McIntosh v. Fixel

• Decision Date: 08 April 1941
• Docket Number: No. 108.,108.
• Citation: 297 Mich. 331,297 N.W. 512
• Parties: McINTOSH v. FIXEL et al.
• Court: Michigan Supreme Court

297 Mich. 331

297 N.W. 512

McINTOSH

v.FIXEL et al.

No. 108.

Supreme Court of Michigan.

April 8, 1941.

Suit by Julian G. McIntosh, trustee of the estate of Plymouth Cooperage Corporation, debtor, against Rowland W. Fixel and others for alleged fraudulent conduct. From the decree, plaintiff appeals, and the defendants cross-appeal.

Affirmed.Appeal from Circuit Court, Wayne County, in Chancery; Guy A. Miller, judge.

Argued before the Entire Bench.

Beckenstein, Wisok & Maguire and Robert S. Wisok and Marvin M. Peck, all of Detroit, for Julian G. McIntosh.

Henry B. Graves, of Detroit, for Rowland W. Fixel and others.

Frank Sibley, of Dearborn, for William H. Hoehn.

CHANDLER, Justice.

The Plymouth Cooperage Company was organized under the laws of this state some time during the early part of the year 1934 for the purpose of engaging in the business of the manufacture of beer barrels. H. Armin Weil and Harry Freshman were the promoters. Mr. Weil and members of his family, being the principal stockholders.

The Plymouth Company acquired the assets of the Wolverine Wood Products, Inc., of Ann Arbor, moved the same to Plymouth and engaged in the business of the manufacture of beer barrels and the sale of its capital stock.

The business was far from profitable and stock sales moved very slowly. Messrs. Weil and Freshman conceived the idea that the manufacture of whiskey barrels offered a more lucrative field for the business of the company, but the Plymouth plant was not suitable for that purpose. They procured some orders for whiskey barrels and temporarily arranged for the manufacture of the same in Paducah, Ky. The promoters finally found a cooperage plant at Cleveland, Ohio, owned by one Welti, which they considered suitable for the business of the company. They ascertained that the plant could be purchased for $18,000, but that the conditioning and equipment of the same to meet their requirements would necessitate an additional expenditure of several thousand dollars. They then realized that more capital would be required than could be obtained under the original authorization of the Securities Commission and in the latter part of 1935 application was made to the Commission for authority to sell an additional $100,000 of the capital stock of the Plymouth Company. On January 29, 1936, an order was entered by the Commission validating the issue of 100,000 shares of additional stock at $1 per share to net the corporation not less that 85 cents per share, which order, amongst other provisions, contained the following: ‘that no stock shall be issued for promotion or other intangibles without first securing the approval of the Commission.’ No subsequent order was ever approved by the Commission.

The law firm of McLeod, Fixel and Fixel, of which defendants Arthur E. Fixel and Rowland W. Fixel are members, were attorneys for the Plymouth Cooperage Company from October, 1934, through the years 1935 and 1936, Arthur handling the business for his firm until March, 1936, when Rowland took charge of its affairs because of other business and engagements occupying the time and attention of Arthur. Arthur in person represented the corporation in securing the order of the Securities Commission validating the last stock issue.

Arthur Fixel learned from Mr. Weil around the first of March, 1936, that the Cleveland plant could be purchased for $18,000 on the following terms: $8,000 in cash and a first mortgage on the plant for $10,000 payable in five years. Mr. Arthur Fixel testified: ‘Weil then made the statement that the situation was getting to the point where they would have to do something, and he asked me if I didn't have parties of my acquaintance who could acquire this plant and put the Plymouth Cooperage Corporation in there, either on a lease basis or a land contract basis without an immediate down payment on a deferred basis. Mr. Freshman stated to me in Mr. Weil's presence, he said we could afford to give somebody 15,000 shares of our stock who would buy the plant and sell it to us that way on a deferred basis so we could get in there and manufacture our orders.’

On or about March 12, 1936, Mr. Rowland Fixel went to Cleveland with Mr. Weil and further negotiations were had with Welti, the owner of the Cleveland plant, on a rental basis. However, these came to naught. Mr. Welti refused to consider any proposition other than an out and out sale for $18,000, $8,000 cash and a five-year purchase money mortgage for the balance. Upon his return to Detroit, Rowland advised Arthur of what had transpired at the Cleveland conference.

The record discloses that Arthur Fixel contacted several business acquaintances endeavoring to find one who would advance the sum of $8,000 cash to enable the corporation to acquire the Cleveland plant, but without success until he contacted defendant William Hoehn who agreed to contribute $4,000 of the cash necessary for the purchase. It was then that Rowland and Arthur Fixel and their brother William, as trustees of the estate of Bertha Fixel, deceased, undertook and agreed to contribute the other $4,000 of the cash necessary to apply on the purchase price.

At the time of the transaction hereafter detailed, Rowland W. Fixel executed a declaration of trust to defendant Hoehn setting forth that his only interest in the property acquired from Welti was as trustee for said Hoehn and, as a part of the same transaction, defendant Hoehn executed a declaration of trust declaring himself to be holding said property in equal shares for himself and the estate of Bertha Fixel, deceased. These mutual declarations were evidently made prior to the time that Rowland Fixel went to Cleveland to consummate the deal with Welti.

On or about April 2, 1936, Welti conveyed the legal title of the Cleveland property to Rowland W. Fixel, ‘trustee,’ and was paid $8,000 in cash and received back from Mr. Fixel a purchase money mortgage for the sum of $10,000, payment of which was later guaranteed by the Plymouth Company. Mr. Rowland Fixel then entered into a contract with the Plymouth Company by which he agreed to sell to it the property in question for the total purchase price of $35,000, $10,000 to be paid in cash, $10,000 by the assumption of the purchase money mortgage and the remaining $15,000 within one year of the date of the contract, either in cash, or in stock at par, at the option of the vendor. $2,000 was repaid to the trustee, and in July of the same year this option was exercised by the ‘trustee’ and stock was taken in lieu of cash. This 15,000 shares of stock was distributed as follows: 4,500 to the defendant Hoehn, 4,500 to the estate of Bertha Fixel and the remaining 6,000 shares was transferred to one Edlin whom the record discloses was under contract with the company to sell 60,000 shares of its stock, and who demanded and received from Rowland, ‘trustees,’ and Hoehn the transfer of this stock. However, it does not appear from the record that either Mr. Hoehn, the estate of Bertha Fixel or Rowland W. Fixel, ‘trustee,’ received any consideration whatever for the transfer of this stock, or what, if any, disposition ever was made by said Edlin of said stock; neither does the record disclose that said Edlin ever made any transfer of his stock, and we therefore do not consider Edlin's connection with the corporation, or any of the defendants, as of any importance as said stock is now of no value. In this connection it might be said that both Edlin and Weil were at the time of the hearing of this cause under indictment in the federal court because of irregularities in their conduct in connection with affairs of the company.

Defendant Hoehn has never disposed of any of his stock and still holds the entire 4,500 shares. The estate of Bertha Fixel has disposed of 4,000 shares and realized upon the sale thereof the sum of $1,457.72. These sales of stock on the part of the Bertha Fixel estate took place in November and December, 1936, and January, 1937. The record discloses that the testamentary trustees of the estate of Bertha Fixel and Mr. Hoehn agreed with the officers of the corporation not to offer for sale of any of their stock for four or five months, so that there might not be any interference with the sale of the treasury stock of the company. There is nothing in the record to indicate that the sale of this 4,000 shares of stock by the Bertha Fixel estate in any way interfered with the sales of stock that the corporation was undertaking to make, as only 154,000 shares of stock, in addition to the 15,000 shares issued to the Fixels and Hoehn, was issued out of an authorization of 177,000 shares.

On December 17, 1936, defendant Rowland W. Fixel as ‘trustee’ and the Plymouth Cooperage Corporation as lessors leased the Cleveland plant to one Green, and rentals as appears from the record have been collected by the trustee in bankruptcy in the amount of $1,228.62.

On March 12, 1937, involuntary proceedings were commenced against the Plymouth Company in the U. S. District Court for the Eastern District of Michigan under Section 77B of the National Bankruptcy Act, 11 U.S.C.A. § 207, one Rosenburg being first appointed temporary trustee and was succeeded as permanent trustee by the plaintiff in the instant case. Reorganization proceedings having failed, on June 28, 1937, the bankruptcy court made an order to liquidate the estate. Under an order of the bankruptcy court, the plaintiff herein sold the personal property in the Cleveland plant realizing therefrom the sum of $450.

On April 11, 1938, the instant suit was commenced, by direction of the bankruptcy court, in Wayne County Circuit Court in Chancery by the trustee, making Rowland W. Fixel, individually; Rowland W. Fixel, Arthur E. Fixel and William A. Fixel, testamentary trustees of the estate of Bertha Fixel, deceased; William H. Hoehn, H. Armin Weil and Harry Freshman defendants. Neither Weil nor Freshman were ever served with process in this...