First Nat. Bank & Trust Co. of Ann Arbor v. Dolph

• Decision Date: 22 December 1938
• Docket Number: No. 9.,9.
• Court: Michigan Supreme Court
• Parties: FIRST NAT. BANK & TRUST CO. OF ANN ARBOR v. DOLPH et al.

287 Mich. 219

283 N.W. 35

FIRST NAT. BANK & TRUST CO. OF ANN ARBOR

v.DOLPH et al.

No. 9.

Supreme Court of Michigan.

Dec. 22, 1938.

Action by the First National Bank & Trust Company of Ann Arbor, a national banking association in voluntary liquidation, as trustee under a mortgage securing bonds issued by the Super Realty Company, against Ray A. Dolph and others, to recover the amount of the bonds. From an order of dismissal, plaintiff appeals.

Order vacated, and cause remanded.Appeal from Circuit Court, Washtenaw County; George W. Sample, judge.

Argued before the Entire Bench.

Albert E. Blashfield, of Ann Arbor, for appellant.

Reading & Reading, of Ann Arbor (Schmalzriedt, Frye, Granse & Frye, by Ezra H. Frye, of Detroit, of counsel), for appellee J. Fred Wuerth.

Carl H. Stuhrberg, of Ann Arbor, for appellee Dolph.

BUSHNELL, Justice.

The Super Realty Company issued bonds, secured by a trust mortgage on land in Washtenaw county, the First National Bank of Ann Arbor being named therein as trustee. Each of the bonds contained the following provision: ‘For value received, we, Ray Dolph, J. Fred Wuerth and Samuel O. Davis, being the owners of more than two-thirds (2/3) of the capital stock of the Super Realty Company, do hereby guarantee the trustee of the within mentioned mortgage the punctual payment, when due, whether at maturity or at an accelerated or extended date, of the principal of the within bond and the interest thereon, according to the tenor thereof and of the coupons thereto belonging, respectively, for the benefit of the holder thereof. Diligence and notice shall not be required; nor shall any change in any provision of said bond or mortgage or any indulgence in anywise affect the obligation hereof, whether made or granted with or without notice; the obligation hereunder shall be absolute and primary and performable on demand.’

This undertaking was signed by Ray A. Dolph, J. Fred Wuerth and Samuel O. Davis, the defendants herein. Dolph is president of the Super Realty and Mortgage Loan Company, formerly the Super Realty Company, and is the owner of all of the capital stock of the corporation with the exception of two shares. In 1929 he purchased the interests of Wuerth and Davis and made an oral agreement with them which purported to release them from any and all liability on the bonds of the Super Realty Company. In 1934 Dolph entered into an arrangement with William L. Walz, then president of the Ann Arbor Savings Bank, whereby the bank agreed to advance $12,000 for the purpose of purchasing outstanding Super Realty bonds, the bank then holding Dolph's individual and direct obligations totaling $26,030, which were inadequately secured. The bank subsequently acquired $35,000 worth of bonds by the use of a part of the proceeds of the $12,000 loan to Dolph. The transaction resulted in the combining of Dolph's old and new loans into a new obligation, evidenced by his $37,500 note, the bank holding as security therefor other property and Super Realty bonds having a face value of $33,500. In 1936 these bonds and a number of other securities then held by the bank were transferred to the Federal Deposit Insurance Corporation in consideration of a loan amounting to over $2,000,000, which was made in order to enable the newly created Ann Arbor Savings and Commercial Bank to purchase all of the assets and assume the deposit liability of the Ann Arbor Savings Bank. When the Super Realty bonds were transferred to the Federal Deposit Insurance Corporation on February 15, 1936, only the interest coupons maturing June 1, 1936, and subsequent thereto, were attached.

While it is claimed by defendants that the Federal Deposit Insurance Corporation had knowledge of the purported oral release of Wuerth and Davis, the affidavit of Walz indicates that, though this was known to him at the time the Ann Arbor Savings Bank accepted the bonds as collateral, so far as he knew, no one connected with the bank ever mentioned the matter to the Federal Deposit Insurance Corporation prior to the transfer of the bonds. Bruce P. Greene, the liquidator of the Federal Deposit Insurance Corporation, statuted that the first time he learned anything about the claimed release was a few days after he, on behalf of the Federal Deposit Insurance Corporation, had requested the First National Bank and Trust Company of Ann Arbor, formerly First National Bank of Ann Arbor, as trustee of the bond issue, to make demand for payment of the full amount of the bonds and interest upon Dolph, Wuerth and Davis, and, in the event of failure of such payment, then to take such proceedings as might be desirable and necessary. Greene further stated that, notwithstanding an examination of the books and records of the Ann Arbor Savings Bank, he was unable to obtain any information with respect to the claimed oral release. The Federal Deposit Insurance Corporation insists that it is a good faith holder for value of the bonds in question.

Plaintiff, as trustee under the bond issue, upon the written request of the Federal Deposit Insurance Corporation, present holders of the bonds, filed a declaration seeking a judgment against defendants, which was met by separate motions to dismiss on behalf of defendants Dolph and Wuerth. Bonds totaling $33,500 in amount, in the hands of the Federal Deposit Insurance Corporation, and two bonds totaling $1500, in the hands of the First National Bank and Trust Company, were received in evidence.

The court considered the facts as disclosed by various affidavits, the briefs filed by respective counsel, and found that defendant Dolph fully disclosed to the officers of the Ann Arbor Savings Bank, when the bonds were pledged by him, that ‘all of the defendants in this cause were discharged from liability under said bonds and said bonds were accepted as collateral with such understanding.’ The court further found that Dolph was discharged from personal obligation thereunder by operation of law and that the Federal Deposit Insurance Corporation was not a bona fide purchaser for value and without notice, in that the bonds ‘are held as collateral to the personal loan of Ray A. Dolph.’

The circuit court also stated that:

‘The purchase of such bonds by Ray A. Dolph discharged his personal obligation thereunder, and a discharge of one joint guarantor is a discharge of all.

“A person cannot be both the obligor and the obligee in a bond, even in connection with others, or in another capacity; and a bond so executed is unenforceable so far at least as it affects one who occupies thereunder this dual relation.' 9 C.J. p. 10.

‘The release of a joint or joint and several guarantor or endorser releases the remaining guarantor or endorser from further liability. Seligman...