tMthis'interest will reSpectjand:.e'Venif the 'deli,nquent taxes were paid, ,as it has been suggested they might be, that eleJIlent of danger to his rigli.ts'would not be eliminated. I con"\"iction that practically this roap. is insolvent, and to'sliehadegree as to require the interference of the edurt. .' Tliete is force in the suggestion of counsel that tAe'troubles of 'the company have come frbm the general financial stress. But it is,frotPfinancial stress peculiar to the business generaIlt, that insolvency is wont to happen; "an,d, looking at the situation of the country as it is, there is no present promise or clear prospect of a recurrence of good times, and there :may be ground for apprehending yet worse before the coming of better conditions. On the whole case, it is evident that it is better for all interests that the matters in dispute be kept within the control, and that the adjustment of the liabilities between these companies should be settled under the supervision, of one court. The case is in such shape that we may assert jurisdiction, and I believe the best interests of all parties, as well as of the public, will be promoted by the ex,ercise of o'l1ranthority. WE> will tllerefore grant this petition. , Thert: is another fact, somewhat aside, but important. It appears, that tb(" existing receivership, thus far, has been beneficial. Under the prior management, there had been default in the payment of current expenses for three or four months, amounting to about $140,000. One hundred thousand of that has been extinguished, and current expenses since the receivership ha"\"e been paid j so that in less than three ,months the earnings of the road under the receivers have been. 'sufficient to pay the operating expenses for nearly six months, and,with continued prosperity and successful management, the receivers, after a little while, may be discharged, and the roads returned to their owners. I think the proposition of separate'receivers for the two roads is the right one.
TOWLE et al. v. AMERICAN BLDG., LOAN & INV. SOO. (Circuit Court" N. D. lllinois. March 10, 1894.)
BUiLDING AND .LOAN ASSOCIATIONS-DISSOLUTION IN EQ,UITy-ACCOUNTING.
Where a building and loan association, organized under a statute which declares that borrowers may repay their loans at any time, and be entitled to a credit of one-eighth of the premium for each of the unexpired years of the association's eight-year period, is dissolVed by a 'court of equity before the of the eight-year period because it is, losing money, the court called .in all the loans, and distributed the proceeds among the stockholders, giving the borrowers credit for the unearned part of their premiums, as. though they had voluntarily paid up, but ,gave them no credit on their loans for assessments and fines paid by them, all. the stockholders are aUke responsible for the losses of the . association.
Suit by Marcus Towle and others against the American Building, Loan & Investment Society. 'A receiver was appointed to take charge of the defendant's business, and he applies to the court for instructions.
A. Baldwin, for' complainants. W. G. Cooke,for defenqant. Collins, Goodrich, Darrow & Vincent, for the receiver.
GROSSCUP, District Judge. The receiver in this cause asks for the direction of the Gourt relating to the terms on which the borrowers from the association may repay their loa.ns, and, also, the claims which the receiver shall advance on like questions in cases of com· pulsory foreclosure. The laws of Illinois provide that each stockholder in a building lind loan association may borrow from such association upon the security of his stock, not to exceed $100 for each share thereof (that being the par "\Talue); that he shall give, in addition thereto, real-estate security acceptable to the board; and that he shall have the right at any time to repay the loan, in which case there shall be refunded to him the one-eighth of the premium thus bid for each of the unexpired years of the eight-year period during which the association is supposed to run. The law also provides that . each stockholder shall have the right to withdraw from the association, and, upon a compliance with certain conditions, shall be entitled to receive tke amount' paid in, and such proportion of the profits thereof as the by-laws may determine, less all fines and other charges. These associations are essentially corporate copartnerships. They have no function except to gather together, from small, stated contributions, sums large enough to justify loans. Their of· ficers are the agents of every stockholder. They have no debtors or creditors except the stockholders, and whether a stockholder is creditor or debtor depends on whether he has exercised his privilege of borrowing money from the common fund. The insolvency of such an institution is sui generis. There can be, strictly speaking, no in· solvency, for the only creditors are the stockholders by virtue of their stock. The so-called insolvency is such a condition of the af· fairs of the association as reduces the available and collectible funds below the level of the amount of stock already paid in. The associa· tion is said to be insolvent when it cannot pay back to its stockhold· ers the amount of their actual contributions, dollar for dollar. The association does not deal as a corporate entity with its borrowers as strangers. The by-laws determine who become borrowers, and the officers, who are agents of such borrowers, as well as of the remaining stockholders, in the transaction, simply execute these bylaws. None of the liabilities or maxims, therefore, which apply to contracts between strangers are applicable to these transactions. The transaction of borrowing is not between strangers, or the result of contract or dealing, but is simply the execution of pre-existing rights among the stockholders. I think it plain that, when the condition of the association shows that, instead of making profits, it loses the principal of the contributing stockholders, there is powel' in a court of equity to wind up its affairs upon purely equitable prin· ciples. This will consist in calling in the loans, and paying out the funds thus. received to the stockholders. It is not seriously disputed that on such' an adjustment the borrower is under obligation to re pay the actual sum received, together with interest thereon.
vol. 61.· ... ',.
The first question is rIll!' is entitled to a:credif fOl'·tlie amount of assessments paid upon his stock. I think not. Such a credit practically would be payin.gpar on his stock, a preference over other stockholders to which clearly he is not entitled. Neitherdo I think he should be allowed credit for flnes 'paid in. They are the result 01 his personal delinquencies, and, eo, instanti, become the commOn property of all the members of the association. The ,most difficult question relates to the premIum. The borrower has, at a stated meeting, bid a certain pr-emium, presumably the highest offered, for the of obtaining the loan. The gross amount of this premium has already been deducted from the money advanced, but is included in the face of the loan. It is urged that he ought to be credited with the premium, because he has neither received it in money, nor its consideration in the length of time for which the loan was to run, or in the manner of its repay· ment as originally contemplated. The objection would be insuperable if the borrower at the time of the loan stood in the attitude of a stranger to the association, and the act of l}orrowing' constituted such contract as usually arises upon a loan. In suoh a case the lender could not insist upon the premium while withholding a portion of the consideration and benefit upon which it was passed. But the relation between the borrower and his associate stockholders, and the legal relationship arising from the transaction, are not of that character, as has already, been pointed out. It' follows that these legal principles are not necessarily controlling. The question emancipates itself, therefore, from legal or contract technicalities, and reduces itself to one of simple equity and fair play. The ina· bility of the association to proceed to its expected termination by reason of the impairment of its collectible loans is attributable alike to each stockholder. Th0 officers of the association are their agents, and the results of their investments are alike the fortune or misfortune of each stockholder, whether- it be borrower or nonborrower. When a coridition thus brought about justiflesa court of equity in peremptorily terminating ' the career of the association, the adjustment should be made as near upon the line of what would take place if the association lived out its life as is possible. I can think of no fairer rule than to regard the nominal life of the association as eight years, and to look upon ea'Ch year short of that period as an aliquot portion thereof. This would give the borrower credit for such premium as the number of years, or fractional portions thereof, uulived by the association, bear to the whole period of its normal life of eight years. To that extent, the premium is unearned; for the period already passed,it has been earned. It is true that the borrower might not have bid the premium if he had foreseen the premature death of the association; but neither would his fellow stockholders, with a like foreknowledge, have contributed their install· D,lents. The misfortune of the one is not greater than that of the other. If the borrower were to be credited with the entire premium, the taking of possession of the assets by a court of equity would imme«;liately reduce the already impaired assets by the amount of the aggregate premiums. It might easily be that the intervention
WESTERN UNION TEL. CO. V. POE.
of equity near the close of the eight years would, under such circumstances, be a positive boon to the borrower, by incidentally deducting from the loan a large percentage of the principal. The temptation and uncertainty thus introduced ought, if possible, to be averted. The receiver is directed to proceed in accordance with the foregoing outlines.
WESTERN UNION TEL. CO. v. POE, Auditor of State of Ohio, et aL (Circuit Court, S. D. Ohio, E. D.
April 23, 1894.)
TAXATION-MARKET VALUE OF CORPORATE STOCK.
A tax upon the property of a telegraph company ("Nicholl's Law." Rev. St. Ohio, § 2778a), determined, in part at least, by the aggregate value of the shares of its capital stock, conllicts with a constitutional provision (Const. Ohio, art. 12, § 2) that the taxation of all taxable property shall be "by a uniform rule," because the market value of such stock bears no necessary relation or proportion to the value of the tangible property of the corporation, and because it involves elements of value, such as the good will and earning capacity of the business, which are not taxable in the state, and not used therein to determine the value of the taxable property of individuals or other corporations.
SAME-FRANCHISE OF CORPORATION.
Such tax cannot be supported as a tax upon the franchise of the corporation to do business in the state, or as a tax upon the business of the corporation, or as a tax upon the property of the corporation, combined with such franchise and business, because the legislature has not prescribed any definite mode of ascertaining the amount of such tax, and . could not, under the constitution, commit the determination of such amount to the discretion of a board of appraisers. A federal court has no general equitable jurisdiction in such case to enjoin a board of appraisers from certifying the amount to be assessed in each county upon the ground that such tax is illegal, nor does it acquire such jurisdiction under the provision of a state statute (Rev. St. Ohio, §§ 5848, 5849) that an action may be brought to prevent the illegal levy of a tax against a corporation or person beneficially interested in the proceeds, and against a county auditor who completes the levy by placing it on the tax duplicate. In such case, however, a federal court has jurisdiction to enjoin the board in order to prevent a multiplicity of suits in the several counties of the state.
SAME-MULTIPLICITY OF SUITS.
SAME-AMOUNT IN CONTROVERSY.
The jurisdiction of the federal court will not be defeated in such case by the fact that the assessment will not amount to $2,000 in any single cOllnty, because, the action being against the board of appraisers, the whole amount to be certified is the amount in controversy.
This is a Suit in Equity to enjoin the assessment of a tax brought by the Western Union Telegraph Oompany, a corporation and citizen of New York, against the state auditor, attorney general, and state treasurer of Ohio. It now comes on for hearing on demurrer to the bill, and on a motion by complainant for preliminary injunction.
The main questions at issue are of the validity, under the federal and Ohio constitutions, of a law of Ohio known as the "Nicholls Law," imposing taxes on telegraph, telephone, and express companies. The bill avers that the com· plainant owns and operates lines of telegraph in nearly all of the states of