Petty v. Bay City Bank

• Decision Date: 24 July 1928
• Docket Number: April Term.,No. 50,50
• Citation: 243 Mich. 362,220 N.W. 704
• Parties: PETTY et al. v. BAY CITY BANK.
• Court: Michigan Supreme Court

243 Mich. 362

220 N.W. 704

PETTY et al.

v.BAY CITY BANK.

No. 50, April Term.

Supreme Court of Michigan.

July 24, 1928.

Appeal from Circuit Court, Bay County, in Chancery; Russell R. McPeek, Judge.

Bill by John R. Petty and others against the Bay City Bank. From a decree of dismissal, the plaintiff's appeal. Affirmed.

Argued before the Entire Bench except POTTER, J.

Collins & Thompson, of Bay City, for appellants.

James E. Duffy and James E. Duffy, Jr., both of Bay City, for appellee.

McDONALD, J.

The plaintiffs were stockholders of the Farmers' State Savings Bank of Bay City, Mich. On January 31, 1927, by order of the banking commissioner, the bank ceased to do business. An investigation by the state banking department had disclosed that its capital was impaired to the extent of $100,000. It was necessary that its affairs be liquidated and a 100 per cent. assessment be made against the stockholders for payment of depositors. The board of directors, which included most of the plaintiffs, persuaded the defendant bank to take over the assets of their bank and to liquidate its affairs. In furtherance of this purpose, an agreement of sale was entered into between the Farmers' State Savings Bank, designated therein as the seller, and the defendant bank, as the purchaser. This agreement was in part as follows:

‘In addition to the cash items set forth in the attached balance sheet, there shall be paid to the purchaser by the seller the sum of at least seventy-five thousand dollars ($75,000). This amount, it is understood by the purchaser, is to be realized from an assessment of one hundred (100) per cent. to be made upon the stockholders of the seller. To guarantee the collection of such assessment and the payment by the seller to the purchaser of at least the sum of seventy-five thousand (75,000) dollars thereof, within five (5) months from the date thereof, certain individuals acceptable to the purchaser are to enter into an individual agreement and to deposit collateral acceptable to the purchaser.’

The guaranty referred to was executed by the plaintiffs and contains the following obligation:

‘Now, therefore, in consideration of the premises, and for the purpose of assuring said first party of the collection of at least 75 per cent. of said assessment, the said second parties do hereby guarantee the collection of at least $75,000 on said assessment within 90 days from the date hereof; and in the event of the failure to collect said assessment to the amount of $75,000 within said period of 90 days, then and in that event the said second parties shall become liable to pay forthwith to said first party the difference between the amount actually collected on said assessment and $75,000, and on making such payment said second parties shall be subrogated to the rights of said first party or any other person or corporation having the right to collect such assessments, and collections made thereon after said 90 days shall belong to said second parties up until the amount of $75,000 is collected, to remburse them for the amounts paid under this guaranty. In case of the collection from the stockholders of said Farmers' State Savings Bank on the assessment aforesaid, of $75,000 or more, or if such collections are less than $75,000, and said second parties make good the deficiencies to the first party, then this obligation, so far as it affects said first party, shall be void and of no effect.’

To secure the faithful performance of their obligations under this guaranty, the plaintiffs deposited with defendant certain collateral which in the agreement was credited to them individually by name. No assessment was levied or attempted to be levied upon the stockholders as contemplated by the parties, and nothing in lieu thereof has been paid in by the plaintiffs. The defendant was about to sell the pledged collateral. The plaintiffs filed this bill to restrain such action and to compel a return of the collateral and a cancellation of the agreement of guaranty.

The theory of the bill is that the plaintiff believed an assessment would be levied by the state banking department, that it would be a legal assessment binding on all of the stockholders, that if such an assessment were made they estimated at least $75,000 would be paid thereon, and that in signing the guaranty they believed they were assuming liability for the payment of that amount if the assessment were made by the banking commission. It is alleged:

‘That the board of directors had no authority to levy an assessment under the facts existing, and that therefore it took no action, and that no legal assessment was made or could be made by said board under the law.’

It is further alleged:

‘That by reason of the fact that no assessment has been made, and that no assessment can be made upon the stockholders of said bank under the conditions existing, they are released from liability to said Bay City Bank, under the writing aforesaid, and that they are entitled respectively to the return of the collateral put up with said agreement and now in the hands of the Bay City Bank.’

On the hearing, the circuit judge dismissed the bill. From the decree entered, the plaintiffs have appealed.

There is involved, first, a construction of the guaranty agreement; and, second, whether under the...