German Sav. Inst. v. Jacoby

• Citation: 11 S.W. 256,97 Mo. 617
• Parties: GERMAN SAV. INST. et al. v. JACOBY et al.
• Decision Date: 23 March 1889
• Court: United States State Supreme Court of Missouri

11 S.W. 256

97 Mo. 617

GERMAN SAV. INST. et al. v. JACOBY et al.

Supreme Court of Missouri.

March 23, 1889.

FRAUD — EVIDENCE — PLEADING.

1. Defendant held 10 of 30 notes executed by a milling corporation, and secured by a deed of trust on its property. To retire the notes and meet other liabilities, another deed of trust to secure 100 bonds of $1,000 was executed, and defendant agreed to exchange his notes for bonds and additional security, the first deed to be canceled. Relying on this exchange, plaintiffs and others bought the bonds or exchanged notes for them. Before the agreement was carried out the corporation suspended payment, and defendant attempted to foreclose the first deed of trust, alleging that the president of the corporation had procured the agreement by fraudulently misrepresenting the value of the property and the amount of the liens thereon. The president had represented that according to the estimates of real-estate and mill men and architects the property was worth $200,000, and it had cost that sum, but it subsequently depreciated in value. The only reference to the liens was made in a letter by the president, in which he alluded to the second deed as the only lien when the first should be discharged, but he evidently had no other liens in his mind at the time but the two under consideration. Other debts existed to the amount of $30,000 or $40,000, a part only being liens, but they were of such a character that defendant, who had long been intimately acquainted with the affairs of the corporation, was probably aware of them. Held, in an action to enjoin the sale under the deed of trust, that the defense of fraud in procuring the agreement was not sustained.

2. The defense that the bonds were invalid under Const. Mo. art. 12, § 8, prohibiting the increase of the bonded debt of a corporation without the consent of the majority of the stock-holders in value, should in such an action be specially pleaded.

Appeal from St. Louis circuit court; DANIEL DILLON, Judge.

Action by the German Savings Institution and others against Samuel Jacoby and others, to enjoin the sale of certain property under a deed of trust. Judgment for plaintiffs, and defendants appeal.

Louis Gottschalk and Noble & Orrick, for appellants. F. N. Judson and G. A. Finkelnburg, for respondents.

BLACK, J.

The Atlantic Milling Company is a corporation doing business in St. Louis. George Bain is and for years has been its president. The mill was destroyed by fire in 1881. In order to rebuild, the company made a deed of trust on the mill premises, dated the 16th January, 1882, to secure notes to the amount of $30,000, each note being for $1,000, due in one year. The defendant Samuel Jacoby who was and for many years had been the New York factor of Bain and his mill, took 10 of these notes, and some of the plaintiffs and other St. Louis parties took the other 20. The new mill was constructed on an enlarged scale, and at a cost of nearly $150,000. For the purpose of raising more money, and to retire the notes secured by the first or $30,000 deed of trust, the company made a second deed of trust on the same and some additional property, including the new mill, to secure bonds to the amount of $100,000. This deed of trust bears date the 11th December, 1882. The bonds are of the denomination of $1,000, due in 20 years after date, with interest coupons attached. The plaintiffs in the case are owners and holders of these 20-year bonds, and by this suit they seek to enjoin the defendant from selling the mill property under the first deed of trust, on the ground that defendant exchanged his 10 notes for 20-year bonds, and that the first deed of trust was satisfied by a surrender of all of the notes thereby secured. The defendant admits that he made an agreement to surrender the notes and take other security, including 10 of the 20-year bonds; but says the notes were never actually surrendered, and that he was induced to make the agreement by the false and fraudulent representations of Bain. The charges are that Bain fraudulently represented that the mill property, included in the $100,000 deed of trust to secure the bonds, was of a value in excess of the bonds; that the property was free and clear of all incumbrances; that the notes secured by the first deed of trust had been taken up and paid; and that the Atlantic Milling Company was solvent. The proof of the alleged fraudulent representations, and of the agreement to surrender the 10 notes for other security, consists, for the most part, in correspondence between Bain and the defendant. On the 27th November, 1882, Bain wrote the defendant saying that he had made the bonds payable to Samuel Jacoby or bearer, and that they would have 20 years to run; and in respect of the value of the property in the deed of trust he says: "We have signatures from the milling machinery men, architects, real-estate appraisers, and the deeds will cover over $200,000 worth of property." In another letter of the 14th January, 1883, he says: "I can assure you that everything is right, and, if you will agree to take 20 of the bonds, both Jones and myself will give you personal pledges, if you wish them, to retire two or more of your bonds yearly. We must get that mortgage for which you hold ten of the notes (we have ten arranged for, and Mr. Allen will arrange the other ten) canceled, so the property will be incumbered only with the one hundred bonds, and, if you won't help us, we must simply get some of our other friends to do it." Jacoby agreed to take 10 of these bonds in lieu of his 10 notes, and it is clear that he understood then that the first deed of trust was to be canceled; and in the letter giving his consent to the arrangement he says: "Of course it is understood that the ten bonds are to be taken by me, provided all the others can be placed on equal terms." Bain then sent 10 of the bonds to defendant, and in a letter requested a return of the 10 notes, saying: "I want to cancel the $30,000 mortgage, and have paid all the other notes but your ten. I have to leave here next Monday for Cleveland." Upon the receipt of the last letter the defendant wrote to Bain, January 25th, and, after speaking of the impracticability of the 20-year bonds, and that he had been hasty in proposing to take 10 of them, he says: "I do not know whether this bond agreement can be changed or not; if it can, I would certainly be in favor of it. I wish you would come here from Cleveland, as I would like to see you, and talk matters over fully." Bain went to New York, and had the requested interview, which resulted in an agreement that defendant would surrender the 10 notes, and take therefor 5 demand notes of the Milling Company of $2,000 each, indorsed by Bain and Jones, and secured by 10 of these 20-year bonds. These 5 notes were duly executed, indorsed, and sent to defendant, with a request that he return the 10 notes "so that I can take the old mortgage off;" and on the 24th of February, 1883, defendant acknowledged the receipt of the five $2,000 notes, and says: "The ten notes are in the safe-deposit box, and, being too late to take them out this afternoon, will...