Mitchell Street State Bank v. Froedtert

The following opinion was filed February 4, 1919: Kerwin, J. The appellants assign seventy-six errors, and favor us with a voluminous brief discussing at great length questions of fact as well as questions of law. We shall not attempt to follow counsel in all the details of their discussion, because we believe the case is ruled by a few propositions, which we shall treat in this opinion. 1. It is argued that a conspiracy existed between Eller and J. F. Egerton, cashier of plaintiff, to defraud Froedtert and the lumber companies. This charge is based mainly upon the contention that the proceeds of some of the notes made by Eller as president of the lumber companies were credited to his personal account, and that Eller colluded with Eger-ton, officer of plaintiff, in misappropriating money which belonged to the lumber companies. The court below found against this contention upon sufficient evidence, and in a written opinion in the record said: “During the period of the transactions involved in this action S. H. Eller was undoubtedly guilty of misappropriating some of the funds of the South Side Lumber Company — 132 — and of the Eighth Avenue Lumber Company. But for the fact that he was permitted to manage and control their affairs as the sole owner thereof, his conduct in those transactions with the plaintiff might well have aroused the suspicions of those dealing with him. However, the evidence does not establish that Egerton received any of the proceeds of the loans which plaintiff seeks to recover in this action. Likewise it does not establish that the plaintiff is chargeable with knowledge that the proceeds of any of those loans were actually misappropriated by Eller in defraudation of the rights of the South Side Lumber Company and the Eighth Avenue Lumber Company. “This evidence does establish that, on the dates presently stated, checks for the following amounts issued by Eller in the name of the Eighth Avenue Lumber Company to Egerton were duly indorsed and'deposited by Egerton to his credit, and honored by the plaintiff out of the deposits of the Eighth Avenue Lumber Company, to wit: April 4, 1911, $500; June 3, 1912, $1,500; June 4, 1912, $3,000. At the time those checks were issued to Egerton the Eighth Avenue Lumber Company was not indebted to him, and he denies that he had any personal transaction with it. Likewise, those checks were never charged to him on that corporation’s books, but it does not appear that either Egerton or plaintiff had knowledge of the failure to make such entries. The evidence also establishes that on April 4, 1911, Eller charged himself with $2,000 on the books of the South Side Lumber Company (page 87, Exhibit 162, for identification) for money belonging to that corporation which he applied to his own use on that date in'making a loan of $2,500 to Egerton. However, in each instance, prior to the time that Egerton received those checks and that loan, the credits obtained on account of the loans which plaintiff seeks to recover in this action had been exhausted, with the exception of $5,000 credit given to the Eighth Avenue Lumber Company on September 17, 1912. On the other hand, the latter credit was not given until after those checks .had been issued and that loan made to Egerton, and hence that credit could not have been used for his benefit. But for the suspicion naturally aroused by the absence of any explanation as to those three checks and Eller’s omission to enter them on the corpora — 133 — tion’s books, there would be no basis for a suggestion that funds belonging to the Eighth Avenue Lumber Company-had been misappropriated to the use of Egerton, or that he knew that there had been any misappropriation by virtue of those checks. However, even if Egerton had benefited by such misappropriation in those instances, with knowledge of the source of the moneys received by him, it would not follow under the evidence that the plaintiff is chargeable with knowledge acquired by Egerton in a transaction which was wholly for his personal purposes. “Consequently the evidence does not establish .that the plaintiff, as Egerton’s principal, is chargeable with connivance with Eller in his frauds upon those corporations, or that the plaintiff is chargeable with negligence of such character as to amount to a fraud on those corporations and William Froedtert.” The evidence in the case tends to show that Eller was entitled to have and handle the proceeds of the notes of the lumber companies. The evidence also shows that Eller had full charge and control of the business of both lumber companies and the right and authority to handle the funds of such companies. It is clear that the defense of conspiracy is wholly without merit. 2. The so-called contract of guaranty set out in the findings clearly covers any personal liability of Eller to the bank; and even though Eller received money, proceeds of notes of the lumber companies, still such personal liability of Eller’s is clearly covered by the guaranty upon which suit is brought. The guaranty covers “all loans, drafts, overdrafts, indorsements, accounts, checks, notes, interest, demands, and liabilities of every kind and description now owing or which may hereafter become due or owing by South Side Lumber Company and Eighth Avenue Lumber Company and by Stephen H. Eller.” It is claimed that the personal liability of Eller could not be shown under the pleading. This contention is without merit, as clearly appears from the record. All the facts — 134 — necessary to be proved under this head were brought out upon the trial practically without objection and were substantially undisputed. The guaranty is “a joint and several” agreement. Under the evidence and findings in the case the personal liability of each signer of the guaranty was established. 3. It is further argued by counsel for appellants that the plaintiff violated,secs. 2024 — 32 and 2024 — 34, Stats., limiting the liability of any person to any- bank and prohibiting loans to officers except upon certain conditions. It does not appear that there has been any violation of the above statutes, for several reasons. In the first place, we know of no reason why the guarantors could not guarantee the payment of existing indebtedness to the plaintiff at the time the guaranty was made, even though such indebtedness exceeded the statutory limitation. It appears from the record that the only note discounted by plaintiff after the guaranty, the proceeds of which were credited to Eller’s private account, was a $2,500 note made May 9, 1911, by .the South Side Lumber Company. It further appears from the evidence and findings that at no time after the execution of the guaranty was the statutory limitation violated by Eller or the lumber companies. The $15,000 note, dated March 2, 1910, was reduced to $10,000 by a note dated March 16, 1911, for $5,000, and a new note given for the $10,000, dated March 16, 1911, and this latter note was afterwards and on January 2, 1912, consolidated with a $2,500 note, dated May 9, 1911, and a new note for $12,500 given for the amount, and such renewal'constitutes the plaintiff’s first cause of action. Two notes of $5,000 each, dated respectively March 2 and March 16, 1911, were consolidated into a note of $10,000, dated February 1, 1912, and the renewal thereof is the basis of plaintiff’s second cause of action. The renewal of a note dated September 17, 1912, for $5,000, is the basis of plaint — 135 — iff’s third cause of action. The proceeds of the two notes of $5,000 each-were paid to the Eighth Avenue Lumber Company, the maker of said notes. So the argument that the bank exceeded its statutory limitation in making loans either- to the lumber companies or to Eller is without merit. It also appears that the $15,000'note made by the South Side Lumber Company was discounted by plaintiff, and it issued and delivered a cashier’s check to Eller, payable to the order of the South Side Lumber Company, which check was indorsed in blank by Eller in the name of -the lumber company and in his own name and redelivered to the plaintiff bank with direction to be credited to his own account, which was done; that the proceeds of other notes of the lumber companies were credited to Eller. But it appears from the evidence and findings that Eller managed the business of the lumber companies as if he were the sole owner and that he was using his personal account for the benefit of the South Side Lumber Company. The cashier’s check issued to the lumber company for the $15,000 note amounted to a loan of $15,000 to said company. The court below found that the South Side Lumber Corm pany was not liable on this note or upon the $2,500 note, because the proceeds were credited to Eller, that plaintiff failed to make reasonable inquiry, and that the lumber company received no consideration for the note. Counsel for respondent asks a review of these findings under sec. 3049a, Stats., and excepted to such findings, and filed in this court notice as required by the statute. In addition to the findings above referred to, the court found that the bank did not profit by the credits given to Eller and had no knowledge that the proceeds were being misappropriated in defraudation of the rights of the lumber company or of any fraudulent purpose or intention on the part of Eller; that the bank was not chargeable with any — 136 — complicity or connivance with Eller in any fraud upon the lumber company; and that the bank was not guilty of any negligence of such character as to amount to a fraud. The evidence does not show that after the proceeds were credited to Eller’s account he used them for his personal benefit. The fact that the proceeds were credited to his account did not necessarily make the notes void. It appears that he had authority to make the notes as he did. At best, the knowledge which the bank had of all the circumstances was only sufficient to put it upon inquiry as to the validity of the notes. Pelton v. Spider Lake S. & L. Co. 132 Wis. 219, 112 N. W. 29. Assuming that the facts were sufficient to put the plaintiff upon inquiry, it was only chargeable with such knowledge as inquiry would have discovered, and nothing would have been discovered sufficient to show that Eller did not have authority to execute the notes. St. Clair v. Rutledge, 115 Wis. 583, 92 N. W. 234. It appears from the record that Eller was invested with all the powers of the stockholders, board of directors, and officers. As appears from the record, he was the whole thing and had absolute authority. He was permitted to run the business as if it were his own. Moreover, the evidence shows that he was checking against his individual account for the benefit of the lumber companies. In addition to this, the cashier’s check given on discount of the $15,000 note was made out in favor of the South Side Lumber Company. This check was commercial paper and issued for a valuable consideration, and, even if the funds derived from this check were misappropriated, the note for which the check was given was, nevertheless, valid if duly executed. Drinkall v. Movius State Bank, 11 N. Dak. 10, 88 N. W. 724, 57 L. R. A. 341; Henry v. Allen, 151 N. Y. 1, 45 N. E. 355, 36 L. R. A. 658. 4. l[ is further insisted that the cause of action under tlie guaranty, based upon the indebtedness of Eller, is barred by order of the county court limiting the time for filing — 137 — claims. There is no merit in this contention. The suit was brought in Froedtert’s lifetime and revived against his executors. The suit involves a proceeding against the estate of Froedtert. It is a remedy to which the plaintiff is entitled. 5. In the case at bar the so-called guaranty is a direct promise by the guarantors to pay, and does not fall within the rule of that class of guaranties to pay if the principal fails to do so. International T. Co. v. Mabbott, 159 Wis. 423, 150 N. W. 429; John A. Tolman & Co. v. Smith, 159 Wis. 361, 150 N. W. 419; Drovers’ D. Nat. Bank v. Tichenor, 156 Wis. 251, 145 N. W. 777. We find no prejudicial error in the exclusion of evidence. Upon any theory of this case we think it clear that the judgment below is right and must be affirmed. By the Court. — Judgment affirmed. Eschweiler, J., dissents. A motion for a rehearing was denied, with $25 costs, on April 29, 1919.