Shaw v. Crandon State Bank

• Decision Date: 31 January 1911
• Citation: 145 Wis. 639,129 N.W. 794
• Parties: SHAW v. CRANDON STATE BANK ET AL.
• Court: Wisconsin Supreme Court

145 Wis. 639

129 N.W. 794

SHAW

v.CRANDON STATE BANK ET AL.

Supreme Court of Wisconsin.

Jan. 31, 1911.

Appeal from Circuit Court, Winnebago County; George W. Burnell, Judge.

Action by Samuel Shaw against the Crandon State Bank and others. From a judgment for plaintiff, defendants, the Crandon State Bank and another, appeal. Reversed and remanded.Henry Hay, Goodrick & Goodrick, G. H. Dawson, and Kreutzer, Bird, Rosenberry & Okoneski, for appellants.

Samuel Shaw and Barbers & Beglinger, for respondent.

TIMLIN, J.

This is an action to foreclose a mortgage executed by the Crandon Manufacturing Company on December 9, 1907, to Samuel Shaw, M. D. Keith, and the Crandon State Bank jointly to secure three promissory notes bearing even date with said mortgage, one in the sum of $10,000, payable to Samuel Shaw and due one year after date, one in the sum of $8,000, payable to M. D. Keith and due two years after date, and one in the sum of $14,000, payable to the Crandon State Bank and due three years after date. The respondent, Samuel Shaw, commenced this suit for foreclosure on December 31, 1908, claiming priority of lien under said mortgage because his note fell due first, and making the mortgagor a defendant and Keith and the Crandon State Bank defendants as subsequent lienholders. The mortgage contained a provision that, in case of nonpayment of any sum of money either principal, interest, insurance premiums, or taxes, etc., the whole amount secured by the mortgage should at the option of Shaw, Keith, and the Crandon State Bank, their representatives or assigns, to be exercised at the time of such default or any time thereafter be deemed to have become due, etc. Purporting to act under this power, Keith and the Crandon State Bank, because of interest in default upon each of their respective notes, each served a notice in writing of option to declare the whole sum secured by said mortgage due and payable. Keith and the bank each answered Shaw's complaint, denying his claim to priority of lien and counterclaiming for foreclosure, Keith claiming a pro rata distribution of the proceeds of sale of the mortgaged property, and the bank claiming priority of lien over Shaw. The circuit judge gave judgment of foreclosure and sale, but giving the plaintiff Shaw priority of payment out of the proceeds of such sale to the amount of his said note, interest, and costs.

The mortgagor, Crandon Manufacturing Company, is a corporation organized in the year 1903, situate and doing business at Crandon, in Forest county, in this state, and engaged in manufacture. It had a board of six directors, among whom were Keith, Shaw, and Haile. It had an authorized capital of 400 shares of $100 each, of which only 270 shares had been issued, and its officers were P. Shay, president, and W. W. Waite, secretary. Shay did not reside at Crandon, or administer the business of the corporation. It had a finance committee consisting of Samuel Shaw, W. W. Waite, and Almon Smith. On the day on which the mortgage was given, it owed the Crandon State Bank $14,000, evidenced by notes, and had an overdraft in said bank of $2,248.43. It also owed $6,000 on notes to the First National Bank of New London of which bank Keith was president and $1,500 to the Allenton State Bank on a note and $500 to one Tiernan, also evidenced by a note. The trial court found that the manufacturing company was not then insolvent, but the undisputed evidence shows that it was insolvent in the sense that it could not meet its liabilities in the ordinary course of business as they matured, but perhaps not insolvent in the sense that all its assets at a fair market value would not equal its liabilities to creditors, and the undisputed evidence shows that it was in a precarious financial condition. The Crandon State Bank was organized in the year 1903 as a banking corporation under the laws of Wisconsin, situated and doing business at Crandon, with an authorized capital of $25,000, and at the time of making the mortgage in question it had four directors. Said Keith was a stockholder, director, and president of this bank. Haile was a director and the cashier of the bank. Samuel Shaw was director and vice president of the bank, and Almon Smith was assistant cashier. The other bank director was a traveling man named Crabtree, who took little part in the proceedings relative to the taking of the mortgage. The plaintiff, Shaw, was an attorney, and drew up or dictated the papers and resolutions relative to the mortgage and notes in question as well as the mortgage and notes. The bank president, Keith, testifies that Shaw in doing so was acting as attorney for the bank, and that he relied on Shaw. This is denied by Shaw, and the court finds that in doing so Shaw did not attempt or pretend to act as attorney for the bank. Shaw's interest, together with that of his wife and daughter in the bank, amounted to 50 shares out of 250 shares, and his like interest in the manufacturing company amounted to 40 shares out of 270 shares. The bank was not represented by attorney or by any person not interested in the manufacturing company. The bank held as security for this indebtedness a deed of about four acres of land in the city of Crandon worth about $2,500, and a deed from F. W. Marquardt and wife of land known as the “Marquardt eighty” suitable for platting, and worth about $5,000. August 18, 1906, the directors of the manufacturing company, “resolved that, as there was no record made upon the minutes as to the deeding of the Marquardt eighty to the Crandon State Bank, said deed was not legal because not authorized, resolved that said Crandon State Bank redeed said 80 acres of land to the Crandon Manufacturing Company, and that Samuel Shaw be appointed trustee and receive all moneys and securities taken in from the sale of lots, blocks, and outlots in the Marquardt eighty, and turn the same over to the Crandon State Bank toward the liquidation of the debts of said Crandon Manufacturing Company to the Crandon State Bank.” On the same day the directors of the Crandon State Bank held a meeting at which there were present directors Keith, Shaw, Crabtree, and Haile. “It was moved by Mr. Shaw and seconded by Mr. Crabtree and duly carried that the Marquardt eighty the title of which rested in the Crandon State Bank as security for loans be transferred to the Crandon Manufacturing Company.” The land was platted and Shaw accepted the trust because he reported sales as trustee, his last report being December 16, 1907, a week after the giving of the mortgage in question, on which date the record book of the manufacturing company shows the following: “Samuel Shaw, trustee, reports the sale by C. H. Weast as agent of lots 3 and 4 of block 9 of Page's addition to Crandon, for $160 of which $50 has been paid, Weast reserving $8.00 of same for his commission, and Samuel Shaw having turned over the balance of $40 to the treasurer of said Crandon Manufacturing Company, said trustee also reports that no other sale of the real estate of the company has been made since his last report.” This treasurer of the Crandon Manufacturing Company it will be remembered was also cashier of the bank. The mortgage in question covers these two pieces of property, although the title to the four-acre tract remained in the bank.

It thus appears that the affairs of the bank were thoroughly in the hands and under the control of the directors and officers of the manufacturing company, and the affairs of the manufacturing company were to the same extent under the control of the directors and officers of the bank; and the admission of the plaintiff Shaw in a letter written after his note became due is fully justified by the undisputed facts. “The management is substantially the same thing as that which we have in the bank that is the controlling influence in the management.” At a stockholders' meeting of the manufacturing company on December 7, 1907, the following resolution was unanimously adopted: “Resolved by the stockholders of the Crandon Manufacturing Company that the board of directors are hereby authorized and empowered to mortgage all the real property of said Crandon Manufacturing Company to the amount of $32,000 bearing seven per cent. interest per annum, payable annually, $10,000 of such sum to become due and payable on or before one year from date, $8,000 of such sum to become due and payable on or before two years from date, and $14,000 to become due and payable on or before three years from date hereof, and to authorize and empower said board of directors to execute and deliver with said mortgage promissory notes of even date with the mortgage aggregating in amount the said sum of $32,000 and conforming as to rate of interest and time of maturity and any other matter stated to the conditions above set forth, the proceeds of said mortgage and promissory notes to be used by said board of directors in paying the present indebtedness of said Crandon Manufacturing Company and paying for stock to be manufactured into hubs and heading during the year 1908.” The directors of this company on December 9, 1907, “resolved that the board of directors of the Crandon Manufacturing Company do exercise and use the power vested in them by the stockholders of said company at a legal meeting of the same, held on December 7, 1907, and do mortgage the real estate and appurtenances of said company as follows: Said mortgage shall be a first mortgage on said property, in the sum of $32,000 and three several notes shall be executed and delivered with said mortgage, as follows: A note payable on or before one year from date to be called note No. 1 to Samuel Shaw in the sum of $10,000, and said sum to be advanced to the secretary of this corporation as called for on the written order of said secretary and the president or vice president of this corporation, and such moneys to be used to purchase stock for this corporation to be...