Lackawanna Trust & Safe Deposit Co. v. Gomeringer

Decision Date29 April 1912
Docket Number32
Citation236 Pa. 179,84 A. 757
PartiesLackawanna Trust & Safe Deposit Company, Appellant, v. Gomeringer
CourtPennsylvania Supreme Court

Argued February 21, 1912

Appeal, No. 32, Jan. T., 1912, by plaintiffs from order of C.P. Lackawanna Co., Nov. T., 1911, No. 54, making absolute rule for subrogation in case of Lackawanna Trust & Safe Deposit Company, Assigned to Carl Lorenz, Frederick Glatz and W. W. Leroy v. Christian Gomeringer and Adolph Haefner, a partnership doing business as the Standard Knitting Works. Reversed.

Rule for subrogation.

NEWCOMB J., filed the following opinion:

This motion arises out of a controversy between the

NEWCOMB J., filed the following opinion:

This motion arises out of a controversy between the Standard Knitting Works, a corporation, hereinafter called the defendant company, and its minority stockholders -- three in number, hereinafter called the respondents -- who have become dissatisfied with its management. Under assignment dated October 30, 1911, respondents acquired by purchase a judgment which is a first lien against the company's plant, secured by mortgage thereon. The mortgage is collateral to a bond with confession of judgment given in 1908 by Christian Gomeringer and Adolph Haefner, co-partners, to the Lackawanna Trust & Safe Deposit Company, hereinafter called the trust company. Thereupon the mortgagors conveyed the property, subject to the payment of the mortgage debt, to the defendant company which they had organized. The debt fell due July 3, 1911. October 4, 1911, judgment D.S.B. for the face of the debt and interest from maturity was entered on the bond, and, same day, a fi. fa. ordered by the trust company with notice to defendant company as terre tenant. At that time a contest was pending between the latter and the respondents for stay of execution on a like writ issued at their instance in August on a junior judgment held for their use by the Dime Deposit and Discount Bank which is disposed of by an order in connection with opinion filed herewith. Those proceedings are to No. 691, October term, 1911, and a temporary stay was in force when respondents bought the present judgment. The considerations regarded as decisive in favor of the relief asked for in that case are in a sense controlling here; and it is noted that by agreement of counsel the testimony taken in the other case is made part of the evidence in this.

The respondents are not only stockholders and creditors of the defendant company, but at the time they bought the judgment against it they were directors. One, indeed, was its president; another, its secretary. In the meantime they have been succeeded by new officers elected at the annual meeting November 8th.

It will be observed that the notices for that meeting were sent out by the secretary in the usual way ten days in advance. Apparently that was on the eve of their purchase which, as already noted, purports to have been October 30th. Notwithstanding the preparation for the meeting the three absented themselves by agreement on the advice of the president in whose opinion "it wasn't advisable for us to go to that meeting." It is not without significance that the assignment was filed November 9th, the day following this meeting at which formal action had been taken looking to the transfer of this security to the County Savings Bank with which arrangements had been made to take it off respondents' hands as a means of getting further time, as appears by reference to the minutes. It may be it was the prospect of this action that suggested to the president the advisability of staying away. At all events the money being thereupon tendered by the bank in full of debt, interest and costs, on condition that the transfer be made, it was refused by respondents, though a counter offer was made to transfer both of their liens upon payment of both claims; otherwise they asserted their intention to proceed to a sheriff's sale, though admittedly in that event the corporate enterprise would collapse.

At the request of the company, as well as of the original obligors, the bank by leave of court then paid the amount of the writ in this case to the sheriff for the use of respondents and at its instance the present rule was granted for subrogation according to the terms of its agreement with the debtors.

Respondents took the money but they contest the motion for relief.

It is resisted first on the theory that the bank is a mere volunteer. That supposition is believed to be erroneous. One who pays a debt at the instance of the debtor on the faith of an agreement with him for substitution of the creditor's lien is not a volunteer: Haverford Loan & Bldg. Ass'n v. Fire Ass'n, 180 Pa. 522.

It is further contended that, being the equitable owners of the second mortgage held by the Dime Bank, respondents have rights which would be impaired if substitution were allowed. Just how that could be is by no means made clear. They have the money which had been invested in the first lien; as to the other they stand just where they did before. True, their intended foreclosure has been frustrated; but that is not the subject of indemnity at the expense of one who has loaned the money to retrieve the company's property from the impending sale. To all practical intents and purposes what they are asking is not that their rights shall be left in statu quo, but that their second lien shall be advanced to priority at the cost of the bank.

If their good faith were in no way called in question the point made touching their rights as junior lien creditors might be pertinent; though there is very good authority for the proposition that in general the holder of such lien has no equity to prevent subrogation as to the first: Home Savings Bank v. Bierstadt, 61 Am. St. Rep. 146 (168 Ill. 618); Levy v. Martin, 48 Wis. 198 (4 N.W. 35). Some lack of harmony is noticeable in the cases on the subject. But the rule is believed to be this: The mere fact that a creditor has two liens will not in itself give rise to any presumption of injury or prejudice to the second in case of his losing control of the first by means of substitution. The question, therefore, must be essentially one of fact in any given case. But it becomes unimportant here by reason of the status of respondents and the circumstances surrounding their acquisition of the first lien.

[They were officers of the defendant company charged with the duty of serving its interests. To the contrary thereof they bought the lien with intent to use it adversely to those interests; they bought admittedly for no other purpose than to seize the company's property to their own personal use and advantage. True, they were creditors by virtue of the debt secured in the name of the Dime Bank on which execution had been stayed. The character of the relations of trust to defendant presents a feature here entirely analogous to that considered in connection with that execution and need not be again discussed.

Very likely they have reason to be dissatisfied with their corporate venture and distrustful of its management. One is not unmindful of their contention that they were only seeking to protect themselves against the consequences of mismanagement, etc. But, so long as they retained the badge of office and claimed to exercise its functions, they were the guardians of its estate and could not in good faith compass its death, nor take anything by their unsuccessful attempt. Says the secretary: "We bought for our own individual interests; we didn't consider the interests of the corporation."

Such directors cannot be heard to assert any equity, by reason of their ownership of the second mortgage, to prevent the subrogation now asked for.] (2)

[The rule to show cause is made absolute and it is ordered that the judgment in this case be marked to the use of the petitioner, the County Savings Bank; and that said bank be subrogated to all and singular the rights of the Lackawanna Trust & Safe Deposit Company, Frederick Glatz, William W. LeRoy and Carl Lorenz, or either of them, in and to the underlying securities, to wit, the bond on which judgment was entered together with the mortgage collateral thereto, recorded in the proper office of this county in Mortgage Book No. 162, at page 411.] (1)

Errors assigned were (1, 2) portions of opinion quoted above, and (3) in ordering subrogation in favor of the County Savings Bank.

The assignments of error are sustained, and the decree is reversed at the cost of appellees.

Samuel B. Price, with him Cole B. Price, for appellants. -- Subrogation will not be granted to the prejudice of another creditor. It will not be allowed to a volunteer: Coonrod v. Kelly, 119 Fed. Repr. 841; Draper v. Ashley, 104 Mich. 527 (62 N.W. 707); Hoagland v. Green, 54 Neb. 164 (74 N.W. 424); Gaskill v. Wales, 36 N.J. Eq. 527; Haverford Loan & Bldg. Assn. v. Fire Assn., 180 Pa. 522; Mosier's App., 56 Pa. 76; Hoover v. Epler, 52 Pa. 522; Wallace's Est., 59 Pa. 401; Armstrong's App., 5 W. & S. 352; Webster's App., 86 Pa. 409; Robinson v. Mailander, 2 Lack. Leg. News 168; AEtna Life Ins. Co. v. Middleport, 124 U.S. 534 (8 S.Ct. Repr. 625); Grace v. Kemp, 16 Pa. D.R. 815; Shinn v. Budd, 14 N.J. Eq. 234.

Directors may take mortgage for money advanced, and enforce collection: Buell v. Buckingham, 16 Ia. 284; Whitwell v. Warner, 20 Vt. 425; Mueller v. Fire Clay Co., 183 Pa. 450; Law v. Fuller, 217 Pa. 439; Mechanics' Bldg. & Sav. Assn. No. 2's Est. 202 Pa. 589; Sicardi v. Keystone Oil Co., 149 Pa. 148.

Warren Knapp & O'Malley, for appellees. -- Appellants had no right to buy in this mortgage for the purpose of forcing a sheriff's sale of the corporate property: Jackson v. Ludeling, 88 U.S. 616; Hallam v. Indianola Hotel Co., 9 N.W. 111; Huntley...

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