Case Name: Philadelphia Workingmen's Saving, Loan and Building Association et al., Appellants, v. Wurzel
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1946-10-04
Citations: 355 Pa. 86
Docket Number: Appeals, Nos. 88 and 121
Parties: Philadelphia Workingmen’s Saving, Loan and Building Association et al., Appellants, v. Wurzel.
Judges: Before Maxey, C. J., Drew, Linn, Stern, Patterson and Jones, JJ.
Reporter: Pennsylvania State Reports
Volume: 355
Pages: 86–102

Head Matter:
Philadelphia Workingmen’s Saving, Loan and Building Association et al., Appellants, v. Wurzel.
Argued April 15, 1946.
Before Maxey, C. J., Drew, Linn, Stern, Patterson and Jones, JJ.
reargument refused November 8, 1946.
T. Henry Walnut, for appellants.
Samuel J. Gottesfeld, for appellee.
October 4, 1946:

Opinion:
Opinion by
Mr. Justice Linn,
The plaintiff is the Philadelphia Workingmen's Saving, Loan and Building Association, acting by its liquidating trustees, elected in 1938. The defendant is Maurice L. Wurzel, one of six obligors on a joint and several bond dated August 25, 1923. The suit is assumpsit on the bond to recover from Wurzel the sum of $30,000 with interest from August 31, 1931. The bond was delivered to Crystal Building and Loan Association conditioned for the payment of $30,000 and was part of a transaction to be described. The obligee, Crystal Building and Loan Association, merged in 1930 with the plaintiff association. A number of shareholders obtained leave from the court below to intervene as parties plaintiff. The verdict was for the defendant. Both sets of plaintiffs have appealed.
In 1923, Wurzel and the five other obligors borrowed from three building associations $100,000 secured by three second mortgages of equal lien on property in Atlantic City, N. J.; a $30,000 mortgage was given to Crystal Building and Loan Association and two mortgages of $35,000 each were given to the Charles Lipshutz Building and Loan Association and the John Marshall Building and Loan Association. Each association received the bond of the same six obligors in double the amount of the mortgage received by the association.
In the affidavit of defense, the bond was admitted but liability was denied on the ground that in 1933 the three building associations assigned Wurzel's obligations, evidenced by the bonds held by each association, to Raymond Rosen for a total of $1,500, of which $500 was payable to each association. This assignment was executed on behalf of the plaintiff association by Charles Lipshutz, President, and M. L. Margolin, Secretary. The same two men also were President and Secretary of the Charles Lipshutz Building and Loan Association, mentioned above, and on behalf of that association also executed the assignment.
In their reply, the plaintiffs denied that the execution of the assignment was authorized by the board of directors of the plaintiff association and denied that the officers, Lipshutz and Margolin, had authority to execute and deliver it. The plaintiffs averred that the two officers "were joint and several obligors on the Bond on which this suit has been brought and in executing the said agreement they undertook to relieve themselves from a portion of their own obligation to the association and at the same time to relieve the defendant, one of their fellow obligors, from his obligation to the association for the sum of Five Hundred Dollars ($500.) approximately one and one-half (1%%) percent of the face value of his total obligation, and that in so doing they perpetrated a fraud on the plaintiff association and on the shareholders thereof. It is averred that the'books and records of the plaintiff association failed to show that the said agreement had been executed; that no copy of tlie agreement was included among tlie papers of tlie plaintiff association; that no entry was made in any of the books of the association to show that its claim against the defendant had been assigned to Raymond Rosen or to anyone; that no report of this transaction was made to the Banking Department of the Commonwealth of Pennsylvania; that the existence of the assignment and the effect thereof upon the assets of the association was not drawn to the attention of the examiner of the said Banking Department, nor was it noted by him in his report to the said Banking Department; that the existence of the said agreement and its effect upon the assets of tlie association was not drawn to the attention of the accountants engaged annually by the association to examine the books and the affairs of the association and to report thereon to the Board of Directors; that in truth and in fact both in the reports made by the examiners of the Banking Department and the accountants engaged by the association the existence of the Bond now in suit was as held by the plaintiff association noted as a claim against the six (6) obligors including the defendant thereof. Finally it is averred that the execution of the said agreement, its existence and its effect was concealed both from the directors of the said association and from the shareholders thereof."
With respect to the receipt of $500 pursuant to the assignment, the plaintiffs replied, "It is admitted that the books of the plaintiff association show the receipt of $500 in or about May of 1933, but it is denied that they show that the money so received was paid pursuant to an agreement with Raymond Rosen. It is averred on the contrary that the entry is so made as to indicate that $500 was received in partial repayment of certain moneys advanced by the association on account of premises 228-34 Seaside Avenue, Atlantic City, the premises referred to in the bond in suit, and there was nothing in or connected with the entry that related to the said agreement."
At the trial the execution and delivery of the bond and its nonpayment were proved, thus presenting a prima facie case entitling the plaintiffs to a directed verdict and judgment unless met by a defense. The appellants contend that there is nothing to meet their prima facie case; that the evidence presented to prove the defense shows that the transaction with the defendant Wurzel was fraudulent, and being fraudulent, could be rejected by the liquidating trustees who are plaintiffs ; that they had rejected the transaction by bringing suit and as there was no other evidence that Wurzel's liability on the bond was discharged, the plaintiffs were entitled to a directed verdict. It is elementary that if the transaction was fraudulent, the liquidating trustees, on discovering the fraud, had the right to rescind the action and to sue on the bond as in fact they did. This right to rescind for fraud was called to the attention of the learned trial judge by a request for instructions to the jury. He said, in his opinion refusing plaintiffs' motions for a new trial and for judgment: "This point squarely raised the question of whether the jury should be allowed to find fraud under all the circumstances. The trial judge modified it by affirming it if the jury found the defendant to be solvent, in which case they should find for the plaintiff, but instructed them to find for the defendant if they found that he was insolvent in May, 1933. The jury found defendant insolvent." On that finding he directed a verdict for defendant. Defendant's insolvency was only one of a number of elements in the case and could not be controlling in the circumstances of this case; in other circumstances it might have been relevant in considering whether an insolvent had paid a fair sum.
The undisputed oral and documentary evidence shows that appellants' position is sound. There is no doubt that Rosen acted as Wurzel's agent; among other evidence supporting that fact is the minute in plaintiffs' books which recites the "Offer of M. L. Wurzel in full settlement of Ms liability on Ms bond with mortgages . . ." Wurzel had at one time been a member of the board of directors, though he was not a director in 1933 when the assignment was executed. He offered evidence that he was insolvent and that the President, Lipshutz, and Secretary, Margolin, also were insolvent; they were business associates and were three of the six co-obligors on the bond. By the assignment they were attempting to discharge WurzePs liability on the bond. They appear to have realized that they lacked authority to release bim for $500; this knowledge is shown by the fact that the association made a minute accepting Wurzel's offer but it also appears that when the action was taken only five directors were present, one of them being Margolin the Secretary. Five directors were not a quorum, a fact which Wurzel and Margolin of course knew. The action of the board was therefore not sufficient to release or discharge Wurzel's obligation. The learned trial judge recognized this because, in instructing the jury he said, "But there were only five directors at the meeting. The By-Laws call for seven, there was not a quorum, and nothing that they did at that meeting was legal." But that is not all the evidence that the transaction was fraudulent. The transaction was concealed from the shareholders by failure to record it on the books except in such inadequate way as, in fact, to have been misleading; while the books show that the association received $500 from Wurzel, there is nothing to show that it was received in discharge of the obligation on the bond; no copy of the assignment was retained. Notwithstanding the payment of $500 the association continued to carry the principal debt at $30,000 instead of $29,500.
With such evidence of fraud, it is idle to suggest, as appellee does, that the assignment was saved by the Acts of May 12,1925, P. L. 615,15 P.S. sections 42 and 61, reenacted by the Business Corporation Law of 1933, P. L. 364, 15 P.S. 2852-305, and section 314 of the Building & Loan Code of May 5,1933, P. L. 457,15 P.S. 1074-314, providing that one may assume papers are properly executed by corporate officers unless he has knowledge to the contrary or reason to inquire. The knowledge of Wurzel, which bound his agent, is written all over the transaction.
It clearly appears that defendant failed to meet the prima facie case presented by the production of the bond; there was nothing to submit to the jury; plaintiffs' point for binding instructions should have been affirmed. We sustain the assignment of error complaining of the refusal of judgment n. o. v.
Judgment reversed; record remitted with instructions to calculate the amount due and enter judgment for the plaintiffs for that amount.