Reard v. Freiden

• Citation: 169 N.W. 245,184 Iowa 823
• Decision Date: 25 October 1918
• Docket Number: 32149
• Parties: PETER REARD et al., Appellees, v. SAMUEL C. FREIDEN et al., Appellees; A. B. BEALL, Intervener, Appellant
• Court: United States State Supreme Court of Iowa

169 N.W. 245

184 Iowa 823

PETER REARD et al., Appellees, v. SAMUEL C. FREIDEN et al., Appellees; A. B. BEALL, Intervener, Appellant

No. 32149

Supreme Court of Iowa, Des Moines

October 25, 1918

Appeal from Woodbury District Court.--W. G. SEARS, Judge.

SUIT to rescind the purchase of stock in the defendant bank, and to cancel a note executed therefor. A. B. Beall, for himself as creditor, and for all other creditors, filed a petition of intervention. Plaintiff demurred thereto, and moved that the same be stricken from the files. The court sustained both the motion and the demurrer, and from this ruling intervener appeals.

Reversed.

George A. Gorder, for appellant.

Edwin J. Stason, E. A. Burgess, and T. F. Bevington, for appellees.

LADD J. PRESTON, C. J., EVANS and SALINGER, JJ., concur.

OPINION

LADD, J.

I.

The claim of Peter Reard, alleged in the petition, is that the defendant Samuel C. Freiden, director and president of defendant bank, induced him, by fraudulent representations to purchase 63 1/4 shares of stock in the Sioux City Trust and Savings Bank, at the price of $ 15,000, for which he gave Freiden his promissory note; that the certificate of shares was issued to him for and instead of those held by Freiden that said Freiden afterwards turned over said note to Ralph A. Oliver, as trustee, for the benefit of Freiden and the bank, and that it was handled by said Oliver under a certain written agreement; that Oliver took the same with knowledge of the infirmity inhering therein; that, upon discovering that the representations of Freiden were false and fraudulent, Reard tendered to both Oliver and Freiden the return of the stock, and demanded the surrender of his note. The prayer was that said certificate of stock, which was brought into court, be cancelled, and that his note be returned.

The defendant Freiden put all these allegations in issue, except that with reference to his official position and that he had transferred the note to Oliver.

The bank and Oliver first filed an answer like that of Freiden, though admitting the demand on Oliver, and alleging that Freiden had turned his property over to Oliver, as trustee, to be disposed of in pursuance of a contract between them. Later on, Oliver filed an amendment to the answer, alleging that the bank had gone into voluntary liquidation; that its assets had been turned over to the Northwestern National Bank of Sioux City, in pursuance of a contract; that the makers of a large number of the notes held by the bank had asserted their invalidity, because of oral arrangements with Freiden; and that, while the invalidity thereof was denied, yet, if they were found invalid, the bank would be insolvent; that the transaction on which the petition was based was personal between the parties thereto, and the bank was in no manner connected therewith; that bank examiners, upon discovering the condition of the notes heretofore referred to, demanded that these be taken out of the assets of the bank, and it was arranged that Freiden should transfer his property, including the note of Reard, to said Oliver, as trustee, which was done, said trustee undertaking to reduce said property to cash, and therefrom pay for and take over from the bank the notes complained of. He also alleged that the estate of Reard was estopped from asserting that he was not a stockholder in said bank. The bank also amended the answer by making the same allegations as did Oliver, except as to the transfer of Freiden's property.

It is to be observed that the defenses interposed are (1) general denial, (2) acquiring the note for valuable consideration without notice, and (3) estoppel. Thereupon, Beall filed an amended and substituted petition of intervention, in the first division of which he alleged an indebtedness of $ 18:75 of the bank to him on open account; that he was acting for himself and all other creditors of the bank; that all its property had been transferred to the Northwestern National Bank, to be handled for its benefit and that of its stockholders; that it ceased to do business March 1, 1917, and has since been deserted by its officers and directors, none of whom give any attention to its affairs; that it is unable to discharge its liabilities; that its capital stock is somewhat impaired, and it is insolvent; that the transaction of Freiden with plaintiff was personal, and in no manner connected with the bank; that plaintiff is estopped, as pleaded by defendants, and especially as to intervener, who extended credit to the bank in reliance on Reard's connection therewith; that intervener knows nothing of the financial condition of stockholders, other than the estate of Reard, and so alleges that they are insolvent; that intervener is without remedy at law, and the delay in reducing the creditor claims to judgment would be fatal to the relief herein prayed, and the success of plaintiff would deprive the intervening creditors of property out of which to satisfy their claims; that the assignment to the Northwestern National Bank was limited in favor of a part only of those entitled to share the assets.

In Division 2, an indebtedness of the bank to one Schmidt, of $ 125, and the assignment thereof to plaintiff, is alleged; and the prayer is that:

"Wherefore, plaintiff in intervention prays that the prayer of the plaintiff Peter Reard and his executrix, for rescission of the subscription and cancellation of the stock in said Sioux City Trust & Savings Bank, held by the said Peter Reard, and for money judgment or establishment of a money trust fund against the said bank and its codefendant, Oliver, be denied; that all of the creditors, stock and shareholders in said bank, and all persons whomsoever interested, directly or indirectly, in this litigation, be impleaded herein and brought before this court in this cause; that a hearing be had, in which the true financial condition of said bank be ascertained and adjudged; that the amount to which each creditor who may appear herein may be entitled, and the individual liability of each and every stockholder of said bank, be determined and adjudged; and that, thereupon, judgment and decree be entered in favor of each creditor, to the amount which he may prove to be justly due and owing to him, and against each and every stockholder of said Sioux City Trust & Savings Bank, including the said Anna Reard, executrix, to the extent of the lawful share necessary to be contributed by them and each of them, in order to liquidate the affairs and pay and satisfy the just debts and obligations of said bank; and that an officer of said Northwestern National Bank, or such other person as to the court may be deemed advisable, be appointed as receiver of the said defendant Trust Bank and of its assets and resources; that the said Northwestern Bank be decreed and required to turn over to said receiver all of the property and assets of said defendant Trust Bank now in its possession or under its control; that said receiver be empowered and required to liquidate, within a reasonable time, to be fixed by this court, said Trust Bank and its affairs, to collect its assets and property, by judicial proceedings or otherwise, and to collect from the solvent shareholders such legal amount as may be necessary to pay the just debts and obligations of said defendant Trust Bank, for judgment in favor of this plaintiff in intervention, A. B. Beall, and against the said Trust Bank, for ($ 143.75) one hundred forty-three and 75/100 dollars, together with interest thereon from October 1, 1916, for such other and further relief in the premises as may be just and equitable, and for the costs of this proceeding."

The plaintiff demurred to this petition, on the ground that the facts stated did not entitle the intervener to the relief prayed, and moved that the petition be stricken from the files, for that: (1) No basis for intervention appears therein; (2) it prays for the appointment of a receiver, without having a claim established by judgment or otherwise, or showing any ground therefor; (3) it affirmatively shows that delay would be occasioned thereby; and (4) it fails to show that the petitioner has any interest in the matter in litigation. Both the demurrer and the motion to strike were sustained.

These rulings may be considered together; and first, the alleged delay occasioned by the filing of the petition of intervention. Section 3595 of the Code provides that:

"The court shall determine upon the intervention at the same time that the action is decided, and the intervener has no right to delay."

On June 14, 1917, a stipulation of all parties recited that the trial had begun, and that it was agreed that intervener might file his petition by June 25th, the parties waiving the right to object to the time of filing. His petition was then filed, but stricken on motion of plaintiff, July 7th; and three days later, defendants filed amendments to their answer; and July 16th, the amended and substituted petition of intervention was filed. The trial does not appear to have proceeded, and no effort appears to have been made since to bring the cause on for hearing. There is no room, then, for saying that there has been any delay not acquiesced in by the parties.

II. The main objection, however, to the intervention, is that intervener pleaded no such interest in the matter in litigation as warranted his intervention. Section 3594 of the Code declares that:

"Any person who has an interest in the matter in litigation, in the success of either of the parties to the action, or against both, may become a...