Central Loan & Investment Co. v. Loiseau

239 N.W. 487, 59 S.D. 255, 1931 S.D. LEXIS 194
South Dakota Supreme Court·Decided December 1, 1931·No. File No. 7115.·Published·Cited by 9 cases

Opinion

CAMPBELL, J.

In this case we hear yet another rattling of •bones from the grave of the defunct Midland Packing Company. This corporation was formed some fifteen years ago for the avowed purpose of constructing and operating a packing plant at Sioux City, Iowa, and matters arising as the aftermath of its “high pressure” stock selling campaign have been frequently before this court. *258 See, among others, State Bank of Alcester v. Weeks, 45 S. D. 639, 189 N. W. 941; Id., 46 S. D. 93, 190 N. W. 806; Id., 53 S. D. 260, 220 N. W. 502; Security State Bank v. Weeks, 46 S. D. 363, 193 N. W. 60; Jerke v. Delmont State Bank, 51 S. D. 623, 216 N. W. 362; Id., 54 S. D. 446, 223 N. W. 585, 72 A. L. R. 7; Security Holding Co. v. Christensen, 53 S. D. 37, 219. N. W. 949, 60 A. L. R. 1173; Security Holding Co. v. Johnson, 57 S. D. 163, 231 N. w. 536.

Defendant Roiseau is a farmer residing in Moody county, S. D. On February 21, 1919, and March 28, 1919, Roiseau signed two subscription contracts for capital stock of Midland Packing Company at the par value of $100 per share, which contracts were respectively for the purchase of ten and twenty shares of said' stock. In connection with said contracts for purchase of stock, defendant paid in cash (or Riberty bonds) the sum of $1,000, and, representing the balance of the purchase price, executed and delivered to the representatives of the Midland Packing Company his three promissory notes, one dated February 21, 1919, for $500, and two dated March 28, 1919, for $750, each payable to Midland Packing Company, and each due one year from date with interest at 6 per cent. The stock subscription contracts in connection with and pursuant to which said promissory notes were executed and delivered specifically provided, in part, as follows (italics ours) : “I * * * agree to pay therefor $100 per share payable as follows: Not less than one-fourth cash accompanying this application and the balance thereof as evidenced by my promissory note of this date with interest at six per cent. * * * It is expressly agreed that no stock is to he issued until the amount of this subscription and note given therefor is paid in full in cash. * * * This subscription contract contains the entire contract between the subscriber and the company. * * * ” Defendant claims that these notes were secured from him by misrepresentation and fraud; but, under the circumstances of this case, the learned trial judge correctly ruled (cf. Muschelwicz v. Tidrick, 40 S. D. 435, 167 N. W. 499; First State Bank v. Gunderson, 54 S. D. 473, 223 N. W. 596) that fraud in, the inception of said original notes was not available as a defense and struck out all evidence concerning the same.

Central Trust Company was an Iowa corporation with its principal office at Des Moines, where it was engaged in the general *259 investment 'banking business. During the year 1918, 1919, and 1920, Midland Packing Company was a heavy borrower from Central Trust Company, which borrowings were secured in large part by notes given to Midland Packing Company by various subscribers to its capital stock. The transactions between Midland Packing Company and Central Trust Company appear to have taken two forms. Sometimes there was an outright borrowing with an assignment and pledge of stock subscribers’ notes as collateral security therefor. In other cases the form of the transaction was a rediscount of the stock subscribers’ notes with an agreement on the part of the Midland Packing Company, either by indorsement or by separate written contract, to indemnify the indorsee in case of -dishonor by the maker at maturity. Among the notes so held and taken by Central-Trust Company were the three notes of the defendant Loiseau above described. Whether said notes were pledged by the Midland Packing Company as collateral security or were rediscounted with an indemnifying agreement does not definitely appear, nor is it material in this case. Whether by one device or the other, the notes were assigned, indorsed, and transferred to Central Trust Company for value and before maturity. The Loiseau notes were not paid at maturity (February 21 and March 28, 1920), and immediately thereafter (March 31, 1920, April 9, 1920) Central Trust Company was notifying Loiseau in writing of his default and pressing him for immediate payment.

The affairs of Midland Packing Company becoming more and more involved, on June 10, 1920, the District Court of the 'United States for the Northern District of Iowa, Western Division, at the suit of creditors, appointed receivers therefor. The claim of Central Trust 'Company against the packing company for moneys borrowed and for notes rediscounted under indemnity agreement was filed, allowed, and approved in the court of the receivership in the sum of $866,269.36 as of June 22, 1930.

On October 12, 1920, the receivers of the packing company petitioned the court of the receivership, reciting in part as follows:

“That as shown by the receivers’ report, filed herein on the 27th day of August, 1920, a large number of negotiable promissory notes were executed by the various subscribers to- the capital stock of the said Midland Packing Company in payment of their stock subscriptions between the time of the organization of said company *260 and the commencement of this action, wherein these receivers were appointed; that the said notes outstanding and unpaid, as shown by said report, aggregate three million dollars, or thereabouts, and that of said notes the sum of approximately Two Million Dollars are now in the hands of various banks and trust companies to whom the same were heretofore sold by the officers of the said Midland Packing Company, or pledged as collateral to secure money borrowed from said institutions from which moneys, including the direct payments on stock subscriptions, the plant of the said Packing 'Company was erected.
“That the larger part of said notes, whether discounted or pledged as collateral, have been guaranteed by the said Midland Packing 'Company, in some instances by blank indorsements thereon, and in others by separate instrument, whereby the said Midland Packing Company agreed to indemnify such indorsees in case of dishonor by the maker at maturity.
“That some of the said notes are past due and others bear early maturities, and there are no funds in the hands of the said receivers, and no moneys will become available except by a sale of the plant at great sacrifice with which to meet the obligations of the said Packing Company by virtue of such indorsements and guaranties.
“That some of the makers of the said notes are unable to meet the same when due, but are willing to renew and extend the same; and the holders of said notes are willing to grant such extensions as the circumstances of such note makers may require, provided they may do so without releasing their respective claims against the Midland Packing Company 'by virtue of such indorsements and guaranties.

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Central Loan & Investment Co. v. Loiseau, 239 N.W. 487, 59 S.D. 255, 1931 S.D. LEXIS 194 (S.D. 1931).

239 N.W. 487 (Central Loan & Investment Co. v. Loiseau) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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