McKey v. Swenson

• Decision Date: 27 October 1925
• Docket Number: No. 19.,19.
• Citation: McKey v. Swenson, 232 Mich. 505, 205 N. W. 583 (Mich. 1925)
• Parties: McKEY v. SWENSON et al.
• Court: Michigan Supreme Court

232 Mich. 505

205 N.W. 583

McKEY

v.SWENSON et al.

No. 19.

Supreme Court of Michigan.

Oct. 27, 1925.

Appeal from Circuit Court, Wayne County, in Chancery.

Suit by Frank M. McKey, trustee of the Goddard Tool Company, an Illinois corporation, against Samuel R. Swenson and others. Decree for plaintiff, and defendants appeal. Affirmed as modified.

Argued before McDONALD, C. J., and CLARK, SHARPE, MOORE, STEERE, FELLOWS, and WIEST, JJ. Wurzer & Wurzer, of Detroit, for appellants.

Stevenson, Carpenter, Butzel & Backus, of Detroit, and Grossberg, Haffenberg & Kopald, of Chicago, Ill. (J. G. Grossberg, of Chicago, Ill., and Charles A. Wagner, of Detroit, of counsel), for appellee.

WIEST, J.

Plaintiff, by virtue of an assignment and indenture, is a common-law trustee for creditors of a foreign corporation, and seeks title in the corporation to certain real estate in this jurisdiction and recovery of illegal salaries claimed to have been received by officers of the corporation.

The Goddard Tool Company is an Illinois corporation, admitted to do business here, and in May 1917, opened a branch plant in the city of Detroit. The matter of a Detroit branch plant had been under consideration some time, for, as early as March 12, 1917, the minutes of a meeting of the stockholders show arrangements had been made to open such a branch factory. These minutes also show that, at a stockholders' meeting March 11, 1918, the plant was in operation, and--

‘in order to protect the credit of Goddard Tool Company, it was deemed advisable by the board of directors that the real estate and building necessary for establishing the plant in Detroit be purchased by three of the directors of your company as individuals, and this was accomplished and a lease issued to Goddard Tool Company with an option giving the company the privilege of buying the property at any time. The interests of the company have been very carefully protected with the result that it is not necessary for us to show this investment in fixed assets on the company's balance sheet.’

In June, 1922, the corporation owed two Chicago banks large sums, and, by due corporate action and indenture, assigned and conveyed to plaintiff, in trust for the benefit of its unsecured creditors, all of its property and assets, inclusive of equitable rights and choses in action.

In May, 1917, Paul Goddard was president of the corporation, Herbert L. Hochschild, vice president and treasurer, and Samuel R. Swenson, secretary, and they constituted a majority of the board of directors and were the principal stockholders. May 1, 1917, Goddard, Hochschild, and Swenson purchased on land contract a lot known as No. 370 Harper avenue, Detroit, having a brick building thereon, and an adjoining lot known as No. 1364 Rivard street, having a frame dwelling, for the sum of $26,000, paid $6,000 of their own money on the contract, and agreed to pay $20,000 in semiannual installments of $1,500 or more, all to be paid in five years, with interest at 6 per cent. The same date Goddard, Hochschild, and Swenson executed a five-year lease of the premises to Goddard Tool Company, reserving, however, the frame dwelling to their own use until a contract ‘for the sale and purchase of the whole of said premises shall be entered into between said parties as hereinafter provided.’ The rent was fixed at $4,200 a year, payable in monthly installments, and the corporation was required to pay all taxes, insure the brick building, and keep the premises in repair. The corporation was given the right to purchase the premises upon notice of election to do so, and agreement as to price and terms, but, if unable to agree, then the Security Trust Company of Detroit to fix the price at not less than $26,000. The premises were occupied by the corporation, and the rental and taxes paid up to the time of the assignment in June, 1922, and by the assignee before the filing of this bill.

Defendant George C. Clark claims to have purchased the contract rights of the other defendants and intervened in the suit.

In the circuit decree was entered, finding the real estate was purchased in trust for the corporation, and cut off all asserted rights of the defendants. The decree also determined salaries received by the defendant officers of the company were illegal, found the amount thereof, and awarded recovery. None of the defendants gave testimony. The case is here by appeal of defendants and the points presented will be mentioned in the course of the opinion.

The directors, at a meeting on June 27, 1922, premised and resolved:

‘Whereas, this corporation has contracted indebtedness, liabilities, and obligations to numerous persons, firms, and corporations in a large, amount, part of which is past due and remains unpaid;

‘And whereas, although this corporation is wholly solvent, its property consists mainly of slow assets so that it is unable immediately to discharge the aforesaid indebtedness, liabilities, and obligations without material sacrifice to the corporation:

‘And whereas, it is the opinion of the directors of this corporation that the interests of the creditors and the stockholders of this corporation would best be served by conveying all of the properties, income, and assets of the corporation of every kind and nature and wheresoever situated to Frank M. McKey of Chicago, Ill., as trustee, to operate and control the business and out of the proceeds to pay the said indebtedness, liabilities, and obligations of this corporation and thereupon to reconvey the said properties and assets to the corporation:

‘Resolved that the president or the vice president and the secretary of this corporation be and they hereby are authorized and directed to execute and deliver to Frank M. McKey, of Chicago, Ill., as trustee, in the name and on behalf of this corporation and under its corporate seal, a deed of trust in substantially the form submitted to the board of directors at this meeting.’

At this meeting Goddard was elected president, Strobridge, vice president, and Rawson, secretary.

This assignment did not operate as a dissolution of the corporation. The assignment provided for payment of creditors out of the corporate assets and return to the corporation of any excess.

It is claimed the assignment to plaintiff, executed in Illinois, does not conform to statutory requirements in Illinois or this state, and plaintiff may not bring suit by virtue thereof. The law of the domicile of the assignor governs and, if the assignment is valid in Illinois, it is, under the rule of comity, valid here. If the common law, unchanged by statute, prevails in Illinois, then the assignment is good.

In Pogue v. Rowe, 236 Ill. 157, 86 N. W. 207, it was said:

‘The National Bankruptcy Act of 1898 suspended the statute of this state in reference to voluntary assignments for the benefit of creditors (Harbaugh v. Costello, 184 Ill. 110 [56 N. E. 363,75 Am. St. Rep. 147]), and the debtor may make a common-law assignment for the benefit of his creditors, which is valid so far as the statutes of this state are concerned (Howe v. Warren, 154 Ill. 227 [40 N. W. 472];Thompson Co. v. Whitehed, 185 [Ill.] 454 [56 N. E. 1106,76 Am. St. Rep. 51]). As the statute in reference to voluntary assignments is suspended, the common-law assignment is in no wise affected by that law.’

The assignment must be held valid.

The corporation was organized in 1916 by Paul Goddard, Hochschild, and Swenson. Its business rapidly increased, and during the world war large profits were made and dividends declared, but at the close of hostilities the profits practically stopped. The first record of salaries voted officers appears in the minutes of a special meeting of the directors attended by Goddard, Hochschild, Swenson, and Strobridge, June 28, 1917, when they voted the following salaries, to commence July, 1917: Paul B. Goddard, president, $15,000, S. R. Swenson, secretary, $6,000, and H. L. Hochschild, treasurer, $6,000. March 11, 1918, the same directors raised the salaries, to date from January 1, 1918, as follows: Goddard, president, $30,000, Swenson, secretary, $25,000, Hochschild, treasurer, $25,000, and Strobridge, vice president, $15,000. At a meeting of the same directors, April 22, 1919, Goddard, president, stated:

‘The meeting was called for the purpose of considering a reduction in salaries of the officers of the company as recommended by the directors at their annual meeting. He pointed out that the business was still being conducted at a loss and that there hardly seemed any possibility of a quick change for the better.’

The salaries were then fixed: Goddard $20,000, Hochschild, $12,000, Swenson, $12,000, Strobridge, $7,000, ‘with the understanding that as much of these salaries as was convenient would be left with the company and carried on its books as salaries not paid out until such a time as business might take a turn for the better and commence to show profits.’ The subject of salaries was before the same members of the board at a meeting on March 22, 1920, and ‘it was the opinion of the...