Nat'l Turners Bldg. & Loan Ass'n v. Schreitmueller

• Citation: 285 N.W. 497,288 Mich. 580
• Decision Date: 25 April 1939
• Docket Number: No. 71.,71.
• Court: Michigan Supreme Court
• Parties: NATIONAL TURNERS BUILDING & LOAN ASS'N v. SCHREITMUELLER et al.

288 Mich. 580

285 N.W. 497

NATIONAL TURNERS BUILDING & LOAN ASS'N

v.SCHREITMUELLER et al.

No. 71.

Supreme Court of Michigan.

April 25, 1939.

Suit by the National Turners Building & Loan Association against Irene M. Schreitmueller and another for cancellation of one of plaintiff's stock certificates and for the surrender of a passbook, wherein the defendants filed a cross-bill seeking a decree validating the certificate and passbook. From an adverse decree, defendants appeal.

Decree vacated and cause remanded, with directions.

WIEST, J., dissenting.

Appeal from Circuit Court, Wayne County, in Chancery; Joseph F. Sanford, Judge.

Argued before the Entire Bench, except BUTZEL, C. J.

Vincent P. Dacey, of Detroit (Harry, S. Toy, of Detroit, of counsel), for appellants.

Mason, Davidson & Mansfield, of Detroit (Walter A. Mansfield, of Detroit, of counsel), for appellee.

BUSHNELL, Justice.

Plaintiff, National Turners Building & Loan Association, a New Jersey corporation, filed a bill of complaint for cancellation of one of the association's stock certificates and for the surrender of a passbook, both of which are in the possession of defendants, who are husband and wife and residents of Wayne county, Michigan. Defendants denied plaintiff's right to equitable relief and, by cross-bill, sought a decree validating the certificate and passbook.

Defendant, Irene M. Schreitmueller (formerly Irene M. Weber), in 1919, while living in the State of New Jersey, purchased,through her brother, Frank G. Weber, then secretary of plaintiff corporation, the association's installment certificate No. 243, for which she agreed to pay $15 per month. The terms of the purchase provided that, at such time as the monthly payments of $15 and interest, or the accrued profits thereon, aggregated a total of $3,000, Mrs. Schreitmueller was entitled to receive either a fully prepaid stock certificate for 15 shares of the capital stock of plaintiff association of a value of $200 each, or she could redeem the certificate in cash.

In 1927 installment certificate No. 243 was assigned by the purchaser to Frank G. Weber. This assignment was on a separate sheet of paper and defendant received from her brother a receipt, dated February 28, 1927, showing that certificate No. 243, then valued at $1,700, was being loaned to him for the express purpose of using it as personal collateral at the Irvington National Bank, of which he was an assistant cashier. After Mrs. Schreitmueller assigned certificate No. 243 to Weber, defendants continuted to make payments thereon to the building and loan association until the installment certificate matured in March of 1931. After its maturity, upon suggestion of Weber, defendants notified him to allow the proceeds of certificate No. 243 to remain with the association and be converted into prepaid stock, instructing him to apply the interest proceeds from such prepaid stock, amounting to $15 per month, towards the purchase of new installment shares.

Because they needed the certificate in order to use it as additional collateral at one of the Detroit banks, defendants later began to press Weber for its return. On October 11, 1933, Weber sent defendants stock certificate No. 473 bearing his signature as secretary and that of Charles Braun as vicepresident, and a passbook No. 1937, showing receipt of monthly payments from February, 1931, through June of 1933; the certificate, however, was dated March 15, 1931. Braun was not vice-president of the association in 1931 but did occupy that office at the time of delivery of the certificate.

It is plaintiff's claim that it had not at any time issued certificates with as high a number as 473, although the signatures of Braun and Weber thereon were not disputed. It is this certificate No. 473 and passbook No. 1937 that plaintiff association wants cancelled.

William A. Schilling, a lawyer of Maplewood, N. J., testified that he was one of the organizers of the association and had been its counsel ever since, and that he acted as secretary from September 1st to December 15, 1934, succeeding Weber, who was also one of the organizers and secretary of the association since its inception. Schilling stated that Weber was a full time employe of the Irvington National Bank, that his work with the association was more or less a side line; that in August of 1934 it was discovered that Weber was a defaulter, and subsequent investigation disclosed a shortage of approximately $20,000 in his building and loan association accounts; he was later indicted by a Federal grand jury for embezzling funds of the Irvington National Bank. His fraudulent dealings with the affairs of his two employers were characterized by Schilling as ‘a most complicated and involved scheme that that bank or anyone around there has ever come on to.’ Among some of the dealings of Weber with plaintiff's stock were the surrender and cancellation by him of the originally assigned certificate No. 243 and the issuance of certificate No. 296, which was in turn pledged by him with the association as collateral for a loan and later cancelled.

The trial judge was of the opinion that the evidence produced before him disclosed a situation controlled by the law laid down in Moores v. Citizens' National Bank, 111 U.S. 156, 4 S.Ct. 345, 28 L.Ed. 385. The trial judge did not, however, cite Muffat v. Detroit-Macomb Land Co., 252 Mich. 692, 234 N.W. 148, in which the Moores case, supra, is discussed. In the Muffat case plaintiff filed a bill to compel the transfer of a stock certificate which he had obtained under circumstances related in the reported opinion, supra. When Muffat presented the certificate for transfer, he learned for the first time that it represented 103 shares of stock which Willmarth, the secretary and a large stockholder of defendant company, had owned at one time, but, having sold 84 shares to one Whittaker, the certificate for 103 shares was surrendered to the corporation for cancellation and new certificates were issued. The trial judge found against Muffat on the theory-‘that when an officer, who has the power to issue certificates of stock, hypothecates stock represented by a certificate standing in his name for his personal debts, the pledgee is put upon inquiry. Had due inquiry been made, Willmarth's remissness would probably have been discovered.’ This court did not agree with the trial judge's conclusion and, after a discussion of the authorities cited in the opinion, supra, particularly the Moores case and the uniform stock transfer act, 2 Comp.Laws 1929, § 9520 et seq. (Stat.Ann. § 19.331 et seq.), concluded that the defendant corporation was liable.

On its facts the Moores case differs so widely from the instant case that it is hardly applicable even by analogy. In that case the principal transaction was a loan between individuals wholly independent of the defendant banking corporation, but for which its corporate stock was pledged as security. The bank was not a party to the agreement. In the instant case the principal transaction was a purchase of stock from plaintiff association. The contract provided for the delivery of a prepaid stock certificate to defendants on completion of their payments to plaintiff. The payments were made to the corporation and the contract was completed by the delivery of a prepaid stock certificate in the manner agreed to by the association. A corporation is not to be relieved from its contractual obligations by the fraud of its own agent. The doctrine of the Moores case was qualified by this court in the Muffat case, and it seems inconsistent to give blanket application of the Moores case to this case.

As to the effect of the assignment, the trial judge said: ‘Defendant cannot be heard to complain of irregularities surrounding the issuance of certificate No. 296 after her unqualified assignment of certificate No. 243. Plaintiff may have been careless in its dealings with Weber but was under no...