Case Name: Kelley, Glover & Vale, Inc., et al. v. Heitman
Court: Supreme Court of Indiana
Jurisdiction: Indiana
Decision Date: 1942-12-01
Citations: 220 Ind. 625
Docket Number: No. 27,734
Parties: Kelley, Glover & Vale, Inc., et al. v. Heitman.
Judges: 
Reporter: Indiana Reports
Volume: 220
Pages: 625–645

Head Matter:
Kelley, Glover & Vale, Inc., et al. v. Heitman.
[No. 27,734.
Filed December 1, 1942.
Rehearing denied January 11, 1943.]
Walter Myers, Donald L. Smith, and Walter Myers, Jr., all of Indianapolis, and Jay E. Darlington, of Hammond, for appellants.
Sheehan & Lyddick, John W. Lyddick, and Alex C. Pendleton, all of Gary, for appellee.

Opinion:
Shake, J.
This action was on a promissory note and for the foreclosure and sale of collateral pledged therewith. The note was given by the appellants to the First National Bank of Gary of which the appellee is receiver. The appellants answered that there was a failure of consideration and that the transaction was ultra vires. The trial court made a special finding of facts and stated conclusions of law favorable to the appellee upon which errors are assigned.
The trial court found that the appellant Kelley, Glover & Vale, Inc. was an Indiana corporation with $100,000 of preferred stock outstanding in the hands of the public; that the Kelley, Glover & Vale Realty Company was organized as a holding company for the aforesaid corporation; and that the individual appellants Kelley, Glover, and Vale were the officers and principal stockholders of both corporations. At and prior to the time of the execution of the note sued on, Kelley, Glover & Vale Realty Company held title to certain real estate which was encumbered with a mortgage given by a former owner to secure the payment of an $85,000 issue of outstanding real estate bonds. In February, 1930, the appellants Kelley and Glover went to the First National Bank of Gary in an endeavor to refinance said mortgage which would be due on March 10, 1930. A verbal understanding was reached with the. president of the bank by which said bank, in order to earn a commission, undertook to acquire said bonds and find someone to refinance said loan. Kelley and Glover proposed that Kelley, Glover & Vale,' Inc. would procure Kelley, Glover & Vale Realty Company to execute a new mortgage to the lender. The Gary bank, thereupon, purchased with its own funds the outstanding bonds which were in the hands of one of its competitors, but it failed to find a lender who would refinance the loan. Subsequently, in order to obtain commercial paper to replace said bonds which were carried as cash items in the bank, it prepared notes aggregating $85,000 and represented to the appellants that it was in the process of obtaining a new mortgage loan pursuant to the understanding of the parties and that such notes were desired as a part of the mechanics of such refinancing and would be retired from the proceeds of the new loan. Relying upon these representations, the appellant Kelley signed said notes, all of which recited that the bonds theretofore acquired by the bank, together with other securities, were deposited as collateral. During the course of several renewals of said collateral notes one of them, in the sum of $35,000, was, at the request of the bank, signed by all of the appellants, who likewise relied upon the aforesaid representations. Before the failure of the bank in January, 1932, $12,726.01 in principal and interest had been paid on said note by the appellant Kelley, Glover & Vale, Inc. No resolution was ever adopted by the board of directors of Kelley, Glover & Vale, Inc., authorizing the execution of the note sued on, although a by-law so required. The appellant Kelley wrote a letter to the bank in May, 1930, advising it that he considered the note which he had signed individually and as president of Kelley, Glover & Vale, Inc. a "company matter" and that he had not listed it in his financial statement.
Under the issues the burden was on the appellants to establish that there was a failure of consideration or that the transaction that resulted in the execution of the note was ultra, vires. Kinder v. Fishers National Bank (1931), 93 Ind. App. 213, 177 N. E. 904. McCarthy v. Miller, Admr. (1938), 213 Ind. 596, 12 N. E. (2d) 348. Nothing can be added to a special finding by way of inference, presumption, or intendment; and the omission of a material fact from the special finding is deemed a failure of proof as to such fact and amounts to a finding against the party having the burden of proof thereon. Rankin v. McCollister (1911), 175 Ind. 387, 93 N. E. 209. However, where the primary facts found lead to but one conclusion or where such facts are of such a character that they necessitate the inference of an ultimate fact, such ultimate fact will be treated as found by the trial court and sufficient on appeal. In such instances, the facts are sufficiently found though there may be a technical defect of statement in the finding. In determining whether conclusions of law are supported by a special finding of facts, it is necessary to bear in mind the rule that a special finding, like a special verdict, a series of instructions, or the like, must be considered as a whole and it cannot be dissected into fragmentary parts and successfully assailed in detail. One part may be considered in connection with other connected parts, or parts referring to the same transaction, and if, taken as a whole, the finding legitimately supports the judgment, it will be upheld. And in determining whether the judgment is thus supported all intendments or presumptions are in favor of the finding rather than against it. National Surety Co. v. State (1914), 181 Ind. 54, 103 N. E. 105. Lindley v. Seward (1937), 103 Ind. App. 600, 5 N. E. (2d) 998, 8 N. E. (2d) 119. Mere matters of evidence tending to establish ültimate facts must be disregarded. 2 Watson's Works Practice §1593.
The trial court did not directly or specifically find a failure of consideration or that execution of the note was beyond the powers of the officers who purported to bind the corporate maker. This must be construed as a finding against the appellants as to these issues unless the primary facts which the court did find compel the ultimate facts upon which the appellants must rely to defeat the judgment.
In support of their contention that there was, in legal effect, a finding of failure of consideration the appellants rely upon the following facts found by the court: (1) that the bank obtained the appellants' signatures to the note by representations that it was in the process of obtaining a new mortgage loan, that the note was merely a part of the mechanics of obtaining such loan, and that the note would be retired out of the proceeds of such loan, upon which said representations the appellants at all times relied; (2) that the bank failed to perform its obligation to procure a lender who would refinance the mortgage debt; and (3) that none of the appellants received any money for signing the note in question. The fact that the appellants received no money for signing the note is indecisive. A monetary consideration is not essential to a binding contract; it is sufficient if there is a benefit to the promisor or a detriment to the promisee. Trackwell, Admr. v. Irvin (1917), 66 Ind. App. 5, 115 N. E. 807.
To determine whether the facts found amounted to a finding of failure of consideration, it is necessary to bear in mind the nature and character of the defense. An answer of failure of consideration implies that there was initially a sufficient consideration for the contract. Shirk v. Neible (1901), 156 Ind. 66, 59 N. E. 281, 83 Am. St. Rep. 150. Complete failure of consideration, as distinguished from a partial failure, discharges the promisor from his obligation. 7 Am. Jur., Bills and Notes, § 252, p. 949. It follows that one who relies upon a breach of an executory contract as constituting a complete failure of consideration must establish that such executory agreement constituted the entire consideration. Garriott's Executor v. Abbott (1867), 28 Ind. 9. Medcalf v. Brown (1881), 77 Ind. 476. Since the appellants rely upon the primary facts found by the court rather than upon a specific finding of the ultimate fact in issue, it is essential that it appear from the findings that the executory contract alleged to have been breached by the bank was the sole consideration for which the note was given. There is no finding to that effect. The special findings do disclose that the appellants executed the note in reliance upon the representations of the bank, but it does not follow that these representations constituted the sole consideration for the note. In other words, the reasons that prompted the appellants to execute the note do not negative the possibility of other considerations. 17 C. J. S., Contracts, § 93, p. 439. If the issue had been lack of consideration or fraud, we would have had a different problem.
The note sued on recited a deposit as collateral security of a part of the bonds covered by the mortgage on the property of the realty company. These bonds were acquired by the bank with its own funds from the Commercial Trust Company. Manifestly, the appellants could not use the bank's assets as collateral for their debt to it. The pledge of the collateral would, therefore, seem to force the inference that the appellants acquired the bonds by purchase from the bank. If so, there was an independent consideration for the note. Their voluntary payment of more than $12,000 on the principal and interest also indicates that the appellants did not regard the sole consideration of the note to be the bank's promise to repay the obligation out of the proceeds of a new loan to be negotiated by it. The omission of the trial court to find a failure of consideration must be treated as a determination of that issue against the appellants.
The appellants' claim of ultra, vires is based upon two propositions; namely, that the note in suit was not given for any debt of the appellant Kelley, Glover & Vale, Inc. and that the execution of the note was ♦not authorized by a resolution of its board of directors as required by its by-laws. There was no specific finding of ultra vires and again we are asked to infer this fact from the primary facts.
It is true, as the appellants suggest, that title to the real estate which was encumbered to secure the mortgage bonds acquired by the bank was in the Kelley, Glover & Vale Realty Company; but the findings also disclose that the realty company was organized as a holding company to facilitate thq business of the appellant company. Ordinarily, a holding company is understood to mean a super-corporation which owns or at least controls such a dominant interest in one or more other corporations that it is enabled to dictate their policies through voting power, or which is in position to control or materially to influence the management of one or more companies by virtue, in part at least, of its ownership of securities in the other company or companies. Cities Service Co. v. Koeneke (1933), 137 Kan. 7, 20 P. (2d) 460, 87 A. L. R. 16. Kelley, Glover & Vale Realty Company was not a holding company in this sense. We construe the finding to mean that the realty company held property for the use and benefit of the appellant company. "A subsidiary or auxiliary corporation which is created by a parent corporation merely as an agency for the latter may sometimes be regarded as identical with the parent cor poration, especially if the stockholders or officers of the two corporations are substantially the same or their systems of operation unified." 13 Am. Jur., Corporations, § 8, p. 162. On that view, Kelley, Glover & Vale, Inc. had such an interest in the assets of Kelley, Glover & Vale Realty Company as would warrant the former in lending its credit to save assets held in the name of the other.
The contention that the note is void because of a by-law of the appellant corporation, which required a resolution of its board of directors to authorize the execution of an obligation on its behalf, does not call for any extended consideration. Persons who are not members or officers of a corporation are not affected in any of their rights by corporate by-laws of which they have no notice. 13 Am. Jur., Corporations, § 161, p. 290.
The judgment is affirmed.
Swaim, J., concurs in result.
Roll, J., dissents with opinion.