Grafeman Dairy Co. v. Northwestern Bank

• Decision Date: 30 November 1921
• Docket Number: No. 22036.,22036.
• Citation: 290 Mo. 311,235 S.W. 435
• Parties: GRAFEMAN DAIRY CO. v. NORTHWESTERN BANK at al.
• Court: Missouri Supreme Court

235 S.W. 435

290 Mo. 311

GRAFEMAN DAIRY CO. v. NORTHWESTERN BANK at al.

No. 22036.

Supreme Court of Missouri, in Banc.

November 30, 1921.

Appeal from St. Louis Circuit Court; Victor H. Falkenhainer, Judge.

Suit by the Grafeman Dairy Company against the Northwestern Bank and another, to cancel certain promissory notes and a trust deed securing them, and to enjoin foreclosure of the trust deed. Judgment for defendants, and plaintiff appeals. Reversed and remanded.

Jeffries & Corum, of St. Louis, for appellant.

Geo. W. Lubke, Geo. W. Lubke, Jr., and Walther, Muench & Hecker, all of St. for respondents.

BROWN, C.

This suit was instituted in the circuit court for the city of St. Louis on October 1, 1918. Its general purpose was to cancel and set aside certain promissory notes purporting to be executed by the plaintiff corporation to one Conk, a teller the defendant bank, on April 10, 1917, as collateral security for alleged indebtedness of plaintiff to said bank of an equal amount, and also to set aside and cancel a deed of trust to one Schulte, as trustee, to secure the payment of said notes. These notes consisted of a principal note for the sum of $50,000 and for semiannual interest notes for the sum of $1,375 each. The property which the deed of trust purported to convey was real estate in the city of St. Louis, alleged to be worth the amount of the principal note or more. These instruments appear to be signed with the name of the plaintiff corporation, by William Grafeman, its president.

At the time of the institution of the suit the trustee, Schulte, had already instituted proceedings to foreclose the deed of trust for the defendant bank, to which the collateral notes had been transferred by Conk, and had advertised the land for sale pursuant to its terms. The petition, in addition to the foregoing facts, alleged:

"That said notes and said deed of trust were never executed by the plaintiff; that said purported notes and deed of trust were never authorized by the board of directors, nor by the stockholders of the plaintiff; that plaintiff never received any money or other thing of value, from the said William H. Conk or any other person, on account of said purported notes and deed of trust; that plaintiff never received the consideration alleged in said purported notes and deed of trust, and that, if the said William Grafeman executed said purported notes and deed of trust, he did so on his own account and responsibility, and without the authority, knowledge, or consent of plaintiff; that the defendants well knew all such facts, and at the time of acquiring their alleged interest and ownership in and of said purported notes and deed of trust well knew and understood such facts; that if the negotiation and transfer of said purported notes is not restrained, and the notes canceled, and if the sale of said real estate under said purported deed of trust is not restrained; plaintiff will suffer irreparable injury; and that plaintiff has no adequate remedy at law in the premises."

The court awarded a preliminary injunction upon these statements and the prayer of the petition.

The defendant bank filed an answer, upon which all the issues stand. It made the conventional admissions as to the corporate character of parties, the acquisition and ownership of the notes and deed of trust securing them, the proceedings taken for foreclosure, and denied all other allegations. By way of counterclaim it stated that on April 19, 1917, the plaintiff owned in fee and occupied and used the land described in the collateral deed of trust in carrying on the dairy business for which it had been incorporated, and that on May 17, 1917, said notes, duly indorsed by Conk without recourse, were delivered to it by plaintiff, with a contract in writing pledging them to the defendant bank as security for the payment at maturity of another promissory note, executed and delivered by plaintiff to the bank on that day, for $50,000, payable three months after date. with interest at 5½ per cent. which was renewed at maturity for a like term; and, default having been made in the payment of the renewal, the pledge had been duly foreclosed, according to its terms, and the bank had thereby acquired the title to the collateral notes secured by the deed of trust described in the petition. It therefore asked that the injunction be dissolved and that the bank be permitted to proceed with the foreclosure. The answer next contains a count in ordinary form as holder in due course, for judgment on the principal note of April 19, 1917, and for foreclosure of the mortgage. It next asks for judgment and foreclosure upon all the mortgage notes, which were alleged to have become due by reason of the prior defaults.

The plaintiff, by replication, put in issue the new matter in the answer, and reiterated with particularity the statement of the petition that the plaintiff did not execute or authorize the execution of the deed of trust in question, and averred that if he signed the name, or affixed or caused to be affixed the seal, of the plaintiff corporation to the instrument, it was upon his own account, and without authority from the corporation, or its directors or stockholders, and that the plaintiff received no consideration therefor. The facts in evidence are that the plaintiff corporation was organized and incorporated in 1892, with a capital stock of $130,000, to succeed to the dairy business of William Grafeman, which it did. The capital stock was increased from time to time, until it finally amounted to $440,000 paid. It took over and continued the dairy business of Mr. Grafeman, and he continued to be its president and manage its business continuously up to the time of his death, which occurred on December 21, 1917; the directors being members of his own family. At the time of these transactions, and for several previous years, the board had consisted of himself, his son, a nephew, a brother, and a brother-in-law, Mr. Mannebach, who was, for the last 10 or 12 years, secretary of the corporation, and attested, and, at the president's request, attached the seal of the corporation to, the deed of trust. This he had, at first, refused to do, but finally was taken by the president to see some business friends of the corporation, and consented upon their advice. While Mr. William Grafeman owned the Most of the stock, there were 24 other stockholders named, among whom was Mr. Obernier, who had been for many years the cashier of the defendant bank, and through whom this business had been transacted. `He owned 10 shares, of the par value of $100 each.

There is no question that Mr. William Grafeman had at all times conducted the business of the plaintiff with the same freedom as if it had been his own. Neither the stockholders nor directors had held a meeting for several years. There is nothing to indicate that any director or stockholder other than Mr. Mannebach knew or suspected the existence of the deed of trust until after his death, although the records pertinent to that question were in court. The only business done or association had between Mr. William Grafeman and the stockholders as such seems to have been the payment by him to them, respectively, of such dividends as he represented had accrued and become payable from time to time. During the later years no record was made of their declaration.

Mr. Obernier, whom we have mentioned as a stockholder in the plaintiff company, and who conducted for his bank the transaction in issue, was called as a witness and testified, in substance, that on May 17, 1917, and up to November 9, 1917, William Grafeman personally owed his hank $45,000, and that on the first-named day the Grafeman Dairy Company owed it $50,000, $10,000 of which was advanced that day, $20,000 on November 11, 1915, $10,000 on October 16, 1916, and $10,000 on April 20, 1917. He did not produce nor describe the notes which represented this indebtedness, before it was consolidated into the single note for $50,000 mentioned in the answer. The collateral notes to Mr. Oonk were also indorsed by Mr. Grafeman, and, although dated April 19, were delivered on May 17, the date of the consolidation of the company's previous indebtedness and the advancement of the last $10,000. All this business was done with the bank by Mr. Grafeman alone. The papers were already signed when brought to the bank, with the exception of the collateral notes, with their indorsement.

This collateral security was taken at the suggestion of the bank examiner, made about the beginning of the year. He talked with Mr. Grafeman about it "around February some time"—told him the bank should require collateral, and he said he could give it a deed of trust, and requested an additional loan of $10,000. No security was given at the time of the advancement, on April 20, of an additional $10,000. The witness told him he would have to hold a meeting, and does not know whether he mentioned the stockholders and directors particularly. He demanded a meeting to authorize the execution of the deed of trust. He received no notice of the holding of any meeting. He read the record, the official paper, and had there been a notice of a meeting would, he says, have seen it. He asked for the records, and Grafeman told him he would send them up. The deed of trust was already recorded when delivered.

The witness asked for a statement, and Grafeman told him he was going to have Mr. Kessler, "the public accountant," prepare one. Although the witness knew that Mr. Kessler was at work making a statement, he never insisted on it further. Mr. Foote might have insisted he had charge of that matter. He first became suspicious of the credit of the company when the bank examiner recommended collateral, but he still considered it worthy of credit, and that the loan was good with the indorsement of Grafeman. He considered both loans, aggregating $95,000, good with Grafeman's indorsement, up to the...