Preston Nat. Bank of Detroit v. George T. Smith Middlings Purifier Co.
| Decision Date | 24 December 1890 |
| Citation | 84 Mich. 364,47 N.W. 502 |
| Court | Michigan Supreme Court |
| Parties | PRESTON NAT. BANK v. GEORGE T. SMITH MIDDLINGS PURIFIER CO. et al. |
Appeal from circuit court, Wayne county, in chancery; GEORGE S HOSMER, Judge.
Thomas A. Wilson, (Edwin F Conely, of counsel,) for appellants.
J G. Dickinson, (John D. Conely and Marston Cowles & Jerome, of counsel,) for appellee.
Elmer E. Kirby, for George T. Smith Middlings Purifier Company. Atkinson, Carpenter, Brooke & Haigh, for George T. Smith.
The bill in this cause was filed to enforce the following agreement entered into on the 10th day of July, 1889, by George T. Smith, claiming to act for and on behalf of the George T. Smith Middlings Purifier Company, and to be authorized as its president and treasurer to execute the same: The facts material here to be considered are, substantially, as follows: The complainant is a national bank organized and doing business in Detroit. The George T. Smith Middlings Purifier Company is a corporation duly organized for manufacturing purposes under Act No. 41, Laws 1853, p. 53, How. St. c. 122, and doing business at Jackson, Mich. It was engaged in manufacturing mill machinery. It also took contracts for building mills. These contracts ran from $2,000 to $30,000 each. Their business was large, and amounted to from $400,000 to $500,000 annually. Section 9 of the act under which it is incorporated provides that "the stock, property, and affairs of such corporation shall be managed by not less than three or more than nine directors, as the articles shall determine." How. St. � 4009. The articles as filed provide for three directors. Section 1 of the act authorizes it to "elect, in such manner as it should determine, all necessary officers, and determine their duties, and to make from time to time such by-laws, not inconsistent with the constitution and laws of this state, as the majority of the stockholders shall direct." The by-laws adopted relating to the officers and their duties are as follows: The by-laws relating to the meetings are as follows:
On May 5, 1884, stockholders' and directors' meetings were held. George T. Smith was elected president, treasurer, and general superintendent. No other meeting of the stockholders was held until May 13, 1889. At this stockholders' meeting there were present George T. Smith, Frank M. Smith his son, Alonzo Bennett, George S. Bennett, Francis D. Bennett, and M. Harmon. Eliza B. Smith was represented by George T. Smith, holding her proxy. George T. Smith, Frank M. Smith, and Francis D. Bennett were unanimously elected directors. Special meetings of the board of directors, called by the president, were held on the 8th day of November, 1884, on the 29th day of December, 1887, and on the 1st day of October, 1888. At each of these meetings some special matter of business, not material to this case, was transacted, but no directors' meeting for the election of officers was held from May, 1884, to May 13, 1889. A directors' meeting for the election of officers immediately followed that of the stockholders on May 13th. All of the directors were present. George T. Smith was elected president and treasurer, Frank M. Smith, vice-president, and Milford Harmon, secretary. No superintendent was elected. As the statute provides that officers shall hold until their successors are chosen, George T. Smith must be considered as holding over in the office of superintendent. The next meeting of the directors was held October 3, 1889, at which the only business transacted related to the plat of the George T. Smith addition to the city of Jackson, which was approved, and the president authorized to sell lots at the prices fixed, and to sign necessary deeds and contracts for the same in the name of the company. The corporation made an assignment under the statute for the benefit of its creditors on the 14th day of January, 1890, to the defendants Emerson and Eldred, who have since, for reasons not material here, been removed as assignees, and appointed receivers upon a bill filed by some of the creditors in the circuit court for the county of Wayne, to which county the proceedings relating to such assignment had been removed. Kittridge v. Circuit Judge, 44 N.W. 1051. It is apparent from the record that during the last five years the corporation did business, George T. Smith was permitted to manage the affairs of the company very much as he pleased. There were no meetings of the stockholders, and no regular meetings of directors. As president, treasurer, and superintendent, he had, by the by-laws, been invested with extensive powers of management and control, and such power had been exercised by him freely, and if not without advice, certainly without objection, on the part of any of the stockholders or directors. It appears undisputed that the corporation was in the habit of borrowing large sums of money from the banks on its own paper, and on the paper of its customers indorsed by it. George T. Smith testified that it was necessary to the successful operation of the business that this money should be borrowed, and that he has been accustomed, since the organization of the company, to making loans, and giving the company's paper for it, whenever the exigencies of the business, in his judgment, required. No question is made here of his right to make such loans and give the company's notes. Among other banks with which he did business was the complainant, with whom he had an understanding prior to July 10, 1889, by which the company he represented was to have a line of discounts up to $50,000. But it appears that the transactions with complainant bank greatly exceeded that amount, so that on the 10th day of July, 1889, the amount had actually reached about $70,000. At this time the bank wanted security. At an interview had with Mr. Smith by Mr. Hayes, vice-president of the bank, the subject of security was discussed, and Mr. Smith expressed himself as entirely willing to give it. He had been in the habit of leaving as collateral to the company's paper the paper of its customers. He now suggested that the company had a large number of accounts on its books that were good and collectible, which he estimated at $300,000, and he offered to give security on these acounts. As a result of this interview, the agreement of July 10th was drawn up by Mr. Hayes, executed by Mr. Smith, and left with Mr. Hayes. At the time this agreement was entered into, there was about $70,000 of the company's paper in the bank. Subsequently this paper was renewed from time to time as it fell due, and the amount was increased to $85,000. No action was taken to select out from the body of the accounts those which the complainant claimed under the agreement, nor were they ever set apart by the company as belonging to the complainant. At the beginning of the year, Mr. Emerson had been elected vice-president and treasurer of the company, and the management of the business of the company was practically transferred to him. On the 10th of January, 1890, Mr. Hayes, acting for the complainant, visited Jackson, and called on Mr. Emerson; showed him the agreement of July 10, 1889, and told him that the bank was anxious to have these accounts to secure the bank's indebtedness. It does not appear that Mr. Hayes expressly requested Mr. Emerson to turn out to him any specified accounts under such agreement, but it is clear that Mr. Emerson must have understood that Mr. Hayes was there for the purpose of taking some steps that...
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