Linwood State Bank v. Lientz

• Decision Date: 13 March 1967
• Docket Number: No. 1,No. 52168,52168,1
• Citation: 413 S.W.2d 248
• Parties: LINWOOD STATE BANK, a Corporation, Plaintiff-Respondent, v. Laclede LIENTZ, Defendant-Appellant, W. C. Teghtmeyer, Charles W. Marsh, Spencer Norton and Donald G. Rumsey, Defendants, and Rodney HILL, Third-Party Defendant-Respondent
• Court: Missouri Supreme Court

Page 248

413 S.W.2d 248

LINWOOD STATE BANK, a Corporation, Plaintiff-Respondent, v. Laclede LIENTZ, Defendant-Appellant W. C. Teghtmeyer, Charles W. Marsh, Spencer Norton and Donald G. Rumsey, Defendants and Rodney HILL, Third-Party Defendant-Respondent.

No. 52168.

Supreme Court of Missouri, Division No. 1.

March 13, 1967.

Motion for Rehearing or to Transfer to Court En Banc Denied

April 10, 1967.

Alvin D. Shapiro, Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, for respondent.

Billy S. Sparks, Kansas City, Linde, Thomson, VanDyke, Fairchild & Langworthy, Kansas City, of counsel, for appellant.

WELBORN, Commissioner.

The Linwood State Bank sued the appellant here, Laclede Lientz, and four coguarantors to recover $44,237.89 upon their guaranty of obligations of The Lientz Company, Inc. Appellant Lientz denied liability on the guaranty agreement and cross claimed against his four coguarantors for any amount for which he might be found liable to the bank. Lientz also filed a similar claim against third party defendant Rodney Hill. The trial court directed a verdict in favor of Hill. A jury found in favor of the bank and against the five coguarantors in the sum of $43,114.38 and in favor of Lientz in a like amount against his four coguarantors. Lientz is appealing from the judgment in favor of the bank against him and from the judgment in favor of Hill upon Lientz's claim against him.

Lientz Company, Inc., incorporated in 1958, was engaged in the business of manufacturing power burners. Appellant, Laclede Lientz, had been president of the corporation prior to 1960. After that time, when he disposed of his controlling stock interest, he was a director of the company. The other defendants, W. C. Teghtmeyer, Charles W. Marsh, Spencer Norton and Donald G. Rumsey, acquired the controlling interest in the corporation. Teghtmeyer, Marsh and Norton became the executive officers of the corporation and, along with Lientz, members of its board of directors.

In 1960, the corporation negotiated a Small Business Administration loan through the Southgate State Bank in Kansas City. The Lientz directors executed a guaranty agreement in connection with this transaction.

In August or September, 1961, the corporation began borrowing at the Linwood State Bank. Originally the borrowing there was small. When the corporation required additional funds to carry out a $300,000 contract, the Linwood State Bank, according to the testimony of its officers, agreed to advance the corporation the necessary credit on the basis of a purchase order assignment under the $300,000 contract and the execution by the directors and principal shareholders of the corporation of a guaranty agreement. The guaranty agreement, on which this action was based, was signed by Teghtmeyer and Norton in the presence of Mr. Price, the bank president. Teghtmeyer and Norton took the guaranty form with them and obtained the signatures of Marsh, Rumsey and Lientz and returned the signed instrument to the bank at around its date, January 11, 1962.

Credit was extended by the bank to the corporation from time to time, with payments being credited against the indebtedness from time to time.

In March, 1963, Lientz and members of his family contracted to sell to the corporation the remainder of their stock holdings. The contract required that within six months the corporation change its name by eliminating the word 'Lientz.' In December, 1963, as a result of a lawsuit by Lientz, the corporation changed its name to Technology, Inc.

In December, 1963, an involuntary petition in bankruptcy was filed against the corporation. On December 31, 1963, the bank made demand against the five guarantors for the $43,114.38 principal amount, represented by two demand notes, of the corporation's indebtedness to the bank. Upon failure of the guarantors to make payment, this action was filed.

Marsh, Norton, Rumsey and Teghtmeyer, by their pleadings, admitted the execution of the guaranty. Lientz's answer denied execution of the guaranty. However, by a pleading denominated a counter claim, he alleged that he executed the guaranty upon the representation that it would be delivered to the bank only in connection with the bank's taking over the Southgate Small Business Administration loan, which the Linwood State Bank did not do; denied that the corporation was authorized to borrow from the Linwood State Bank; alleged that the transactions between the Lientz Company and the Linwood State Bank were the result of the actions of Rodney Hill, an officer of the bank whom the bank had caused to be placed on the board of directors of Lientz. He named Hill as a third party defendant and sought judgment against him. Lientz also cross claimed against his coguarantors. The other cross claim defendants filed no responsive pleading.

The trial resulted in a directed verdict in favor of Hill on Lientz's third party claim and jury verdict in favor of the bank on its claim against all defendants and in favor of Lientz on his claim against the coguarantors. Only Lientz has appealed, complaining of the judgment favorable to the bank and Hill.

On this appeal, Lientz's first contention is that he was entitled to judgment on the bank's claim because there was no evidence that the bank communicated to him its acceptance of his offer of guaranty. Without getting into the question of whether or not the guaranty here was an offer of guaranty or an absolute contract of guaranty (see 24 Am.Jur., Guaranty, § 37, p. 899), the question of acceptance is eliminated by the terms of the instrument whereby the guarantors waived any notice to that effect. See Industrial Bank & Trust Co. v. Hesselberg, Mo.Sup., 195 S.W.2d 470, 473--474(4--11). The language of waiver is clear as contrasted with that relied upon in Ladd & Bush v. Hayes, 9th Cir., 105 F.2d 292, cited by appellant.

Appellant's second objection is that the borrowing by the Lientz corporation from the bank was not authorized, as required by the corporation's bylaws, by a resolution of the corporation's board of directors. Lientz argues that the borrowing was therefore illegal, that Hill, as a director of Lientz, was chargeable with knowledge of the lack of proper authorization of the borrowing and that by virtue of Hill's official position with the bank, the bank was likewise chargeable with notice of the lack of authority. Lientz also claims that he brought the lack of proper authority to Hill's attention.

Lientz Company, Inc.'s bylaws prohibited incurring indebtedness 'except by resolution of the Board of Directors, duly passed.' No record of the passage of a resolution authorizing borrowing from Linwood was found in the Lientz Company minutes. However, the bank did produce from its file what had been presented to it as, and appeared on its face to be, a certified copy of a resolution of the Lientz directors, enacted August 9, 1961, authorizing the president, secretary or treasurer of the corporation to procure loans from Linwood. The instrument bears the signatures of Teghtmeyer as President, Norton as Treasurer and Marsh as Secretary. It is certified by Marsh as a true copy of a resolution passed by the Lientz directors and also by Norton. Appellant Laclede Lientz's signature is not on the document and he denied knowledge of the passage by the board of directors of any such resolution. The Lientz Company's minute book contained no record of a directors' meeting on August 9, 1961.

This deficiency, however, may not be taken advantage of by appellant. He acknowledged that he was aware of the borrowing from Linwood and that the funds borrowed were employed for corporate purposes. He also acknowledged that he did not inform the bank that the borrowing was not properly authorized, stating, 'I wasn't there to protect the Linwood State Bank.'

Lientz Company, Inc., would not be permitted to avoid the obligation on the grounds of lack of authority of its officers. The law in this regard is stated in Farmers & Merchants Bank v. Burns & Hood Motor Co., Mo.App., 295 S.W.2d 199, 202, as follows:

'Although the instant note was concededly executed by the president of defendant company, in the absence of express authority from the board of directors, and therefore contrary to the provisions of the applicable by-law, we must nevertheless hold that the note constitutes a binding obligation. This follows because the law is well settled that where, as here, a corporation with knowledge of the act has ratified it, or has accepted the consideration of the note, it will be as much bound as if the note had been originally executed in exact conformity with the provisions of its by-laws.'

See also Wilks v. Stone, Mo.App., 339 S.W.2d 590, 595; Milligan v. G. D. Milligan Grocer Co., 207 Mo.App. 472, 233 S.W. 506, 508; 2 Fletcher, Cyclopedia of Corporations, § 430, p. 297; 19 Am.Jur.2d, Corporations, § 1255, pp. 661--663. The appellant-guarantor stands in no better position than the debtor, and, therefore, cannot avoid the obligation on this ground. Pulitzer Publishing Co. v. Chitwood, Mo.App., 9 S.W.2d 251, 252(2); 38 C.J.S. Guaranty § 43, p. 1192.

Appellant contends that the fact that Hill, an officer of the bank, was a member of the Lientz board at the time of the borrowing makes inapplicable the rules above referred to.

Transactions involving corporations having directors or officers in common may present problems. See Annotations 'Validity of contract between corporations as affected by directors or officers in common,' 114 A.L.R. 299, 33 A.L.R.2d 1065. Hill was elected to the Lientz board of directors on January 13, 1962. The borrowing from the bank was not his idea as a member of the Lientz board. The arrangements for the borrowing had been made prior to his election to the board. No evidence was presented as to the role of Hill in the transactions which followed between the bank and the corporation, other than Hill's testimony that he represented the bank...