[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 126 I am not in accord with the views expressed in the foregoing opinion. It is true that fraud may not be presumed and that the plaintiff has the burden of proof to establish fraud. However, when the inferences from the facts are so strong as to make out a prima facie case of fraud and defendant chooses to remain silent and offers no explanation to refute the irresistible inferences from the record as presented, plaintiff should recover.
The bill was brought to impose a stockholders' liability upon Mrs. Hockett as transferor of 60 shares of stock in the Guaranty Trust Company within four months prior to the time when the insolvency of the company forced a receivership. Paragraph 8 of the bill of complaint charged that Mrs. Hockett had made the transfer of these shares to Clara H. Cole in order to hinder, delay and/or defraud the creditors and that the transfer was not one in good faith, but was made for the purpose of avoiding the liability imposed by law; that the transfer was made in violation of 3 Comp. Laws 1929, § 12005; that the transferor had knowledge of the insolvency of the company, and the probability of the stockholders' assessment and that the transfer was made for the purpose of avoiding such assessment. In answer to the serious charges in this paragraph of the bill, Mrs. Hockett does not set forth the details in regard to the transfer, but simply "denies that she is liable or in any way indebted as a stockholder to plaintiff and denies that any proper demand has been made upon her which she ought to, but has not complied with." No attempt was made to deny the general allegations of this paragraph in any other portion of her answer, except that in one paragraph, she states that she is informed and believes that the *Page 132 alleged insolvency of the company was due to the fact that the Guaranty Trust Company was unlawfully guaranteeing bonds. Failure to make explicit denial, or at least a statement of insufficient knowledge to form a belief, in response to the material allegations in a bill constitutes an admission of itself. Court Rule No. 23, § 2 (1933). However, as this question was not raised in appellant's brief, we will proceed on the theory that the answer was intended to deny the allegations of the bill and that its evasiveness is insufficient to excuse plaintiff from proving its charges. The record fully justifies reversal of the case and the entering of a decree in favor of the plaintiff, imposing liability on appellee as prayed for in the bill of complaint.
The record indicates that the Guaranty Trust Company wasin extremis on March 23, 1931, when an informal meeting of the stockholders was held. The previous month, the First National Bank of Detroit refused to make a loan of $50,000 to the company on the company's credit, but stated that it would prefer to make a loan on the personal note of Mr. Gauss, one of its directors. On March 23, 1931, the bank had refused to make a loan of $200,000 to the company, whereupon Mr. Quisenberry, the president of the company, and the company's attorney went to the office of the State banking commissioner and, in the words of Mr. Quisenberry, stated that "we had come over there to surrender our swords." The full details of this meeting are not given. It was finally agreed, however, that the company would attempt to raise $200,000 in order to keep itself going, as its cash had been almost entirely depleted. That same night an informal meeting of the stockholders was held. It is true that at the time the company's statement showed solvency and a surplus. *Page 133 It also showed, however, that some $12,000,000 in bonds had been sold with the company's guaranty. These guaranties were considered contingent liabilities, many of which were ripening into absolute liabilities at the time. On March 2, 1933, almost two years later, in the case of Reichert v. Metropolitan TrustCo., 262 Mich. 123, we held similar guaranties to be ultravires. We only refer to the guaranties to show the condition of the company as reflected by its books, and as appearing on its published statements at the time. $224,500 of additional bonds had been sold under a repurchase agreement by the company. The many defaults in mortgage bonds were known, and the bonds guaranteed were not being paid, the company taking advantage of the 18 months' extension provision of their guaranty.
We take judicial notice of the depression and the accompanying depreciation in real estate values. Notwithstanding that the company was well aware of the defaults in payments, no proper adjustment was made on the books to reflect such depreciation. The company was already carrying at full value past due bonds amounting to $244,861.62; other bonds not due, $62,745; bonds pledged to secure loans, $756,100. The company had on hand $2,892.95 in the office and $153,776.96 due from Federal agents and other banks and its cash position improved but slightly before the company finally closed its doors. The amount of cash and bank credits, however, was less than the sums due on trust accounts so that if the entire amount of cash had been segregated and allocated to the trust deposits, the cash resources would have been entirely depleted. The company owed on trust deposits $420,496.72, on bills payable $1,015,333, on corporation agency deposits $92,007.43, and on contracts payable $7,084.68, on certificates of deposit *Page 134 outstanding $177,958.54 and on real estate mortgage bonds and notes payable $24,500. It is true that the statement of March 25, 1931, showed capital stock, surplus and undivided profits of $1,356,192.73, but with the lack of cash and the liabilities offset by assets carried on the books at the original appraisals without proper depreciations or adequate reserves, the precariousness of the condition was evident or must have been on March 23, 1931, to those who attended the stockholders' meeting.
At the hastily called meeting of a number of stockholders on March 23, 1931, those present were asked to purchase $200,000 of the trust company's first mortgage leasehold bonds on the company's building. The record shows that $153,000 was subscribed for this purpose but only $101,500 was paid. Roland R. Hockett, son of Mrs. Hockett, subscribed for $1,000 and was appointed a member of the committee to solicit other subscriptions. There is no doubt but that Mr. Hockett was present at least part of the time during the meeting. A receiver was appointed for the company the following July. The reports in the receivership proceedings show that the company was hopelessly insolvent, after excluding what was formerly believed a liability on the $12,500,000 of guaranteed bonds. It is true that efforts were made by the stockholders to raise the $200,000 to ward off the receivership, but only a little more than one-half of this amount was collected. The market price of the stock had steadily receded from a "high" of $300 per share and, as shown by the Detroit Free Press on March 22, 1931, the asked price per share was $3 and there were no bids. Mr. Quisenberry, the president, had purchased some stock about this time at $1 per share. When asked whether he had purchased it as an investment or speculation, he answered "as a *Page 135 speculation." There was ample indication that the company could not survive after the first meeting with the banking commissioner notwithstanding the testimony of some of the officers that they thought they could pull the company through. The seriousness of the condition, however, was such as would alarm the most optimistic. The record leaves no conclusion other than that the company was insolvent and that the stockholders at the meeting either knew or should have known the precariousness of the condition.
Mrs. Hockett was 71 years of age in 1931. She and her son resided in the same house in Detroit and they also had the same business office. Roland had acted as agent for his mother in many previous transactions of a minor character. Mrs. Hockett had inherited the stock in question as well as shares in the American State Bank from her husband. She could not help but be impressed with the danger of an assessment on bank or trust company stock. On March 19, 1931, a letter had been mailed to the stockholders of the American State Bank informing them of an assessment on the American State Bank stock. On April 15, 1931, Mrs. Hockett transferred her 60 shares of stock in the trust company to Clara H. Cole. The record does not show just who Clara H. Cole is, except that her attorney referred to her as Miss Cole, and stated that she is a very aged lady, that she was residing in Detroit at the time of the trial, four years later, when she was too ill to come to court and could not be reached by subpœna. On April 3, 1931, Roland R. Hockett transferred 25 shares of his own stock to Gertrude H. Dempsey. The stock was transferred through the personal account of Roland R. Hockett with D. M. Woodruff Company, brokers, who gratuitously attended to the *Page 136 transfer. Their records state that the 60 shares, as well as others, were "received, account of Roland R. Hockett." Whether the stock was transferred through a broker's office for convenience or to give the transaction the appearance of abona fide sale, the record does not show. D. M. Woodruff Company did not act as brokers nor do they claim that the transaction was a sale by them. The stock was transferred on the books of the company on April 15, 1931. After its transfer to Miss Cole, Roland R. Hockett called at the brokers' office and gave them a receipt signed "Clara H. Cole, per R.R. Hockett."
At the time of the trial, after the attorney for the receiver told of the unsuccessful efforts made to subpœna the parties, the trial judge finally decided to proceed without further attempting to bring in the parties, as counsel for appellee stated that both the old ladies were too sick to come to court and appellant stated that service could not be obtained upon Mr. Hockett. No explanation was offered by Mrs. Hockett as to the details of the alleged transfer, as to what, if any, consideration was paid, or the financial responsibility of the transferee or any facts that were in the mind of the transferor when the transfer was made. Defendant had an opportunity to show the bona fides of the transaction, but she did not do so. The plain inference from the record is that the sale was not bona fide, but was made for the purpose of avoiding a stockholders' assessment that was imminent.
The trial judge seemed to be of the opinion that it was incumbent on the plaintiff to show the full facts. The judge stated to counsel for the receiver:
"All I can say is that it leaves me in a frame of mind where I am very suspicious, and my guess is that Mrs. Hockett knew about this situation and tried *Page 137 to get out from under the liability. I guess she did. Now you can make the most of that. I do not think that is enough. I would like to know whether it is or not. If that is enough, you are in a fair way to win all of these cases. * * *
"But I do not think that is enough. You see you have to pyramid one piece of guess work upon another. I start out by guessing that Hockett knew the company was insolvent. You say he should have known that, and he subscribed $1,000 to these leasehold bonds. I suppose he did know it. He must have known something. * * *
"You have a circumstantial case here, and I can take a guess that she knows about this proposition, but I want the record clear here that I do not think that is enough. Now if it is, I would like to know it."
He held, however, that plaintiff had not sustained the burden of proving fraud. Sufficient testimony was introduced to make out a prima facie case and to shift the burden of proceeding upon the defendant. In Foster v. Lincoln, 24 C.C.A. 470 (79 Fed. 170), the court said:
"It is well settled that when the holder of shares of stock in a national bank transfers them to a person known to him to be irresponsible, with the intent of escaping liability as a stockholder, such transfer will be held void as to creditors of the bank. * * * Intent in such cases need not be separately proved by direct evidence; it may be found as an inference from all the facts in proof."
When stock in a failing trust company is sold under such suspicious circumstances, as appear in the record of this particular case, so as to leave the sole inference that the transfer was not bona fide, and no reasonable explanation is offered by the transferor, the latter is not relieved of the statutory liability. The court may take into consideration the failure of *Page 138 defendant or other available witnesses to testify. Such failure is in itself a badge of fraud. Roland R. Hockett, unquestionably the agent of his mother, failed or refused to testify. As was said in the case of Kaine v. Weigley, 22 Pa. 179,184:
"It is no hardship upon an honest man to require a reasonable explanation of every suspicious circumstance."
Mrs. Hockett claims that an independent suit cannot be brought against her to recover the stock assessment and that she is relieved from liability because she was not made a party defendant in a suit to collect the assessment against other stockholders. Appellee refers us to cases under statutes in other jurisdictions. We need only discuss the statute in this State. The liability of stockholders is based on 3 Comp. Laws 1929, § 12024, wherein it is stated that the stockholders shall be individually liable and that such liability may be enforced in a suit at law or in equity. We find no provision in the law of this State limiting the receiver to a single suit against all the stockholders. In Pettibone v. McGraw, 6 Mich. 441, where suit was filed against stockholders to recover the amount of a judgment and all of them had not been named as defendants in the suit, the court held that a demurrer for nonjoinder could not be sustained. See, also, Dukeman v. Beisley, 250 Ill. App. 537. Several and individual actions were proper.
The lower court relieved Mrs. Hockett of liability but held Clara H. Cole liable. Plaintiff gave general notice of appeal in which it described Mrs. Hockett as defendant appellee and Clara H. Cole as defendant. Miss Cole filed no cross-appeal. It is claimed that the appeal should be dismissed because Clara H. Cole was not named as an appellee. While it *Page 139 might have been better to include Miss Cole as an appellee, we find no reversible error on that account. The relief asked by the plaintiff was that Mrs. Hockett be held liable, but if the court should find otherwise, then Miss Cole should be liable. Mrs. Hockett was really the only interested party in the appeal and it is obvious that Miss Cole would not contest an appeal, one object of which was to relieve her of a money decree of over $6,000.
The decree of the lower court is reversed and one will be entered in this court for the full amount of the assessment and interest, with costs to plaintiff.
NORTH, C.J., and FEAD, WIEST, BUSHNELL and TOY, JJ., concurred with BUTZEL, J. POTTER, J., did not sit.
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