars. The association on said date issued to him its certificate for ten shares of stock in said association, which certificate he continued to own and hold until the 24th day of October, 1931, on which date he notified the board of directors of said association that he desired to withdraw from said association, and asked that the amount due him on said stock certificate be paid to him in cash. This notice was addressed to the Twin City Savings and Loan Association, and delivered to the secretary of the association at its office in East Chicago, Indiana.
On June 2, 1937, on a petition filed by the Department of Financial Institutions of the State of Indiana, the Twin City Savings and Loan Association was declared insolvent by the Lake Superior Court; and the appellee was appointed to liquidate the affairs of the association. Following the appointment of the appellee as the liquidating agent, the appellant filed his claim for one thousand dollars, alleged to be due him on said certificate of stock. In this claim, he set forth the fact that he had given notice of his withdrawal from the association on the 24th day of October, 1931. The petition closed with a prayer that his claim be adjudged *Page 605 as prior and superior to the claims and rights of stockholders who had not given notice of their intention to withdraw from said association. A similar claim was filed by the appellant and his wife, Gizella Fuzy, on paid-up stock in the amount of two thousand dollars; and these claims were consolidated for purposes of trial. No judgment has been entered by the court on this joint claim.
To these petitions, the appellee filed answers in general denial; and the cases were submitted to the court for trial. The court, after hearing the evidence, found against the appellant on his case; and judgment was entered to the effect that the petitioner take nothing by virtue of his petition, and that the petitioner is not entitled to a preference or priority over and above other shareholders in the Twin City Savings and Loan Association. A motion for new trial was filed and overruled, and this appeal has been perfected. The contention of the appellant is that the court was in error in denying the appellant a preference as a creditor over and above the claims of stockholders who failed to file notice of their desire to withdraw from the association during the period of solvency of such association.
The question, therefore, presented to this court is whether or not the appellant was entitled to a priority of payment over those shareholders who gave no notice of their intention to withdraw their holdings prior to the insolvency of the association.
At the time the appellant gave notice of his intention to withdraw from said association, there was in force and 1, 2. effect, in the State of Indiana, a statute, which reads as follows:
"Any stockholder, or the legal representative of any deceased stockholder, whose stock is unpledged for a loan, wishing to withdraw from such association, *Page 606 may do so upon three months' notice in writing to the board of directors, when such withdrawing stockholder shall be entitled to receive the full amount of dues paid in upon the stock to be withdrawn, together with all declared dividends thereon, less all fines and other charges provided by the by-laws and a pro rata share of the losses sustained during such stockholder's term of payment." § 5085, Burns' 1926.
This statute prescribes the method by which a stockholder may withdraw from membership in the association. When he has met the requirements of the statute, he has, in effect, withdrawn from membership, and is no longer a stockholder. If this were not the case, then the statute is meaningless. It is to be noted that payment of the amount due the withdrawing shareholder is not mentioned as a condition precedent to his withdrawal. If the stockholder has withdrawn from membership in the association, at the maturity of his notice, what, then, is his legal status, with reference to the association? Until he has been paid the amount due him, it is apparent to us that he is a creditor. By the terms of the statute, such withdrawing stockholder is, "entitled to receive the full amount of dues paid in upon the stock to be withdrawn, together with all declared dividends thereon, less all fines and other charges provided by the by-laws and a pro rata share of the losses sustained during such stockholder's term of payment." This is an amount which is capable of being made certain upon the day fixed for payment. This amount the association is obligated to pay; and the withdrawing member has no further rights or liabilities growing out of his membership in the association, if such association is then solvent. As was said by the Supreme Court of Massachusetts, in the case of Gilbert v. Beacon Hill Credit Union (1934), 287 Mass. 433, 439,192 N.E. 25, 28, "the plaintiffs' withdrawal from membership *Page 607 having become effective on May 26, 1930, and it not being proved that funds were not available to pay their claims, they became creditors of the defendant. . . . Nothing which happened after that time changed that status." Similar language is used by the Federal District Court of Oregon, In re Guardian Building LoanAss'n (1931), 53 F.2d 412, 413, wherein the court said: "A shareholder may become a creditor of an association, as its failure to pay the matured value of his stock, or to permit its withdrawal when conditions are met, would create a cause of action and a provable claim in case of bankruptcy." In the case of Lunati v. Progressive Building Loan Ass'n (1934),167 Tenn. 161, 167, 67 S.W.2d 148, 150, the Supreme Court, in speaking of the rights of withdrawing stockholders in building and loan associations, said: "They had perfected their right as withdrawing members by notice as provided (by) statute, and when that was done they became creditors of the association to the amount due them as withdrawing shareholders. In the absence of a forbidding statute or by-law, and there is none, complainants can enforce their right as creditors by action pursued to judgment and execution." Similar language was used by the Supreme Court of Oregon, in the case of Mott v. Western Savings Loan Ass'n (1933), 142 Or. 344, 349, 20 P.2d 236, 238, wherein the court said:
"In the case of a withdrawing stockholder, if the notice of withdrawal was given and matured while the association was a solvent going concern, he is entitled to be ranked as a general creditor, otherwise, not. Sundheim, Law of Building Loan Associations (2d Ed.), p. 185, § 180."
In the case of Woods v. Wichita Falls Building Loan Ass'n (1933), ___ Texas ___, 66 S.W.2d 718, 720, the court said: *Page 608
"When appellant's claim matured on November 29, 1931, and became enforceable, he became in a qualified sense a creditor of appellee, certainly so as far as the stockholders are concerned, the association being solvent. Law of B. L. Ass'n by Sundheim, p. 154; Young v. Stevenson, 180 Ill. 608, 54 N.E. 562, 72 Am. St. Rep. 236; Holyoke Ass'n v. Lewis, 1 Colo. App. 127, 27 P. 872; Englehardt v. Fifth Ward Ass'n, 148 N.Y. 281, 42 N.E. 710, 35 L.R.A. 289; Enterprise Bldg. Loan Soc. v. Bolin, 12 Colo. App. 304, 55 P. 740. And if the association was then a solvent going concern, he is entitled to be ranked as a general creditor."
The prevailing rule, as gathered from the authorities above quoted, was reiterated by the Superior Court of Pennsylvania in the following language:
"The decisions are clear that on the distribution of the assets of a building and loan association creditors, whose claims did not arise from the ownership of stock in the association, are entitled to be paid before `creditors' whose claims arose out of ownership of stock; and that no preference exists among the claims of stockholders, except that where stockholders have withdrawn from the association while it is solvent and it subsequently becomes insolvent because of losses on investments made after such withdrawals, such stockholders occupy a position as `creditors' superior to nonwithdrawing stockholders, who by their representatives in charge of the association brought about its insolvency; . . ." In re Commuters Building Loan Ass'n (1939), 134 Pa. Sup. Ct. 520, 523, 4 A.2d 615, 616.
It has, accordingly, been held by our court that such a withdrawing stockholder, upon the maturity of his notice, may maintain an action to enforce the payment of this 3. obligation; and, in such action, such withdrawing member is "not required to aver in his complaint, as a condition precedent to his right of action, that there were funds in the treasury with which to pay the amount due on the withdrawal *Page 609 of his stock." Huntington County, etc., Assn. v. Emerick (1899), 23 Ind. App. 175, 55 N.E. 106. He may reduce his claim to a judgment; and, if he does so, it is clear to us that all matters respecting his membership in the association have been concluded. See Braver on Liquidation of Financial Institutions, § 1300, p. 1442.
It is apparent from these authorities that the appellant was entitled to have his claim allowed as preferred over and above the claims of nonwithdrawing shareholders, unless the 4-6. Twin City Savings and Loan Association was insolvent at the time of the maturity of his notice. The rule is well settled that, "when an association is insolvent, the giving of a notice of withdrawal will not change the relation of the member to the association so as to place him in the position of a creditor rather than a stockholder." Mott v. Western Savings Loan Ass'n, supra, and cases cited: 9 Am. Jur., p. 181, § 94; Annotations, 98 A.L.R., p. 112; Liquidation of Financial Institutions, Braver, p. 1441. In fact, our court has held that: "`The right to withdraw does not exist after the association is known to be insolvent.'" Bingham v. Marion Trust Co. (1901),27 Ind. App. 247, 264, 61 N.E. 29.
In the light of these rules, we are next confronted with the problem of determining who has the burden of proof as to the solvency or insolvency of the association at the time of the maturity of the notice of withdrawal. The appellee contends that if the appellant is to establish his status as a creditor, he must not only prove compliance with the statute which permits his withdrawal from membership, but he must also prove that the association was solvent at such time. The appellee contends that the appellant has not discharged this burden. *Page 610
The facts in this case disclose that the appellant's notice of withdrawal was given on the 24th day of October, 1931. The Twin City Savings and Loan Association continued in business until June 2, 1937, when the appellee was appointed to liquidate its affairs. Following the maturity of his notice, the appellant talked to the secretary and members of the board of directors of the association from time to time about the payment of his claim, and was informed that his claim had been listed in the order of its filing and that withdrawals prior to his in point of time were being paid.
The evidence further discloses that the appellant filed suit against the Twin City Savings and Loan Association in the Superior Court of Lake County to recover the amount due on this obligation. To this action, the Twin City Savings and Loan Association filed an answer in which it was admitted that the board of directors of said association had received notice of the appellant's withdrawal. The answer alleged that many similar demands by withdrawing stockholders were on file, and that they were being paid in the order in which said notices of withdrawal were filed with said association. The answer alleged that the notice of withdrawal, as filed by the appellant, was about thirtieth on the list, but that the time for payment of his claim had not yet matured, due to the fact that the demands of withdrawing members exceeded the funds applicable for their payment. This action was not prosecuted to judgment, however, and was dismissed after the appointment of the appellee as liquidating agent.
Generally speaking, the burden is upon a stockholder, seeking to show that his status has been changed to that of a creditor, to allege and prove the essential fact that the 7, 8. association, if admitted to be insolvent at the time distribution is sought, was *Page 611 not insolvent when the alleged right of payment accrued, § 1299, Braver on Liquidation of Financial Institutions. This rule does not preclude recovery, however, where the evidence shows that many years have elapsed from the time of withdrawal to the time of the judgment, which declared the association insolvent. Financial institutions, organized and doing business under the laws of this state, are required to show a solvent condition before they begin transacting business. They must report their condition periodically to governmental supervising agencies; and they are examined periodically by those agencies, for the purpose of ascertaining whether they are solvent. And upon discovery of insolvency, the examining officers are required, by law, to immediately close the institution. For more than five years after this withdrawal, the Twin City Savings Loan Association continued to transact business under the state's supervision; and it is our opinion that such facts are sufficient to establish aprima facie case in favor of the creditor who seeks to have his claim allowed as preferred over the claims of nonwithdrawing shareholders. In such a case, if a creditor's right to priority over the claims of nonwithdrawing stockholders is to be defeated, the burden should be upon the stockholders who have continued to operate the association to overcome such prima facie showing, by proving such insolvency as would prevent the withdrawing member from enforcing the right which the statute sought to confer upon him.
The evidence in this case wholly fails to disclose any circumstances from which the court could reasonably infer that the Twin City Savings and Loan Association was insolvent in 9. January, 1932, at the time the appellant's notice of withdrawal matured. The fact that the association was found to be *Page 612 insolvent on June 2, 1937, is not in and of itself evidence of insolvency for any substantial period prior to that date.Walter v. State (1935), 208 Ind. 231, 195 N.E. 268.
The appellant having made a prima facie showing of all facts necessary to confer upon him the status of a preferred creditor as against the claims of nonwithdrawing shareholders, it 10. is our opinion that the court was in error in refusing to allow his claim as preferred.
The appellee further contends that the notice, given by the appellant of his intention to withdraw from the association, was wholly insufficient, for the reason that it was not served 11. upon the board of directors, as the statute requires. The evidence in this case discloses that the appellant's notice was in the form of a letter, dated October 24, 1931, and addressed to "Twin City Savings Loan Association, 4759 Alexander Avenue, East Chicago, Indiana." This notice was delivered to the secretary of the association, who was also a member of the board of directors. The record further discloses that this notice was received and placed on file by the association, and that the directors had knowledge of this fact. Under these circumstances, we think that the notice was sufficient to meet the requirements of the statute. 9 Am. Jur., p. 115.
For the reasons above stated, it is our opinion that the court erred in overruling the appellant's motion for a new trial. The judgment of the trial court is reversed, and the court is directed to sustain the appellant's motion for a new trial.
Judgment reversed.
Bedwell, J., dissents. *Page 613