Sharrar v. Wayne Savings Ass'n

In 1925, Wayne Savings Association, having established branches in several cities outside of Wayne county, sent a corps of salesmen to Alma to sell stock, with the purpose of locating a branch office in that city. Quarters were rented from plaintiff's husband and an office opened under plaintiff's charge. The association paid rent only for June and July, but plaintiff voluntarily kept the office in operation until May, 1926, the association later paying her $6.20 for her services. The salesmen secured $140,000 of subscriptions. On July 28th the secretary of State ordered the association to confine its business to Wayne county, and no further subscriptions were taken at Alma.

The subscriptions were on written application. The salesmen gave a receipt for money paid, forwarded the application to the association, and the latter sent the subscriber a membership certificate, passbook and signature or identification card. The subscriber paid a sum as membership fee, which went into the general expense fund. He also made "deposits," which constituted the investment account.

Shortly after the secretary of State made his order, most of the subscribers ceased making deposits and withdrew what they had made; others continued paying for various periods until May, 1926. All except one withdrew all their deposits. The membership fees, however, were not returned to them. In June, 1926, 37 subscribers assigned their claims to plaintiff, she tendered to the association their certificates and other indicia of membership, and demanded return of the membership fees, which was refused, and this suit was commenced to recover such fees. Afterward, a receiver was appointed for the association and made a party to the suit. The issues were submitted to jury, which returned a detailed verdict in favor of plaintiff, allowing the claim of each subscriber in full. Motions for verdict non obstanteveredicto and for new trial were denied and defendant brought error.

The branch plan, as explained generally to subscribers by the salesmen, required a minimum of $300,000 of stock and included a local office for the receipt and withdrawal of deposits and negotiation of loans, a local manager, attorney, appraiser, local representative on the board of directors of the association, and the use of local moneys for local loans as far as practicable.

Plaintiff's claim was that all the subscriptions were taken upon an oral condition precedent that $300,000 of stock be subscribed or/and the local branch established or the subscriptions would not be effective. The court submitted this claim to the jury as the basis of liability. Defendant contended that oral evidence was incompetent to vary the terms of the written subscription contracts, and that, if competent, condition precedent was not proved as to many of the subscribers.

Several subscribers testified that the salesmen specifically agreed with them that if the quota of stock was not subscribed, the plan would be abandoned, their money returned to them, and their subscriptions would not be effective until such amount was sold. This presents a well-recognized exception to the parol evidence rule. An agreement that a contract shall have no binding effect until the fulfillment of a condition or the happening of a contingency may be proved by parol and is enforceable. Rothstein v. Weeks,224 Mich. 548; Cleveland Refining Co. v. Dunning, 115 Mich. 238; Ada Dairy Association v. Mears, 123 Mich. 470; 22 C. J. pp. 1149, 1213.

The others did not claim such an agreement. Some said that the salesmen explained the branch plan to them, represented, as inducement to subscription, that it would be established and they were induced by such promises to subscribe. Plaintiff claims this oral evidence was admissible as showing a collateral agreement which was the inducement for the written contract of membership and constituted part of its consideration. The evidence was competent for that purpose.Clare County Savings Bank v. Featherly, 173 Mich. 292; WoodMowing Reaping Machine Co. v. Gaertner, 55 Mich. 453; Dodder v. Snyder, 110 Mich. 69; Stotts v.Stotts, 198 Mich. 605; 17 L.R.A. 274, note. Breach of the collateral agreement would constitute partial failure of consideration. Stifter v. Hartman, 225 Mich. 101. In some cases, under the evidence, the establishment of the branch constituted a controlling inducement for the subscription, and breach of the agreement, therefore, would be a substantial failure of consideration. Substantial failure of consideration justifies rescission. 13 C. J. p. 612.

Other subscribers did not give proof either of condition precedent or inducement and failure of consideration, and no theory has been suggested upon which they could recover.

The other questions raised need no extended discussion. The testimony was undisputed that the salesmen had authority to make the claimed agreements and representations and the association accepted the applications with knowledge of them by its secretary and directors. Such knowledge need not be made a matter of corporate record. While a few of the early applications contained the clause, —

"No person has authority or power to change or alter the terms of this application or to bind the association by any statement not contained therein,"

— the promises and statements of the salesmen were made known to the secretary of the association and approved by him to a representative of the subscribers before the applications were accepted. The assignments to plaintiff were not transfers of continuing memberships, governed by the association's by-laws, but of claims against the association upon rescission of membership, and are controlled by the general law of assignments. The voluntary conduct of the office by Mrs. Sharrar, after the association had abandoned the project, cannot be considered a performance by it of a promise to maintain the branch. The action of the secretary of State could not both discharge the association of its obligation to maintain a branch office and vest in it the right to retain moneys paid in consideration of its maintenance of such office. The testimony strongly indicates that some of the subscribers are precluded from claiming rescission because of delay or ratification. In some instances, fair jury questions are raised. In others, it may be a question of law. As a new trial is to be had, the specific instances need not be discussed.

The judgment is reversed and new trial ordered, with costs to defendant.

FELLOWS, WIEST, CLARK, McDONALD, POTTER, and SHARPE, JJ., concurred. NORTH, C.J., did not sit.