Decided April 23, 1945.
Building and loan associations — Liquidation — Rate of interest paid certificate holder — Contract rescinded by Section 8305, General Code — Resolution of directors to pay contract rate of interest — Contract rate before insolvency not reinstated thereby — Creditor agreeing to accept less than amount conceded due — Not accord and satisfaction, when — Creditor accepting payment with contract rate of interest — Barred from asserting claim for different rate — Parties — Plaintiff representative in class suit — Section 11257, General Code.
1. When a savings and loan association is taken over for liquidation by the Superintendent of Building and Loan Associations pursuant to statute, any contract existing between a certificate holder and the association as to the rate of interest to be paid to the certificate holder is rescinded and Section 8305, General Code, providing for a legal rate of interest of six per cent, has application thereafter.
2. In such a case, a resolution of the association adopted during liquidation, calling for the payment of the balance due depositors with interest at the respective contract rates on all deposit claims as of a certain date, can not have the effect of reinstating any contract rate of interest existing prior to the original insolvency of the association.
3. If a creditor agrees to accept a sum less than that conceded to be due to him, such acceptance is not an accord and satisfaction and the creditor may proceed to collect the full balance of his claim; however, if in pursuance of the agreement there has been an executed contract, the execution thereof meets the objection that there is no accord and satisfaction.
4. Creditors of a savings and loan association in liquidation who accept a dividend check from the association in settlement of their claims, the amount of which check includes interest at the contract rate only, and who, at the same time sign a receipt which is in the nature of a release of any claims against the association, are barred from asserting any claims for the difference in the amount of interest computed at the six per cent legal rate; however, any creditor who does not cash his checks and sign a receipt is entitled to have interest allowed him at the six per cent rate.
5. Where all the creditors of a savings and loan association in liquidation, other than one or possibly two, have accepted checks from such association in settlement of their claims, the amount of which checks included principal plus interest computed at the contract rate only, there is serious doubt as to whether the one or possibly two may become thereafter the representative of all the others in a class suit against the association, under the provisions of Section 11257, General Code, seeking to recover interest at the legal rate rather than at the contract rate.
APPEAL: Court of Appeals for Montgomery county.
Mr. John Froug, for appellants.
Messrs. Estabrook, Finn McKee, for appellee.
This matter is before this court on appeal on questions of law from the judgment of the Court of Common Pleas of Montgomery county. The second supplemental petition of plaintiffs, Arthur L. Weinreich and Kate M. Dwyer, was filed on February 7, 1941, and a number of answers were filed thereafter.
As an answer to the second supplemental petition the association admits many of its allegations, but denies certain other allegations and alleges that the plaintiffs and all other creditors of the association who were issued certificates of claim against the defendant association are entitled to receive interest only at the rate provided in the certificates of deposit issued to the claimants by the defendant and not uniformly at 6 per cent, and defendant denies that it has preferred any creditors.
The court, on August 28, 1944, made a formal entry that the cause was submitted to the court upon the second supplemental petition and the defendant's answer and plaintiffs' reply, the stipulations in the record, and the evidence; and on consideration the court found the issues against the plaintiffs.
Notice of appeal was given and the case is in this court for our consideration.
Counsel for plaintiffs filed the following assignment of errors:
"First: The finding and judgment of the trial court is against the manifest weight of the evidence and the law, and the judgment is contrary to the law and evidence.
"Second: That upon the evidence and the law the finding and judgment of the trial court should have been in favor of the plaintiffs and against the defendant.
"Third: * * * [Not important].
"Fourth: For error of the trial court in overruling the demurrer of the plaintiffs to the evidence of the defendant.
"Fifth: For error of the trial court in overruling motion of plaintiffs for judgment in favor of plaintiffs at the close of all the evidence.
"Sixth: For all other errors appearing on the face of the record."
This case has been exceptionally well argued on behalf of the plaintiffs and defendant, and while we shall adhere closely to the matters as presented by counsel, yet due to the importance of the case and to original research we have made, we may extend our opinion slightly to cover views not presented by counsel for either party.
It will be impossible to detail the facts relating to this case due to their extensive ramification, but we may summarize, confining ourselves to those facts which are undisputed.
The defendant was a building and loan association invested with all the duties and authorities prescribed by the statutes of Ohio relating to building and loan associations. On the 29th of September, 1933, the Superintendent of Building and Loan Associations of Ohio, with the approval of the Director of Commerce, ordered the liquidation of the association under the provisions of Section 687-21, General Code. In pursuance of the statute the board of directors filed an application in the Common Pleas Court of Montgomery county requiring all persons having claims against the association to file proof of claims and to present their claims for allowance. All creditors and depositors filed their proof of claims and they were approved and allowed in the liquidation proceeding and both the creditors and depositors received certificates of claim and surrendered their evidence of deposit. Certificates of claims amounting to approximately $1,700,000 were issued. During the course of administration the directors, with proper consent, paid to the holders of certificates, dividends totaling 35 per cent on the principal amount of the outstanding certificates up to and including the year 1936.
On the 8th day of September, 1936, upon application of the Superintendent of Building and Loan Associations, the defendant association was permitted to resume business on a restricted basis and to file a plan of reorganization.
On August 27, 1940, plaintiff Arthur L. Weinreich filed his original petition, stating that he brought the action on his own behalf and on behalf of all creditors and claimants seeking the determination that the plaintiff and all holders of certificates of claim were entitled to receive interest on their several certificates of claim during the time of liquidation at the legal rate of six per cent. Plaintiff sought an accounting of the amount of interest due each claimant and for a restraining order against calculating interest at the contract rate and for judgment for the amount found due to each claimant. There was sufficient cash to pay all principal claims plus interest.
On the 28th day of September, 1940, after the unsuccessful efforts to effect the settlement with all holders of certificates, the board of directors passed a resolution ordering the payment of the final liquidating dividend of 65 per cent of the principal amount and ordered payment of interest on the outstanding certificates from the date of liquidation at the contract rate, that is, the rate of interest that was payable to depositors on the original evidence of deposit, varying from four per cent to six per cent. The board notified the superintendent of its action and the superintendent approved the same. On September 28, 1940, the association notified all holders of claims by letter that payment of 65 per cent final liquidating dividend plus interest at the contract rate would be made and that interest would cease to accrue on the certificates of claim after October 1, 1940. Claimants, in response to the letter, called at the office of the association and, in order to obtain their dividend check, signed a receipt. Upon the back of the check there was an endorsement and a purported release and an agreement to accept the sum calculated at the contract rate of interest. This agreed settlement was not submitted to the court for its confirmation.
Counsel for plaintiffs in this case notified the defendant that the receipts and endorsements of the checks were not valid because of no consideration and requested that the form of receipt be changed, which was not done, and the plaintiff Weinreich did not cash all the claims he had against the association, but retained several as set out in the petition. The defendant admitted that there were 283 persons who were certificate holders and whose claims were ordered paid as of October 1, 1940. All certificates of claim were of like tenor. All but a very few of the certificate holders accepted the payment of their full certificate with interest computed at the contract rate and cashed the checks given in payment thereof, which bore as part of their endorsement an agreement to accept the amount in full discharge of their claim against the association.
We shall state the claims as to the law made by the respective parties. The plaintiffs claim that the two legal questions presented are: (1) What rate of interest is payable to holders of certificates of claim in a liquidated building and loan association? (2) Was the defendant association discharged and released from its liability to pay a legal rate of six per cent on certificates of claim by reason of any act done or committed by the creditors?
It is asserted by plaintiffs that there can be no question on the legal proposition that holders of the certificates of claims in the liquidating of an insolvent association are entitled to interest at the legal rate of six per cent, and counsel points with considerable assurance to the holding of this court in the case of Nathan Goldzwig v. Merion, Superintendent, in charge of liquidation of the American Loan and Savings Association, being case No. 1750 in this court, which decision was rendered on April 29, 1943. It is pointed out that in that case this court held unanimously that the contracts of deposit were abrogated and rescinded under the statute and therefore that the contract rate of interest could not be the guide for the rate of interest due on certificates, and that this court overruled the trial court in that case in its judgment that the contract rate was the rate of interest to be paid. Motion to certify the record in that case has been overruled in the Supreme Court. In that case this court held that under the provisions of the statute any contract existing between a certificate holder and the association as to the rate of interest to be paid was rescinded by the statute when the association was taken over by the Superintendent of Building and Loan Associations for the purpose of liquidation, and that upon such occurrence Section 8305, General Code, providing for the rate of interest at 6 per cent thereafter controlled, and this court held further that the subsequent turnback to the association of the property formerly taken into the control of the superintendent did not reinstate any contract rate of interest existing prior to the original insolvency of the association, and that such turnback was for the purpose of reorganizing the association, or on failure to do that, it was for the purpose of liquidation. This court held that if the association has assets which will permit a payment of interest to the depositing creditors, such payment must be made not by virtue of the contract that is null and void because of the insolvency of the association as provided in Section 687-3, General Code, but by virtue of a general statute, Section 8305, General Code, providing for the payment of interest on claims at the rate of six per cent.
In the case of Goldzwig v. Security Savings Association, No. 93176, Montgomery county Common Pleas Court, Judge Mills followed the law laid down by this court in the above entitled case.
It is asserted by counsel for the plaintiffs that the decision of this court in the Goldzwig case lays down the principle controlling the case at bar, but that the trial court in the case at bar held that, at the time the final dividend of 65 per cent plus contract interest was ordered paid, the association was operating under the turnback provision of the statute and that the interest rate contracted for should be that originally established between the parties before the insolvency. The trial court took the view that upon the turnback of the association to its directors the rate of interest established by the contract, although the same had been abrogated by the intervening insolvency of the association, should be reinstated and be the contract under which or in pursuance of which the interest should be paid. This court, however, has held definitely that the turnback to the directors for final dissolution of the corporation or its rehabilitation did not reestablish the contract rate but that, if the contract rate because of insolvency became six per cent under the general statute, it would remain such rate pending the windup of the corporation.
Counsel for plaintiffs asserts that if the contracts were rescinded at the moment the association was ordered into liquidation on September 29, 1933, the same could not be reinstated on October 1, 1940. With this position of counsel for plaintiffs we are in accord.
"When a building and loan association becomes insolvent, it can not perform its contract with its members and shareholders, and its contract with them is thereby rescinded, and on this theory a court of equity has jurisdiction * * *."
While the case was discussed and decided upon the proposition as to whether the action against the company was a legal or equitable proceeding, the court did determine as above stated without a very detailed discussion of that point.
The next point discussed by counsel for plaintiffs is the question as to whether the defendant association was discharged from its liability to pay six per cent interest on the certificates of claim by reason of any act done or committed by the creditors. The trial court held that when a creditor executed a receipt and accepted a check requiring an endorsement in the nature of a receipt and release, such creditor thereby released any claim he might have to interest at other than the contract rate as set out in the certificates issued to him and endorsed on the check given in payment thereof.
This court had before it the case of Weinreich v. Permanent Building Savings Association, 26 Ohio Law Abs., 545, rendering a decision therein in 1937, and there held that the holder of a certificate at the time of liquidation was entitled to interest on his claim from the date of posting under the provisions of Section 687-3, General Code. Hornbeck, J., concludes therein: "It follows that upon this claim he (the plaintiff) is entitled to interest by the specific terms of G.C. 687-3, from the date of posting."
Counsel for plaintiffs contends that the receipt and endorsement of the checks do not bar the right of creditors to recover the balance of interest, there being no consideration for the receipt or the endorsement of the check, if it be considered in the nature of a release; and that there was no disputed or unliquidated claim involved. The certificate of claim was for a sum certain at the time the association was ordered into liquidation and the creditors filed their proofs of claim and the claims were allowed, and counsel urges in support of this position the case last cited, opinion by Hornbeck, J., and further asserts that the legal interest on the certificates was liquidated and undisputed and the defendant having failed to show any consideration for the acceptance of a lesser amount, there could be no discharge or release from the legal obligation to pay the lawful rate of interest, to wit, six per cent; that it is axiomatic that the payment of a smaller sum will not discharge the larger sum due and owing unless the claim is unliquidated or disputed; and that there is an agreement to release the balance.
Counsel cites the case of Yin v. Amino Products Co., 141 Ohio St. 21, 46 N.E.2d 610, pointing to the conclusion of the court in the first paragraph of the syllabus that "The acceptance of less than the amount presently or past due upon a liquidated and undisputed indebtedness in full payment thereof is not an accord and satisfaction."
The above cited case is very interesting upon the question presented and is more interesting in consideration of the dissenting opinion of Judge Hart. See comments by Hart, J., at page 40. We commend to a careful reading not only the opinion of the majority of the court in that case, but also that of Judge Hart, at pages 31 to 47, and authorities there cited.
This court had before it the case of Adams Recreation Palace, Inc., v. Griffith, 58 Ohio App. 216, 16 N.E.2d 489, 26 Ohio Law Abs., 1, in which it rendered a decision on December 6, 1937, opinion by Geiger, J. The case related to the question whether a landlord who had made a written lease to a tenant for a certain annual rental could collect the amount of that rental after he had agreed with the tenant to accept a lesser sum. The court there followed the decisions of the courts upon that question and held that an agreement by a lessor to accept a lesser rental than that provided in the lease is not binding unless supported by a valid and sufficient new and independent consideration.
"While an executory agreement on the part of a creditor to accept in payment and full satisfaction of a liquidated claim a sum less than the amount of such claim, without any additional consideration to support such agreement, is ordinarily not enforcible at law, yet if such agreement has been executed and settlement made accordingly, or has been made with some benefit or advantage to the creditor, however slight, it will operate as a full discharge of the debt in accordance with the intention of the parties."
Judge Williams in the majority opinion and Judge Hart in his dissenting opinion, in the Yin case, supra, comment upon the Gholson case. Judge Williams says at page 27:
"If the sixth paragraph of the syllabus in the Gholson case at first blush seems rather far-reaching when applied to a different factual situation, it should be remembered that a syllabus must always be read in the light of the facts presented."
Judge Hart comments, at page 32, to the effect that he apologizes for the length of his dissenting opinion on account of "confusion which I fear may result from the decision of the court in this case [Yin v. Amino Products Co.] in connection with the case of Gholson v. Savin, 137 Ohio St. 551, 31 N.E.2d 858, 139 A.L.R., 75, decided by this court only two years ago, * * *."
In support of that part of the sixth paragraph of the syllabus in the Gholson case, "yet if such agreement has been executed and settlement made accordingly, * * * it will operate as a full discharge of the debt in accordance with the intention of the parties," we find substantial authorities.
In 1 Corpus Juris Secundum, 528, Section 34, it is stated that it is an elementary rule in order to effect an accord and satisfaction that the thing offered must be accepted by the creditor as satisfaction of his claim and the payment of a part of a debt will not discharge the whole thereof without an acceptance of such partial payment as satisfaction. It is then stated:
"Such acceptance may be actual, by an express and affirmative agreement or consent to receive a partial payment in settlement of the whole debt or demand, or it may be constructive, or implied in law, by the acceptance of a partial payment tendered on the condition that it be accepted in full settlement."
See further comment in the authorities cited.
In 17 Corpus Juris Secundum, 422, Section 71, it is said:
"If one makes an executory contract which lacks consideration, he may avoid it when called on for performance, but if he executes the contract by performance he cannot undo his voluntary act."
An interesting case decided by the United States Supreme Court is that of Southern Pacific Co. v. United States, 268 U.S. 263, 69 L. Ed., 947, 45 S. Ct., 500. In that case the Supreme Court of the United States held that where a railroad had a just claim against the government for the transportation of soldiers or material and rendered a bill against the government at "land grant" rates in lieu of full compensation to which the railroad was entitled, although the comptroller's rule was erroneous, the railroad was bound by acquiescence and could not recover the difference between the amount received and the larger amount which it was lawfully entitled to charge under the tariff.
In De Boest v. Gambell, Auditor, 35 Ore., 368, 58 P. 72, relating to salary due to a public official under the law, but for which salary the official accepted a lesser payment, the court holds that while paying officials may not reduce the salary below that established by statute or ordinance, yet if the official accepts the same, he may not recover the difference between the sum so accepted and the sum provided for by law.
The dissenting opinion of Judge Hart in the Yin case is so replete with sustaining citations that we can do nothing more than to say to those who may be interested that we refer to that opinion and cases cited on page 42 et seq. Among other propositions on page 45 will be found:
"Where a tender of payment is made upon certain conditions, the creditor has no right to accept the tendered payment and disregard the conditions attached. If he exercises dominion over the thing offered or tendered, he will be bound by the conditions."
The Gholson case and the Yin case both recognize the fact that there is a distinction between an executory contract and an executed contract.
There seems to be no question on the proposition that if a creditor agrees to accept a sum less than that conceded to be due to him, such acceptance is not an accord and satisfaction and the creditor may proceed to collect the full balance of his claim, yet, if in pursuance of the agreement there has been an executed contract, the execution thereof meets the objection that there is no accord and satisfaction. Applying that to the case at bar, after the certificates had been issued and the letters sent to the certificate holders who agreed to accept payment, such certificate holders could have refused to carry out the agreement upon the ground that there was no consideration. They would have had a right to so repudiate their contract. But after they accepted the money so offered to them there can be no rescission from it on the ground that there is no accord or satisfaction.
A very early case in Ohio is referred to at length in the Adams Recreation Palace, Inc., case heretofore cited, the case being Harper v. Graham, 20 Ohio, 106, opinion by Ranney, J. It is an illuminating case and while following the rule that there must be an accord and satisfaction, the court points out that modern decisions have sought to avoid the absurdities of the principle, and have taken advantage of every opportunity to escape the consequence of the early decisions.
Courts have held that while a money payment of a less amount than that which is due is not an accord and satisfaction, yet if any other item than money is involved, it supports the claim of accord and satisfaction. If a debtor gives a certain amount of money and adds to it a horse, hawk or robe, as originally recited by Lord Coke, there is an accord; or in these days, a carton of cigarettes, in addition to the cash, would be held to be an accord and satisfaction even though the amount of money paid was far less than that which was due.
The statute requires the Superintendent of Building and Loan Associations to publish the fact that the association has been taken over. This action was instituted by the plaintiffs on August 27, 1940. We have already set out the facts recited in the second supplemental petition upon which the case was tried. The original petition clearly stated, so that all creditors could be informed of the claim of the plaintiffs, that it was asserted that, after the insolvency of the company, creditors or depositors were entitled to six per cent interest, and that the plaintiff brought his action on behalf of himself and all others similarly situated, yet in spite of this knowledge, which came home to the claimants, all of them with the exception of the plaintiff Weinreich and possibly Mrs. Kate M. Dwyer, accepted payments of the principal of their claim, and interest at the contract rate. It may not, therefore, be said that they entered into this agreement which was carried out to completion by the acceptance of the amount tendered, in ignorance of the amount to which they may have been entitled had they not accepted interest at the contract rate.
The parties have filed briefs to which we have given attention and further we have given attention to the well considered opinions of the court below.
Restating the matter in the fewest words possible, we find that the controversy involved the question as to whether the plaintiffs in this case, acting on behalf of themselves and others whom they claim are in a like situation, may recover the difference between the contract rate of interest which was paid to and accepted by the claimants upon the offer made by the board of directors, and the rate of six per cent interest which is the legal rate in force after the association became insolvent. If the claim of the plaintiffs is sustained, the sum of $70,000 will be taken from the shareholders and paid to the depositors who have already received the amount offered by the directors, thus changing their claim from an executory to an executed contract. The plaintiffs have a very minor claim in amount and we can by no construction arrive at the conclusion that these minority claimants who have refused to accept the offer made by the directors may, by virtue of their alleged representative capacities, create a fund to the detriment of the shareholders to be paid to creditors who have already accepted the offer of the board of directors.
Inasmuch as we have arrived at our conclusion of excluding the depositors who agreed to and did accept the contract rate, we must concede that as to the plaintiff Weinreich who has not accepted the contract rate, but has asserted continuously his right to have his claims allowed at the rate of six per cent interest, he is entitled to the computation of his claims at the rate of six per cent for the period beginning with the insolvency of the corporation. The directors have tendered him the amount of his claims, computed at the contract rate and have paid the same into court and assert that, therefore, the plaintiff is not entitled to recover. With this claim of the board of directors we cannot agree. The claim of the plaintiff, Weinreich, excluding any class representation, may be computed at the rate of six per cent and this amount should be paid. We will not go over the figures, but they are of a very minor amount.
Due to the long lapse of time this small increase in the rate of interest may amount to a considerable sum, estimated in this case to be $70,000 for all the claims. We shall not assume the burden of computing the exact amount, but leave that to the actuaries of the company and the plaintiff, Weinreich. This applies equally to the claim of $6,236.42 of Kate M. Dwyer, if she refused to accept the interest payment. If she accepted, it does not apply.
A matter that assumes paramount importance in this case is the correct solution as to whether Weinreich, who brings the action as creditor for himself and all other creditors of the corporation for their use and benefit, can represent creditors other than himself and possibly Mrs. Dwyer in a class suit under the provisions of Section 11257, General Code.
All other creditors save Weinreich and possibly Mrs. Dwyer have settled with the corporation by the receipt of dividends based upon a contract rate of interest and have given to the corporation full discharge from all further claims on behalf of their certificates of indebtedness. Weinreich never cashed such a certificate and always has maintained that he is entitled to six per cent interest in spite of the fact that his contract rate was less. If there were any other creditors than Weinreich who were in the same class with him in having refused to accept the payment tendered by the association, then they would be in the same class with Weinreich, but not numerous. In the case at bar the larger group of creditors, amounting to over 285, have constituted a class of their own by having accepted the checks tendered by the association. We have serious doubts as to whether Weinreich, being practically the only one who has not accepted the settlement, may constitute himself a plaintiff on behalf of all the others who have accepted the payment, by merely alleging a common interest. No common interest seems to us to exist. The large group of creditors whom Weinreich claims are so numerous that it would justify a class suit, are separate and distinct in their claim from Weinreich, who seeks to become their representative in a class suit.
In accordance with the decision in 1937 of this court in the Weinreich case, supra, the plaintiff Weinreich is clearly entitled to interest at six per cent, whereas all of the certificate holders who accepted the payments made by the defendant upon the condition imposed by it, constitute a different class.
We believe this question has been considered and decided in the case of Stevens v. Cincinnati Times Star Co., 72 Ohio St. 112, 73 N.E. 1058, where the court considers this matter on page 154, and embodies its conclusion in the last sentence of the second paragraph of the syllabus. The court pertinently states on page 154:
"The rule is uniform that, in order to maintain a suit by one for the benefit of himself and others, there must be community of interest as well as a right of recovery by reason of the same essential facts. Armstrong v. Treas., 10 Ohio, 235; Ohio v. Ellis, same volume, 456; Trustees v. Thomas, 51 Ohio St. 285, 295; Duncan v. Willis, same volume, 433."
Judgment of the court below is affirmed, except as to the amount claimed by the plaintiff Weinreich who has constantly maintained his right to a six per cent rate, and possibly Mrs. Dwyer.
NICHOLS, J., concurs.
HORNBECK, J., concurs in the judgment.
NICHOLS, J., of the Seventh Appellate District, sitting by designation in the Second Appellate District.
I concur in the judgment and am of opinion that the fourth defense of the answer has been established as against all persons whom plaintiff Weinreich claims to have represented except himself and those who would not accept the checks issued by the defendant association.
Because of the judgment, it is immaterial whether this is a class suit. If the plaintiff Weinreich could maintain his contention that all claimants whom he seeks to represent were entitled to 6% interest on their claims, and that the acceptance of the checks afforded no consideration for the releases in full satisfaction signed by them, then all of such claimants would be in like status as that of the plaintiff and the suit would properly proceed as a class suit.
I do not agree that the claimants' acceptance of the checks, being an executed contract, afforded a consideration for the receipts, for the reason that we are precluded from properly so holding by Yin v. Amino Products Co., 141 Ohio St. 21, 46 N.E.2d 610. I recognize the strength of Judge Geiger's opinion and the dissent of Judge Hart in the cited case and that many states take a different view than that which was reached by the majority in the cited case.
I believe that there was a consideration moving between the parties in the tender and acceptance of the checks and execution of the receipts therefor. At the time that the checks were tendered there was manifest uncertainty as to the rights of the claimants to collect six per cent interest instead of the rate specified in their certificates from the association. Nor had there been an adjudication on the subject. The checks were delivered under date of October 1, 1940, and the opinion of this court in the Goldzwig case was not released until 1943 and, even then, the question there decided was not identical with the one presented here. This uncertainty on behalf of the claimants as to their right to collect a full six per cent instead of their contract rate, would support their acceptance of a lesser sum and afford a consideration for the releases executed by them.