Fischman-Harris Realty Co. v. Kleine

• Decision Date: 07 May 1935
• Docket Number: No. 23189.,23189.
• Parties: FISCHMAN-HARRIS REALTY CO. v. KLEINE.
• Court: Missouri Court of Appeals

82 S.W.2d 605

FISCHMAN-HARRIS REALTY CO. v. KLEINE.

No. 23189.

St. Louis Court of Appeals. Missouri.

May 7, 1935.

Appeal from St. Louis Circuit Court; Robt. J. Kirkwood, Judge.

"Not to be published in State Reports."

Action by the Fischman-Harris Realty Company against Mary L. Kleine. From a judgment for the defendant, plaintiff appeals.

Affirmed.

Levinson, Boisseau & Levinson, of St. Louis, for appellant.

Dan Bartlett and Thomas L. Philips, both of St. Louis, for respondent.

BENNICK, Commissioner.

This is an action upon a promissory note. Judgment was rendered for defendant, and plaintiff has appealed.

On September 1, 1931, defendant, Mary L. Kleine, executed her negotiable promissory note for $4,500 to the Manchester Bank of St. Louis, payable on demand, or, if no demand was made, on December 1, 1931, the same to bear interest at the rate of 8 per cent. per annum after maturity.

The note contained a further provision that if it should not be paid at maturity, and should be placed in the hands of an attorney for collection, then the maker should pay an additional sum of 10 per cent. of the full amount due on the note as an attorney's fee.

As collateral security for the note, defendant pledged with the bank nine first mortgage real estate bonds for the aggregate amount of $4,500, issued by the Progress Building & Investment Company, a former St. Louis real estate concern, while upon the reverse side of the note appeared the indorsement of Fischman & Harris, Inc., by A. Fischman, president, which said indorsement had been placed upon the note prior to its delivery.

Subsequent notations on the back of the note purported to disclose that for value received the same was thereafter assigned and transferred by the bank to Fischman & Harris, Inc., and then by the latter to Fischman-Harris Realty Company, the present holder of the note, by which the present action has been brought.

So far as concerns the identity of the several concerns or corporations mentioned in connection with the execution and assignment of the note, suffice it to say that they were all owned and controlled largely, if not entirely, by Messrs. Fischman and Harris, whose own names appear in the corporate names of two of the companies. The original company was the Progress Building & Investment Company, which, in 1928 or 1929, changed its name to Fischman & Harris, Inc. According to the evidence, the latter company was simply allowed to go out of business; and in February, 1932, the Fischman-Harris Realty Company was organized as a separate and distinct corporation. Fischman and Harris, together with their wives, had owned all of the stock of the first two companies, while in the case of the Fischman-Harris Realty Company, two of Fischman's brothers and a brother of Harris were added as stockholders.

The course of transactions which led up to this case began about June, 1930, when defendant entered into an exchange of properties with one Harry Abelson, a straw party for Fischman & Harris, Inc., by which defendant acquired an apartment building at Grand boulevard and Gasconade street in the city of St. Louis, subject to a first deed of trust for $80,000 securing an issue of serial coupon bonds of which a balance of approximately $71,000 was then outstanding, as counsel seem to agree. The deed of trust and bonds had been executed by the Progress Building & Investment Company which, it will be recalled, had thereafter changed its name to Fischman & Harris, Inc., some little time before the deal with defendant was made.

Unfortunately, the contract covering the exchange of properties has not been preserved in the record, and the evidence is extremely hazy regarding the precise terms of the transaction. It does appear without any dispute on the part of plaintiff, however, that as a part of the consideration for the exchange defendant executed to Fischman & Harris, Inc., a second deed of trust on the Grand-Gasconade property in the sum of $9,500, payable in monthly installments, and that pursuant to the terms of such second deed of trust Fischman himself is managing the property and collecting the rents.

The bonds representing the original indebtedness against the property had been put upon the market through the Manchester Bank with which the successive Fischman-Harris interests carried their account, some of the bonds having apparently been sold to outsiders, and the remainder left in the hands of the bank. On September 1, 1931, the nine bonds heretofore referred to of the aggregate principal value of $4,500 fell due, together with the current semiannual interest coupons for more than $1,500. The bank, which was holding the particular bonds either as owner or as agent for the owner, notified defendant of the maturities, and demanded payment. In due course defendant came in and reported her inability to make payment, and took up with Mr. Johnson, the bank's vice president, the question of how the matter could be handled so that her interest in the property would be protected. In other words, according to plaintiff's evidence, she was fearful of a foreclosure if payment was not made upon the instruments then maturing, and she herself was hard put for money at the moment because of the fact that the stocks and bonds which she owned had declined in value to the point where she was unable to sell them without undergoing a substantial loss.

Johnson suggested to defendant that she get in touch with Fischman & Harris, Inc., which had floated the bond issue, and in response to his suggestion she did call upon the officers of the company and arranged a conference of all parties concerned to be held at the bank. Fischman & Harris, Inc., was, of course, vitally concerned in the matter because of its personal liability for the debt in the event a foreclosure upon the property became necessary. The conference was duly held, and, as a result of it, a plan was worked out whereby defendant executed the note in suit, in a sense purchasing the nine bonds from the bank and immediately pledging them with it as collateral security for the note. As additional security, Fischman & Harris, Inc., indorsed the note before its delivery to the bank, as has heretofore appeared, and also advanced defendant sufficient money to enable her to take care of the current interest coupons.

But while we have said that defendant in a sense purchased the bonds from the bank and immediately pledged them with the bank as collateral security for the note, it is nevertheless to be borne in mind that she at no time had the bonds in her possession, and that what actually occurred or resulted, under her version of the transaction, was the granting by the bank of an extension upon the maturity of the bonds in return for the execution by defendant, the beneficial owner of the property, of the note in suit, indorsed prior to its delivery by Fischman & Harris, Inc., which was primarily liable on the bonds.

The defense in the case centered around the proposition, as we shall presently show, of whether Fischman & Harris, Inc., ever intended defendant to be personally liable on the note, her defense being that such company, through its agents, falsely and fraudulently represented to her at the time of her execution of the note that it would look only to the property involved for the payment of the note, and that she would not be held personally liable thereon.

That any such representations were made was flatly denied by both Fischman and Harris, both of whom were present at and participated in the conference at the bank, along with Johnson and defendant and her adviser, Frances Kelleher Moran, an individual real estate operator. However, we think the evidence in its entirety legitimately warrants an inference supporting defendant's pleaded defense. Conceding that she and Mrs. Moran made extremely poor witnesses, at least in the matter of attributing direct and positive statements, if any such were made, to either Fischman or Harris to the effect that defendant was not to be held personally liable on the note, yet her evidence shows quite clearly, as we have heretofore pointed out, that the plan worked out at the conference was one merely for the extension of the maturity of the bonds upon which Fischman & Harris, Inc., were primarily liable; that because of such liability, Fischman & Harris, Inc., indorsed the note prior to its delivery; and that it was the agreement or understanding reached at the conference by all the participants therein that there was to be no personal liability of defendant on the note, but that its payment was to be made out of the income derived from the property in the hands of Fischman as trustee.

As a matter of fact, when the note fell due, it was not paid by defendant, but on March 1, 1932, three months after its maturity, the principal of and accrued interest on the note were paid to the bank by Fischman & Harris, Inc., to whom the note was then transferred and assigned by the bank along with the collateral securing it. Fischman's testimony was that payment was actually made with the funds of Fischman-Harris Realty Company, the plaintiff herein, which had been incorporated just a few days before the payment was made; and at any rate the note was then transferred and assigned by Fischman & Harris, Inc., to Fischman-Harris Realty Company, by which this suit on the note was instituted in the circuit court of the city of St. Louis on August 26, 1932.

The petition was in the conventional form for an action on a note, and prayed judgment for the principal of the note, with interest thereon at the rate of 8 per cent. per annum from December 1, 1931, the date of maturity, together with an additional sum of 10 per cent. of the amount due thereon as and for an attorney's fee.

The answer, upon which the case was tried and submitted, admitted the execution of the note, but set up as a defense thereto that the execution of the note had been procured by the...