Bruun v. Cook

• Decision Date: 07 June 1937
• Docket Number: No. 127.,127.
• Citation: 273 N.W. 774,280 Mich. 484
• Parties: BRUUN v. COOK et al.
• Court: Michigan Supreme Court

280 Mich. 484

273 N.W. 774

BRUUN

v.COOK et al.

No. 127.

Supreme Court of Michigan.

June 7, 1937.

Ejectment action by John Bruun, trustee of the Douglas Trust, against Fred E. Cook and Omar E. Werts. From a judgment for the defendants, plaintiff appeals.

Reversed and remanded with instructions.Appeal from Circuit Court, Otsego County; Edward A. Bilitzke, judge.

Argued before the Entire Bench.

F. Norman Higgs, of Bay City (Clark & Henry, of Bay City, of counsel), for appellant.

William T. Yeo, of West Branch, for appellees.

POTTER, Justice.

Plaintiff brought ejectment against defendants. There was judgment for defendants, and plaintiff appeals.

Plaintiff, claiming title to lot 2 and lot 3 of section 19, town 29 north, range 2 west, Otsego county, Mich., as grantee of the T. E. Douglas Company, a Michigan corporation, brought ejectment against defendants who claimed title through two state tax deeds and a notice of right to reconveyance.

The T. E. Douglas Company was a Michigan corporation organized in 1904 for the statutory period of 30 years for the purpose of manufacturing, buying, and selling of logs, timber, and forest products, and carrying on a mercantile business in connection therewith. It owned much cut over land in Crawford and Otsego counties. In 1930, the company was not engaged in active business. The three stockholders prior to the transaction herein involved were Thomas E. Douglas and Edward S. Houghton, both of whom are deceased, and Marius Hanson, who had made an assignment of all of his property for the benefit of his creditors and who died prior to the institution of this suit. The stock of Douglas and Houghton in the corporation was assigned by the probate court to their respective heirs and stock in the company issued to them.

The heirs of Douglas and Houghton, together with Marius Hanson, gave proxies to William B. Henry, of Bay City, to represent them at the annual meeting of the corporation held August 30, 1933, to elect a board of directors and to transact any business that might properly come before the meeting, and for the conveyance of all of its property to a trustee. William B. Henry, G. Barth, and A. Brockmiller were elected directors. A proposed trust agreement with John Bruun, trustee, was presented at this meeting and approved by the stockholders and the board of directors was authorized to transfer all of the assets of the corporation to John Bruun, as trustee. Officers were elected by this board of directors on the same day. June 25, 1934, the directors authorized the officers to enter into the trust agreement with Bruun which had been previously approved at the meeting of the stockholders, and the corporate officers thereupon conveyed the assets of the corporation, including some 3,900 acres of land, to Brunn, as trustee, and plaintiff, Bruun, executed a declaration of trust. Such trust was created for the purpose of liquidating the assets of the corporation for the benefit of the stockholders. The T. E. Douglas Company filed its last annual report in August, 1930. The Secretary of State granted an extension of time for report due in 1931 to January 20, 1932.

Defendants obtained two tax deeds from the state, both dated June 20, 1933, for the premises in suit for the taxes of 1929. Both descriptions were combined in the notice of reconveyance and the return shows it was served upon Marius Hanson individually August 24, 1933. November 2, 1934, plaintiff deposited a check with the county clerk of Otsego county for the redemption of the premises in question and notified defendants he desired to redeem.

The trial court held that, although the notice to reconvey was defective, plaintiff had no standing in court because the powers of the T. E. Douglas Company were suspended and it could not elect officers and directors for the purpose of winding up the affairs of the corporation, and declared the deed void which had been executed by the T. E. Douglas Company to Bruun.

The trial court correctly held that where separate descriptions of property sold separately were included in one tax notice, it must appear from such notice how much was paid for each separate description so the individual upon whom the notice was served could determine therefrom the amount he must pay in order to redeem from any description. The notice served did not comply with the rule and was insufficient and fatally defective. Ensley v. Coolbaugh, 160 Mich. 299, 125 N.W. 279;G. F. Sanborn Co. v. Johnson, 148 Mich. 405, 111 N.W. 1091;Jackson v. Mason, 143 Mich. 355, 106 N.W. 1112. This notice of reconveyance being insufficient, defendants acquired no title to the premises.

Plaintiff in ejectment must recover, if at all, on the strength of his own title and not because of the weakness or want of title of defendants. Bird v. Stimson, 197 Mich. 582, 164 N.W. 438,166 N.W. 1043;Kushler v. Weber, 182 Mich. 224, 148 N.W. 418;Powell v. Pierce, 168 Mich. 427, 134 N.W. 447;Webber v. Pere Marquette Boom Co., 62 Mich. 626, 30 N.W. 469;Sanborn v. Loud, 150 Mich. 154, 113 N.W. 309,121 Am.St.Rep. 614.

The trial court held the president and secretary of the T. E. Douglas Company had no authority to execute the quitclaim deed to plaintiff of July 9, 1934; that the stockholders of the T. E. Douglas Company had no authority to elect officers and directors, for the purpose of winding up its affairs by transferring its assets, at the time when the corporation was delinquent in filing annual reports; and, therefore, plaintiff had no title upon which he could maintain an action of ejectment against defendants. This is the only question of importance in the case.

There is a plain distinction between the franchise to be a corporation and the franchise to do business as a corporation. The franchise to be a corporation belongs to the stockholders-and the franchise to do business as a corporation belongs to the corporation. The general or corporate franchise belonging to the corporators must not be confounded with special or secondary franchises which belong to the corporation. Union Steam Pump Sales Co. v. Secretary of State, 216 Mich. 261, 185 N.W. 353; Joyce on Franchises, § 38; 2 Fletcher on Corporations, p. 2109; 3 Thompson on Corporations (2d Ed.) § 2864; 14 C.J. pp. 160, 161.

The primary franchise of a corporation, the right and privilege to be a corporation, vests in the individuals who compose the corporation. This right granted by the state by general law upon certain conditions, express or implied, constitutes, when accepted, a contract between the corporation, or the corporators or members, and the state.

‘The charter of a corporation, whether it is created by a special act or formed under a general corporation law, is a contract between the corporation, or the corporators or members, and the state. It is a contract between the state and the corporation, between the corporation and the stockholders, and between the stockholders and the state.’ 14 C.J. pp. 161, 162.

As said in People v. Michigan Central R. Co., 145 Mich. 140, 108 N.W. 772, 774: ‘The defendant's charter is a contract. It is said by defendant's counsel that it was not a contract inter partes, but in the nature of a deed poll, and is said to be a contract created by law. What seems to us a preferable statement is that the law presumes assent to the terms of a contract contained in a deed poll from its acceptance by the grantee. The law does not in such case impose a contract upon the party, but by the acceptance of a deed poll the grantee becomes an assenting party to its terms and the contract is an express one.’

This contract between the corporation and the state may not be impaired by subsequently enacted statutes in the absence of an express reservation so to do. This is unimportant here because by the Constitution (1908), art. 12, § 1, it is provided: ‘All laws heretofore or hereafter passed by the legislature for the formation of, or conferring rights, privileges or franchises upon corporations and all rights, privileges or franchises conferred by such laws may be amended, altered, repealed or abrogated.’

Act No. 327, Pub.Acts 1931, § 91, provides that if any profit corporation shall for two consecutive years neglect or refuse to file its annual report or pay its corporation fees, the charter of such corporation shall be absolutely void without any judicial proceeding whatsoever. And such corporation shall be wound up in any manner provided by this act, unless the Secretary of State shall, for good cause shown, extend the time for the filing of such report, or the payment of such fee, as the case may be.

The corporation in question failed for two consecutive years to file its report and to pay its franchise fee. The franchise fee for 1930 was not paid on August 31, 1931, or thereafter, and on August 30, 1933, the day before the expiration of the two years, the corporate meeting was held at which directors of the corporation were elected and at which corporate officers were elected and the transfer of the property to plaintiff authorized.

Act No. 327, Pub.Acts 1931, § 87, provides: ‘If any corporation neglects or refuses to make and file the reports and/or pay any fees required by this act within the time herein specified, and shall continue in default for ten days thereafter, its corporate powers shall be suspended thereafter, until it shall file such report, and it shall not maintain any action or suit in any court of this state upon any contract entered into during the time of such default.’

By Act No. 327, Pub.Acts 1931, § 87, the corporate powers of the corporation were suspended. This did not dissolve the corporation. It withdrew from it the power granted by the state to do business. The corporation was shorn of its franchise to do business, its secondary franchise. But the corporation was not dissolved. The franchise to be a corporation was not suspended. The powers of the stockholders were not affected. The charter of the corporation...