145 Wis. 639 | Wis. | 1911
The following opinion was filed January 31, 1911:
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 Scmvael 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 mat
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 210 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 Orandon 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 Ha-
Tbe Orandon State Bank was organized in tbe year 1903 as a banking corporation under tbe laws of Wisconsin, situated and doing business at Orandon, with an authorized capital of $25,000, and at tbe time of making tbe mortgage in question- it bad four directors. Said Keith was a stockholder, director, and president of this bank; Haile was a director and tbe cashier of tbe bank; Samuel Shaw was director and vice-president of tbe bank; and Almon Smith was assistant cashier. Tbe other bank director was a traveling man named Crabtree, who took little part in tbe proceedings relative to tbe taking of tbe mortgage. Tbe plaintiff, Shaw, was an attorney and drew up of dictated tbe papers and resolutions relative to tbe mortgage and notes in question as well as tbe mortgage and notes. -The bank president, Keith, testifies tbat Shaw in doing so was acting as attorney for tbe bank and tbat be relied on Shaw. This is denied by Shaw, and tbe court finds tbat in doing so Shaw did not attempt or pretend to act as attorney for tbe bank. Shaw’s interest, together with tbat of bis wife and daughter, in tbe bank amounted to fifty shares out of 250 shares, and bis like interest in tbe manufacturing company amounted to forty shares out of 270 shares. Tbe bank was not represented by attorney or by any person not interested in tbe manufacturing company. Tbe bank held as security for this indebtedness a deed of about four acres of land in tbe city of- Orandon worth
“It was moved by Mr. Shaiu 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 O. 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 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 mort
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
“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 he 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 manufactured in the year 1908. A note payable on or before two years from date, to be called No. 2, to M. D. Keith, and a note payable three years from date, called No. 3, to Crandon State Banh, No. 2' to be in the sum of $8,000 and No. 3 in the sum of $14,000, said notes Nos. 2 and 3 being executed to pay up and extinguish indebtedness of this corporation, all of said notes to bear seven per cent, interest, payable annually, and the president and secretary of this corporation are hereby authorized, empowered and instructed to execute and ■ deliver said notes, and to execute, acknowledge and deliver said mortgage, as above set forth, said notes and mortgage to bear even date herewith.”
The directors present at this meeting were Keith, Shaw, Haile, Gifford, Waite, and Shay. The mortgage and notes were accordingly executed and delivered, the mortgage to Smith, assistant cashier of the bank, and each note to the payee named therein. The notes aggregating $14,000 held by the bank were surrendered and delivered up to the manufacturing company and the back interest on the same adjusted, and thereafter this note of $14,000 was entered on the books of the bank as part of its bills receivable and continued as such. Shaw knew at the time of taking his mortgage that the manufacturing company, outside of his loan, owed at least $22,000 bills payable. Indeed the very mortgage to which he was a party informed him of this, but he had other means of knowledge also. The overdrafts of the manu
Parol evidence is offered by Shaw to show an oral agreement that he was to have priority of payment, and on the part of Keith to show an oral agreement that the three notes
“Said notes Nos. 2 and 3 being given to extinguish and pay in full the present indebtedness of the said Orandon Manufacturing Company.”
On January 1Y, 1908, the stockholders of the manufacturing company in meeting “Resolved that note No. 2, given to M. D. Keith on December 9, 190Y, with the first mortgage en the property of this company, has been so given to him with the express understanding and agreement on his part that he has received the same to protect this company from eutstanding indebtedness in notes to the amount of $8,000.” Keith never paid or discharged any of these notes, although he contends he-made himself liable for payment thereof by all the writings hereinbefore referred to and by oral statement to some or all of the holders of the notes. After the taking of said mortgage a controlling interest in the shares of stock cf the bank passed to purchasers not interested in the manufacturing company, and the State Bank was furnished with new or additional capital and organized as a national bank. The- persons interested in the manufacturing company did not at any time own all the stock of the Orandon State Bank. The circuit court also found that the manufacturing company would have been unable to secure material with which to operate or to borrow money had not Shaw advanced this ■$10,000; “that the loan of Shaw to the manufacturing company was made at the earnest solicitation of both officers of the bank and of the manufacturing company . . . and upon the express promise and expectation that the same would be repaid promptly when due . . . and that other persons interested in the bank and manufacturing company would help the situation and lend the company financial aid. That the transaction was in all respects a fair one and was thought to
“Tbat with full knowledge of all tbe facts necessary to protect any of its rights in tbe matter tbe said bank has deliberately and unqualifiedly ratified, confirmed and affirmed tbe transaction and all of it. That at no time has tbe bank offered or placed any of tbe parties in statu quo. Tbat it has from tbe outset accepted tbe mortgage and notes as given, received tbe benefits of tbe transaction, and in this action has asked a foreclosure of tbe same. It is found tbat tbe bank fully and completely ratified tbe transaction, and especially tbe making and giving of tbe mortgage, and has always intended to rely upon and take tbe benefits thereof.”
These findings of fact put tbe case in tbe strongest light for tbe plaintiff, Shaw. So far as they find tbe good faith of Mr. Shaw, tbe distress of tbe manufacturing company, tbe good intentions in bis loan to tbe company, and tbat Shaw was guilty of no fraud, they are supported by evidence and must stand. But tbe finding tbat Shaw was guilty of no constructive fraud is not a finding of fact but a conclusion of law drawn from undisputed facts. Tbe same is true of tbe finding tbat tbe bank ratified and confirmed tbe transaction. Tbe only ratification of the bank is either through Shaw- and bis associate directors who were interested in tbe manufacturing company, or by a counterclaim for foreclosure of tbe
Upon this showing a decree of foreclosure and sale was entered giving Shaw priority of lien on all the property covered by the mortgage and in the proceeds of the sale of this property. It was also provided that Keith was entitled to judgment of foreclosure with costs, but no payment of the proceeds of foreclosure should be made to Keith except on condition that he deposit with.the clerk of the court the $8,000 of notes of the manufacturing company assumed and guaranteed by him, and that until such condition is complied with the sheriff deposit the amount of such money with the clerk of the court. Subject to the prior lien of Shaw,
The decree rests upon Wood v. Trask, 7 Wis. 566; Marine Bank v. International Bank, 9 Wis. 57; Lyman v. Smith, 21 Wis. 674; Pierce v. Shaw, 51 Wis. 316, 8 N. W. 209; McLean v. Hoehle, 98 Wis. 359, 74 N. W. 120. In each of the cases above quoted the rule that where several notes falling due at different times are secured by the same mortgage that which falls due first is entitled to priority in the security is stated with the qualification that this is a general rule which must prevail unless some special equity intervenes to give a precedence to some other claim. In Marine Bank v. International Bank, supra, the court said:
“We were well aware that in some of our sister states a contrary doctrine had obtained, and that it had been held that the fund arising from the sale of mortgaged premises, in case of a deficiency, should be ratably applied among the holders of the different notes or instruments; but when no special equities intervened to vary the rule, we thought the note or instrument first becoming due was entitled to priority in payment. And, without enlarging upon the reasons that led us to this conclusion, it appeared to us that this priority must exist, under our statute, as the notes were the principal and the mortgage but an accessory, and the holder of the first note, upon default in its payment, had the right to commence his action, and subject the mortgaged premises to foreclosure and sale for the satisfaction of his debt. It seemed to us, therefore, that the maxim of prior in tempore, potior in jure, rightly applied, in the absence of all equitable considerations between the assignors and assignees, to change this rule, or principle of law.” See, also, 1 Rom. Eq. Tur. § 414.
This rule applies only where the parties owning the respective notes stand equal in equity with reference to the manner of acquisition of security and with reference to one another. Trustees or fiduciaries acting for others and in the same transactions for themselves; consenting for the bank
The circuit court as to these two tracts on which the bank had security applied the wrong rule, as shown by 2 Pom. Eq. Jur. § 957, where two classes of cases are recognized: one where the fiduciary is dealing with his beneficiary, each contracting for himself; the other where the fiduciary in the transaction as representative of his beneficiary contracts or deals with himself in his personal or individual capacity, thus being both vendor and vendee, obligor and obligee, re-leasor and releasee. In the first class of cases the transaction may sometimes be upheld upon a showing of good faith,
“The second class includes all those instances in which one party, purporting to act in his fiduciary character, deals with himself in his private and personal character, without the knowledge of his beneficiary, as where a trustee or agent to sell sells the property to himself. Such transactions are voidable at the suit of the beneficiary, and not merely presumptively or prvtna facie invalid. . . . The circumstances show that there could not possibly be the good faith, knowledge, and free consent required by the principle, and therefore the result which is a rebuttable presumption in the first class of transactions becomes a conclusive presumption in the second.” 2 Pom. Eq. Jur. § 957.
This is the rule in Wisconsin, as shown by the Taylor Orphan Asylum Case, 36 Wis. 534, and Cook v. Berlin W. M. Co. 43 Wis. 433. As was said in Hutson v. Jenson, 110 Wis. 26 (85 N. W. 689), at page 40:
“The rule of these cases is that no dealing by one in fiduciary capacity with himself individually can prejudicially change the situation of the beneficiaries or their property. The application of this rule is not dependent upon the existence either of fraud or mismanagement; for its foundation is in a sound public policy, which would exclude all necessity of investigation of either the honesty or the wisdom of such dealings in a dual capacity.”
The effect of the findings and decree is that a fiduciary and trustee acting with other disqualified fiduciaries may take property upon which their beneficiaries had security, turn it back to the debtor corporation which they also control, and then take a mortgage on all the property of the latter corporation, including the property so turned back, and make the several notes secured by this mortgage due at such times that the trustee’s note will first fall due, and so obtain priority of lien on the property returned to the debtor by them acting for their beneficiary. This cannot be done. Neither good faith
With reference to the remainder of the mortgaged property the case rests upon different rules of law. Upon this the bank had no security prior to the making of the mortgage in question. The bank paid out nothing and parted with nothing. It received only the additional security furnished by the third note secured by this mortgage. There was no consent necessary on the part of the bank except the consent to receive the new security. This the directors were not so absolutely disqualified to give. The rule resting in public policy herein-before applied did not obtain because there was no contractual relation by which the disqualified directors represented the bank in parting with anything or in undertaking any obligation. They were not as to this on both sides of the transaction, buyer and seller. Nevertheless they were fiduciaries and disqualified to obtain any advantage over their beneficiary. • But the disqualification as stated was not so absolute. The transaction might be supported in equity if made' in absolute good faith and apparently for the best interests of the bank as it appeared at the time and to induce Mr. Shaw to part with his $10,000. On this branch of the case the findings of the court herein referred to establishing the good faith
Tbe decree of tbe circuit court must be reversed, and tbe cause remanded with directions to enter a decree in accordance with tbis opinion.
By the Oowrt. — It is so ordered.
A motion for a rehearing was denied April 5, 1911.