Montana Attorney General Opinion 15-369

Opinion No. 369 Building and Loan Associations-- Liquidation-Set-offs HI'JTJD: A member of a Building and Loan Association in liquidation may not set-off payments made for shares of stock in the association again>it his indebtedness to the associ- ation for money borrowed. October 21, 1933. In order that our poSition may he hetter understood, we take the liberty of quoting from your letter to us of the 14th inst., as follows: "One, Mr. "T. J. Hazelton, borrowed $2,000.00 from the Broadwater Coun- ty Building and Loan Associa tiOll of Townsend. Montana, and secured the loan with a mortgage on his home. In conformity with the loan plan of the association he was also required to purchased 20 shares of $100.00 par value stock of the Association which !ltock was retained by the Associa- tion as additional collateral or se- curity to the loan. Mr. Hazelton made payments of $10.00 per month and at the time the Association went into voluntary liquidation these pa~'ments agg-regated approximately $(')00.00. Mr. Hazelton i>1:ates tha t he 'would not ha"e purchased this stock except in connection with his loan 'and when he made payments to build up the value of his stock he consid- ered them pa~'m{'nt!l to redlle~' the amount he had borrowed. The li- quidating agent in charge of the As- !lociation is now insisting on lJa~'l1lent in cash of the loan in the full amount of $2,000.00 and claims that Mr. Haz- .l'!ton is only entitled to become a gen- eral creditor of the Association for the $600.00 which he has paid in. Mr. Hazelton feels that he is entitled to have the $600.00 applied as a payment on the loan so that he can retire the loan at this time by paying approx- imately $1,400.00. * * " We would like your opinion as to whether or not Mr. Hazelton or other credi tors in like situations are entitled to have the stock credits in question applied on their loans." Section 47, Chapter 57, Laws of 1927, authorizes a building and loan associ- ation to go into voluntary liquidation. During the process of liquidation the income and receipts of the association, in excess of the expense and receipts of managing the same. shall be applied to payoff first the indeptedness and then the stock upon which no loans ha,'e been made, on a pro rata basis. 'L'he board of directors of the associa- tion may adopt such rules and make such orders as shall be just and equit- able for the division of its assets. Mr. Hazelton occupies the dual pos- ition to the association of borrower and stockholder. Under the law and the scheme of operation he could not he a borrower without becoming a :-;tockholder, but he could be a stock- holder without becoming a borrower. In his capacity as borrower he is a debtor, in his capacity as stockholder he is a member of the corporation. 'Vhat he paid as interest was paid in his character as dehtor on his loan. W'hat he paid as stock due was paid in his character as stockholder. The two are separate and distinct and must he so dealt with. Therefore, the pay- ments made on account of the collat- eral were not payments made on ac- count of the debt it was intended to secure. (Smith v. Bath Loan & Bldg. Asso., 136. Atl. 284, 50 A. L. R. 52(,); Groover Y. Pacific Coast Savings Soc., 127 Pac. 495; In re Joseph, 133 AU. fi9G; Bayless v. Baird, 143 N. E. 703; n C. J. 979.) The general rule, both in law and equity, is that demands, to be set off, must be mutual. and that debts accru- ing in different rights cannot be set off against each other. In view of the dual relation of member and debtor he tween the association and the bor- rowing stockholder, as has been pointed out, the equitable doctrine of set-off, as claimed by the borrowing stockholder, is not applicable to the case before us. (Smith ,'. Bath Loan & Bldg. Asso., supra; Barth v. Pock, 51 Mont. 418; Groyer v. Pacific Coast SIl"ings Soc., supra; Hoyer v. Perkins Loan & Trust Co., 168 Pac. 848; 57 C. .T. 444-447.) . Were the rule otherwise, the bor- rowing shareholder, where the asso- ciation is in fact insolvent, would en- joy a substantial advantage. As a member he is bound to contribute to the losses and expenses of the common enterprise. If the amount of dues paid 258 OPINIO~S OJ!' 'l'HE A'l'TOHNI~Y GENERAL in b~' him as a member is credited back to him as a debtor, he will receive in full the amount paid upon his stock, While the other members who have not Uecome borrowers may receh'e only a slIlall part of the amount paid in by them. (Groyer Y. Pacific Coast Sav- ings Soc., supra; In re National Bldg., Loan & Prm'. Ass'n., 10i Atl 453.) In view of the language of the stat- ute and the overwhelming weight of authority, it is our opinion that Mr. Hazelton is not entitled to have the $600.00 paid on his stock applied on his indebtednel515 of $2,000.00 to the association.