Court Opinion

ID: 7951576
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:27:21.911314+00
Date Added: 2024-06-11T16:34:10.210506
License: Public Domain

Clark, J.
I do not concur in the opinion of Mr. Justice Wiest. When Vander Meer and Buys organized the Moline Milling Company, they stated in the articles of association and in the affidavit therewith that in payment for shares certain real estate which they had owned had been conveyed to the corporation. In the annual reports filed by them as officers of the corporation the real estate was treated as corporate property, and during their management the corporation had full use and benefit of the same. But' they neglected to convey it to the corporation. Vander *271Meer and Buys were the officers, directors and stockholders. Some shares had been issued to Vander Meer’s son, Sybrand, but they were owned and controlled by the father, and the son was in France during the time here in question.
Vander Meer and Buys wanted to sell out. The Weurdings and one Luidens, hereinafter called the Weurdings, wanted to buy, but were unable to pay cash, so the parties, without counsel, agreed upon this plan: All creditors of the corporation were to be paid in full by Vander Meer and Buys who were to withdraw, and have title to, the real estate. The shares were to be transferred to the Weurdings at book value, less the real estate, and the paper of the Weurdings was to be taken for the transfer. Then Vander Meer and Buys were' to sell the real estate on a land contract, with deferred payments, to the corporation. The agreement was carried out. To pay the creditors in full Vander Meer and Buys pledged the land contract to defendant Van Haitsma to secure a loan of $4,200, which sum was used to pay the creditors. Under the Weurding management the corporation soon became bankrupt.
The trustee began this suit, which, so far as defendants Vander Meer and Buys are concerned, seeks to have the said real estate decreed to be the property of the bankrupt corporation to be applied to the payment of creditors, all of whom are subsequent to the transfer to the Weurdings. By consent of all parties the real estate was sold and the fund arising from the sale, $9,751.64, is held by the court in lieu thereof. The decree gives this fund to the trustee, gives Van Haitsma nothing for his loan, and gives to Vander Meer and Buys no credit for the $4,200 paid to creditors.
The case of Courtney v. Youngs, 202 Mich. 384, is not controlling here, for the trustee seeks merely to *272acquire by decree legal title to real estate to which he asserts he now has equitable title. When the transfer to the Weurdings was made the real estate, equitably, belonged to the corporation. But it is urged that when such transfer was made it does not appear that there was a resolution authorizing a conveyance in writing under seal of the real estate to Vander Meer and Buys or that such conveyance was made. But the corporation did not have the legal title to the real estate, and it is sufficient to say that Vander Meer and Buys took this property from the corporation. Equitably their action in withdrawing this real estate from the corporate assets was in effect a dividend or distribution to stockholders of capital assets. But what amount was so distributed? Not $9,751.64, but that amount less $4,200 paid to creditors or the sum of $5,551.64. In no event should a decree pass against Vander Meer and Buys requiring them to pay again to the trustee the $4,200 which they have already paid to creditors of the corporation. 14A C. J. p. 188; 26 L. R. A. (N. S.) 268.
Nor can decree be entered against them for the $5,551.64 unless it can be said that the withdrawal of such amount from the capital was a fraud upon the subsequent creditors. There is no claim or evidence of intent to defraud. The parties acted in good faith. But was there constructive fraud?
The authorities are not in harmony upon this question, but we think our own decisions support this rule:
“Accordingly, a dividend paid wholly or partly from the capital stock may be illegal, and may subject the corporation and the stockholders to serious liability. Hence the rule has been firmly established that, where dividends are paid in whole or in part out of capital stock, corporate creditors, being such when the dividend was declared, or becoming such at any subsequent time, may, to the extent of their claims, if any such claims are not otherwise paid, compel the stock*273holders to whom the dividend has been paid to refund whatever portion of the dividend was taken out of the capital stock.” 2 Cook on Corporations (7th Ed.), p. 1614.
This rule is subject to the statute of limitations. See Detroit Trust Co. v. Goodrich, 175 Mich. 168 (Ann. Cas. 1915A, 821). See, also, Clark v. E. C. Clark Machine Co., 151 Mich. 416, and cases there cited; American Steel & Wire Co. v. Eddy, 130 Mich. 266, and 138 Mich. 403; 26 L. R. A. (N. S.) 267; 5 L. R. A. (N. S.) 520; 14A C. J. p. 180.
It is said in Detroit Trust Co. v. Goodrich, supra:
“We think it is settled doctrine that the good faith of the corporation in paying dividends in impairment of capital or that of stockholders in receiving such dividends is no defense to an action for their recovery.”
This distribution of capital assets amounted to a fraud upon the subsequent creditors of the corporation. By the withdrawal of the said sum of $5,551.64, its authorized paid up capital stock was impaired to that extent and the claims of creditors are in excess of the amount.
The decree will be modified to allow from the fund held by the court to Van Haitsma or to Vander Meer and Buys, as their interests may appear and be determined by the trial court, the said sum of $4,200. The decree so modified is affirmed. Defendants Vander Meer and Buys will recover against plaintiff the costs of this court.
Bird, Sharpe, and Moore, JJ., concurred with Clark, J
Fellows, C. J.
I agree with the reasoning of the opinion of Mr. Justice Wiest, but I am persuaded that inasmuch as Vander Meer and Buys advanced to the *274corporation $4,200 which they borrowed from Van Haitsma, and which sum was used by the corporation to pay its then existing debts, they should be credited with this sum to discharge pro tanto their liability to the corporation. For this reason I agree with Mr. Justice Clark as to the form the decree should take.
Steere, J., concurred with Fellows, C. J.