Perfex Radiator Co. v. Goetz

• Decision Date: 09 January 1923
• Citation: 191 N.W. 755,179 Wis. 338
• Parties: PERFEX RADIATOR CO. v. GOETZ ET AL.
• Court: Wisconsin Supreme Court

179 Wis. 338

191 N.W. 755

PERFEX RADIATOR CO.

v.GOETZ ET AL.

Supreme Court of Wisconsin.

Jan. 9, 1923.

Appeal from Circuit Court, Racine County; James Wickham, Judge.

Action by the Perfex Radiator Company against Julius J. Goetz and others, to set aside a trust deed. Judgment for defendants, and plaintiff appeals. Affirmed.

Appeal by the plaintiff from a judgment of the circuit court of Racine county, Hon. James Wickham, judge, presiding, adjudging valid a certain trust deed executed by the plaintiff to the defendant Julius J. Goetz, as trustee, and dismissing plaintiff's complaint, with costs.

The plaintiff, a corporation with an authorized capital stock of $1,000,000 early in the spring of 1919 became financially embarrassed due largely to claims by purchasers of stock who contended that the stock was sold to them under fraudulent representations and in violation of the blue sky laws and who threatened rescission of purchases and to bring actions for the recovery of the amounts paid.

Pursuant to the action of leading creditors, plaintiff was declared a bankrupt, and the defendant Julius J. Goetz was appointed its trustee in bankruptcy by the United States District Court for the Eastern district of Wisconsin, and such trustee thereupon took possession of all the property and assets of the plaintiff, and proceeded to administer thereon for the benefit of creditors. While such corporation was so in bankruptcy, one E. W. Lawton, an attorney at law from Racine, Wis., evolved a scheme by which it was designed to release the bankruptcy proceedings and to place the property and assets of the plaintiff in the hands of a trustee, under and pursuant to a trust deed, the object and purpose whereof being to provide for the payment of claims of creditors in full, and for the conservation of the balance of the assets not necessary for the payment of claims of creditors, for the corporation and its stockholders. The principal difficulty confronted by the promoters of this scheme was the dissatisfaction of numerous stockholders who made the charges of fraud aforesaid, and who threatened by rescinding their purchases to become creditors rather than stockholders. To remove this difficulty, Lawton formed an association of such dissatisfied purchasers of stock, opened up an office in the city of Racine which was called the “office of holders of certificates of stock in Perfex Radiator Company, E. W. Lawton, counselor, A. F. Erickson, secretary,” and in the course of time, greatly through his efforts, not only procured authority to represent such stockholders in the new arrangements to be made, but procured written waivers from them, under and pursuant to which these stockholders waived all claims for rescission and agreed to hold their stock, provided a release from bankruptcy could be procured and a general design as outlined carried into execution.

From a period of time shortly before the bankruptcy up to the time of the execution of the trust deed herein referred to, one Frank Schoenfeld, an attorney at law of the city of Chicago, represented the plaintiff, and one Edward L. England, also an attorney from Chicago represented the petitioning and other creditors and during the course of the negotiations by said Lawton in behalf of stockholders, in order to make effective and to crystallize the scheme heretofore referred to, he co-operated with said Schoenfeld, as such attorney for the plaintiff, and said English, as such attorney for creditors, and early in the month of June the efforts resulted in a general agreement on the part of these three representatives of parties interested, which had for its main object and purpose, first, the release of the bankrupt estate from the bankruptcy proceedings; second, the transfer of such assets to the defendant Goetz, as trustee under a trust deed for the benefit primarily of creditors; third, the payment in full of the claims of creditors; and fourth, the conservation as far as possible of the business of the corporation, and upon the discharge of the claims of creditors and certain other preferred claims, a reassignment of the balance of the assets to the corporation.

The general outline of this plan was also submitted on various occasions to the board of directors of the plaintiff, and was fully discussed not only by said Lawton, Schoenfeld, and England, but also by one Opitz, the president, one Wolf, the secretary, and by directors of the corporation; and it was finally agreed that a meeting be called of the stockholders of the company for the 17th day of June, 1919, to procure a ratification of such plans and a due authorization on the part of the executive officers to carry the same into effect. Such meeting was thereupon held on the 17th day of June, and there were represented at such meeting in person and by proxy, 34,477 shares of stock in the corporation, out of a total number of 49,643 shares of the stock then outstanding.

It appears quite clearly from the evidence that Opitz, the president, and Wolf, the secretary, acted in their official capacities at such meeting, without any challenge on the part of any of the stockholders as to their right or authority so to do, and that in such meeting Lawton participated and offered, for the approval of the stockholders so represented, three resolutions, one approving the compromise and settlement with creditors, and authorizing and directing the execution on the part of the plaintiff by Opitz as president and Wolf as secretary, of the trust deed in question; one providing for an issue of preferred stock in the sum of $60,000, the proceeds whereof were to be used by the trustee in the payment of the claims of creditors; and a third resolution approving of the acts of Goetz as trustee while acting in that capacity in the bankruptcy proceedings. These resolutions were unanimously adopted. The composition agreement for creditors provided for a payment to creditors of 23 per cent. of their claims in cash, 12 per cent. in 60 days, 22 per cent. in four months, 22 per cent. in seven months, and 21 per cent. in ten months.

On the following day, numerous directors and stockholders of the corporation appeared before said federal court, and there were present also said Schoenfeld, acting in behalf of the corporation, said England, acting in behalf of creditors, and said Lawton, acting in behalf of stockholders. Representations were thereupon made to the court outlining in a general way the progress made to carry out the composition agreement and the terms of the trust deed, and in the discussion that took place in the presence of the court, Mr. Schoenfeld and Mr. Lawton participated.An order was thereupon made by the court, releasing and discharging the bankruptcy proceedings upon condition that the representations made be complied with and upon the approval and acceptance of the trustee's report; and thereupon the trust deed was duly executed by said corporation, said Opitz signing as president, and said Wolf as secretary, and by said Goetz as trustee, in the presence of said Lawton, who, at the request of the attorney for the defendant Goetz, signed as an attesting witness.

It also appears that before the final report of the trustee was submitted to the referee in bankruptcy for approval, said Lawton and his attorney, Edward M. Smart, were furnished with a copy of the trust deed, and that the parties interested thereupon proceeded to the office of said referee, who approved of the final report of the trustee, whereupon the bankruptcy proceedings were fully released and discharged, the trust deed delivered to said Goetz as trustee, and the assets of the corporation transferred to and accepted by said Goetz under and pursuant to the provisions of said trust deed.

While one of the conditions under which said trust deed was executed consisted of the raising of a fund of at least $60,000, to be derived from the sale of the preferred stock of the corporation, and while said England, acting in behalf of the petitioning and other creditors, consented to the general plan outlined by the resolutions aforesaid; and while said sum of $60,000 was actually raised and placed in bank by Lawton, nevertheless, the said Lawton, in violation of said agreement, refused to turn over said sum of $60,000 to the trustee, and was instrumental subsequently in causing the amount to be repaid to the stockholders contributing the same.

It was contended on the trial that just prior to the meeting of the stockholders on June 17th, at a meeting of the board of directors, the old directors of the company resigned, and that they elected a new board of directors, who now claim to be the duly elected and authorized board. On the other hand, it was contended by the defendants herein and by the old board, that the old directors did not actually resign, but that they merely discussed the names of the proposed new members of the board of directors, and that in any event the resignation of the old board and of the officers of the corporation would not become effective until after the due carrying into effect and execution of the proposed deed. However, on the 19th day of July, the alleged new board met and elected or pretended to elect said Lawton as president of the corporation, and has up to the present time contended that the new board constituted the board of directors.

Immediately after assuming his trust, the trustee proceeded to pay the initial cash payment of 23 per cent. to the creditors, and he also mailed to them notes signed by the corporation, by Opitz as president and Wolf as secretary, evidencing the balance of the claims of creditors, which under the terms thereof became due in accordance with the composition agreement.

On the 26th day of July, 1919, at a meeting of the new board of directors, a resolution was passed repudiating the trust deed and requesting the proper officers to make demand upon the trustee for the return of the assets and the...