bank had favorable financial statements from Sherman and Thacher, but never requested financial statements from the Maxwells and made no credit investigation of them.
Hence, we find it wholly credible, and in harmony with the circumstances attending the negotiations for the loan, that Thacher did represent to the Maxwells that they would have no individual liability on the note in the event of a default.
When the proceeds of the $50,000 loan were deposited in the checking account of Maxwell Sales, Kroon withdrew $39,918.05 from the Maxwell Sales' checking account and paid that sum to Sherman to clear its loan account with Maxwell Sales. Kroon made the withdrawal by filling in one of a group of blank checks, which Mr. Maxwell had signed in blank and left with Kroon to be used while he was on a business trip. Kroon then caused entries to be made on the books of Maxwell Sales to indicate that the check in question had been used to repay the existing indebtedness of Maxwell Sales to Sherman, but which the Maxwells had been induced to believe had been owed to the bank.
Prior to this transaction both Kroon and Maxwell Sales had engaged in a practice of withdrawing funds unilaterally from Maxwell Sales' checking account by wire transfer rather than by check, which was contrary to the resolution of Maxwell Sales deposited with the bank when the account was open which required two signatures on all checks by certain designated officers
of Maxwell. Sherman also made several deposits in the Maxwell Sales' account in March, 1963 for $13,000 and May, 1963 for $20,000.
This informal course of conduct pursued by Kroon and Maxwell Sales, with regard to Maxwell Sales' checking account, contrary to the terms of the corporate resolution, waived any claim that Maxwell Sales may have had against the bank for permitting Kroon to withdraw corporate funds without checks signed as well by either Mr. or Mrs. Maxwell.
The note, with interest at 5 1/2% per annum, was payable in successive monthly installments of $1,509.81 commencing February 1, 1963, the last payment to be made not later than January 1, 1966. Maxwell Sales made the monthly payments up to October 19, 1963. The payments for November and December, 1963 and January, 1964 were made with the proceeds of notes given to Maxwell Sales by a customer named Bersanti, which notes were endorsed by Maxwell Sales and delivered to Thacher, who, in turn, delivered them to the bank for collection.
The note became in default on February 1, 1964 and Sherman, after demand by the bank, remitted five monthly payments to the bank. The bank later accepted a new note from Sherman and Thacher on June 8, 1964, for $34,238.96, the amount of the note at the time of default, and then applied the five payments previously made by Sherman to the balance of the new note, along with a suspense account of $5,448.80 which reduced the balance of the new note to $21,837.58, according to the bank's president, John C. Brogan. Thereafter, Sherman alone made payments on the note and reduced the balance to $4,460.68 as of January 1, 1968.
After receiving the new note, the bank, at Sherman's request assigned the original note to the plaintiff, Kroon. The bank also assigned to Kroon the chattel mortgage, but released Thacher's stock. Kroon took title to the chattel mortgage and the note as Sherman's nominee. Thereafter, in June, 1964, Sherman, in Kroon's name, instituted foreclosure proceedings in New Jersey on the chattel mortgage, which was resisted by Maxwell Sales. Judgment was obtained without notice to the Trustee in Bankruptcy of Maxwell Sales on October 11, 1965.
The mortgaged property was not sold and Kroon permitted Sherman to obtain control of all of the equipment that had been subject to the chattel mortgage, some of which was then abandoned to the landlord of the building in which the equipment was stored. Several small items were also abandoned to another party. One large machine was appropriated by Sherman and the balance of the equipment has never been sold.
It is thus evident that the parties conducted their business affairs in an informal and most unorthodox manner. The corporations were purportedly separate and distinct entities, but were operated virtually as one company.
By reason of the inability of Sherman and Maxwell Sales to obtain prompt and adequate financing from banks, Sherman was forced to resort to factoring its accounts receivable. This also became prohibitive. As a result of this financial crisis, Thacher, desperate to relieve the situation, was obliged by the bank to secure personally the $50,000 loan with his Heintz securities and his individual guarantee. In order to persuade the Maxwells to sign the note, as requested by the bank, he assured them no personal liability would be entailed.
Accordingly, after careful review of all the evidence, we find that the defendants are liable to the plaintiff upon the note for the sum of $34,238.96.
We further conclude that, in the third-party action, Sherman and Thacher are liable to indemnify the defendants (third-party plaintiffs) for any and all sums which the Maxwells are liable to pay the plaintiff by reason of his recovery on the note.
We reach our conclusion in the original action because the note on its face bears the unrestricted endorsements of the individual defendants and was assigned for value to the plaintiff. Though Kroon is the nominee of Sherman, he is the legal holder
of the note and entitled to sue and recover upon the obligation.
The original note, in its next to last paragraph, permitted the bank to transfer the securities "or any part thereof, to the transferee * * *" and did not require the bank to liquidate all the collateral. Thus, the failure of the bank to sell the Heintz stock was not a violation of any provision of the note and did not confer any right on the Maxwells to compel the liquidation of the stock.
Our decision in the third-party action is compelled by the credible evidence which we accept which discloses that Thacher guaranteed to the Maxwells that they would not be liable on the note from which they received no benefit. Thacher's oral contract of indemnity is binding and the statute of frauds and parol evidence rule are inapplicable, Restatement, Security § 146.
"* * * 'The true relation as between themselves of parties liable on a note may be shown by oral evidence in actions between them to determine their respective obligations.' * * *" Ruckdeschel et al, Exrs. v. Howell, 337 Pa. 517, 523, 12 A.2d 62, 65 (1940). The foregoing opinion constitutes the Court's findings of fact and conclusions of law, required by F.R.Civ.P. 52(a).
NOW, this 17th day of March, 1969, it is ordered that:
1. In the original action judgment will be entered in favor of the plaintiff, Gerald F. Kroon, against Lloyd R. Maxwell and Caroline Maxwell, his wife, for $34,238.96, plus lawful interest and attorney's collection fee;
2. In the third-party action judgment will be entered in favor of third-party plaintiffs against the Sherman Car Wash Equipment Company and F. William Thacher, Jr. for all sums which the third-party plaintiffs are required to pay to satisfy the judgment against them in favor of Gerald F. Kroon.