Mich. Wolverine Student Coop., Inc. v. Wm. Goodyear & Co.

• Decision Date: 13 May 1946
• Docket Number: No. 50.,50.
• Citation: 22 N.W.2d 884,314 Mich. 590
• Parties: MICHIGAN WOLVERINE STUDENT COOPERATIVE, Inc., v. WM. GOODYEAR & CO.
• Court: Michigan Supreme Court

314 Mich. 590

22 N.W.2d 884

MICHIGAN WOLVERINE STUDENT COOPERATIVE, Inc.,

v.WM. GOODYEAR & CO.

No. 50.

Supreme Court of Michigan.

May 13, 1946.

Appeal from Circuit Court, Washtenaw County, in Chancery; George W. Sample, Judge.

Suit by Michigan Wolverine Student CoOperative, Inc., against William Goodyear & Co., a corporation, to set aside a deed conveying realty to defendant. From an adverse decree, plaintiff appeals.

Decree entered canceling deed, requiring reconveyance, providing for recording of decree as such reconveyance in lieu thereof, and remanding cause for accounting and other appropriate relief.

Before the Entire Bench.

DeVine & DeVine, of Ann Arbor (Hobert Coffey, of Ann Arbor, of counsel), for appellant.

Roscoe O. Bonisteel, of Ann Arbor (Burke, Burke & Smith, of Ann Arbor, of counsel), for appellee.

BOYLES, Justice.

In this case a bill of complaint was filed by plaintiff corporation to set aside a deed of its real property to the defendant, on the ground that it had been executed and delivered by plaintiff's officers by authority of its directors without the consent of its members, contrary to the provisions of section 57 of the general corporation act.^* Plaintiff is a Michigan nonprofit corporation organized for the purpose of promoting student welfare at Ann Arbor. The defendant is a Michigan corporation carrying on a mercantile business in the city of Ann Arbor. The Ann Arbor Trust Company was also made a defendant when the bill of complaint was filed, but on motion the case was dismissed as to the trust company, and no appeal has been taken from the order of dismissal. The circuit judge denied cancellation of the deed and from the decree entered thereon plaintiff appeals.

Prior to April 6, 1944, the plaintiff Cooperative was the owner of certain real estate on South State street in Ann Arbor where it conducted a restaurant business and also rented some second-floor rooms. Its active membership consisted of and was limited to students in the university. To become a member, the student paid a $5 fee and signed a membership card, whereupon his membership card was added to the card index of membership. The student continued as a member only so long as he was an actual student enrolled in the university. It was then customary to return the $5 membership fee when the student was no longer in the university. At one time, when student enrollment in the university was high, plaintiff Co-operative had over 500 members. Due to war conditions and lack of student enrollment, the membership had dwindled to 106 members in 1944 when the deed in question was given, and these were ‘somewhat scattered’ due to war conditions.

Plaintiff's real estate consisted of a house on South State street, only a block off the campus, which had been made over into a restaurant on the first floor, with rooms on the second floor. It had no heating plant of its own, and for heat and hot water depended on a contract with an adjoining landowner, under which it was obligated to expend about $2,000 each year. Plaintiff's overhead expenses continued, notwithstanding its loss of memberships. It was losing money steadily. According to one set of figures introduced in evidence, it appears that during the period from June 10, 1942, to May 15, 1943, plaintiff's net operating loss was $7,870.86. There is no question but that the Co-operative was losing money and its debts were increasing. The point was reached where it did not have funds to buy the supplies needed to operate the restaurant. Attempts to lease the restaurant and equipment as a business were unsuccessful, and about March 1, 1943, the restaurant was closed. At that time plaintiff's assets consisted of the restaurantequipment and furniture and personal property, worth perhaps $4,500, and the real estate worth somewhere about $15,000 which had been mortgaged to the Ann Arbor Trust Company with a balance due on the mortgage of about $7,400. There is no question but that plaintiff was solvent.

After the restaurant was closed early in 1943, plaintiff's sole income was from rental of the second-floor rooms from which it received $140 per month. Plaintiff was still burdened with overhead on its building management for heat, light, gas, insurance, laundry, taxes and upkeep. Plaintiff could not borrow money, and at that time (1943) had little or no cash on hand. However, its net operating loss was materially decreased after the restaurant was closed about March 1, 1943, and its net operating loss from March 23, 1943, to May 8, 1944, was only $1,134.88 according to plaintiff's figures, or $1,671.50 according to defendant's claim, depending on what should be considered as operating expenses. During that period of time, from March, 1943, to May, 1944, a vice-president of the Ann Arbor Trust Company was managing agent for plaintiff's real estate. Plaintiff's treasurer closed up his books, turned financial management over to the trust company, and furnished the trust company a statement showing the financial condition of the Cooperative as of May 15, 1943. It showed current assets-cash, accounts receivable, inventories of supplies-amounting to about $1,300, and current liabilities of $515, plus notes payable to members but not yet due $2,800. In addition, plaintiff owned the real estate in question, valued at $15,000, mortgaged to the trust company for $7,477.66.

On February 8, 1944, after the restaurant had been closed nearly a year and the trust company had been managing the real estate for about the same length of time, plaintiff's board of directors met and discussed the financial status of the corporation. A cash offer of $4,300 had been received for the restaurant equipment and $15,000 for the real estate. The board passed two separate resolutions authorizing and directing the president and secretary to sell the restaurant equipment and furniture for $4,300, and to sell the land and building for not less than $15,000.

Pursuant to the first of the above resolutions, the restaurant equipment and furniture was sold for $4,300. No question is raised regarding the legality of the sale of the personal property. The land and building on South State street was the only remaining asset of any material value owned by the corporation. Pursuant to the second of the above resolutions, on February 17, 1944, the plaintiff corporation, through its president and secretary, entered into a sales agreement with the defendant Wm. Goodyear & Company, in which it was stipulated that the plaintiff corporation would sell said premises to the defendant for $15,000; and $1,000 was paid down by the defendant. The defendant requested that the plaintiff obtain from its members a ratification of the action of its board of directors and officers, at its annual meeting to be held on May 1st. Before that date arrived, and on April 6, 1944, the plaintiff, the defendant, and the Ann Arbor Trust Company as party of the third part, entered into an escrow agreement whereby the plaintiff, by its president and secretary, agreed to execute a warranty deed of the real estate to the defendant, to place the deed in escrow with the Ann Arbor Trust Company and to place in escrow with the trust company the $1,000 down payment it had received. The defendant agreed to deposit an additional $5,000 in escrow with the trust company. These arrangements were carried out-the deed was executed and, together with the $6,000, deposited in escrow. In the escrow agreement the plaintiff, by its president and secretary, further agreed to call an annual meeting of its members and to present to its members at such meeting for ratification the aforesaid acts and resolutions of its board of directors.

Such a meeting was called for May 1, 1944, and adjourned to May 9th for lack of quorum, but no motion to ratify said acts of the board of directors was offered. A different motion was offered, to authorize the directors to sell the real estate, but voted down. For the purposes of this case it is sufficient to say that the acts of the officers and board of directors, in connection with the sale of the real estate, have never been consented to, approved or ratified by any action taken by any of the members of the plaintiff corporation.

The escrow agreement further provided that after the annual meeting of its members, plaintiff's officers were to furnish confirmation by its membership of the sale of the real estate, and the defendant was then to pay the additional $9,000 in cash, or by assuming the trust company's mortgage, or each in proportion. The escrow agreement further provided that in the event the membership of the plaintiff corporation failed or refused to ratify the sale and the acts of its officers and directors, the defendant would have the option to accept the deed and make the payment of the balance due, or to refuse to accept the deed and have a return of the sums already placed in escrow.

On or about May 10, 1944, the defendant elected to take the deed without the ratification by the members, the trust company delivered the deed to defendant, the defendant put the deed on record and paid the balance of the purchase price over to the trust company. Plaintiff refused to accept from the escrow agent the money deposited by the defendant and filed the present bill of complaint in the circuit court for the county of Washtenaw in chancery, seeking to declare the deed void and to have it set aside, on the ground that the officers of the plaintiff corporation and its board of directors had never been authorized by the members of plaintiff corporation to sell said real estate, and that the deed executed without such authorization or ratification was void. An accounting by the defendant for the period of time it has held possession of the real estate under the deed was also prayed for by plaintiff, but upon the hearing of the cause it was agreed to submit to the trial court the issue as to the validity of the deed and that, in...