Perfex Radiator Co. v. Goetz

Doerfler, J. It is contended by plaintiff’s counsel that the execution of the trust deed in question was not duly-authorized by the board of directors or by the stockholders, and that the corporation could not legally execute the trust deed in question; and that in any event, being preferential as to certain creditors, it was void. In its findings of fact the court found: “1. That the trust deed described in the plaintiff’s complaint was on the 18th day of June, 1919, duly executed on behalf of the plaintiff corporation by F. M. Opitz as president of the plaintiff corporation, and by J. P. Wolf as secretary thereof, and sealed with the corporate seal of said corporation, and was also duly executed by the defendant Julius J. Goetz, and was duly delivered to said Julius J. Goetz as trustee, which said execution and delivery on the part of said corporation, by said officers, were duly áuthorized by the majority of its directors and by the majority of its stockholders at a special meeting of the stockholders of said corporation duly called and held on the 17th day of June, 1919. “2. That since the time of the execution and delivery of said trust deed said Julius J. Goetz as such trustee has had the charge and management of the property described in said trust deed in the manner provided by the terms thereof, during which time he has paid to its creditors from the proceeds of the property in his hands the first three in-stalments to be paid them by the terms of said trust deed, and a portion of the remaining instalments, including • the payment in full of several creditors having claims for small amounts, and has contracted certain other debts in the operation of said business which have not yet been paid.” In effect it was found by the court that the execution of the trust deed was duly authorized. The trust deed in question was not in the usual and ordinary form. It provided for certain preferences, among — 346 — which were the claims of the trustee in bankruptcy for services rendered during the administration of the bankruptcy proceedings, and for the payment of the trustee for his services to be performed under the trust deed, and for the payment of counsel fees of the trustee in bankruptcy, of the trustee appointed by the deed, and of the attorney for the corporation. It also vested the trustee with full power to mortgage or sell any or all of the property held by him in trust, if it should appear to him necessary in order to carry out the provisions of the deed; and the deed also contained a provision under and pursuant to which the trustee agreed to perform his duties under the advice and direction of a creditors’ committee. While the trust deed was subject to attack by creditors as being preferential and not in accordance with, the general statutes pertaining to assignments for the benefit of creditors, such an objection could not be legally made by any one but a creditor, and the transfer was a valid transfer and was vulnerable only pursuant to an attack of creditors. In Geisse v. Beall, 3 Wis. 367, it was held that a voluntary assignment for the benefit of creditors is void, if void at all, as against creditors only. Gross v. Gross, 94 Wis. 14, 22, 68 N. W. 469. The transfer was one primarily designed for. the benefit of creditors, • and any preference provided for therein to one or more creditors over others similarly situated would unquestionably have avoided the transfer at the instigation of a creditor, provided he had not participated in the transfer or in the proceeds of the assignment, or had not legally waived his rights as a creditor, or had been guilty of acts which would have estopped him from taking advantage of the transfer. No creditor, however, has appeared or objected to the trust deed, but on the contrary it appears that they have voluntarily not only accepted the dividends paid them by the trustee, but have expressly by an instrument in writing waived all rights which they might — 347 — otherwise have had in the premises. The contentions herein are not made by creditors but by the plaintiff corporation, which has been not only instrumental in participating in the creation and execution of the deed, but has held out special inducements to the creditors under and pursuant to which they consented to the release of the bankruptcy proceedings and to the transfer of the property to the trustee and to a distribution in part of the corporate assets. The plaintiff corporation at the time of the execution of the deed was not a going concern. It was insolvent. It incurred obligations to creditors and others which it was unable to meet, and pursuant to the action of the petitioning creditors was forced into involuntary bankruptcy. All of its property and assets at the time of the execution, of the deed were in the hands of the trustee in bankruptcy, to be administered upon in the course of the bankruptcy proceedings in the federal court. The time for liquidation of the assets had practically arrived, and -it was only by the efforts of those representing the various interests involved that the release of the property was obtained from the bankruptcy court and the property saved from a forced sale. Furthermore, the trustee in bankruptcy held the property primarily for the benefit of creditors. No individual stockholder appeared before th'e court and made complaint with reference to the proceedings had. The very proceedings which finally culminated in the release of the bankruptcy proceedings and the execution of the trust deed were instigated and participated in not only by the representative of the creditors but also by the representative of numerous stockholders and by the duly authorized counsel of the .corporation. There is no evidence in the case which impugns the good faith of the corporation’s counsel. Lawton, an attorney at law, who now claims to be the president of the plaintiff corporation, and who, at least during a portion of the proceedings, was represented by able comise], now — 348 — contends that the deed in question was not authorized and is not a valid and binding instrument. , Whether the provisions of the by-laws of the corporation with respect to a five days’ notice to' stockholders for the calling of a special meeting were complied with or not (and plaintiff contends that they were not), it appears clearly from the evidence that upwards of two thirds of the capital stock then outstanding was represented at the meeting in person or by proxy, and that all of sucíi stock so represented was voted in favor of the adoption of the resolutions. The trust deed itself was drawn by the counsel for the corporation. It is ’ not contended that all of the stockholders did not receive notice of the meeting, but that the full five days’ notice was not given. If this be true, the corporation or the stockholders might have frustrated the entire plan if they had appeared timely and exercised their rights. However,'nothing was done towards challenging the validity of the trust deed until after the expiration of six weeks after the deed had been executed and the property transferred to the trustee and the creditors had consented to the new arrangement which resulted in a waiver-of all rights, to an immediate liquidation in the bankruptcy proceedings, and the distribution of the assets among the creditors, and after a large share of the assets had been distributed by the defendant Goetz, as trustee, to the creditors. Under these circumstances the question naturally arises whether the corporation is in a position to take any advantage of such alleged irregularities. Under the provisions of sub. 1, sec. 1775, Stats., a corporation may, “by a vote of-the majority of the stock given at any regular meeting or at any special meeting duly called for the purpose, sell or convey or authorize to be conveyed all or any portion of the property owned by it, whether real, personal or mixed.” — 349 — It will be noted that the statute referred to does not contain a provision which makes a transfer on the part of a corporation of its property void for failure to comply with this provision, nor. does it provide for a penalty for a failure to comply therewith, so that in any event the transfer made is one which under certain conditions may be deemed voidable. It has been repeatedly held that a transfer by a corporation in violation of the provisions of the' statute may under certain circumstances be binding and the corporation es-topped from denying the validity thereof. In Witter v. Grand Rapids F. M. Co. 78 Wis. 543, 546, 47 N. W. 729, it was held:' “That a corporation cannot repudiate its contract when it has received the benefit thereof, when such contract is not expressly prohibited by law, is well settled by the authorities, and it is equally well settled that when the stockholders assent to such contract and the avails of the contract are used for their benefit, they cannot avoid such contract. This has been so often held by the courts that it is almost unnecessary to cite authorities to sustain the proposition.” See, also, North Hudson M. B. & L. Asso. v. First Nat. Bank, 79 Wis. 31, 47 N. W. 300, and Eastman v. Parkinson, 133 Wis. 375, 113 N. W. 649. In Eastman v. Parkinson, supra, in the opinion by the court rendered by the late Mr. Justice Marshall, it is said: “In case of a statute or organic act of incorporation regulating the manner of giving corporate mortgages, which does not prohibit the making ■ thereof without complying therewith, and expressly or by necessary implication declare one made in violation thereof void and a mortgage being given without such compliance, the mortgagee acting in good faith and the corporation receiving and enjoying and retaining the benefit of the same, neither it nor its creditors nor stockholders, nor any one representing them or any of them, in the absence of some statutory authorization, can successfully impeach the transaction. A mere statutory regulation as to consent of the stockholders of a corpora — 350 — tion, as a condition of its mortgaging its property, is solely for the benefit of the stockholders. . . . This court and most courts hold that an ultra vires contract, one not within the scope of the corporate authority to make under any circumstances, which is no longer executory and is not tainted by fraud or clearly prohibited by statute, or condemned by sound public policy, cannot be impeached by the corporation or any one representing it; that the only remedy is one on behalf of the state to punish the corporation for violating the law.” The trust deed in question has been executed in good faith; at least there is no evidence which would authorize a conclusion to the contrary. The property has been fully transferred and valuable rights of creditors have been surrendered. The contract is no longer executory, and the rights of an innocent third party, namely, the trustee under the trust deed, have attached, and the trustee, under, the powers duly granted to him, has acted in good faith, has incurred obligations, and has distributed a large portion of the assets. The deed itself is not in violation of an express statute, nor is it contrary to any express public policy, and the deed, even if ultra vires, can be attacked only by the state. Therefore it would appear clearly that the corporation is estopped from asserting any rights whatsoever on account of the execution of said deed. But plaintiff’s counsel further contend that Opitz at the time of the execution of the deed was no longer the president of the corporation and that Wolf was not its secretary, and-that for that reason the trust deed is void. We have carefully examined the evidence on this point and are of the opinion that when the trust deed was executed both Opitz and Wolf were de jure officers of the corporation; but whether they were de jure officers or not, in any event they were de facto officers, and the deed was executed under such circumstances as to estop the corporation from denying their authority. 3 Fletcher, Corp. §§ 1846, 1838; — 351 — Barthell v. Hencke, 99 Wis. 660, 662, 75 N. W. 952; 14A Corp. Jur. 78. The most serious objection to the trust deed in question involves the contention made by plaintiff’s counsel that in the execution of this instrument the property and business of the corporation have passed beyond the control of the board of directors into the hands of a trustee acting under the advice and direction of a committee of three representing the creditors, and that the assumption of the power and control and disposition on the part of such trustee and com-' mittee amounts to an illegal delegation of the power of the board of directors. That it is ordinarily illegal for a board of directors to delegate the powers vested in them either by statute or the articles of organization is too plain for argument, and such delegation ordinarily is as illegal as is the delegation of power of a legislative body unless expressly authorized by law. In Ames v. Goldfield M. M. Co. 227 Fed. 292, it was held (see syllabus): “The stockholders of a corporation have a right to expect from their directors a conscientious consideration of every proposition which is presented, and which involves any interest of the company, . . . and the directors have no power to act as such individually nor can they delegate the • powers vested in them to act for the corporation to ány officers or men, even though they are the majority stockholders.” This rule is fundamental and elementary; however,’it is not applicable to a situation such as is presented in the instant case. At the time of the execution of the trust deed the corporation, while still in existence, had no property whatever in its possession or under its control, and the officers and directors continued to function only in a nominal capacity. The corporate rights, including the rights of stockholders as to the assets, were merged in the bankruptcy proceedings, designed primarily for the benefit of creditors, — 352 — and the control and disposition of the corporate assets by-operation of law had become vested in the trustee in bankruptcy, subject to- control and direction by the federal court. The legal title to the property vested in the trustee, and all that remained in the corporation was a reversionary interest after the claims of creditors and the administration expenses had been fully satisfied. At any time prior to the bankruptcy proceedings the corporation could have sold and disposed of all of its property while acting in good faith, subject only to the rights of creditors. It could have also incumbered all of its property by trust deed or mortgage upon such terms as it might deem meet, provided it acted in good faith, subject only "'to the rights of creditors: It would appear, therefore, logically sound that it could execute a trust deed such as is involved in the instant case, particularly under the peculiar facts and circumstances existing at the time when the trust deed went into effect. The corporation, however, in the instant case was not a going concern. It was insolvent, in the hands of the trustee in bankruptcy, and was about to be liquidated by sale when the general plan designed to salvage a part of the business and assets for the benefit of all concerned was brought into being. Such general plan is one not infrequently resorted to^in an attempt to salvage a bankrupt estate, and is one which is quite generally recognized by the courts and the profession as practicable and feasible, and in fact was so recognized by the federal court having jurisdiction of the bankruptcy proceedings. By the execution of the trust deed the general aims and purposes of the bankruptcy proceedings were continued, but under more • favorable and advantageous circumstances, particularly to the corporation. True, the assets were removed from the jurisdiction of the bankruptcy court and placed in the hands of a private trustee, but that did not signify, however, that the trustee thereby became an autocrat with full power to act in the premises in such manner as he would be author — 353 — ized to do if he were the individual owner, of the property. His rights,- powers, and duties were fully defined by the trust deed in question. He became merely a trustee, and as such is always amenable for a violation of his trust to a court of equity. By virtue of the trust deed the trustee became an agent first for the benefit of creditors. In fact, the creditors in one sense became the owners of the property, subject to the payment of their claims. .The relationship of the trustee to the corporation in the instant case is different from that of an ordinary agent who holds at the pleasure of the principal, for such agent is at all times subject to recall at the pleasure of the principal. The only exception to the general rule is when the power of attorney held by the agent is coupled with an interest in the property, founded upon a valid consideration. Flagstaff S. M. Co. v. Patrick, 2 Utah, 304. Until such interest created by.the trust deed is satisfied the legal title remains in the trustee. Such is the situation in the case at bar. While the assets of the corporation, pursuant to the order of the federal court, were returned to the corporation, and while the trustee holds title to the property under and through the corporation, nevertheless such title was transferred upon the express condition that it be held by the trustee under the trust deed, in conformity with the terms and conditions of such deed. So that the proceedings which resulted in the trust deed in substance merely amounted to a substitution of the private trusteeship fqr the trusteeship in bankruptcy. The powers and duties, therefore, of the directors of the corporation with respect to its assets were suspended pending the satisfaction of the claims of creditors, and the only right of the corporation and its stockholders, officers, and directors consisted in the execution of the trust deed according to the terms and conditions thereof, and to the fulfilment of the obligations of the trustee on his part of such duties in good faith. This case in all its aspects presents a situation where the — 354 — doctrine of estoppel is peculiarly applicable, and to hold otherwise would result in injustice and fraud; would permit the corporation to obtain property which had been surrendered to a trustee under a trust deed upon conditions expressly designed and created by the corporation itself, and that notwithstanding that innocent parties, the creditors, had acted upon the representations of the corporation and had surrendered valuable rights. The relief prayed for in the complaint, under the facts and circumstances in this cáse, cannot be granted by a court of equity. The judgment of the circuit court must therefore be affirmed.- By the Court. — Judgment affirmed.