Cooper County Bank v. Bank of Bunceton

• Decision Date: 06 July 1926
• Docket Number: No. 15668.,15668.
• Citation: 288 S.W. 95
• Parties: COOPER COUNTY BANK v. BANK OF BUNCETON.
• Court: Missouri Court of Appeals

288 S.W. 95

COOPER COUNTY BANK v. BANK OF BUNCETON.

No. 15668.

Kansas City Court of Appeals. Missouri.

July 6, 1926.

Rehearing Denied July 22, 1926.

Appeal from Circuit Court, Cooper County; John G. Slate, Judge.

Action by the Cooper County Bank against the Bank of Bunceton. Judgment for defendant, after the case was transferred to the circuit court from the Supreme Court (276 S. W. 622), and plaintiff appeals. Reversed and remanded, with directions.

Montgomery & Rucker, of Sedalia, for appellant.

Roy D. Williams, of Boonville, for respondent.

ARNOLD, J.

This is an action to rescind a contract dated March 30, 1921, whereby plaintiff purchased from defendant a certain promissory note of $5,500, dated July 1, 1921, payable in 90 days, with interest at 8 per cent., executed by the Bunceton Ice, Light & Fuel Company, and stating on its face that it was secured by a deed of trust.

The petition is in two counts, the first of which asks rescission on the ground of mutual mistake and the second on the ground of false representation. The facts shown by the record are that plaintiff and defendant are both corporations organized under the laws of the state of Missouri and engaged in banking business at Bunceton, Mo. The Bunceton Ice, Light & Fuel Company was likewise a Missouri corporation and was engaged in the operation of an electric light plant at Bunceton, in connection with its ice and fuel business.

On March 30, 1921, defendant owned the $5,500 note above referred to, and held what was purported to be a valid deed of trust upon all the property of the light company, securing said note, covering the lot and building containing its electric light plant and ice-making equipment, the lot across the alley from said plant upon which was located the fuel shed used for storing the coal used in the plant, the electric light machinery, and the ice-making machinery. The deed of trust contained the usual provisions for sale upon default.

Upon the date of said deed of trust, the company was engaged in operating an electric light plant upon said real estate for the manufacture, distribution, and sale of electric light and power to the people of Bunceton and vicinity. In the same building, the company was operating an ice plant for the manufacture of ice. The electric light plant and the ice plant were so constructed and placed that one steam boiler was used, by both. The company was thus a public service corporation at the time of the execution of the note and deed of trust in controversy.

On said March 30, 1921, plaintiff was the owner of a note of the Bunceton Ice, Light & Fuel Company in the sum of $5,000, secured by what plaintiff deemed to be a valid deed of trust upon the same property. On said date, and prior thereto, defendant had advertised for sale under its deed of trust the property of the company, including its plant and machinery for generating electricity and the real estate upon which the same were located. On said date plaintiff approached defendant for the purchase of the $5,500 note in order to protect its second deed of trust. The sale was consummated for $5,819.69, and the note was indorsed without recourse; the price paid being the face of the note with accrued interest and certain expenses paid by defendant.

On May 20, 1921, the Bunceton Ice, Light & Fuel Company was adjudged a bankrupt. The said company, being engaged in the manufacture, sale, and distribution of electricity to the people of Bunceton and vicinity, was a public utility at the time both of said deeds of trust were executed and delivered, and such execution and delivery were not authorized by the State Public Service Commission, as required by section 10483, R. S. 1919, as follows:

"No * * * electrical corporation or water corporation shall hereafter sell, assign, lease, transfer, mortgage or otherwise dispose of or encumber the whole or any part of its franchise, works or system, necessary or useful in the performance of its duties to the public * * * without having first secured from the commission an order authorizing it so to do. Every such sale, assignment, lease, transfer, mortgage,,disposition, incumbrance, merger or consolidation made other than in accordance with the order of the commission authorizing same shall be void."

It is conceded that neither plaintiff nor defendant was informed of said statutory requirement at the time said deeds of trust were taken, and neither of them knew of such requirement until March 30, 1921, at which time defendant sold and assigned its note and deed of trust to plaintiff.

The petition alleges, and the proof shows, that plaintiff first learned of the statutory requirement and of the failure of the light company to secure authorization of the Public Service Commission after it purchased said note and after the light company had been adjudged a bankrupt. Upon learning these facts, plaintiff notified defendant that it elected to rescind the contract of purchase of said note and deed of trust, tendered them to defendant, and demanded return of the purchase money. This offer was refused, and this action followed.

The record further shows that, after said light and fuel company went into bankruptcy, plaintiff proved up on the bankruptcy court on its second deed of trust, but did not prove up on the first. Plaintiff's attorney, by stipulation and letter, tried to get defendant bank to agree that the first deed of trust might be proved up as an unsecured debt in the bankruptcy proceeding, but in this he was unsuccessful.

The judgment was for defendant, and, after the overruling of its motion for a new trial, plaintiff brings the case here by appeal.

The petition alleges that, by reason of the premises, the parties to the said contract of sale proceeded under the impression that the deed of trust given as security for the note was valid, and that the said sale and purchase occurred by reason of a mutual mistake relative to the facts; and that, without such mistake, the said sale and purchase would not have been made; that on May 27, 1921, plaintiff learned of the mistake, and on said date elected to rescind the contract, and advised defendant of its said election, and tendered to defendant the note and deed of trust and demanded refundment, which was refused.

The second count is identical with the first, excepting as to grounds of rescission, and alleges defendant falsely represented to plaintiff that the instrument purporting to be a valid deed of trust was an incumbrance upon the real estate and plant of the said company, and was a first lien thereon; that plaintiff believed and relied upon such representations, and, so believing and relying thereon, entered into said agreement. Defendant relies upon the following defenses set up in the answer:

"(1) That at the time of the making of the contract the plaintiff owned a second and subsequent deed of trust upon said property, and that, as the owner of such instrument, it exercised its right to purchase the first incumbrance and to make the defendant indorse the same over to it. (It is not alleged that the plaintiff as a holder of a subsequent incumbrance had the right to pay off and discharge the first incumbrance and did pay off and discharge the same.)

"(2) That the defendant indorsed the note to plaintiff without recourse, and that the statutes fixed the resulting rights of the parties.

"(3) That plaintiff owned a second mortgage on the same property, which he proved up against the bankrupt estate of the company, but plaintiff failed to prove up the note in controversy, thus increasing the value of the plaintiff's note and decreasing the value of the note in controversy by reason of which the plaintiff is not entitled to relief in equity.

"(4) That the Public Service Commission has power to validate a mortgage originally executed without its permission, and that the plaintiff, not having taken any steps to validate the note and mortgage, has no standing in the court of equity.

"(5) That the mortgage in question was valid as to all the property belonging to the company which was not `necessary to the exercise of the Public franchise to furnish light in and to said city,' and that plaintiff, having failed to exhaust such security, was guilty of such laches as to bar recovery.

"(6) That plaintiff cannot now place the defendant in statu quo, and therefore is not entitled to a rescission.

"(7) That the Bunceton Ice, Light & Fuel Company, the maker of the note in question, was adjudged a bankrupt, and its property sold, and the rights of the third parties have thus intervened.

"(8) That the plaintiff was guilty of gross negligence in not informing itself of the records of the Public Service Commission.

"(9) That the plaintiff speculated on the property securing the deed of trust and bought the same in at the bankrupt sale and thereby acquired all that it could have received had it foreclosed under a valid mortgage.

"(10) That the plaintiff, after notice of rescission, exercised dominion over the note and deed of trust, and induced the bankrupt court to sell the property free and clear of all mortgage liens, whereby the plaintiff is estopped.

"(11) That the statute prohibiting the giving of security by public service corporation is unconstitutional, because contravening subsection 32 of section 53 of article IV of the Constitution of Missouri."

The evidence shows that the Bunceton Ice, Light & Fuel Company became indebted to defendant bank; that defendant appealed to plaintiff bank to carry part of the indebtedness of the company on the ground that plaintiff should do its part in promoting the welfare of the community by taking over part of said indebtedness; that plaintiff did loan said company one-half of the...