Johnson v. Mercantile Trust Co. Nat. Ass'n

• Decision Date: 13 May 1974
• Docket Number: No. 57644,No. 1,57644,1
• Citation: 510 S.W.2d 33
• Parties: Belmont C. JOHNSON and Valera Johnson, Respondents, v. MERCANTILE TRUST COMPANY NATIONAL ASSOCIATION, a corporation, Appellant
• Court: Missouri Supreme Court

Page 33

510 S.W.2d 33

Belmont C. JOHNSON and Valera Johnson, Respondents, v. MERCANTILE TRUST COMPANY NATIONAL ASSOCIATION, a

corporation, Appellant.

No. 57644.

Supreme Court of Missouri, Division No. 1.

May 13, 1974.

Motion for Rehearing or to Transfer to Court en Banc Denied

June 10, 1974.

Rosecan & Popkin, Alan E. Popkin, St. Louis, for respondents.

Thompson, Mitchell, Douglas, Neill, Guerri & Elbert, Edwin D. Akers, Jr., St. Louis, for appellant.

HIGGINS, Commissioner.

Action by Belmont C. Johnson and Valera Johnson, his wife, for rescission of agreement to purchase 1,240 shares of capital stock of the Farmers and Merchants Bank of St. Clair, Missouri, owned by Mercantile Trust Company National Association; return of $128,967.02, representing principal and interest paid pursuant to the agreement; payment of $2,000 expended in defense of title to the stock; and cancellation of a note for $45,000 representing balance remaining on the purchase price. Counterclaim by Mercantile Trust Company National Association for recovery of $45,000 with interest on the note. The court found the issues for plaintiffs, rescinded the stock purchase agreement, ordered payment to plaintiffs of $160,662.02, and voided the $45,000 note, subject of defendant's counterclaim. (Appeal taken prior to January 1, 1972.)

Much of the evidence offered by both sides was documentary. Plaintiffs' version of the facts came primarily from Belmont C. Johnson; defendant's version came primarily from William A. Borders, an officer of defendant Bank, and Edward M. Edleson, a former employee of plaintiffs.

For purposes of this appeal, the facts may be stated as found by the trial court:

'On February 17, 1965, Security Trust Company loaned Arthur Lewis, Virginia Lewis and Plez Lewis Company the sum of $155,000.00 on six separate notes (hereinafter referred to as the Lewis Family notes). These notes were secured by a pledge of 1240 shares of the capital stock of the Farmers and Merchants Bank of St. Clair, Missouri (hereinafter referred to as the Lewis Family stock). This loan was made on behalf of Security Trust Company to the Lewises by Mr. William A. Borders, the then President of Security Trust Company.

'In July, 1965, Security Trust Company was merged into defendant Mercantile Trust Company National Association (hereinafter referred to as 'Mercantile') and the Lewis notes with the Lewis stock as security became the property of Mercantile.

'At the time of the merger, defendants Mercantile had other loans which it had made to the Lewis Family and had charged off. Lewis' business was also in the throes of bankruptcy. William A. Borders, after the merger, became an officer of the Mercantile Trust Company and a member of its Board of Directors and he was embarrassed by having made the Lewis loan and was eager to dispose of it.

'Mr. Borders dealt with a group of businessmen from Kansas City who were interested in acquiring the Lewis stock so as to gain control of the Farmers and Merchants Bank of St. Clair. Mr. Borders told the group from Kansas City, on advice from counsel, that he could not sell them the Lewis stock but could only sell them the Lewis notes. The group from Kansas City backed out, as it was apparent that the makers of the notes were in deep financial difficulty and that the collateral was very difficult to sell.

'Thereafter and in the fall of 1965, plaintiff Belmont C. Johnson developed an interest in acquiring control of the Farmers and Merchants Bank of St. Clair. Belmont C. Johnson was at the time a successful business man in St. Clair, Missouri, owning a trailer company, a finance company, a heating and air conditioning company and a furniture store.

'There were at that time four thousand shares of the capital stock of the Farmers and Merchants Bank of St. Clair issued and outstanding and something in excess of two thousand shares was, therefore, necessary for control of the bank.

'It was general knowledge in the St. Clair community that the Lewis family had twelve hundred forty shares which they had put up to secure a loan at Mercantile. Plaintiff Belmont C. Johnson owned several hundred shares in his own name, had the right to vote other shares, and could contract to buy still others, to the end that with the 1240 Lewis shares he would have control of the Farmers and Merchants Bank.

'Accordingly, during the late fall of 1965, plaintiff Belmont C. Johnson contacted Mr. Borders and inquired into the availability of the Lewis shares. Johnson informed Borders and Borders understood that Johnson wanted the Lewis family stock so as to control the Farmers and Merchants Bank. Borders confirmed that Mercantile held the Lewis shares as security for the Lewis loan and advised Plaintiff Belmont C. Johnson that Mercantile was willing to sell him the stock but could not do so until February 17, 1966. Borders explained that the sale of the stock could not take place until that date because the Lewis loan would not be in default until then, and defendant could not sell the stock until the notes were in default. Several telephone conversations were had prior to any meeting between the parties and the totality of the discussion in those telephone conversations was concerned with the sale by defendant Mercantile of the Lewis stock to plaintiff Belmont C. Johnson.

'Three face to face meetings were held between the parties. At these face to face meetings, Borders was the chief spokesman for Mercantile and plaintiff Belmont C. Johnson was chief spokesman for himself. The first meeting was held around the first part of February, 1966 in Borders' office at Mercantile Trust Company. Borders repeated to plaintiff Belmont C. Johnson that defendant Mercantile was willing to sell him the Lewis shares but had to wait until February 17, 1966 because the Lewis loan would not be in default until that date and that the bank could not sell the stock until the loan was in default. Price was discussed and Borders told Johnson that the price was $125 per share. Johnson tried to buy the shares for less, offering $100 per share. Whenever price was discussed it was discussed in terms of so much per share. Borders was firm in insisting on $125 per share but during this first meeting Johnson tried to purchase the shares for less. The first meeting between the parties was concluded without any firm commitment by either party.

'On February 16, 1966, Borders called Johnson and said the time was getting short and that Mercantile could sell the Lewis stock the next day. Johnson replied that he would check with one Sherwood Kitchell to make sure that he, Johnson, had a deal for Kitchell's stock. Johnson then confirmed his deal with Kitchell and called Borders on the afternoon of February 16, 1966 and made an appointment to meet with Borders at Mercantile on February 17, 1966.

'On February 17, 1966 Johnson met with Borders at Mercantile Trust Company and Borders on behalf of defendant Mercantile agreed to sell plaintiff Belmont C. Johnson the Lewis stock for $125 per share and Johnson agreed to buy the stock from Mercantile for $125 per share. The terms were that Johnson was to pay $25,000.00 down and he and his wife, Valera Johnson, were to sign a note for the balance of $130,000.00, which was to be secured by the 1240 shares of stock and the $130,000.00 balance was to be reduced from time to time. Borders said they should wait until after February 17, 1966, as the Lewis notes were technically not in default until that date. Borders and Johnson agreed to close on February 21, 1966 and Borders agreed on behalf of Mercantile that defendant Mercantile would see to it that the Lewis shares were transferred to Johnson on that date.

'On February 21, 1966, plaintiffs Belmont and Valera Johnson went to defendant Mercantile's office to close the purchase of the Lewis shares. Defendant Mercantile did not prepare a written agreement fully setting out the terms of the transaction. The only documents which plaintiffs were given at the time of the transaction was a note for $130,000.00 and a collateral pledge agreement listing the Lewis notes with the stock as security. There was a notation alongside each of the Lewis notes that they had been foreclosed as of February 21, 1966. The collateral pledge agreement listed the 1240 shares of the Farmers and Merchants Bank of St. Clair as collateral for plaintiffs' loan. Moreover, internal records of Mercantile also indicated that the notes were considered foreclosed as of February 21, 1966, and that the real collateral was the 1240 shares of stock.

'At no time during any of the meetings were plaintiffs or anyone representing plaintiffs shown the Lewis notes nor were plaintiffs nor anyone representing them told that they were being sold the Lewis notes and at no time during any of the meetings were plaintiffs or anyone representing them told of any endorsement placed or to be placed on the Lewis notes. Notwithstanding, the Lewis notes were endorsed by Borders to Belmont C. Johnson. There was, however, no acknowledgment on such endorsement either signed or initialed by plaintiff Belmont C. Johnson, and the Court finds that such endorsement was placed on the Lewis notes without the knowledge, consent or approval of plaintiffs.

'After plaintiffs had signed the collateral pledge agreement and note defendant Mercantile sent one of its representatives to the Farmers and Merchants Bank of St. Clair with the Lewis stock certificates. When said representative arrived at the Farmers and Merchants Bank he, together with plaintiff Belmont C. Johnson, went to the office of Mr. Gene Dixon, an officer of the Farmers and Merchants Bank of St. Clair, and caused him to cancel the Lewis certificates and issue new certificates in the name of plaintiff Belmont C. Johnson in the amount of 1240 shares. The representative of the defendant Mercantile then took the certificates representing the 1240 shares issued by the Farmers and Merchants Bank of St....