St. Louis Union Trust Company v. Universal Glass Company

• Decision Date: 08 November 1927
• Citation: 299 S.W. 132,220 Mo.App. 1205
• Parties: ST. LOUIS UNION TRUST COMPANY, A CORPORATION, RESPONDENT, v. UNIVERSAL GLASS COMPANY, A CORPORATION, DEFENDANT, R. H. BELLMAN, APPELLANT. *
• Court: Missouri Court of Appeals

299 S.W. 132

220 Mo.App. 1205

ST. LOUIS UNION TRUST COMPANY, A CORPORATION, RESPONDENT, v. UNIVERSAL GLASS COMPANY, A CORPORATION, DEFENDANT, R. H. BELLMAN, APPELLANT. *

Court of Appeals of Missouri, St. Louis

November 8, 1927

Appeal from the Circuit Court of St. Louis County.--Hon. John W McElhinney, Judge.

AFFIRMED.

Judgment affirmed.

Joseph Dickson, Jr., for appellant.

(1) The pledge of $ 6000 bonds of the Universal Glass Company, made by it when it executed and delivered its promissory note dated at Pittsburgh, Pennsylvania, May 7, 1923, whereby it promised to pay to C. J. Geibel, at its office in Pittsburgh the sum of $ 1500 thirty days after date, was a Pennsylvania transaction whose effect and validity and the rights and obligations of the parties thereto are determined by the laws of the State of Pennsylvania. Beach on Contracts, sec. 584; Johnson v. Gawtry, 83 Mo. 339; Tennant v. Insurance Co., 133 Mo.App. 345; Morris & Whitehead v. East Side Ry. Co., 104 F. 409 (Ore.); Miss. Valley Trust Co. v. Ry. Steel Spring Co., 258 F. 346 (Mo.). (2) In Pennsylvania a corporation has power to pledge its bonds for less than their face value as security for a corporate debt, and bonds so pledged are bonds "issued" as contemplated by Article 16, section 7 of the Constitution of Pennsylvania, providing that "no corporation shall issue stock or bonds except for labor done or money or property actually received." Cook on Corporations (8 Ed.), secs 763, 766; Miller v. Distilling Co., 57 Pa. S.Ct. 183; Rogers, Brown & Co. v. Tindel Morris Co., 271 F. 475 (Pa.); In re Sharon-Walker Co., 7 Fed. (2 Ed.) 475. (3) Where the note authorized the holder, upon nonpayment at maturity, to sell the collateral at private sale without notice, such sale, when made in good faith, was valid and divested the title of the pledgor. The requirement of notice of the time and place of sale may be waived by agreement of parties. Jones on Collateral Securities (3 Ed.), secs. 610, 613b, 635, 639a, 732; Appeal of Jeans, 116 Pa. St. 573, 11 A. 862. (4) Mere notice to the purchaser at a sale of collateral that the collateral was pledged at less than its face value is not sufficient to prevent his being treated as a holder in due course. He must be shown to have had notice of some inherent illegality in the transaction and the burden is on the pledgor to show bad faith in the purchaser. Cook on Corporations (8 Ed.), sec. 763; Mercer v. Steil, 117 A. 689, l. c. 691 (Conn.). (5) A purchaser of bonds at a pledgee's sale, though the pledge was by the company issuing the bonds and the price obtained at such sale was low, may enforce collection of such bonds at their face value. Cook on Corporations (8 Ed.), sec. 763; Mercer v. Steil, 117 A. 689 (Conn.); Rogers Brown & Co. v. Tindel Morris Co., 271 F. 475 (Pa.); Turner v. Metropolitan Trust Co. (In re Western Steel Co.), 207 F. 495 (Wash.); Colonial Trust Co. v. Central Trust Co., 243 Pa. 268, 90 A. 189; Miller v. Distilling Co., 57 Pa. S.Ct. 183; Shafer v. Sparks, 226 F. 922 (Pa.). (6) Nor is the director of a corporation who purchased at a sale of collateral pledged by the company denied the rights of any other purchaser if he acted fairly and openly and violated no duty owed by him to the corporation. Fletcher on Corporations, sec. 2294; Watts' Appeal, 78 Pa. St. 370.

Bryan, Williams & Cave for respondent.

Harry W. Castlen, of Counsel.

(1) Bellman's claim was heard before the court without a jury, and there were no declarations of law asked or refused and no findings of fact requested. Under this state of the record the Appellate Court will determine only whether the general finding of the trial court can be sustained under any permissible view of the evidence. Lumber Co. v. Hill, 242 S.W. 427; Missouri Gas & El. Co. v. Milling Co., 279 S.W. 727. (b) The assignments of error in appellant's motion for new trial and in this court are too general to preserve anything for appellate review. (2) No matter what powers of sale are given to a pledgee under a collateral pledge contract, he must execute such powers with fairness to the pledgor. This means that he must sell the collateral in good faith and for the best price obtainable. Such a sale necessarily implies a sale for cash. Hagan v. Bank, 182 Mo. 319. (3) Where the unissued bonds of a corporation, secured by a mortgage upon the corporate property, are pledged by it as collateral for its own note, the amount of the bonds so pledged as collateral is only important in determining the extent to which the creditor may participate in the proceeds of the mortgage security. Dibert v. D'Arcy, 248 Mo. 617; Mississippi Valley Trust Co. v. Railway Steel Spring Co., 258 F. 346; In re Waddell-Entz Co., 67 Conn. 324; Matthews v. Trust Co., 192 F. 557; Bank v. Railroad, 122 Mass. 240. (4) In determining the distribution of the proceeds of the sale of real property, which was located in Missouri, and the rights of the creditors therein, the law of Missouri must govern. 14 Ruling Case Law 653; Wylie v. Speyer, 62 N. Y. Prac. (Howard) 107; Turnbull v. Cole, 25 A. L. R. (Colo.) 1149; Holzhauser Co. v. Copper Company, 70 L. R. A. (N. C.) 183.

BECKER, J. Daues, P. J., and Nipper, J., concur.

OPINION

BECKER, J.

In July, 1921, the board of directors of the Universal Glass Company, a Delaware corporation, whose principal office was in Pittsburgh, Pennsylvania, authorized the pledge of its bonds (held in its treasury and theretofore unissued) secured by mortgage on its property, located at Valley Park, Missouri, as collateral for a loan to the company, the bonds so pledged to be "not more than four times the amount of the loan." The appellant, R. H. Bellman was at the time a member of the board of directors of said Universal Glass Company. In November, 1921, one Charles J. Geibel of Butler, Pennsylvania, loaned to the company $ 7500 on its note secured by $ 30,000 par value of its bonds. Upon the maturity of the note, the loan was reduced to $ 2500, and a subsequent payment of $ 1000 further reduced the loan to $ 1500, for which the company gave Geibel its note with $ 6000 of its bonds as collateral. This note, dated at Pittsburgh, Pennsylvania, May 7, 1923, promised payment to Geibel at 603 First National Bank Building, Pittsburgh, Pennsylvania (the company's office), thirty days after date, the note further reciting that the $ 6000 bonds were pledged to secure this indebtedness, as well as any other liability of the company to him, and that Geibel had full power and authority, if the note was not paid when due, to sell the bonds at public or private sale, without demand, advertisement or notice, with the right to purchase them himself, and to use the proceeds to satisfy the indebtedness of the company to him. There was also due to Geibel from the company at that time a commission of $ 500 on account of sales of real estate belonging to the company, according to the minutes of the meeting of directors held December 19, 1922.

When this note, dated May 7, 1923, became due and demand for its payment was not met, Geibel directed one B. H. McNey, a broker, through whom the original loan of $ 7500 was made, to notify the company that the collateral would be sold to satisfy the indebtedness of the company to him. McNey gave both oral and written notice to that effect, the latter being in the form of a letter to the company, dated September 1, 1923. There being no response, McNey thereupon undertook the sale of the collateral for Geibel, soliciting offers from brokers in Pittsburgh and from the officers and directors of the company. For more than a month after giving this notice to the company, dated September 1, 1923, he was unsuccessful in his efforts to find a purchaser for the bonds. Finally he negotiated with R. H. Bellman, appellant here, and at the time a director of the company, who agreed to buy the bonds if he could pay for them with his notes. Geibel, on or about October 15, 1923, sold the $ 6000 bonds to Bellman for $ 2400, taking Bellman's notes in payment. The $ 1500 note of the Universal Glass Company, dated May 7, 1923, with the words "Collateral sold at figure to cover amount of indebtedness," written across the face thereof, was introduced in evidence at the trial, and according to the testimony of the appellant, Bellman, was found by him in the files of the Universal Glass Company when the company went out of business, which was some time prior to the trial. In addition to this note for $ 1500 and the commission of $ 500, above referred to as due Geibel, there was unpaid interest and the broker's commission and expenses of sale to be met, which, altogether, made up the full amount of $ 2400 realized from the sale of the collateral. No objection was ever made to this sale by the company, whose board of directors were notified by both Bellman and Geibel of this purchase by Bellman.

When the loan was first made by Geibel to the company, in 1921, he had deposited with his bank, the Guaranty Trust Company of Butler, Pennsylvania, the bonds pledged with him as collateral, and when the remaining $ 6000 of these bonds were sold by him to Bellman, following the Glass Company's failure to pay the $ 1500 note, the trust company had notice of the change of ownership and retained custody of them by agreement with Geibel and Bellman as security for the balance of the purchase price due from Bellman to Geibel, as well as other indebtedness of Bellman to Geibel resulting from the purchase of some stock. This balance Bellman reduced by payments from time to time to the sum of $ 1725, for which amount Geibel now holds Bellman's note. This note and the $ 6000 bonds were in the possession of the Guaranty Trust Company of Butler until these bonds were forwarded to the Special Master...