Kalamazoo Spring & Axle Co. v. Winans, Pratt & Co.

• Decision Date: 09 July 1895
• Citation: 64 N.W. 23,106 Mich. 193
• Parties: KALAMAZOO SPRING & AXLE CO. v. WINANS, PRATT & CO. ET AL.
• Court: Michigan Supreme Court

64 N.W. 23

106 Mich. 193

KALAMAZOO SPRING & AXLE CO. v. WINANS, PRATT & CO. ET AL.

Supreme Court of Michigan

July 9, 1895

Appeal from circuit court, Kalamazoo county; George M. Buck, Judge.

Bill by the Kalamazoo Spring & Axle Company and others against Winans, Pratt & Co., an insolvent corporation, and others, to set aside certain mortgages. From a decree dismissing the bill, plaintiffs appeal. Affirmed.

Boudeman & Adams (Edwin M. Irish, of counsel), for appellants.

Howard & Roos, for appellee Winans, Pratt & Co. J. W. Osborn, for appellee First Nat. Bank. S. F. Master, for appellee A. J Hill.

McGRATH C.J.

Winans Pratt & Co., a corporation, on June 6, 1893, made an assignment to Alfred J. Mills. On June 5, 1893, they executed three chattel mortgages, one to the First National Bank of Kalamazoo, one to J. K. Wagner, and the third to D. B Merrill, and a real-estate mortgage to said bank. The chattel mortgages to the bank were given priority. Wagner was president of the bank; J. W. Osborn was its vice president and Merrill was a director. Wagner, Osborn, and one Kauffer were the discount committee of the bank. J. W. Osborn and Alfred J. Mills were partners as Osborn & Mills, and attorneys for the bank. George H. Winans and Ida P. Winans, his wife, and Arthur L. Pratt and Elizabeth P. Pratt, his wife, were the stockholders in Winans, Pratt & Co. All were directors. Winans was president, and Pratt was secretary and treasurer. Ida P. Winans was the daughter of D. B. Merrill, and Elizabeth P. Pratt was the daughter of J. K. Wagner. The corporation was formed in February, 1891. This is a bill filed by unsecured creditors, having obtained leave of the court, to set aside the aforesaid mortgages, for the following reasons: First. Because Winans, Pratt & Co. was insolvent at the time these mortgages were given, and had been insolvent for some time before. Second. Because the First National Bank of Kalamazoo, Mich., knew the actual condition of Winans, Pratt & Co. Jacob K. Wagner, its president and manager, knew Winans, Pratt & Co. was perpetrating a fraud upon its creditors. The said Jacob K. Wagner was himself assisting Winans, Pratt & Co. in carrying out this fraud, and therefore the said Wagner cannot, nor can the First National Bank, represented by him, profit by the wrongful act of the said Wagner. Third. Because the meeting of the board of directors of Winans, Pratt & Co. held on the 3d day of June, 1893, at which meeting a resolution was passed by some of the directors authorizing the execution of the mortgages in question in this suit, was not properly and legally called and held, and notice of the meeting was not served on all of the directors of the corporation. Although all of said directors were then in the city of Kalamazoo, only two of the directors were present at the meeting at which the resolution was passed, there being no quorum present for the transaction of business; and the resolution was there passed by two of the directors, George H. Winans and Arthur L. Pratt; and after being passed by them, and entered on the record book of the corporation, the record of said meeting was subscribed by Mrs. Winans and Mrs. Pratt, at their respective homes. There was no meeting of the board of directors in which they all met together and determined to execute the mortgages in question. The officers of the corporation derived no legal right or authority, by said resolution or otherwise, to make, execute, and deliver in behalf of said corporation any of said mortgages. Fourth. Because the said chattel mortgages and the said real-estate mortgage are illegal preferences as against our assignment law, were in fact made at substantially the same time as the assignment; that the transaction of making the mortgages and the assignment was in fact a continuous transaction, and the making of all these instruments constituted but a single transaction, namely, an assignment and preference; and also claim that the chattel mortgages were void because not legally authorized by the corporation.

It is conceded that Winans, Pratt & Co., at the time the mortgages and assignment were executed, was actually insolvent, and had been for some time previous thereto. The second proposition is not established by the proofs. Winans Pratt & Co. had for years done its banking with the defendant bank. The bank held its individual paper amounting to several thousand dollars. It had also discounted its notes indorsed by Wagner and Merrill, and, in addition, had discounted the bills receivable of the corporation. Although some of the indebtedness, both to the bank and to Merrill and Wagner, was contingent, it is not disputed but that there was, at the time of the execution of the mortgages, a bona fide indebtedness to each mortgagee equal to the amount of the mortgage...