First Merchants Nat. Bank & Trust Co. of Lafayette v. Murdock Realty Co.

• Decision Date: 13 February 1942
• Docket Number: 16711.
• Court: Indiana Appellate Court
• Parties: FIRST MERCHANTS NAT. BANK & TRUST CO. OF LAFAYETTE v. MURDOCK REALTY CO. et al.

39 N.E.2d 507

111 Ind.App. 226

FIRST MERCHANTS NAT. BANK & TRUST CO. OF LAFAYETTE v. MURDOCK REALTY CO. et al.

No. 16711.

Appellate Court of Indiana, in Banc.

February 13, 1942

[Copyrighted Material Omitted]

Vaughan & Vaughan, of Lafayette, for appellant.

Walter Myers, Donald L. Smith, and Walter Myers, Jr., all of Indianapolis, Crumpacker & Friedrich, of Hammond, David Stoneman, of Boston, Mass., Jay E. Darlington, of Hammond and Fraser & Isham, of Fowler, for appellees Murdock Realty Co. and P. Edward Fardy.

STEVENSON Judge.

The appellant brought this action on certain notes executed by certain appellees, hereinafter mentioned, and to foreclose a mortgage, allegedly given to secure the payment of the same.

The first paragraph of complaint alleged that the appellee Murdock Realty Company, was indebted to the appellant bank on two notes, totaling $64,219.80, and was also liable as endorser on a note originally executed by John G. McKee in the sum of $3,500, which amount the first paragraph of complaint alleged was secured by a mortgage executed by the Murdock Realty Company on certain real estate located in Tippecanoe County. Copies of said notes and mortgage were set out in complaint. The first paragraph of complaint sought judgment on the notes and a foreclosure of the mortgage.

The second paragraph of complaint alleged that Charles L. Murdock was also indebted to the appellant bank and as evidence of such indebtedness had executed his promissory note payable to the appellant bank in the sum of $41,620. The complaint further alleged that the appellees, Mary L. O'Hearn and Frank J. O'Hearn, were also indebted to the appellant bank, as evidenced by their promissory note in the sum of $28,243.76, and that to secure the payment on said obligations the Murdock Realty Company executed the mortgage in suit on real estate located in Tippecanoe County. The mortgage contained the provision that,

"This mortgage is given for the benefit and security of the respective owners and holders of the obligations hereinafter specified, and to secure the payment of each of said respective obligations to the respective owners and holders thereof on or before one hundred twenty (120) days from date hereof, * * * and the mortgagor herein expressly guarantees the payment of each and all of said obligations according to their tenor and effect on or before one hundred twenty (120) days from date hereof."

The obligations above mentioned were then set out in the mortgage, and listed and included obligations heretofore mentioned of the Murdock Realty Company, of Charles L. Murdock, Mary L. O'Hearn, John G. McKee, and also included a note of $15,000 signed by Charles L. Murdock payable to the Merchants National Bank of Indianapolis. The Merchants National Bank of Indianapolis, appellee herein, filed an answer and cross-complaint alleging that it was the beneficial owner of this mortgage to the extent that it secured the $15,000 note which Murdock personally owed to it, and asked that the mortgage be foreclosed for the additional sum of $15,000.

The appellee, P. Edward Fardy, filed petition for leave to intervene which was granted upon the consent of all parties, and, thereupon, the appellee, Fardy, filed his answer in which he alleged that he was acting as a minority stockholder in the Murdock Realty Company for the benefit of himself and such other stockholders as might desire to join therein. In this petition, the appellee, Fardy, alleged that the Board of Directors of the Murdock Realty Company consisted of Charles L. Murdock, as president and director, his sister, Mary L. O'Hearn, and one F. D. Hollensbe. The petition alleged that these officers and directors of the corporation dominated and controlled the affairs of the corporation. The petition alleged that the corporation was the owner of the real estate described in the mortgage, which property was commonly known as the Lahr Hotel in Lafayette, Indiana, which property was the principal asset of the Murdock Realty Company.

The petition alleged that appellee Murdock was a large stockholder in the appellant bank, that F. D. Hollensbe was an employee of the appellant bank, that he and his sister were personally indebted to the appellant bank in large sums, and that the mortgage in suit was executed to the bank, not only to secure the corporation's debt, but also to secure the individual debts of appellee Murdock and his sister Mary L. O'Hearn, and that the corporation received no consideration whatever for the execution of such mortgage, in so far as it secured the individual debts of the appellees.

The petition further alleged that it was useless to demand that the directors of the Murdock Realty Company defend this action for the benefit of the stockholders, and concluded with a prayer that an accounting be had between the Murdock Realty Company and the appellant bank to determine the exact amount of the indebtedness due to the bank, and prayed that the mortgage be declared null and void, except in so far as it secured the indebtedness of the Murdock Realty Company.

To this petition, the appellant filed an answer in which it asserted that the Murdock Realty Company was a family corporation, in which all of the stock was owned by Charles L. Murdock and Mary L. O'Hearn, except one share owned by Frank D. Hollensbe. This answer alleged that Charles L. Murdock, as president of the Murdock Realty Company, represented to the appellant that the ownership of stock was as alleged, and that there was nothing in the records of the Murdock Realty Company showing Fardy to be a stockholder. The answer alleged that the appellant relied upon the records of the Murdock Realty Company, and made an additional loan of $18,151.20 to the Murdock Realty Company in consideration of its execution of the mortgage sued upon. The answer prayed that appellee Fardy be estopped to set up any interest or claim in or for the Murdock Realty Company. Answers were filed by other appellees alleging, generally, failure of consideration and payment of the obligations involved.

The cause was submitted to the court for trial. After hearing the evidence, the court entered a decree in favor of the appellant and against the Murdock Realty Company for the sum of $73,840 and the further sum of $5,000 as attorneys' fees, and after allowing a credit for money on deposit finally decreed that the appellant have judgment for $56,315.47, and entered a decree of foreclosure in favor of the appellant for this amount. The court rendered a personal judgment against Charles L. Murdock for $57,565.34, which represented his individual indebtedness to said appellant, and the court also rendered judgment in favor of the Merchants National Bank of Indianapolis on its cross-complaint in the amount of $20,822.50. The court rendered no personal judgment against Mary L. O'Hearn and Frank D. Hollensbe for the reason that jurisdiction over them was obtained by publication.

A motion for new trial was filed and overruled, and this appeal has been perfected. The only error assigned on appeal is the alleged error in overruling the appellant's motion for a new trial. Under this assignment of error, the appellant contends that the appellee, Fardy, was erroneously permitted to intervene and as a minority stockholder; that his right to defend for and on behalf of the corporation could only be maintained upon proof that the directors of the corporation refused to defend, and in no event can he assert any defense not available to the corporation. The appellant further contends that the appellee, Fardy, was not the owner of any stock in the Murdock Realty Company but was only a pledgee of such stock.

Under the contention that Fardy was not a proper intervenor, the appellant insists that the evidence discloses that the books of the Murdock Realty Company showed no transfer of stock to him in any capacity, and the stock in possession of Fardy, if any, was only in his possession as a pledgee. The appellant insists that such pledgee was not entitled to appear and assert any defense where the corporation itself is appearing and actively defending.

The evidence in this case disclosed that a certificate for four hundred shares of stock, formerly owned by Charles L. Murdock in the Murdock Realty Company, had been endorsed in blank by Charles L. Murdock and delivered to Fardy, who was in possession of such stock certificate at the time of the trial of this case. The evidence further disclosed that on October 31, 1931, the said Charles L. Murdock executed his note to appellee Fardy for the sum of $10,000, which note recited that four hundred shares of stock in the Murdock Realty Company, evidenced by certificate of stock No. 11, had been deposited with the appellee, Fardy, as collateral security for the payment of said obligation. On that date a certified check for $9,750 was given by Fardy to Charles L. Murdock in completion of the loan. There is further evidence from which the court might reasonably infer that upon default in payment of this note Fardy offered for sale the stock held by him as...