Litz v. First Huntington Nat. Bank
| Decision Date | 14 June 1938 |
| Docket Number | 8750. |
| Parties | LITZ v. FIRST HUNTINGTON NAT. BANK et al. |
| Court | West Virginia Supreme Court |
Submitted April 26, 1938.
Syllabus by the Court.
1. Where parties own jointly shares of stock, evidenced by a common certificate issued in a fictitious name, one of the parties, in the absence of an express or an implied agreement, can transfer by sale or pledge only his undivided interest therein.
2. The practical interpretation placed upon an indefinite or ambiguous contract by the parties thereto is entitled to great, if not controlling, weight.
3. During the course of the same litigation, a party cannot take inconsistent or divergent positions.
4. "Laches is the delay in the assertion of a right which works disadvantage to another." Hall v. Mortgage Corporation, 118 W.Va. ---, 192 S.E. 145, 111 A.L.R 118.
Appeal from Circuit Court, Cabell County.
Suit in equity by A. Z. Litz against the First Huntington National Bank and others, to enjoin the named defendant from selling certain shares of stock, which the named defendant held as collateral security, and to have the title in the shares of stock adjudicated in the plaintiff. From a decree dismissing the bill of complaint, the plaintiff appeals.
Decree affirmed.
E. L Hogsett and J. W. St. Clair, both of Huntington, and M. O Litz, of Welch, for appellant.
Fitzpatrick Brown & Davis, of Huntington, for appellees.
A. Z. Litz brought this suit in equity against First Huntington National Bank, R. R. Smith and F. C. Leftwich, Trustee in Bankruptcy of R. R. Smith, a bankrupt, to enjoin the defendant, First Huntington National Bank, from selling seventy shares of the capital stock, represented by certificate No. 147, of Central Realty Company (owner of Frederick Hotel in the City of Huntington), which the bank held as collateral security, and to have the title in the shares of stock adjudicated in him. From a decree dismissing the bill of complaint, plaintiff appeals.
For a number of years, Litz and Smith had been associated in business. In 1923, they decided to acquire substantial stock holdings in the Central Realty Company, and to have the stock, when acquired, issued in the name of "Litz-Smith Holding Company," a fictitious name adopted by them for convenience, having in mind the purpose ultimately of dividing the stock equally between themselves. On April 19, 1923, the total stock acquired (668 1/2 shares) was re-issued in the name of "Litz-Smith Holding Company", the transfer being evidenced by seven stock certificates of which one, No. 147, represents the seventy shares of stock in controversy. The stock book was held by a common agent and equally available to Litz and Smith.
On July 30, 1925, Smith, without Litz' consent or knowledge, after indorsing said certificate No. 147 "Litz-Smith Holding Company, by R. R. Smith," pledged the shares represented thereby to the bank to secure, so appellant claims, $115,000 primary indebtedness and $35,000 secondary indebtedness of Smith to the Bank, and further to secure future loans or advancements. A notation was attached to the stub in the stock book which read, "This re-issued 70 shares used by me as collateral security July 30, 1925, R. R. Smith." After this pledge, one C. L. Ritter, on behalf of himself and Litz, purchased (October 22, 1925) of Smith one-half of the 668 1/2 shares of the realty company stock (no account being taken of the seventy shares pledged) standing in the name of Litz-Smith Holding Company for $285 per share. Pursuant thereto, a certificate representing 334 shares of the Realty Company stock was issued in the name of C. L. Ritter. On October 28, 1925, 167 of the 334 shares issued to Ritter were reissued in Litz' name in pursuance of the prior arrangement between them. At the time of these transfers, Litz was unaware of the pledge to the defendant bank, and when the transfer was made to Ritter, Smith was unaware of Litz' secretive participation therein. Litz testified that he did not indorse any of the certificates of stock of Central Realty Company issued in the name of Litz-Smith Holding Company. That being so, the transfer to Ritter and through Ritter to Litz, mechanically, so far as the issuance of the certificates is concerned, was made in the same way as the transfer to the bank in that the transfers were made solely upon Smith's indorsement.
When Litz sought to have his half (334 shares) of the stock holdings re-issued in his wife's name, he, for the first time, learned of the pledging of the seventy shares of stock by Smith. Thereupon, he and Smith called upon the bank and demanded release of the seventy shares. This demand was refused then and consistently at all times thereafter.
On January 13, 1926, the balance of the shares of stock remaining in the name of Litz-Smith Holding Company, that is, 334 1/2 shares less the seventy, or 264 1/2 shares, were issued to Mrs. Litz. Litz thereafter, on February 20, 1927, deposited these shares (264 1/2) with the bank in lieu of Liberty Bonds, which Smith had up as collateral for a $42,000 note, in order that Smith could use the proceeds of said bonds to pay taxes. It was clearly understood, however, that the deposit of Mrs. Litz' stock would secure only the aforesaid $42,000 note.
From the time of the pledge until January, 1927, there was no increase in Smith's indebtedness to the bank. However, thereafter, his indebtedness materially increased. On June 1, 1929, so appellant claims, Smith's obligations to the bank were in the amount of $220,000, of which $90,000 was secondary liability. On the last date, he executed to the bank, as additional security for his indebtedness, a first mortgage, his wife joining therein, on a one-third interest in the surface oil, gas and timber of approximately 20,000 acres of land and 8,000 acres of oil and gas leaseholds, situate in the State of Kentucky. The outstanding two-thirds interest in the properties resided in the Houston estate, the parties interested therein being located in Cincinnati. Litz and Smith claim that this mortgage was executed under an agreement with the bank that the seventy shares of stock would be released. The existence of this agreement is categorically denied by Gohen, the bank's president. At the time the mortgage was executed, evidently Smith regarded the properties as having substantial value. There is evidence to the effect that the timber consisted of eighty or ninety million feet, worth $4 per thousand feet; that the United Fuel Gas Company had offered $2,000,000 for the 8,000 acres of oil and gas leaseholds, which offer was later withdrawn, and that the oil and gas interest in the 20,000 acres had, according to a recent offer, a value of one dollar per acre delay rental and one-eighth of the oil and gas produced. The evidence of these values does not embrace the value of the surface of the 20,000 acres. The coal under the 20,000 acres was owned by Kentucky By-Products Coal Company. Prior to the execution of the first mortgage, Smith had placed with the bank, as additional collateral for his indebtedness, 2500 shares of the stock of this company, which, according to his testimony, was worth $125,000.
A second mortgage was executed by Smith to the Union Bank and Trust Company of Huntington, on January 7, 1930, to secure an indebtedness of $115,000.
The record discloses that, with the passing of time, Smith's financial position became precarious; the Houstons found it increasingly difficult to carry the property; and efforts were then made to dispose of the oil and gas property owned jointly by Smith and the Houston estate. As a final result, Gohen, representing both Smith and the bank, in conjunction with the Houston interests, consummated an agreement of sale to the United Fuel Gas Company of the oil and gas properties covered by the mortgage and certain oil and gas leaseholds in Wayne County, West Virginia, owned by Smith and the Houstons. Thereby, the gas company undertook to pay for the oil and gas interests $1,500,000, par value, of the Columbia Gas & Electric Company's gold bonds of 1952 issue, subject to deductions for imperfect titles. The gas company subsequently advised that the deductions amounted to $325,000. Smith, Gohen and Houston's representatives then met in Cincinnati, in November, 1931, for the purpose of executing the papers of sale. As a result, the bank agreed to release (1) its mortgage on the Kentucky property; and (2) the 2500 shares of Kentucky By-Products Coal Company stock in consideration of $197,500 of the Columbia Gas & Electric Company bonds. The remainder of the bonds representing Smith's interest in the property, amounting to $193,000, were distributed (1) $115,000 in full satisfaction of the indebtedness due the Union Bank & Trust Company; (2) $2,500 contribution to a $20,000 fund paid to Mrs. Smith; and (3) the residue to be held by Gohen, subject to Smith's order, which latter bonds were later attached in New York at the instance of a Cincinnati Bank. Pursuant to the agreement, the 264 1/2 shares of the Litz-Smith Holding Company stock belonging to Mrs. Litz were returned. Shortly after the sale, Smith was adjudicated a bankrupt.
After sale of the $197,500 in bonds received by the bank and other collateral held, the bank claimed a balance of unsatisfied indebtedness against Smith in the amount of $16,728.68. It then gave notice of sale of the seventy shares of stock to satisfy this remainder of the indebtedness.
During the course of these transactions, Litz attended directors' meetings of the bank and knew that Smith's notes were being renewed from time to time. The record discloses that Gohen, the bank's president, had discussed with him the efforts to sell Smith's...
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