Baker v. Frischkorn

• Court: Michigan Supreme Court
• Writing for the Court: BUTZEL
• Citation: Baker v. Frischkorn, 271 Mich. 485, 260 N.W. 754 (Mich. 1935)
• Decision Date: 17 May 1935
• Docket Number: No. 60.,60.
• Parties: BAKER v. FRISCHKORN et al.

271 Mich. 485

260 N.W. 754

BAKER

v.FRISCHKORN et al.

No. 60.

Supreme Court of Michigan.

May 17, 1935.

Bill by J. Lee Baker, receiver of the Frischkorn Real Estate Company, against John H. Frischkorn and others, with a cross-bill by defendant named. From a decree for defendants and cross-plaintiff, plaintiff and cross-defendant appeals.

Affirmed.

Appeal from Circuit Court, Wayne County, in Chancery; Joseph A. Moynihan, Judge.

Argued before the Entire Bench, except FEAD, J.

John R. Watkins and Rolla L. Carpenter, both of Detroit (Everett F. Hayes, of Detroit, of counsel), for appellant.

Alex J. Groesbeck and Robert M. Brownson, both of Detroit, for appellees.

BUTZEL, Justice.

Reference is made to Baker v. Hellner Realty Co., 265 Mich. 265,251 N. W. 793, for many of the facts constituting the background of the instant case. J. Lee Baker, receiver of the Frischkorn Real Estate Company, seeks cancellation of a mortgage for $35,000 given by the Frischkorn Real Estate Company to John H. Frischkorn on August 1, 1931. He claims that the mortgage transaction was part of a conspiracy on the part of the Frischkorn brothers to defraud the stockholders and creditors of the company, and secure title to the mortgaged property to John H. Frischkorn's brothers; that John H. Frischkorn was not the real party in interest, but merely loaned his name to the transaction and acted entirely under the direction of his brothers; and that the mortgage was taken by John H. Frischkorn in orderto prevent its being set off against larger claims which the company had against John H. Frischkorn's brothers.

Prior to the execution of the mortgage in August, 1931, the Frischkorn Real Estate Company was indebted to the Prindle estate in the sum of $22,000 on a contract for the purchase of land covered by the mortgage. The amount was past due and the estate was demanding payment. The company was also in need of funds to carry out certain major improvements it had agreed to make on lots sold under land contracts, the vendees of which were threatening to assert their rights. The records show that the situation was discussed at a meeting of the board of directors; that George Frischkorn, who was vice president of the company, advised the board that it would be necessary to borrow $35,000, and stated that he could negotiate a loan of $35,000 for one year by mortgaging a part of the property. Thereupon resolutions were passed by the board authorizing the officers to negotiate a mortgage loan and to execute the mortgage. Eight of the eleven directors were present at the meeting, including Ephriam and George Frischkorn. John H. Frischkorn was not a director. In pursuance of the above resolutions, the mortgage here attacked was executed by the Frischkorn Real Estate Company to John H. Frischkorn on August 1, 1931. The company at this time was unquestionably in bad straits financially, but it was not yet in extremis. For the condition which later developed, see Baker v. Hellner Realty Co., supra.

The entire $35,000 was apparently received by the company, payment being made in the following manner: (1) $8,000 by cashier's check of the Guardian Detroit Bank, payable to the company; (2) $14,000 by check of the Frischkorn Land Company payable to John H. Frischkorn, and by him indorsed to the Frischkorn Real Estate Company; (3) $13,000 by check of Ephriam Frischkorn payable to the Frischkorn Real Estate Company, and claimed by him to represent a loan made to John H. Frischkorn in order to enable the latter to loan the company an even $35,000. The Real Estate Company delivered to John Frischkorn one note for $22,000 and another for $13,000, both payable to him. He indorsed the second note to Ephriam Frischkorn and left it with the company, which delivered the note to Ephriam upon receipt of his check for $13,000, in accordance with John's instructions. In September, 1931, John Frischkorn executed a release of four lots from the mortgage, reciting the receipt of $1,600. This amount, however, was evidently never received by him. The record further shows that John never demanded interest or principal on the mortgage until the filing of his cross-bill in the instant suit, which was brought by plaintiff to cancel the mortgage.

Plaintiff calls attention to a number of very suspicious circumstances in support of his claim that the execution of the mortgage was tainted with fraud. He points out that although the debt owed to the Prindle estate was assigned as one of the chief reasons for the negotiation of the mortgage loan on August 1, 1931, that debt had actually already been paid prior to that date by two checks, one for $17,400 and the other for...