Fairgate Realty Co. v. Drozda

• Decision Date: 21 December 1915
• Docket Number: No. 13107.,13107.
• Citation: 181 S.W. 398
• Parties: FAIRGATE REALTY CO. v. DROZDA.
• Court: Missouri Supreme Court

181 S.W. 398

FAIRGATE REALTY CO. v. DROZDA.

No. 13107.

Supreme Court of Missouri, Division No. 1.

December 21, 1915.

Rehearing Denied January 4, 1916.

Appeal from St. Louis Circuit Court; W. M. Kinsey, Judge.

Suit by the Fairgate Realty Company against William S. Drozda and others. From a judgment for plaintiff, the defendant named appeals. Reversed and remanded, with directions to dismiss.

A. R. Russell, of St. Louis, for appellant. Robert W. Hall and Henry Higginbotham, both of St. Louis, for respondent.

BOND, J.

This action is by the Fairgate Realty Company, a corporation, to cancel a deed of trust, and notes for $3,000 secured by it, as a cloud on the title to the land described in the petition, on the ground that said instruments had been executed and given on the 20th day of May, 1908, by Ben F. Shields as president, and attested by Pearle A. Shields as secretary of the plaintiff corporation when neither of them held such offices nor had any authority from the board of directors of said corporation to make any loan on its behalf or deed of trust to secure the same.

To this suit, the administrator of said Shields (he having died before the action) and the Drozda Real Estate Company, a corporation, and Wm. F. Drozda, the lender of the money for which said notes and deed of trust were given, and Gilmore R. Avis, both as an individual and trustee, and John W. Burian and Louis Fasterling, the holder of the notes, were made defendants. All of them answered by a general denial except Wm. F. Drozda and Louis Fasterling, each of whom answered separately. The defendant Drozda, in substance, that at the time he loaned the money to the plaintiff he had no knowledge, information, or notice of any defects in the execution of the notes and deed of trust given to secure them, and that he paid over a large portion of the money in discharge of previous deed of trust and liens on the property and in satisfaction of special tax bills, and paid the remainder to plaintiff and received its receipt. He further answered that he indorsed the notes before their maturity and in due course of trade and for full value, to his codefendant, Louis Fasterling. The answer of Fasterling pleaded facts sufficient to show that he was an innocent purchaser for value and without notice.

Issue was taken by the reply, and after taking proofs the cause was submitted to the court, which found as a basis of its decree that said Shields was neither president of the plaintiff corporation nor authorized so to do when he made the notes and trust deed in its name, and that they were void; that Pearle A. Shields was never secretary of the plaintiff corporation and that said corporation never ratified the making of said notes and deed of trust, and was not estopped to attack the same, and did repudiate the making of said instruments on September 24, 1908, when it acquired knowledge or notice of their existence. The court further found that no conspiracy to defraud plaintiff existed on the part of any of the defendants, but that all of them, except Fasterling and the administrator of B. A. Shields, deceased, "had notice of facts sufficient to put them upon inquiry as to the lack of authority in said Ben A. Shields to execute the said deed of trust." The court further found that out of the money loaned on said instruments, $1,430.62 were paid in satisfaction of a prior deed of trust and liens on the real estate, and adjudged that this sum, together with interest, be returned to the defendants. The court further found that defendant Fasterling, the holder of the notes for which said deed of trust was given, was an innocent purchaser for value and without notice. The court, upon said findings, annulled the deed of trust and notes as a cloud on the title of the real estate, and perpetually enjoined all of the defendants, except the administrator of B. F. Shields, deceased, from proceeding to sell the land described in said trust deed, on condition that plaintiff pay into court within a certain date the sum of $1430.62, with interest at 6 per cent. from the 20th of May, 1908, for the benefit of defendants, and also charged all the defendants except the administrator of B. A. Shields, deceased, with the costs of this suit. From the foregoing decree, defendants appealed to the St. Louis Court of Appeals, which transferred the cause to this court, as it involved the title to real estate.

I. The first error assigned by appellant is the inclusion in the decree of the perpetual injunction of three of the defendants, the Drozda Real Estate Company, a corporation, Gilmore Avis, as an individual, and John W. Burian, for the reason that there was no evidence tending to show any ownership of the notes in either of said defendants at the time the suit was brought. The Drozda Real Estate Company had no connection of any sort with the transaction under review, and neither it, nor any of its officers as such, were necessary or proper parties to the present action and should not have been the subject of a decree therein other than a dismissal of the suit as to them. Thrasher v. Greene County, 105 Mo. 244, 16 S. W. 955. Neither should there have been any judgment of cost against Drozda, Burian and Avis, as individuals, since none of them in that capacity had any interest in the notes or deed of trust securing the same when the suit was begun. When the transaction originally took place, Drozda, the lender of the money, used the name of Burian as payee of the notes, but caused him to indorse them without recourse, and thereupon Drozda sold the notes in the usual course of business to Fasterling, and this status of affairs existed when the action was brought. It follows that the only necessary parties defendant at the time were Fasterling, the owner of the notes, and the trustee of the deed purporting to secure them. The rule is that only those persons who are necessary defendants to an action can be legally charged with the cost incident to its sustention or with the duties prescribed by the decree. In any view of this case, no decree should have been rendered charging any of the defendants, other than Fasterling and the trustee of the deed of trust, with the terms of the judgment or the costs of the suit.

II. The only question left is whether the decree should have gone against Fasterling, the holder of the notes, and Avis, the trustee in the deed of trust, upon the facts as contained in the record and recited in the finding of the learned trial judge. As to this, appellant insists that the decree below was erroneous for two reasons: First, that Shields was shown to have acted within the scope of his authority as an officer and agent of respondent, wherefore it was concluded by what he did; second, that, independent of the relation of principal and agent, the negligence of the directors in permitting the consummation of the transaction, of which they were affected with notice under the facts in the record, estops and precludes the corporation from obtaining any redress against the innocent purchaser of its notes and beneficiary under its deed of trust. The principle upon which this is urged, is the maxim cherished in equity that, when one of two innocent parties must suffer, then the loss should fall on the one by whose fault or negligence the injury was caused. This presents a controlling question in this case, and will therefore be disposed of before considering the other contentions of appellant.

The record shows, the capital stock of the plaintiff was divided into 60 shares of the par value of $100 each; that it was formed in July, 1902, and that the original incorporators and first board of directors were B. F. Shields, secretary, subscribing for 20 shares; L. L. Hull, president, for 10 shares; C. J. Mallacek, vice president, 10 shares; E. W. Greer, treasurer, 10 shares; Albert Gerst, 10 shares. The basis of the capitalization was an unimproved tract of real estate, which was the only asset of the corporation. This property seems to have been held with the intention of improving it for future sale. The records of the corporation do not disclose any change in the office of treasurer, held by E. W. Greer. The office of secretary, originally held by B. H. Shields, was temporarily filled during his absence from 1906 to 1908, by E. W. Greer, the treasurer; but in March, 1908, B. H. Shields was again elected secretary, and he, Greer, Hull, Wainwright, and Cobb constituted the board of directors on May 30, 1908, when the notes and deed of trust complained of, were executed. The corporate meetings, after the organization of the company, were infrequent and generally noted by the secretary on loose sheets of paper and afterwards transcribed by him on the corporate minute book. On February 10, 1906, the board of directors authorized the obtainment of a loan of $475 to repay one of their number for taxes advanced by him. Thereafter, on March 30, 1908, the following resolution was passed:

"To dedicate and improve the property of the company by putting a street through the east end of said property and subdivide same into lots, and same to be managed by B. F. Shields, the stockholders to pay for such improvements in proportion to their holdings."

This resolution was in contemplation of the sale of the property, as is shown by a further recital of the minutes of the June meeting, to wit: "The property of the company was ordered disposed of as soon as possible." The...