128 Iowa 294 | Iowa | 1905
In March, 1901, one C. H. Seeley was engaged in business as a dry goods merchant at Des Moines, Iowa. At the same time W. It. Howe and O. D. Le Van were engaged in a similar business in the State of New York These parties at the date mentioned entered into a written .contract for the organization of a corporation which should take over their several stocks of goods and carry ' on the united business at’ Des Moines under the corporate business name.of Seeley-Howe-Le Van Company, with an authorized capital stock of $100,000. The organization was perfected in May, 1901. The goods and fixtures owned by Seeley were taken over at a valuation of $58,000, subject to an indebtedness of $3,000, and shares of stock issued to him therefor to the amount of $55,000. Howe and Le Van each put in goods of the valuation of $10,000, receiving in return shares to a like amount. Later Howe and Le Van purchased stock to the amount of $8,000, and sales of shares were made to other parties to the full amount of the authorized issue. Among those sales was "an issue of fifty shares to Cecil Dixon, one of the appellees herein, and it is out of this transaction that the controversy now before us has arisen. For said stock Cecil Dixon paid to the corporation the sum of $1,000 in money, and gave to it his promissory note for $4,000, under date of August 8, 1901, and payable on or before February 8, 1902. Soon after it was delivered, Seeley requested Dixon to have his father sign the note in order that it might be used temporarily as collateral at the bank. This request
On June 3, 1902, Cecil Dixon intervened in the equity action brought by Seeley as aforesaid, alleging that he had been induced to purchase said stock by the 'false and fraudulent representations of the corporation' as to its solvency and the condition of its property and business. He also alleges that he was a minor at the date of said
To these interventions the Des Moines National Bank appeared and answered, denying all allegations of fraud on its part, and all notice of any alleged fraud or false representations on part of the corporation or of the minority of the intervener Cecil Dixon, prior to the making and delivery of the note now in controversy. It alleges that it discounted the first note in the usual course of business, without knowledge or notice of any infirmity therein or defense thereto, and that on February 25, 1902, it accepted the note now in its hands in payment and renewal of the former note, without notice of any of the matters now pleaded against its validity. The said bank also affirmatively pleads the giving of the note, and asks judgment against the Dixons for the amount thereof, principal and interest. In defense to this counterclaim, Cecil Dixon and James Dixon replead in substance the allega
This tedious statement of the controversy has seemed to be necessary to a fair understanding of the case. There is some controversy as to- the record presented by the abstracts, and we have been required to examine the transcript which has been furnished, but we think the foregoing omits no matter or fact of controlling importance.
At that time we were hard pressed for money, and, inasmuch as the bank had refused us further credit, we decided to take Dixon’s money and give him a position in the store as the next best thing to do. In the matter of paying him back his original stock, we figured that we could stand the loss, if any. By having this money it would give us that much more to put us in position where we felt that we might be able to put the business on a paying basis. I talked the matter over fully with Mr. Howe and Mr. Seeley, and we all knew that he was not of age. Mr. Seeley talked with the bank regarding the matter several times, and said that they would cash his note, and, after the negotiations were about closed with Mr. Dixon, Mr. Seeley came back from the bank and said that they would have to have an indorser.
Again, he says:
After having failed to raise money, we decided among ourselves that the only way to raise money was to sell the balance of the unsold stock. The bank was familiar with all these transactions, and was consulted by Mr. Seeley. Mr. Reynolds was nearly always consulted. Pursuant to this plan, stock was sold to Cecil Dixon, Mr. Drench, and others during the summer and fall. Seeley was insolvent, in my opinion, when we went into business with him. There was a sort of mutual understanding that the bank was to be informed of any important transactions, and their opinions and wishes consulted. According to my judgment, the bank was fully informed in regard to the selling of the stock to Cecil Dixon. James Dixon did not sign the $4,000 note at first. On the 8th of August, on the day the Cecil Dixon note was given, we were in need of money, as here
Unquestionably the perilous condition of the business and the pressing necessity for immediate relief gave added brilliancy to the roseate hues in which Mr. Seeley painted the business conditions and prospects of the corporation to the prospective purchaser of the stock. Mr. Dixon was told that the goods in Store represented a value of $100,-000, with 'comparatively little- indebtedness, that the business was in a solvent and prosperous condition, and that he would be guaranteed a dividend of not less than 20 per cent, on his investment. The good impression thus created was emphasized and confirmed by an agreement to repurchase the stock at par if at the end of 18 months Mr. Dixon desired to surrender it. That the representations made were essentially untrue and designedly misleading is a matter of which the candid reader of the record can entertain no doubt. Just how far the bank may have been advised of the fraud thus practiced upon the young man is not entirely clear, and the law indulges the presumption of good faith in its favor. It is hardly possible,' however, that it did not know that the business of the corporation was in a tottering condition. The bank was a principal creditor of Seeley, and, when his business was merged into the corporation, took his personal obligation for $22,500, secured by a deposit of the company’s stock. With the care and scrutiny which banks generally exercise in respect to the financial condition of men to whom they extend large accommodations, it is not to be believed that this bank was not aware of Seeley’s weakness, and
We have, then, to consider the relative rights of the banks as holder of the renewal note, and of James Dixon as surety thereon. It is the settled law of this State that the mere disaffirmance of his contract by a minor does not release the obligation of his surety (Jones v. Crosthwaite, 17 Iowa, 393; Allen v. Berryhill, 27 Iowa, 534), but such effect does follow a disaffirmance accompanied by a return or surrender of the consideration received for the contract. Bank v. Hall, 106 Iowa, 542.
The only further question, then, is whether the fact that this note had passed into the hands of the bank before its disaffirmance by the minor exempts it from the operation of the rule here cited, and leaves it enforceable against the surety. If the. bank were a purchaser without notice, this inquiry might not be entirely free from difficulty, but we are of the opinion that it does not occupy that position. It is very certain that, when the renewal note was given, the bank' had notice of the minority of Cecil Dixon, and that he had disaffirmed or was about to
The bank also insists that, in case it is denied recovery against Dixon, its claim for the amount- of the note should be given preference against the receiver. As we have already said in reference to the like claim of Cecil Dixon, the authorities relied upon do not appear to be applicable • to the facts here involved. Whether a trust existed in favor of either of these parties as against the corporation is not decisive of the right to a preference in the distribution of the funds. There must be some showing that the estate ’has been augmented by the trust fund, or, at least, “ that the estate has been so benefited by the misappropriation of the trust fund that its removal or its equivalent from the estate will be without, prejudice to creditors.” Jones v. Chesebrough, 105 Iowa, 303; Jewell v. Clay, 107 Iowa, 52; Bradley v. Chesebrough, 111 Iowa, 126. In the Jones case it is also said that in order to be in position to demand a preference on the claim that the debt represents a trust fund, it must appear “ that it has been preserved in the hands of. the assignee as an increase of assets in his hands which may be taken without impairment of the rights of creditors.” Such fact is not made to appear in the case before us, and for this reason, if for no other, the demand of the bank, as well as of Cecil Dixon for preference, is not well founded.
The decree of the district court effects substantial equity between the parties, and it is therefore affirmed.