Boyum v. Jordan
| Decision Date | 04 June 1920 |
| Docket Number | 21,688 |
| Citation | 178 N.W. 158,146 Minn. 66 |
| Parties | IVER J. BOYUM v. J. F. JORDAN AND OTHERS |
| Court | Minnesota Supreme Court |
Action in the district court for Otter Tail county for an accounting. The facts are stated in the opinion. The case was tried before Roeser, J., who made findings and ordered judgment in favor of defendants. Plaintiff's motion for amended findings was denied. From an order denying his motion for a new trial, plaintiff appealed. Affirmed.
Trustee cannot derive personal profit from his trust.
1. An assignee or trustee is not permitted to derive a personal profit from his management of the trust property or his dealings with it.
Assignment for benefit of creditors -- debtor estopped from making claim against assignee.
2. Where a debtor assigns his property to three trustees for the benefit of creditors, and after a so-called bankrupt sale the residue of the merchandise is offered for sale in a lump, and the highest offer therefor is made by a party who has arranged with one of the trustees to furnish the money to make the purchase for a share of the profits, and this trustee informs the debtor that if the sale is made he will be interested in it and may derive a profit from it, and for that reason desires the debtor to determine for himself whether the sale shall be made without being influenced in any manner by the trustee, and the debtor directs that the sale be made, and the price received is the full value of the goods, the debtor is not in position to invoke the rule that a trustee cannot be interested in the purchase of trust property.
Assignment for benefit of creditors -- avoided by any preference of debtor over creditors.
3. An assignment for the benefit of creditors is an absolute appropriation of the property to the payment of the debts and any provision for the benefit of the debtor before the debts are fully paid will avoid it.
Compromise with creditors -- purchase of claims at a discount.
4. A provision in the deed authorizing a compromise with creditors, or an agreement between assignor and assignee to purchase claims at a discount is illegal.
Creditors' rights cannot be impaired by assignor or assignee.
5. The creditors are the beneficiaries of the trust and have a vested interest in the property and its proceeds which cannot be changed or impaired by the assignor or assignee.
Assignee's duty to the creditors.
6. It is the duty of the assignee to pay the debts to the full extent that the property will permit, and he must not be a party to any arrangement which will create a temptation to misrepresent the state of the assets to the creditors.
Creditors and not assignor have right of action.
7. Where the assignor procured a third party to furnish the funds and buy up claims under an agreement to divide the discounts obtained, knowing that the third party must obtain his funds from others, and this agreement was carried out and the third party procured the funds from a trustee under an agreement by which he paid the trustee a part of his share of the discount, whatever right of action may exist against the trustee rests in the creditors and not in the assignor.
Creditors and not assignor have right of action.
8. Where a trustee receives a profit other than interest on his money by furnishing his own funds to a third party to buy up the claims of creditors, he violates his duty to such creditors and they, and not the assignor, have the right to call him to account.
Leonard Ericksson, for appellant.
N. F. Field, Hilton & Thompson, Dodge & Webber and George W. Frankberg, for respondents.
The Fergus Falls Woolen Mills Company, being unable to pay its debts as they became due, on December 23, 1913, conveyed all its property to Elmer E. Adams, A. G. Anderson and J. F. Jordan in trust for the benefit of its creditors. Mr. Adams was president of the First National Bank of Fergus Falls. Mr. Anderson was cashier of the Scandia State Bank of that city and a stockholder of the company, and Mr. Jordan was the credit man of Wyman-Partridge and Company, one of the largest creditors of the company. The trustees converted the merchandise received from the company into money, satisfied and discharged all the liabilities of the company, and in June, 1914, turned the manufacturing plant back to the company free from debt, and also turned back to the company something over $6,000 in cash, some raw material and a considerable quantity of uncollected accounts. In 1918, plaintiff, as a stockholder of the company, brought this action on behalf of the company to recover profits which he alleged that the trustees had made out of dealings with the trust property, and also to recover back the compensation received by the trustees for their services. He made the company, its officers and the trustees, defendants. The company and its officers interposed an answer setting forth that plaintiff had made a demand on the board of directors to bring the action; that after due consideration the board of directors had decided that the company had no cause of action against the trustees and had refused to bring the action; that the board of directors had ratified and approved all the acts and doings of the trustees, and that none of the trustees had been guilty of any wrongful acts. Each of the trustees interposed a separate answer, putting in issue all charges of wrongdoing. The evidence is voluminous. The court made findings of fact to the effect that plaintiff's charges were unfounded and directed judgment for defendants. Plaintiff appealed from an order denying a new trial.
Plaintiff relies on the long established and universally recognized rule that an assignee or trustee is not permitted to derive a personal profit from his management of the trust property or his dealings with it. This rule has always been recognized and applied in this state. Baldwin v. Allison, 4 Minn. 11 (25); King v. Remington, 36 Minn. 15, 29 N.W. 352; Lewis v. Welch, 47 Minn. 193, 48 N.W. 608, 49 N.W. 665; Donahue v. Quackenbush, 62 Minn. 132, 64 N.W. 141; Gilbert v. Hewetson, 79 Minn. 326, 82 N.W. 655, 79 Am. St. 486; St. Paul Trust Co. v. Strong, 85 Minn. 1, 88 N.W. 256; Turner v. Fryberger, 94 Minn. 433, 103 N.W. 217, 110 Am. St. 375; Arnold v. Smith, 121 Minn. 116, 140 N.W. 748.
Defendants do not question the rule, but claim that the facts do not bring the present case within the principle enforced by the rule. As the findings are in favor of the defendants we must take the view of the evidence most favorable to them.
After the assignment, the trustees handled the affairs of the company much as if they had simply become its business managers and seem to have accorded to the board of directors the right to pass upon and approve or disapprove any action proposed to be taken, and the court finds that they agreed with the board not to dispose of any property of the company without the consent of the board. Whenever a question of importance arose they submitted it to the board for decision, and seem to have taken such decision as controlling and to have carried it into effect as if the board had full authority to determine the matter.
The profits in controversy consist of three items received by trustee Adams: (1) The sum of $804 realized by him from his dealings with Robert Hannah; (2) the sum of $1,672.76 realized by him from his dealings with W. B. Windsor; and (3) the sum of $5,944.87 realized by him from his dealings with H. K. Grinager.
The court found:
The liabilities of the company at the time of the execution of the trust deed were above $113,000, and the assets were sufficient to pay all liabilities in full. The company had a manufacturing plant at Fergus Falls, in which it manufactured woolen goods, and also had and operated a number of stores in Minnesota and North Dakota. The trustees pressed sales at these stores for a time and then closed out some of the stores by selling the residue of the stock in bulk, and the others by removing such residue to Fergus Falls. They conducted a so-called bankrupt sale at Fergus Falls for more than a month. After this sale they sought offers for the residue of the merchandise on hand.
H. K. Grinager was engaged in business in Fergus Falls as a jobber and manufacturer of woolen goods. Defendant Adams induced Grinager to make an offer for this unsold merchandise by agreeing to furnish the money to make the purchase and to join with him in handling the goods for one-half the profits. After making this arrangement Adams mailed to the president of the company the following letter:
He also notified the secretary of the company to the same...
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