Dunlap v. J. P. Donaldson Co.

Sherwood, C. J. The defendant, is a domestic corporation in Detroit. It made a general assignment for the benefit of its creditors, February 9, 1888. The plaintiff, an assignee, of Margaret Donaldson, who had loaned to the defendant $3,000, which was secured by an interest-bearing note, and which he held, filed proof of the same, and asked to have it allowed against the insolvent estate, under chapter 303, How. Stat. The assignee contested the claim under sections 8746, 8747, How. Stat. The case was placed on the law side of the circuit court for the county of Wayne, and when it was tried the defendant claimed that the indebtedness to the claimant should be set off and held to be paid by certain moneys, which it is. alleged had been withdrawn from the business of the company, previous to the transfer of plaintiff's claim to him, by Mrs. Donaldson. The circuit court held such moneys were a proper set-off, and so charged the jury, and a verdict was taken for the plaintiff under the charge of the court for $1,000, and allowed the set-off for the balance of the note. The proceedings are complained of by the plaintiff, who has brought them before us for review. From the record it appears Mrs. Donaldson's husband, [292] J. P. Donaldson, died in June, 1886; that at the time of his death he lived in Detroit, and carried on the business of dealing in vessels and supplies, and had thus been engaged for several years previous; that he was worth about $25,000; that he left, besides his widow, eight children, all of whom were minors except two, whose names were Anna and 'William G-. Donaldson; that the deceased left a homestead, which was occupied by the family, and upon which there was a mortgage; that Mrs. Donaldson continued to reside in the homestead, and was the head of the family, her children all living with her; that she was appointed guardian for all the minor children, and administratrix of her husband’s estate, in the month of August after his death; that, besides her interest in the estate, she had $15,000, which she received upon policies of insurance upon her husband’s life; that after Mr. Donaldson’s death her only means of support for herself and family were what she could derive from the estate, and what she had received upon the life-policies; and that the only business available to her was' the business in which her husband was engaged at the time of his death, and in which the estate was then invested, and which was mostly in vessel supplies. It further appears that on or about December 31, 1886, an inventory of the assets and indebtedness was taken, which then showed the estate worth $2G,500 over its liabilities; and for some reason, which does not very clearly appear in the record, Mrs. Donaldson was induced to place the assets of the estate in' a corporation which was then organized for conducting the business. This seems to have been under the advice of some one. The company was organized under the name of the “ J. P. Donaldson Company,” with a capital stock of $75,000, and all the stock which was issued was issued to the widow and her eight children; she being made president - of the [293] company, and receiving one-third of the stock, and each of the children one-eighth of the other two-thirds. The estate was transferred to the company for this stock. Mrs. Donaldson also contributed to the company $10,000 of her life-insurance money, for which she received stock at its par value, and this included all the stock subscribed for, or which was ever issued. Her son William was vice-president and general manager of the company, and he, his mother, and sister, Miss Anna, were the directors; in other words, this family, with the widow for its head, formed a corporation to carry on the business in which the father was engaged at the time of his death, and the business went on the same as before the corporation was formed. On February 28, 1887, William wanted $3,000 to pay a debt owing to the Plymouth Cordage Company, and Mrs. Donaldson let him have it from the balance of her insurance money, and he gave to her the corporation’s note for the same, payabie in one year from that date, with pnterest at 7 per cent. This note Mrs. Donaldson indorsed and transferred to the plaintiff, and is'the one offered for allowance in this case, and it is admitted no part of the same has been paid. It further appears from the record that Mrs. Donaldson received from the business carried on before the general assignment was made money to pay the usual expenses in •caring for the family at the homestead; that some of the money -she received personally and some from William; and that some of the household expenses were paid by William, and some by Anna; and that none that Mrs. Donaldson ever received did she ever agree to pay back; and that no one expected that she would do so, or be called upon to do so; and that all the family shared in the proceeds thereof. Mrs. Donaldson testified that she supposed she had a right, and that the family had a right, to live [294] out of the proceeds of the business, and that was the-understanding of all of them; that the moneys she received were used for all sorts of necessary family expenses and purposes, and that in making purchases for such purposes-she paid out considerable sums from her own money which she had received for insurance; that the moneys, as. appears from William’s testimony, which were so used,, were entered upon a book under the head of “ Estate of J. P. Donaldson,” and that the amount thereof during-the time the company did business amounted to the sum of $4,070.57, and that about one-half of this amount was-used by or under the direction of Mrs. Donaldson for household and family expenses. It also appeared from the testimony that the appraisement of the assets of the corporation, which was made when the assignment was executed, on the basis of d0 per cent. of the cost of the goods, amounted to $38,000, and the amount of' the indebtedness to $52,000. It also-appeared that, after taking account of stock in the usual manner, on December 31, 1887, the company declared a. dividend of $1,200, and that the money used by the widow from the business for her own personal needs did not exceed $300, and that the entire family consented to-the use of all the money she received for family expenses. Under the charge of the court, $2,000 and the interest-thereon of the money thus received and disbursed by Mrs. Donaldson was allowed as set-ofli against the plaintiff’s-note, against his objection and exception. Counsel for plaintiff present two questions for our consideration: 1. Could the moneys so used by Mrs. Donaldson be set off against plaintiff’s claim? 2. If so, should not the amount be limited to what she received after the company became insolvent? The set-off claimed cannot be sustained either at law or [295] in equity. It very clearly appears that the family of J. P. Donaldson were entitled to their support from his estate for several years at least after he died, and until his estate was settled. He left a widow and six minor children. They were entitled to their support until they all became of age, and neither the widow nor adult children could lawfully deprive them of such Bupport'from the estate. The funds or property the widow allowed to be used in the corporation as she did, she had no right to allow for any such purpose, and what she obtained from the corporation, and made lawful use of in the support of the family, was entirely proper, and she created, no liability against herself therefor in so doing, and it. does not appear she went beyond this. If she created no-liability to the corporation in what she did, certainly theassignee of the insolvent estate cannot claim any, and this disposes of the right to set off against the note the; claim the assignee now makes. The plaintiff is entitled, to make the same defense against the claimed set-off that,, Mrs. Donaldson could have made had she not transferred her interest in the note to him. The judgment at the circuit must be reversed, and, as there is no question raised except the right to set off against plaintiff’s claim, which cannot be done, the note-of plaintiff should be allowed in full, and the circuit court enter a judgment accordingly, with costs of both courts.