tice says: "A borrowing member of a building and loan association occupies a dual relation to the association. In his capacity as borrower, he is a debtor. In his capacity as shareholder, he is a member of the corporation. What he pays as interest is paid in his character as debtor on his loan. What he pays as stock dues is paid in his character as stockholder. The two are separate and distinct, and must be so dealt with. . . When a building and loan association becomes insolvent, there is nothing to do but wind up its affairs. The shareholder who has been a member remains a member, liable to his just proportion of losses and expenses. He suffers a hardship in this; that, instead of having his payments on his loan distributed in small installments over many years, he is compelled by the necessity of the situation, and the nature of the building and loan association, to pay up his loan in one lump sum, with legal interest. This often involves great injustice to him, but it is, nevertheless, one of the risks which he assumed in becoming a member of this mutual association."

The second view, commonly known as the Pennsylvania rule, is that the borrowing stockholder is entitled to credit on his loan for the amount of interest and premium paid by him, but is not entitled to have the amount of the dues paid by him on account of stock applied on his loan. Under this view, credits and debits relating solely to the borrower's rights and liabilities as a stockholder, such as dividends, withdrawal value of stock, and charges for losses and expenses, are not made, but are left until the final winding up of the association and the settlement with members-borrowers as well as nonborrowers. This view is admirably and concisely stated in Rogers v. Hargo, 92 Tenn. 35, 20 S. W. 430, where, in a brief opinion, stating a case very similar to the one at bar, the court says: "We are content to adopt and follow the decision of the Pennsyl

vania court. Charge defendant” (in that case a borrowing member) "with money actually received by him, treating same as due and drawing interest from time received; and credit him thereon by payments of interest and premium when made. Ascertain balance due, making calculation upon principle of partial payments, and give recovery for such balance. Let amount paid by defendant as dues on stock stand to his credit on the books of the corporation until time for final adjustment, when he and all other stockholders, borrowers and nonborrowers, will be paid pro rata from the fund for ultimate distribution. Thus the loss will be apportioned equally."

This second view is adopted by a larger number of courts than those adopting the first view, and in our opinion is based upon better reasoning. Some of the leading cases in jurisdictions adopting this second view are Cooper v. Newton (C. C.) 160 Fed. 190; Hale v. Phillips, 68 Ark. 382, 59 S. W. 35; Groover v. Pacific Coast Sav. Soc. supra, with very extended note in which it is declared that the weight of authority favors the Pennsylvania rule; Curtis v. Granite State Provident Asso. 61 Am. St. Rep. 17, with note, 69 Conn. 6, 36 Atl. 1023, an oft-cited case; Fell v. Securities Co. 11 Del. Ch. 38, 95 Atl. 346, a case decided by the Chancery Court of Delaware in 1915; Number Four Fidelity Bldg. & Sav. Union v. Smith, 155 Ind. 679, 58 N. E. 70; Tootle v. Singer, 118 Iowa, 533, 88 N. W. 446; Eisenhart v. Scammon Invest. & Sav. Asso. 71 Kan. 855, 80 Pac. 960; Kentucky Bldg. & L. Asso. v. Daugherty, 27 Ky. L. Rep. 759, 86 S. W. 705; Home Sav. & Loan Soc. v. Mason, 127 Mich. 676, 87 N. W. 74: Knutson v. Northwestern Loan & Bldg. Asso. 67 Minn. 201, 64 Am. St. Rep. 410, 69 N. W. 889; People's Bldg. & L. Asso. V. McPhilamy, 81 Miss. 61, 59 L.R.A. 743, 95 Am. St. Rep. 693, 32 So. 1001; Woerheide v. Johnston, 81 Mo.

any other corporation. As a borrower, he simply receives in advance the par value of his stock, agreeing to pay the legal interest thereon during the time he has the money of the association, with the expectation that his stock will reach par value or "mature" about the time fixed for the repayment of the loan. His loan, theoretically, at least, is given him as a member who offers the highest premium, above the legal interest, which he agrees to pay, and usually the association advances him the full par value of the stock, divides the amount of premium by the number of months the loan has to run, thus determining the amount of his monthly payments, called "premiums," and treats the interest payable in the same way. Each monthly payment consists of three parts, and is so credited on his pass book and on the books of the company; that is, interest, premium, and dues. Dues are credited directly as a payment on the stock. Interest and premium go into the general fund and constitute the "earnings," of which a member's stock gets its pro rata share after the expenses of the association and losses, if any, are paid. At one time many courts refused to recognize the dual relation between the borrowing member and the association, and treated the whole contract as one of simple loan, regarding the relation of stockholder as being a mere fiction, but through statutory regulations, and through modification of the contracts and the making of more equitable forms thereof, the majority of the courts have come to recognize the dual relation, and construe the two contracts as separate.

The insolvency of the association puts an end to its business operations, -at least, so far as future performance is concerned, and to a certain extent, also, ends the contracts between it and its members respectively. See 4 R. C. L. 386. The present annotation, and the earlier annotations which this present one supplements, discuss the basis or mode of settlement between the association, upon

its insolvency before maturity of its stock, and a borrowing member.

It is settled that if a building and loan association is prematurely dissolved because of insolvency, the borrowing members will be compelled to pay up their loans at once, though the debts have not matured. See 4 Ann. Cas. 1080. In this event the entire purpose of the association fails, and the contractual obligations between it and its members are dissolved, except for the purposes of liquidation. Union Sav. & Invest. Co. v. District Ct. (1914) 44 Utah, 397, 140 Pac. 221, Ann. Cas. 1917A, 821. In fact, this rule is so well settled that, as stated in 43 L.R.A. (N.S.) 885, citation is unnecessary; every decision set out herein assumes this point. That, however, is practically the only question on this subject upon which there is harmony among the decisions; much difficulty has been experienced by the courtsat least, in the earlier decisions-in laying down a satisfactory rule of accounting to govern settlements between the insolvent building association and the borrowing members whose stock has not matured. The effort, of course, has been to formulate equitable rules which will not work hardship upon either party, but a divergence of opinion has resulted in attempts to formulate rules which will accomplish the desired end. As appears from the earlier annotations, and also from the opinion in the reported case (SMITH V. BATH LOAN & BLDG. ASSO. ante, 526), three distinct rules have been advanced as a basis for settling these rights, which have become known as (1) the Maryland rule; (2) the Pennsylvania rule; (3) and the Illinois or Grosscup rule.

By reference to the earlier annotations, it will be found that the Pennsylvania rule (which is the one adopted by the court in the reported case (SMITH V. BATH LOAN & BLDG. Asso.) charges the borrowing member with the amount actually received by him with interest thereon, and gives him credit as a direct offset for the total amount paid as interest and premiums, as of the date they are paid, calculating the balance due the receiver of the

association on the partial payment plan, considering the member, with reference to his payments of dues as a stockholder, and not as a borrower, and treating all payments on stock as assets of the corporation, to be shared pro rata on final distribution after payment of the general creditors.

The Illinois rule. (or, as it is sometimes called, the Grosscup rule, from the fact that it was promulgated by Grosscup, J., in Towle v. American Bldg. Loan & Invest. Soc. (1894; C. C.) 61 Fed. 446) seems rather closely related to the Pennsylvania rule, and it charges the borrowing member with the amount of money actually received, with legal interest thereon up to the time of the appointment of the receiver, and credits him with all interest paid, together with unearned premiums, that is, the credit of premiums bears to the whole premium the same ratio as the unexpired term of the loan bears to the whole period the loan was to run, and gives no credit for dues paid on stock, allowing all stockholders to share pro rata on distribution,

The Maryland rule which, as pointed out in the SMITH CASE, is based upon the theory that, although originally there was a dual relation between the borrower and the association, the insolvency of the association destroys. the mutuality of the contract and changes the relation subsisting to one of ordinary creditor and debtor, charges the borrowing stockholder with the sum borrowed by him and interest thereon, and credits him with all sums paid by him as dues, interest, and premiums, according to the rule governing partial payment. It overlooks entirely the equity of the nonborrower, and the fact that the borrower was a member, and hence equally responsible with the nonborrowing members for the management or mismanagement of the association.

Considered from all angles, the Pennsylvania rule is obviously the most equitable one of the three, and the decided trend of later decisions is, as noted in 43 L.R.A. (N.S.) 885, toward the principles underlying this rule. In fact, as stated there, the later cases

(Supplementing annotations in 4 Ann. Cas. 1082; 7 Ann. Cas. 318; 10 Ann. Cas. 391; Ann. Cas. 1914B, 1270; and 43 L.R.A. (N.S.) 886.)

The rule is stated above, and will not be repeated. In addition to the reported case (SMITH V. BATH LOAN & BLDG. ASSO. ante, 526) the Pennsylvania rule has been applied in Re National Bldg. Loan & Provident Asso. (1919) 12 Del. Ch. 93, 107 Atl. 453; Bayless v. Baird (1924) 110 Ohio St. 305, 143 N. E. 703; Stoddart v. Myers (1912) 52 Pa. Super. Ct. 179; Fell v. Securities Co. (1915) 11 Del. Ch. 38, 95 Atl. 346.

It is pointed out in the reported case (SMITH V. BATH LOAN & BLDG. ASSO. ante, 526) that a statute giving a borrower the right to repay his loan at any time, whereupon he shall be charged with the full amount of the original loan, together with all instalments of interest, premiums, and fines in arrears, and shall be given a credit for the withdrawing value of the shares pledged as security, is applicable only when the association is a going and solvent concern, and not when it becomes insolvent, when the member has no right to withdraw or perfect an incompleted withdrawal. See also Bayless v. Baird (1924) 110 Ohio St. 305, 143 N. E. 703.

As the venture has failed, the borrowing members ought not to be allowed to obtain any advantage over the nonborrowing members, as will be the case if they are allowed as credit the sums paid to the association as monthly dues or instalments. See Re National Bldg. Loan & Provident Asso. (Del.) supra.

However, Pennsylvania decisions seem to recognize the appropriation by the borrower of dues or payments on account of stock toward the repayment of the loan, when such appropriation

is made prior to insolvency; but, unless there is some evidence of appropriation by the borrower, stock payments are not applied to the repayment of the loan. See Stoddart v. Myers (1912) 52 Pa. Super. Ct. 179.

On the other hand, in French v. Wolfson (1913) 88 N. J. L. 669, 88 Atl. 1092, where the borrowing member gave notice of the withdrawal of his shares, the book value of which then exceeded the amount of his loan, but before this notice of withdrawal was reached (all withdrawals being paid in the order in which they were given), a receiver in insolvency had been appointed, and the association had voted to liquidate its affairs, it was held that, upon the bringing of an action by the receiver against the borrowing member for the amount borrowed, the borrower would not be entitled to set off the full withdrawal value of his share, but was only entitled to offset a dividend which had been declared by the receiver, notwithstanding that a local statute provided that a shareholder who had given notice of a withdrawal might sue for and recover the withdrawal value of his shares, if the same was not paid within six months from the date of the giving of notice of the withdrawal, as the rights of the parties must be determined as of the time the stockholders resolved upon dissolution, which was before the expiration of the six months' period allowed by the statute.

When a withdrawing member of a building and loan association recovers a judgment against it for the amount due him, he becomes a creditor of the association, and is entitled to payment as such, in preference to the members thereof, even though at the time the notice of withdrawal was given, and thereafter, the association was insolvent, and its affairs were afterwards wound up by a receiver appointed by the court of chancery, or these judgments became a lien upon the real estate of the association before the appointment of a receiver, which was properly transferred to the proceeds of the sale of the real estate when

sold by him. Re National Bldg. Loan & Provident Asso. (Del.) supra. -the Illinois or Grosscup rule.

(Supplementing annotations in 4 Ann. Cas. 1081; 7 Ann. Cas. 318; Ann. Cas. 1914B, 1270; and 43 L.R.A. (N.S.) 892.)

The Illinois rule, or the so-called Grosscup rule, charging a member, upon the insolvency of a building and loan association, with so much of the gross premiums as was earned at the time the society passed into the possession of the receiver, or ceased doing business on account of insolvency, was applied in Couch v. Lake Shore Bldg. Loan & Homestead Asso. (1916) 200 Ill. App. 56, where it was declared that this view represented the weight of authority in Illinois, and was the correct one. The decision of Wright v. Curtin (1907) 137 Ill. App. 267, where the court apparently adopted the Pennsylvania rule, was considered in the Couch Case, the court stating that, upon examination of the opinion in the Wright Case, it would be found that the issue raised by the pleading in the court below and by the assignment of error on appeal was on the question of usury, and not on the propriety of charging the borrowing stockholder with the earned premium; hence the observation with reference to the application of the premium was mere dictum.

-the Maryland rule.

(Supplementing annotations in 4 Ann. Cas. 1081; 7 Ann. Cas. 318; 10 Ann. Cas. 391; Ann. Cas. 1914B, 1270; and 43 L.R.A. (N.S.) 891.)

The so-called Maryland rule does not appear to have been applied in any case reported since the publication of the earlier annotation. On the contrary, it is pointed out in Bayless v. Baird (1924) 110 Ohio St. 305, 143 N. E. 703, that the view that the relation between a building and loan society and a borrowing stockholder is changed by the circumstance of insolvency to the relation existing between ordinary creditor and debtor, and that the shareholder is to be charged with the amount actually re