W. F. Sheetz & Co. v. Commonwealth Commercial State Bank

• Decision Date: 10 November 1937
• Docket Number: No. 16.,16.
• Citation: 282 Mich. 96,275 N.W. 781
• Court: Michigan Supreme Court
• Parties: W. F. SHEETZ & CO. v. COMMONWEALTH COMMERCIAL STATE BANK et al.

282 Mich. 96

275 N.W. 781

W. F. SHEETZ & CO.

v.COMMONWEALTH COMMERCIAL STATE BANK et al.

No. 16.

Supreme Court of Michigan.

Nov. 10, 1937.

Suit by W. F. Sheetz & Co. against the Commonwealth Commercial State Bank and others, wherein the defendant filed a cross-bill. From an adverse decree, plaintiff appeals

Affirmed.

Appeal from Circuit Court, Wayne County, in Chancery; Allan Campbell, judge.

Argued before the Entire Bench.

Wilkinson, Lowther & O'Connell, of Detroit, for appellant.

Charles F. Meyler, of Detroit, for appellee Commonwealth Commercial State Bank.

Armstrong, Weadock, Essery & Helm, of Decroit (Joseph J. Marshall, of Detroit, of counsel), for appellee American Industries Corporation.

CHANDLER, Justice.

The plaintiff company was incorporated in 1924 with three stockholders, including Mr. W. F. Sheetz, who also comprised the board of directors. W. F. Sheetz was president and treasurer and owned 40 per cent. of the capital stock, while the remaining two stockholders owned the balance of the stock in equal shares.

On January 14, 1931, plaintiff was indebted to the defendant bank in the sum of $16,954.15, including interest, and W. F. Sheetz, who was also a director of said bank, was personally indebted thereto in the amount of $75,647.69, which was secured by 11,840 shares of the common stock of the R. C. Mahon Company. Prior to this date both W. F. Sheetz and plaintiff had become financially embarrassed and were unable to meet their obligations as they became due, and the bank examiners had expressed their dissatisfaction with the collateral which was posted as security for the obligation of Mr. Sheetz. To alleviate the situation a plan was proposed by W. F. Sheetz whereby his indebtedness and that of plaintiff were to be consolidated in a note for $100,000 to be secured by 15,000 shares of R. C. Mahon Company stock. This plan was submitted to and discussed and approved by the directors of plaintiff on January 12, 1931, the same having been reduced to writing and appearing as follows:

‘W. F. Sheetz proposes to turn over to the company 15,000 shares of R. C. Mahon common stock which now has a book value of $12.00 per share, for common stock of the company as follows: 15,000 shares at $10.-$150,000, less indebtedness of W. F. Sheetz to C. C. State Bank, $74,200; $75,800. Taking, therefore, 7,580 shares of the W. F. Sheetz & Company common stock.

‘In addition thereto, it is proposed to accept stock in the company for $10,000. of the money due from the company, leaving a balance due from the company of $4,532.04, which he will later take in in cash or stock for part, whichever can be worked out, without injuring the company.

‘It is proposed to consolidate the personal loan of W. F. Sheetz, amounting to $74,200., and the $16,700., which the company owes to the C. C. State Bank, borrow an additional $9,100., from this bank, making a total loan of $100,000., which they have approved, and secure them with the 15,000 shares of R. C. Mahon Company common stock.

‘W. F. Sheetz to assign to the company $50,000., of principal amount of life insurance, as beneficiary, which he now holds on his life, and buy another $50,000., of term insurance, for the benefit of the company, and assign the entire $100,000. of insurance to the C. C. State Bank as additional security for the $100,000. loan, the company to use this additional $9,100. for interest and life insurance premiums.

‘W. F. Sheetz to subscribe for an additional amount of stock to be determined, and with the proceeds of the same, the company is to liquidate the bank loans.’

In accordance with the plan, and on January 14, 1931, W. F. Sheetz & Co., by its president, W. F. Sheetz, executed its note to the bank in the amount of $100,000 in payment of the prior indebtedness of himself and the plaintiff. The interest was prepaid for a period of three months, and the remaining proceeds of $5,898.16 were held by the bank in the form of a cashier's check and used to pay interest on the note and premiums on the insurance policy as they became due. The R. C. Mahon Company stock, a portion of which had been previously held by the bank as security for the loan of W. F. Sheetz, was transferred to plaintiff and delivered to the bank with assignments executed by Sheetz as president. In 1932 new assignments in blank were executed and delivered to the bank upon its request. The bank also holds a collateral pledge agreement, waiving notice of sale, covering the stock in question which is dated the same day as the collateral note. The date of the execution of the pledge agreement is disputed, it being claimed by plaintiff that the same was executed in blank in 1932 at the time of the preparation of the blank assignments of the stock. However, it was demonstrated that the signature on the agreement was written over the date thereof which was typewritten as evidence that the same was actually executed on January 14, 1931, the date indicated therein.

The note was renewed from time to time as it became due but was never paid. On February 16, 1934, Mr. Sheetz was advised by the bank that it could not continue to renew the note and that it had become necessary to charge off the obligation as the bank examiners had refused to permit the bank to carry it longer. Thereafter the bank negotiated for a sale or exchange of the stock and had some discussion relative thereto with Mr. R. C. Mahon, president of the R. C. Mahon Company, but the transactions discussed were never completed.

In February, 1936, the bank received an offer of $90,000 for the stock from the defendant American Industries Corporation, which was accepted. Upon attempted delivery of the stock it was discovered that the bank did not have a resolution of the plaintiff's board of directors authorizing W. F. Sheetz to execute the assignments. The bank therefore agreed with the proposed purchaser that it would return the check given in payment of the stock if it was unable to secure evidence of the authority of Mr. Sheetz. Believing that a transfer could be more readily obtained if Mr. R. C. Mahon was unaware of the sale, the bank sought to have the stock transferred to its name, contemplating thereafter an assignment in blank to the purchaser. When the stock was presented to the Mahon Company for transfer, the same was refused, for the reason that there was no authority shown for W. F. Sheetz to execute the assignments. It...