author: Stone, J.

text:
    OLIVER v. BALDWIN.
    1. Equity — Appeal and Error — De Novo.
    While due weight should be given to the advantage which the circuit judge had in seeing and hearing the witnesses give their testimony in open court, this fact does not relieve the appellate court, in a chancery appeal, where the case is heard de novo, from the duty of weighing the evidence, and exercising its own independent judgment, in passing upon the evidence in the case.
    2. Contracts — Cancellation op Instruments — Fraud—Evidence —Sufficiency.
    On a bill to rescind, on the ground of fraud, a contract whereby plaintiffs transferred to defendants a majority of the common stock of a manufacturing concern, in consideration of defendants devoting their time and attention to said concern and placing it upon a sound and safe financial basis, evidence examined, and held, insufficient to sustain the burden of proof resting upon plaintiffs.
    3. Same — Construction—Intent.
    A contract must be construed so as to effectuate the intent of the parties when it was made, therefore it should be construed in the light of the circumstances existing at the time it was made.
    4. Same — Performance—Rescission—Equity.
    That defendants might have sold their stock without performing their undertaking of placing said manufacturing concern on a safe financial basis, is not sufficient ground for the rescission of the contract whereby said stock was so transferred, after defendants have performed, andl plaintiffs have received the benefit of their efforts.
    5. Same.
    If it be conceded that defendants agreed to indorse notes at the bank, their failure .to do so would not be ground for rescission, where the substance of the undertaking, which was to place the company upon a safe and sound financial basis, was accomplished, and the plaintiffs were not' injured.

      6. Same — Equity — Executed Contracts — Cancellation of Instruments — Fraud.
    Canceling an executed contract is an exertion of the most extraordinary power of a court of equity, and ought not to he exercised except in a clear case, and never for an alleged fraud unless the fraud be made clearly to appear; never for alleged false representations unless their falsity is certainly proved, and unless the plaintiff has been de- ■ ceived and injured by them.
    Appeal from Kent; Brown; J.
    Submitted January 15, 1918.
    (Docket No. 93.)
    Decided June 3, 1918.
    Rehearing denied October 7, 1918.
    Bill by Joseph W. Oliver and another against Frank A. Baldwin and others for an accounting. From a decree for plaintiffs, defendants appeal.
    Reversed, and bill dismissed.

      Charles E. Ward, for plaintiffs.

      Wilson & Johnson and Willard F. Keeney, for defendants.
   Stone, J.

The bill of complaint herein was filed August 14, 1916, to obtain a decree requiring the defendants Frank A. Baldwin, Victor M. Tuthill, and Melvin D. Baldwin to return to the plaintiffs certain shares of the capital stock of the Oliver Machinery' Company, hereinafter called the Oliver Company, which had been assigned to said defendants by the plaintiffs. The bill seeks to rescind for fraud and misrepresentation the transfer of the shares of stock made on September 3, 1912, above referred to. The alleged fraud and misrepresentation upon which plaintiffs rely as to the foundation of their right to rescind the contract, is that defendants Frank A. Baldwin and Victor M. Tuthill agreed to indorse $92,000 of notes of the said Oliver Company held by the Grand Rapids National City Bank, hereinafter called the bank. It is also claimed that the shares of stock were transferred at a time when the plaintiffs were in great financial distress, and that the defendants, who took over the stock, were fully aware of this fact, and obtained the stock through a bargain which was unconscionable. The bill also seeks an accounting by the defendants composing the firm of Baldwin, Tuthill & Bolton of the assets of the Oliver Company; that they be ordered and decreed to pay any amounts which may be found due to the Oliver Company in respect to dealings between that company and Baldwin, Tuthill & Bolton, and that plaintiff Joseph W. Oliver be paid certain items of salary, and back salary to which it is alleged he is entitled.

It is the claim of the bill that when the stock was transferred to the defendants Frank A. Baldwin, Victor M. Tuthill (Melvin D. Baldwin also getting 32 shares), they, together with Ralph Baldwin, another son of Frank A. Baldwin, assumed and exercised absolute control of the affairs of the corporation; that said Frank A. Baldwin, Melvin D. Baldwin, and Victor M. Tuthill have violated'their trust as directors of the Oliver Company, acting really in their own interest, instead of the interest of the Oliver Company, and have so manipulated the affairs of the company as to appropriate a large amount of property and money belonging to the Oliver Company, and refused to take steps in the name of the company to compel restitution. The Oliver Company was originally a plaintiff herein. The individual defendants made a motion in which they objected to the Oliver Company being joined as a plaintiff, and the result was, said company was made a defendant by order of the court.

As Frank A. Baldwin and Victor M. Tuthill are claimed in this case to be the chief offenders, we will refer to them as Baldwin and Tuthill. It is the claim of the bill, and not denied, that prior to September 3, 1912, plaintiff Joseph. W. Oliver had been the maker of the business and assets of the Oliver Company. He was the owner of more than four-fifths of the common stock, but had transferred to his wife, Laura M., a part of his holdings.

The situation disclosed in this record grew out of the financial condition of the company, and its bank relations existing in 1912 and for some time before that year. The chief elements contributing to the present controversy were bank indebtedness, of about $92,000 aforesaid, fear on the part of Mr. Oliver that the creditor bank would start some disastrous proceeding, confidence in his neighbors Baldwin and Tuthill, a belief, that they might help him in his difficulties, and as plaintiffs claim a selfish desire on the part of Baldwin and Tuthill to take advantage of his confidence and trouble for the purpose of over-reaching and defrauding him. Mr. Oliver’s experience in the machinery business extends over a period of more than 35 years. After learning the machinist’s trade he became a salesman for a machinery company, a business which he followed for some 20 years. He then began to manufacture wood working machines, having the work done on contract. In 1892, having entered into a large contract for the manufacture of machines, and the market, owing to a panic having become bad, he personally took his machines to England, and there successfully marketed them. This led to the establishment of what is spoken of in this, record as the Manchester branch, which was at first a branch office, and later an incorporated company, 25 per cent, of the stock of which was owned by Mr. Oliver, and which company was an auxiliary to the Grand Bapids business. This stock he had transferred to the Oliver Company.

At the time of the hearing, Mr. Oliver had been manufacturing his own machines for about 15 years. He began in rented buildings, but finally went to Manistee and bought several disused sawmills and salt blocks, took the timbers and materials from these buildings, and erected a factory for himself, the one now in use by the company. He testified that constructing the building in this way it cost about $38,000, and that that was about one-half what it would have cost had he bought the material in the usual way, and that the building was as good as though built of new material.

It is claimed that in 1912 the Oliver Company had firmly established a reputation for building first-class machinery, and that its machines were sold for use in the engineering pattern shops of industrial plants, railroads and the like. Special attention was given to the making of machinery for pattern shops. The railroad companies, and such concerns as the Carnegie Steel Company, the Crane Company of Chicago, and other large industrial works were the purchasers of these machines; that the name of the company was thoroughly established, and in connection with its business the reputation was a valuable asset. It is the claim of plaintiffs that at the time of the transfer of the stock in question the machinery of the company was worth about $100,000; that there was a well equipped factory.

It is claimed that the company also had a large amount of material on hand, also patterns, drawings and patents of great value in connection with its business; that it owned 1,500 shares (25%) of the capital stock of the Oliver Machinery Company, Limited, of Manchester, England, — a very prosperous company; that this stock was valued at $7,250 on the books of the company, and always paid 15%, besides paying a stock dividend and reserving a surplus; and that the said Oliver Company was actually engaged in business and had more than $80,000 worth of raw, and partly or wholly finished merchandise, besides bills and accounts receivable, and other valuable assets, but owing to the depressed condition of the machinery market it was unable to reduce at that time the indebtedness owing to the Grand Rapids National Bank.

The business of the Oliver Company was incorporated in 1906. Mr. Oliver was then practically the sole owner of the company and its assets. Very little of the common stock was ever sold. -A comparatively small amount was turned over to employees, with a view of obtaining their co-operation. Its capital stock consisted of $150,000, of which $50,000 was preferred, and $100,000 common stock. The common stock was paid in in property. In 1907 the authorized common stock was increased to $600,000, of which $404,000 was issued, practically, for the same property the company had at its incorporation, with the additions made within the space of about one year which had elapsed since that time. Of the preferred stock $37,000 was issued. At the time the factory was built Mr, Oliver, as president of the company, obtained a line of credit with the Grand Rapids National Bank of $50,000. 'This bank afterwards consolidated with the National City Bank and is spoken of in the record by its present name, the Grand Rapids National City Bank. It took over the said loan. It is alleged that the $50,000 were used in fitting up the factory, and that the line of credit had been increased from time to time, so that in 1912 the debt of the company for borrowed money amounted to about $92,000. Fifteen thousand dollars of this amount, secured by a mortgage on Mr. Oliver's home, was to the City Trust & Savings Bank, a subsidiary bank having the same officials and stockholders as the Grand Rapids National City Bank. It appears both by the testimony of Mr. Oliver, and that of Charles H. Bender, an officer of the bank, that early in 1911 Mr. Oliver went to the bank to obtain additional money. He there met Mr. Waters, the chairman of the executive committee of the bank. Mr. Bender, a witness for the defendants, testified that he was called into the room and took part in the conversation:

_ “Oliver asked for more money, and Waters asked him something about the condition of the business. Oliver turned to him rather sharply and said he did not come to him for advice, but came for assistance. Mr. Waters said that he might get both, and the conversation terminated rather abruptly, Mr. Oliver going out.”

It appears that from that time on, Mr. Bender began going to the plant and talking with Mr. Oliver about the condition of the business; and that they went into some detail as to the items which composed the assets of the company, the witness saying:

“I think I was going into the books at that time and getting from the trial balances during the year, such light as they afforded on the condition of the business, and what I was primarily interested in was to test the best I could the value of the assets. * * *
“I learned from Mr. Oliver that the real estate was being carried on the books at a price in excess of its cost. I do not remember how much that excess was> speaking now of the time of these conversations. I do not remember what the figure was, but in the course of our investigation Oliver told something about how that plant was constructed and what its cost was and it developed that it was a less figure considerable than the figure it was carried on the books. * * *
“He gave me answers to such things as I inquired about. I undertook to find out whether the company was making money. * * *
“I should say that I was investigating the affairs of the Oliver Company for a couple of months before the audit was made by Ernst & Ernst in July, 1911. I conducted that investigation through repeated conversations with Oliver and those that he would call in for the purpose of testing the value of the assets of the company. During that period I had interviews with Oliver at the bank and at the plant. I think more at the plant than at the bank. John Duffy was called into these earlier conferences. He was somewhat interested directly in the Oliver Company, and was also an old friend of Mr. Oliver and had had considerable manufacturing experience, and he, Oliver and I had some conferences at the plant. These principal assets were talked about, like the real estate, equipment, the inventory of finished and unfinished goods, how much of the inventory was raw material, how much was finished product, the general condition of the accounts receivable, and as there were considerable open accounts payable, their condition was somewhat discussed, bearing on the question of the then condition of the company, because of the first interview that the company was then in need of more money to prosecute its business. Mr. Oliver’s request for more money was the way the thing started, so far as I was concerned, his coming to the bank, to which I referred.”

(The testimony of Mr. Bender was very much circumscribed and limited by rulings of the court, under objection from plaintiffs’ counsel.)

* * * “He (Oliver) said to me and I said to him that in our judgment the company was not making money at that time. The audit made by Ernst & Ernst came about from the discussions between Oliver and myself in relation to the condition of these assets, he having said to me that they were appreciated at the time the capital stock was raised in order to justify that increase in the capital stock, and he said that that was a matter that he did not know much about at the time, that he was acting on Spencer’s advice, who had said to him that it would make a better showing for the company and look better to the bankers if the assets were increased and the capital stock raised as a result of that increase. And that led to our talking about the real value of these assets; and as I have already said, we then discussed in a number of conferences the value of the real estate, its cost, the equipment, which was one of the large items in the assets, and how that was arrived at, and the patent and ‘good will’ accounts, and the accounts reeeivable and the bills receivable and the inventory; as a result of these discussions I suggested to Oliver that we ought to have an impartial audit made by a company who made that a business and he made no objection and was willing it should be done, and asked who I thought would be proper parties to make the audit, and I recommended Ernst & Ernst of Chicago, because they were certified public accountants, and at that time there were none in Michigan. * * *
“I received a copy of this audit, Exhibit B, as soon as it was completed. Upon receiving it, and before that, I discussed with Mr. Oliver the various matters contained in it. I was in touch with Mr. Poindexter (representing Ernst & Ernst) and Mr. Oliver during the time the audit was going on. I think Poindexter was here two or three weeks. As the audit went on Poindexter told Oliver and me more or less about what he found and those matters weré discussed between us. When the result of this audit was known, we discussed these various items, much along the lines we had before, and Poindexter arrived at a definite figure of the cost of the real estate which he said in our presence he had got from the books and from conversations with Mr. Oliver. Mr. Poindexter gave me the cost of the real estate as he had found it, and Oliver agreed that that was the fact; there was no dispute about what the real estate cost. The next item was the equipment, and Poindexter stated that his investigation showed that the equipment was its first cost, and that it had not been depreciated upon the books and represented the ledger item of the first cost of the equipment. There was some claim by Oliver at that time that there had been some depreciation on that, it was not any very large amount, but I think he claimed there was some depreciation. The question whether , there was any obsolescence in that'item was also discussed, and Poindexter simply made the statement that if there was any obsolescent items in the equipment account they did not appear to have been charged out of the account; and Oliver, as I remember it, claimed that the equipment was all alive and active and had been kept up. The question of the value of the inventory was discussed, and that had also been discussed, between‘Oliver and me before Poindexter came. Poindexter stated the result of his investigation on that subject, that the cost had not been properly taken, and that it was an estimate, because it was worked down from an arbitrary basis of selling price' rather than a built-up cost. And Oliver claimed on that subject that they kept track of the labor as it was applied to these various articles they were manufacturing, and that while it was an estimate it was a fair estimate, and Poindexter discussed _ this matter because he instituted another method of inventorying merchandise which brought a value less than the value reached by the method that had theretofore been used. The inventory that was taken while Poindexter was there was taken on the basis he recommended. Mr. Oliver claimed that the drawings and patterns were of considerable value to the business, and from our point of view I was not very greatly interested in the subject of the patterns because it was not a tangible asset, except to a going business. I don’t remember very much discussion about that item of $21,000 for patents, because I was not interested in that item.
“Q. The audit shows a loss by the company in its manufacturing of about $63,000, and the audit states that a portion of that loss might be accounted for by the difference in taking the inventory. Did you learn anything about how much of the loss might be accounted for in that way?
“A. The only thing I recall about that is that it was discussed between us that this method that Poindexter recommended, and which was carried out, did bring a less result than the old method, and to the extent that if it did bring a less result it would be a part of the operating loss for the period under discussion. I don’t think in the discussion with Mr. Oliver any amount Was talked of that this difference in taking the inventory might make, because at best that would have been nothing better than ánybody’s estimate. * * *
“Q. It appears from the audit that the expense of selling had largely increased as compared with previous years. Was that discussed?
“A. Yes, that was discussed, and as one of the elements that brought about this loss in doing business.
“Q. It appears that on September 1, 1911, a loan for $15,000 was made on a mortgage on Mr. and Mrs. Oliver’s home by the City Trust & Savings Bank. What was said between you and Oliver about that?
“A. Oliver said the company needed more money, that it had a large number of outstanding past due accounts payable, and that the credit of the company demanded that they be taken care of. I had him prepare a schedule of the past due indebtedness, how long it had been past due, and that was furnished, and as a result of that exhibit I said to him that the company certainly did need money to keep up its credit, but that the bank had gone as far as it could in furnishing money unsecured; that if he had any way of securing a further loan it would be considered. He said that he had no other property that he could put back of the loan except his home, that was in the name of himself and wife, and he would see whether Mrs. Oliver would be willing to put a mortgage upon it. He came back after a time and said that she was willing, and we made a mortgage of $15,000 on the home for the purpose of furnishing money which would go into the business as a loan to the business, and with that new money past due indebtedness would be paid. That loan was made, tire money did go in there and a list of the checks made against the company was furnished. * * *
“Q. Did you have any inquiries on behalf of any of those creditors as to whether you were going to furnish money to pay up any of these accounts?
“A. I don’t remember having any inquiries from any of the creditors or from any of the commercial agencies. After this audit was made and the loan of $15,000 was made with the City Trust & Savings Bank, I had frequent conversations with Oliver and with others connected with the business. I did not visit the plant very often after that time. Mr. Oliver and I talked from time to time about how the company was getting on. He came in very frequently to talk over a number of matters in connection with the affairs of the company. I don’t remember as I said anything to him in regard to the progress I thought he was making in regard to the financial condition, except to give him as much encouragement as possible. A little later, some time in 1912, I reached a conclusion in my own mind as to whether he was making financial headway. I stated to Mr. Oliver in a way, what I thought, but not just what conclusion I reached on that subject. I said to him all during the later part of 1911 and the early part of 1912, that the business had to have some readjustment, that they had go to show their ability to liquidate this inventory, to bring the business into better adjustment, or that some new money must go in_ there; that the bank felt insecure. I said that to him before the audit was made, and after it was made, and all during the year and the early part of 1912. I said it_as much in the early part of 1912 as I did in 1911. 1 did not say it perhaps as emphatically at that time, because it had been said previously. * * *
“I don’t think I discussed with Mr. Oliver during the latter part of 1911 and the early part of 1912 whether he was making any progress in reducing his indebtedness. In response to my statement to him that the business would have to be reorganized, readjusted, or that there would have to be some new money put in, Mr. Oliver repeatedly said he would try to work to that end, and try to bring it around, bring about some situation that would satisfy us. Mr. Oliver came into the bank, I should say from memory, in July, 1912, it may have been the latter part of June, some time in the summer. He said he thought he was going to be able to make an .arrangement that would satisfy us, that he was expecting to get some men interested in the business that he thought would prove satisfactory all around, and as I recall it, he did not voluntarily state who the parties were, and I asked him the question who they were, and he said that it was Baldwin and Tuthill, and wanted to know what we would think of them. He said that they had been long in that sort of business and understood it, and he was talking with them, on the subject of their becoming interested in the business. I think I told him that I knew Tuthill slightly, just a social acquaintance, but I did not remember of ever meeting Baldwin. I knew who the men were, and had heard something of their career and that it had been successful, and that his having relations with those men looking to that end, was very interesting. That was about the extent of that first conversation. Time went on and I heard nothing further from Oliver. So much time elapsed that I called him up and he said the matter was still under discussion. In the meantime I had made inquiries in regard to Baldwin and Tuthill and their business reputations. This matter was discussed between Mr. Wylie, Mr. Waters, and myself and they investigated the matter as. I did, each taking his own way. Mr. Wylie was president of the bank and Mr. Waters was the chairman of the board, and the three of us constituted the executive committee of the bank. When I called Mr. Oliver up he came in and said that the matter was still under discussion, and that he thought they were going to come to some agreement. I think we then asked him if I might talk with Baldwin and Tuthill, and I cannot locate that very accurately in my mind. But I know I did call for them, and it is my best memory that it was the result of Oliver’s permission that I might talk with them on the subject. I don’t think I told Oliver at the time the conclusion I had reached in regard to the desirability of his. associating Baldwin and Tuthill with him. I can’t just recall what was said by Mr. Oliver about my talking with Baldwin and Tuthill, but I do remember distinctly asking his permission to talk with them, and I perhaps may conclude that having asked his permission, if he had said no, I would not have asked them. They were asked to come in. My recollection is that I telephoned to Mr. Tuthill. At that time I had done no business with Baldwin or Tuthill, or either of them. They had never kept any account at our bank. As a result of my request they came in. I don’t think the affairs of the Oliver Company were discussed at the first interview. The subject of discussion was whether they were seriously considering going in there. The Ernst & Ernst audit was referred to at that time, and was turned over to them. At that interview the question was not raised in any way about their endorsement of notes which the bank then had for the Oliver Company’s indebtedness, if they went into the company. There was another interview a little later. My recollection is that at that time they came in on their own authority for the purpose of discussing somewhat the affairs of the Oliver Company and stating something of the conclusion that they had come to. * * *
“Q. Was anything said in any of the interviews with Oliver about Baldwin and Tuthill endorsing notes which the bank then held?
. “A. No. I don't recall that it was ever referred to. * * *
“Q. Was anything said in the interview between you and Oliver in case Baldwin and Tuthill came into the business, who should be in control of it?
“A. Yes. When Oliver came in and said that they had practically agreed on the terms of their arrangement and were about to have a contract drawn by Mr. McPherson, I asked him at that time if a part of this arrangement was that Baldwin and Tuthill were to be in actual control and management of that business and company, and he said it was, that was a part of the arrangement that they had made, and that they were going to have it reduced to' writing, and that he was going to transfer to them a majority of the stock in the company. I did not say anything to him on the subject of the attitude of the bank toward the Oliver Company, if Baldwin and Tuthill did come in and assume active control. I did not say anything to Oliver as to whether the bank would press its indebtedness. That matter was discussed at an interview with Baldwin and Tuthill. I do not recall having discussed it with Oliver at all. Baldwin and Tuthill never endorsed the notes for the indebtedness which the bank held at the time they went in.
“Q. Did they endorse the notes for such additional money as they got from the bank afterwards?
(This question was objected tcf on the ground that it was incompetent, and the objection was sustained by the court.) * * *
“Q. What, if anything, did the bank do, with reference to pressing, for the payment of the Oliver Company indebtedness after Baldwin and Tuthill came in?
“A. Nothing. We did not press. We reduced the rate of interest on the indebtedness from 6 to 5% and that applied to the indebtedness secured by the $15,000 mortgage.”

About this time Mr. Oliver met Mr. McPherson (a member of the law firm of Norris, McPherson & Harrington) , who was at that time his personal attorney in a litigation then pending in this court, and the substance of Mr. McPherson’s testimony as to what took place, he having been examined as a witness for defendants, here follows:

“I drew the contract which has been introduced in evidence between Joseph W. Oliver, Frank A. Baldwin, and Victor M. Tuthill, dated September 3, 1912.
(So far as Mr. Oliver was concerned the matter of privilege, if any, was here waived.)
“In refreshing my recollection regarding the matter, I have turned back to the record that I made from day to day as I did work, as the basis for making charges, and after thinking the matter over, it is my recollection that Mr. Oliver saw me in the forenoon of August 27, 1912. I think he came to my office to tell me that he intended to make a change in the organization of his company by which he was to transfer a certain part of his stock, two-thirds, I think, to Baldwin and Tuthill to obtain their assistance in carrying on the business, and told me that it had been necessary to do it to satisfy the bank from which he was borrowing money. I do not recollect that that was any more than an informal conversation. I do not think we went into the details of what was to be done, but a few days later, on September 2, in the afternoon, Oliver, Baldwin and Tuthill came to my office and discussed the situation, and at that time Oliver stated substantially what he had before, that he intended to give Baldwin and Tuthill two-thirds of the stock of his company to pay them for the assistance they were to give him in working his business out, and he wanted to so reorganize the board of directors that they would be on it. I think it was necessary to increase the number of directors. At that time I asked them if their contract was in writing, and I do not know which one said it, it may have been Baldwin or it may have been Oliver, but I think it was Oliver, that they did not need any contract in writing, they were all neighbors and they understood what they were going to do. And I rather insisted that it was not right for Oliver to transfer two-thirds of the stock of the corporation without having something in writing to show what Baldwin and Tuthill were to do as consideration for it. And I "urged them as a matter of good business policy to put their agreement in writing. At that time, or on the day following, they came back to my office again. On the day following this contract was dictated, all three of them being present, and it was signed in my presence My impression is that it was not dictated until September 3, because in my record of September 3 I have a memorandum that I drew an agreement for Oliver, Baldwin and Tuthill. It was signed in my office. I do not think that any one of them stated all the terms of the agreement. All three sat with me around the table, and I asked them what the agreement was, and I rather insisted that Baldwin and Tuthill be more specific than they were as- to what they were to do. You will notice this contract is rather vague as to how much time they are to give to the business, that is one thing, or as to when they could begin to draw anything from the business. They all said they were satisfied to have it in that shape, and it was their contract, not mine. That contract contains all that they stated to me to be a part of the agreement at the time. There was nothing said in my presence by Baldwin, Tuthill or Oliver to the effect that the contract did not embrace all of the agreements.”

Cross-examination by Mr. Ward:

“Nothing was said to me by any of the parties as to how the debt at the Grand Rapids National City Bank was to be taken care of, unless it be the understanding that it had to be taken care of before Baldwin or Tuthill could draw anything from the business, but the details of how it was to be taken care of were not stated in my presence.
“Q. Then there was absolutely nothing said to you as to what Baldwin and Tuthill would do, if anything, in order that that indebtedness be carried along and that it would not embarrass the business?
“A. The manner in which it was to be carried along was in no way stated to me, and I do not think I ever knew. Baldwin did say they had arranged to reduce the interest from six to five per cent., but even how that had been done was not stated to me. Oliver, and perhaps Baldwin, stated that they were neighbors, friends, and did not require a written contract.
“Q. And if I understood you correctly, it was you, with your lawyer instinct, who suggested and rather urged, that something be put in writing?
“A. Yes. I insisted as far as one could be justified in insisting, under those conditions, that there be something put in writing. It was unquestionably their intention to go ahead without a written contract. I think Baldwin joined with Mr. Oliver in expressing the idea that no written contract was necessary, that they were friends and neighbors.
“Q. I take it then that the memorandum you drew contained simply what you were able to elicit from them by the effort you have detailed?
“A. I have told you how I drew it. I understood they were stating to me the contract when I wrote that out.
“Q. You say you rather insisted that Baldwin and Tuthill be more explicit?
“A. Yes, the contract is even now vague in some particulars. What I sought to do was to so draw the contract that what they were going to do would be explicitly stated. There are some things which were not explicitly agreed upon, and for that reason they could not be explicitly stated. . For instance, the time when they should begin to draw anything out of the business was dependent upon the time when it should become financially, solvent, as to which different parties might draw a different opinion. And I recollect the contract was vague as to how much time they were to give to the business. But they insisted that they were to give to it only such time as they could, without taking their attention away from their other business. Mr. Baldwin stated there that Oliver should draw from the business his living, and the amount was not fixed. That was stated in connection with their agreement that they were to draw nothing, until the business was. established financially.
“Q. Does your memorandum indicate what subject Oliver was at your office on, August 27th?
“A. Yes. The memorandum is as follows: ‘A. M. (morning) advising J. W. Oliver about change of directors of Oliver Machinery Company.' It may be that before that time I had met Oliver on the street and he had said something to me about it, and I suggested coming to my office. I occasionally met him, and whenever I did asked him how he was getting along, and if he had anything of that sort on his mind he would have spoken to me about it. I have no distinct recollection of that having happened.”

The agreement of September 3, 1912, which was signed in Mr. McPherson’s office, is as follows:

“Agreement, made this 3rd day of September, 1912, between Joseph W. Oliver, Frank A. Baldwin, and Victor M. Tuthill, all of Grand Rapids, Michigan.
“Whereas, said Joseph W. Oliver is the principal stockholder of the Oliver Machinery Company, a Michigan corporation, and Frank A. Baldwin and Victor-M. Tuthill are men experienced in the business of manufacturing and selling machines, and said Joseph W. Oliver desires to obtain the assistance of said Frank A. Baldwin and Victor M. Tuthill in continuing and carrying on the business of the Oliver Machinery Company, and to obtain such assistance has agreed to assign and transfer to Frank A. Baldwin eleven hundred and six (1106) shares and to Victor M. Tuthill eleven hundred and six (1106) shares and to Melvin D. Baldwin thirty-two (32) shares of the common stock of the Oliver Machinery Company, being a majority of the common stock of said company.
“Therefore, in consideration of the premises and of the mutual promises of the parties hereto, Joseph W. Oliver'has this day assigned and transferred to Frank A. Baldwin 1106 shares; to Victor M. Tuthill 1106 shares; and to Melvin D. Baldwin 32 shares of the common stock of said Oliver Machinery Company, and said Frank A. Baldwin and Victor M. Tuthill jointly and severally agree that through their ownership of a majority of the outstanding common stock of said company so transferred to them, they will assume "control of the management of said Oliver Machinery Company and will give to the management of such business so much of their personal time and attention as they can devote to such business without neglecting their other business interests and that neither of them shall receive any compensation in the form of salary or otherwise for personal services, rendered to said Oliver Machinery Company until the credit of said company shall be firmly established and the affairs of said company shall be upon a sound and safe financial basis.
“Executed in triplicate.
“Joseph W. Oliver,
“Frank A. Baldwin,
“Victor M. Tuthill.”

O. K. C. McP.

It is the claim of the plaintiffs, that this written agreement did not contain all of the terms, of the contract which was actually made; that it was agreed that Baldwin and Tuthill were to indorse the $92,-000 notes in the bank; that they not only agreed to do this, but that they stated to Oliver that the bank required such indorsement. This is emphatically denied by Baldwin and Tuthill, who insist that the whole agreement was reduced to writing, and that they never promised to indorse that paper, never represented that the bank required it, and that as a matter of fact the bank did not require such indorsement. All of the witnesses agree that Oliver approached Baldwin and Tuthill and urged them to become associated in his business, and undertake its management; also that Oliver told them that if they would comply with his request he would give them two-thirds of all the stock that Mrs.- Oliver and he held in the Oliver Company. Oliver gives as his reason for his proposition, he “felt it was about the only thing to do at the time,” and that he was “threatened with financial ruin,” and was “too old to begin all over again.” He further testified, on cross-examination:

“When I was trying to get Baldwin and Tuthill to assist the Oliver Company, I thought I was down and out mentally and financially.”

It is the claim of plaintiffs, and it is the crucial point in the plaintiff’s case, that Baldwin and Tuthill agreed to indorse the notes representing the bank indebtedness of $92,000. This is strenuously denied by Baldwin and Tuthill, and there is an irreconcilable conflict "in the testimony upon this subject. Baldwin and Tuthill upon the signing of the contract, and the assignment of the stock, took charge of the business of the Oliver Company. They concede that they did undertake with the bank to indorse for any additional moneys lent by the bank to the Oliver Company, under their management. Upon assuming control of the company they found it necessary to furnish more money immediately, and they accordingly lent the company $5,000, taking the company’s note therefor. This note was renewed from time to time, and was finally paid in full. Baldwin and Tuthill also indorsed at the bank for all moneys required by the Oliver Company, in addition to the line of $92,000 existing when they assumed control of the company. One note so indorsed by them was for $10,000, and another for $4,000. The record shows 19 canceled notes so indorsed by Baldwin and Tuthill, the last note being canceled February 11, 1915. After Baldwin and Tuthill assumed the management of the Oliver Company, the notes at the bank were renewed from time to time.

The notes for the line of indebtedness existing when Baldwin and Tuthill acquired their stock continued to be indorsed by Oliver. The notes for the additional loans obtained at the bank were indorsed by Baldwin and Tuthill, and also by Oliver. It is the claim that Oliver supposed, until a short time before suit, that Baldwin and Tuthill indorsed all the notes, including the renewals of the line of credit existing when they came into the company. This is denied. Baldwin and Tuthill testify that they never agreed to indorse the notes owing to the bank, at the time of the acquisition of their stock, and they urge that Oliver, who remained the president of the company, and was daily in the office, must necessarily have known throughout the three and one-half years next ensuing, that said defendants did not in fact indorse such notes.

It appears that when the audit was taken under date of July 19, 1911, the amount owing by the Oliver Company was $134,706.50. At that time the sum owing to the bank was $77,000, leaving $57,706.50 owing to others. We gather from the record that Baldwin and Tuthill believed that the assets of the Oliver Company were greatly over-valued, and the capital largely fictitious. They cut down the valuations of items which had been carried on the books at claimed excessive sums, and eliminated items which improperly, as they believed, had been carried on the books. On December 17,1912, they caused a stockholders’ meeting to be held, at which a resolution was passed by the stockholders reducing the common stock to $100,000 and authorizing new stock to the extent of 25 per cent, of the old. The resolution recited that the common stock capitalization, both authorized and issued, was greatly in excess of actual assets. Oliver voted for the resolution, as did all the other stockholders present. He also signed the certificate of decrease of capital stock filed with the secretary of State; and the tax assessments, were reduced.

Complaint is made that after the stock was transferred and Baldwin and Tuthill came into the control of the business, Oliver’s salary, as president, was reduced to $3,000 from $5,000. Said defendants claim that whatever was done in that regard was with the consent of Oliver, and was part of a plan to reduce overhead expenses, which were too large when compared with the volume of business done, and that salaries of employees were reduced. At the annual meeting in February, 1916, Oliver’s salary was fixed at $300 per month. The salaries of the sons of Frank A. Baldwin were also placed upon a monthly basis.

It is further claimed that at the time of the transfer of the stock, the Oliver Company was indebted to Oliver for salary accumulated and unpaid in the sum of $6,343.36, and it is urged that Baldwin and Tuthill improperly caused this item to be charged off the corporate books. It is claimed by said defendants that Oliver agreed to this action. It is asserted by plaintiffs that Baldwin and Tuthill concede that they paid nothing, and gave nothing for the stock in question. This is hardly a correct statement. While they did not pay in cash for the shares, it cannot be said that they did nothing, or paid nothing therefor. They lent money to the company, indorsed its paper for all moneys borrowed at the bank, in addition to the debt existing when they assumed the management, induced the bank to carry the indebtedness held by it against ■the Oliver Company, and to cut the rate of interest on all such indebtedness from six per cent to five per cent., instituted many economies, furnished for three years, without charge, the services of Melvin D. Baldwin, a skilled man, as factory superintendent. Oliver testified:

“Melvin put in his time for nothing until January 1, 1916.
“Q. He acted as superintendent from January 1, 1913, to January, 1916, without compensation?
“A. He acted as general manager at times, and everything else. He drew no salary during that period to my knowledge.”

The said defendants also furnished the services of Ralph F. Baldwin from April 1, 1913, to the close of that year, without charge. And it must be said in the light of this record that Baldwin and Tuthill gave sufficient of their time, skill, ability, and management to said business to extricate the company from its critical and precarious condition in 1912, in which they found it, and place it and its affairs upon a safe and sound financial basis.

Baldwin and Tuthill were able to continue friendly relations with Oliver until about March, 1916. Upon that subject Oliver testified:

“Q. Your relations with Baldwin and Tuthill and Melvin and Ralph were intimate and friendly until just before that March, 1916, meeting, were they not?
“A. Our intimacy ceased before that time. The friendliness extended to about that time.”

By this time the business of the company had become exceedingly prosperous, all of the $92,000 notes held by the bank were paid, and it is claimed by the said défendants that Oliver began to regret that he was not the sole owner of the business, and he assumed an unfriendly attitude, not only toward Baldwin and Tuthill, but toward Melvin and Ralph. This culminated at a meeting of directors about March 23, 1916, in a demand by Oliver for his back salary which had been charged off the books, and in a claim by Oliver that the stock of the Oliver Machinery Company, Ltd., of Manchester, England, theretofore carried as an asset of the Oliver Company, belonged to his wife. These claims were refused, and there is no doubt that from this time on there was much friction between Oliver and said defendants, including Melvin and Ralph.

Much criticism is made of Baldwin and Tuthill in respect of the turret lathes. When Baldwin and Tuthill assumed control of the Oliver Company it was engaged solely in the manufacture of wood-working machines. It had never made either an engine lathe or a turret lathe, which are iron-working machines. After the outbreak of the European war, and about April, 1915, the company conceived the idea of securing contracts for making shells for the English, French, and Italian governments. In anticipation of securing such contracts the company began the production of lathes, in order that it might be equipped to perform the anticipated contract. About 140 turret lathes and 25 engine lathes were required. This work proceeded. When it became apparent that the company would not secure a shell contract, it occurred to the management to develop a demand for lathes for the trade, as numerous plants in the United States and Canada had secured shell contracts, and required lathes in the manufacture thereof. At that time, it is claimed by said defendants, the facilities of the Oliver Company were so taxed that it was impossible for it to manufacture the lathes; that for this reason it was agreed that the turret lathes should be manufactured at the Baldwin, Tuthill & Bolton factory. Numerous other shops in Grand Rapids were employed to assist in the work. It is claimed that Oliver not only assented to the manufacture of the turret lathes by said firm, but that he recommended that some skilled workmen be transferred from the Oliver Company to the Baldwin, Tuthill & Bolton plant, in order to facilitate the work. These lathes were marked in the name of the Oliver Company, and the name “Oliver” was cast in the machine. Much complaint is made by plaintiffs as to the division of the profits growing out of this work, and there is much testimony in the record on the subject.

The trial court entered a decree for the plaintiffs, finding, among other things, that:

“The plaintiffs would not have transferred said stock, or any part of it, to said defendants if they had known that defendants had not, and did not intend to indorse the notes representing said bank debt. * * *
“The whole transaction, including the written contract, was therefore voidable at the instance of the plaintiffs. The plaintiffs did not discover the falsity of the statements and representations of defendants Frank A. Baldwin and Victor M. Tuthill until in July or August, 1916, and shortly thereafter filed their bill in this case. They have never waived their right to rescind the transaction for the fraud so perpetrated upon them.
“Under the claim of the defendants Frank A. Baldwin and Victor M. Tuthill there was no consideration at the time of the transfer of the stock in question, and, in any view of the case, the consideration was grossly inadequate, and the defendants • Frank A. Baldwin and Victor M. Tuthill obtained an unfair and unconscionable advantage over the plaintiffs by reason of their great financial embarrassment.”

It was decreed that the defendant should deliver up their stock for cancellation; that the Oliver Company should pay to Joseph W. Oliver both the back or accumulated salary with interest, and also the unpaid salary at the rate of $5,000 per year, from November, 1912. Without ordering any accounting the decree simply takes from said defendants their stock without any compensation for their services whatever, stating that—

“They have devoted but little time to the management of the business. * * * Even if under these circumstances they could justly claim compensation for their time, their management of the affairs of the company, has been such, and the profits and advantages derived by them from their management, are such as to greatly over-balance anything done by them for the Oliver Company.”

Costs were awarded to the plaintiffs. The defendants have appealed.

It is vigorously urged by counsel for plaintiffs that, the circuit judge having seen and heard the witnesses testify, his finding upon the facts should not be disturbed. While due weight should be given to the advantage which the circuit judge had in seeing and hearing the witnesses give their testimony in open court, this fact does not relieve this court, in a chaneery appeal, where the case is heard de novo, from the duty of weighing the evidence, and exercising its own independent judgment, in passing upon the evidence in the case. This case presents a large record, there being more than 1,100 pages of printed record and more than 400 pages of printed briefs and arguments, all of which have had our careful attention. Many collateral questions and matters have been covered by the testimony and arguments — many of which we have not alluded to, but all have been examined. We are unable to agree with the circuit judge in the conclusions which he reached. In our opinion the plaintiffs have not sustained the burden of proof resting upon them in the case. We think that the written contract should control in the case, and in our judgment the plaintiffs have had the full benefit of the contract. What was the real intent and purpose of the contract? Manifestly, it was to obtain the assistance of Baldwin and Tuthill in placing the business of the Oliver Company upon “a sound and safe financial basis.” That has been accomplished, and the contract has been fully executed. Every detail of every act which was to be done by Baldwin and Tuthill in bringing about this result was not contained in the contract, neither does the law require it. As we have recently said:

“A contract must be construed so as to effectuate the intent of the parties, when it was made; and to ascertain the intent of the parties, a contract should be construed in the light of the' circumstances existing at the time it was made.” Kunzie v. Nibbelink, 199 Mich. 308; Ardis v. Railway Co., 200 Mich. 400, 411.

In our opinion the contract was neither uncertain, Unconscionable, nor without consideration. It does not meet the question to say that Baldwin and Tuthill might have sold their stock. They did not sell it, but have performed the contract, and have placed the Qliver Company upon a good financial basis and plaintiffs have profited thereby.

If it were to be conceded that Baldwin and Tuthill agreed to indorse the notes at the bank, and had told Oliver that they were required by the bank to do so, their failure to do so would not be ground for rescission, because the substance of the undertaking was to place the company upon a safe and sound financial basis, and that has been accomplished, and the plaintiffs are not injured. In other words, the undertaking has been executed, and the object accomplished.

“Canceling an executed contract is an exertion of the most extraordinary power of a court of equity. The power ought not to be exercised except in a clear case, and never for an alleged fraud, unless the fraud be made clearly to appear; never for alleged false representations, unless their falsity is certainly proved, and unless the complainant has been deceived and injured by them,” Atlantic Delaine Co. v. James, 94 U. S. 207, 214.

In our opinion, neither upon the facts nor the law of this case are the plaintiffs entitled to relief. The decree will be reversed and the bill of complaint dismissed, but without prejudice to the right of Joseph W. Oliver to sue the Oliver Company in a court of law to recover the back salary alleged to have been charged off the company’s books.

The defendants will recover their costs of both courts.

Ostrander, C. J., and Bird, Moore, Steere, Brooke, Fellows, and Kuhn, JJ., concurred.


source: Caselaw Access Project

author: Kuhn, J.

license: Public Domain

text:
    SPITZLEY v. GARRISON.
    Fraud — Impeachment oe Decree — Evidence—Sufficiency.
    On appeal from a decree dismissing plaintiffs’ bill to impeach the decree of the court in the case of Nolan v. Garrison, 151 Micb. 138, on the ground of fraud, evidence held, insufficient to establish fraud and collusion.
    Appeal from Wayne; Hosmer, J.
    Submitted January 9, 1918.
    (Docket No. 15.)
    Decided June 3, 1918.
    Rehearing denied July 18, 1918.
    Bill by Henry Spitzley and another against Earl D. Garrison and others to impeach a decree. From a decree dismissing the bill, plaintiffs appeal.
    Affirmed.

      Prentis & Mulford (George H. Prentis, of counsel), for plaintiffs.

      Walker & Spalding (H. E. Spalding, of counsel), for defendants.
   Kuhn, J.

The learned circuit judge who heard this cause filed a written opinion from which we quote the following:

“This bill is filed to impeach the decree of the Supreme Court in the case of Nolan v. Garrison, reported in the 151 Michigan, page 138. This confirms a decree of Judge Mandell and the facts are so fully stated by the late Justice McAlvay in the opinion of the court that they may now be passed without further mention.
“Complainants as judgment creditors claim the decree is collusive and fraudulent and procured for the very purpose of defeating them in their endeavor to collect their judgment, and, secondly, that the property situated at the corner of Woodward and Baltimore aves., in Detroit, decreed to be the property of Mrs. Nolan, was permitted by her to stand of record as the property of her son at the time he obligated himself to complainants and represented the property as his, and that she cannot now be heard to say it was hers, whether she actively participated in his representations or not. They ask further that the property situated on the corner of Jefferson avenue and Cass street, in Detroit, devised by John J. Garrison to defendant Frances A. Nolan for the term of her natural life with a remainder over to John W. Garrison and which was sold to Mrs. Nolan under an execution issued upon this decree and by her conveyed to the defendant Martha G. Lasier and which is now in Mrs. Lasier’s possession, should be decreed to have been conveyed in fraud of complainants and that they may have recourse thereto for the satisfaction of their debt.
“(1) At the outset it is insisted that a bill of this nature must be filed by the administrator of John W. Garrison, citing section 9363, '3 Compiled Laws of 1897 as amended by Act No. 326 of the Public Acts of 1905 (3 Comp. Laws 1915, § 13859) ; this reads as follows:
“ ‘Seo. 16. When there shall he a deficiency of assets In the hands of an executor or .administrator, and when the deceased shall in his lifetime have conveyed any real estate, or any right or interest therein, with intent to defraud his creditors, or to avoid any right, debt or duty of any person, or shall have so conveyed such estate, or so caused the same to he conveyed, that the deeds of conveyance are void as against creditors or so that the grantee of such estate is in equity a trustee for the benefit of creditors, the executor may and it shall be his duty to commence and prosecute to final judgment any proper action or suit at law or in chancery for the recovery of the same, and may recover, for the benefit of the creditors, all such real estate, and may also — and it shall be his duty to sue in any proper action at law or in equity and recover for all goods, chattels, rights, credits or assets of any kind which may have been so fraudulently conveyed by deceased in his lifetime, whatever may have been the manner of such fraudulent conveyance or which may have been so conveyed or caused to be conveyed, that the conveyance is void as against creditors, or so conveyed or caused to be conveyed that in equity the grantee is a trustee for the benefit of the creditors of the deceased.’
“This statute is not so broad as the assignment statute of like import, section 9541, 3 Compiled Laws of 1897 (3 Comp. Laws 1915, § 13605). This provides:
“ ‘Every such assignment shall confer upon such assignee the right to recover all property, or rights or equities in property, which may be realized or recovered by any of the creditors of such assignor.’
“If the legislature had intended to. deprive those who claim special equities in the property, that is distinguished from creditors generally, the language used was not as apt as that used in the last quoted statute.
“In considering whether the complainants may file this bill it must be borne in mind that it is not alone the decree establishing the trust and declaring the Woodward avenue property to belong to Mrs. Nolan that deprives complainants of the fruits of their judgment. Mr. Garrison owned the Military Reservation property subject to his mother’s life estate. Considering her great age at the time of the decree it must be apparent that it was ample to have satisfied complainants. If the debt to his mother had not existed complainants would not be before the court; under these circumstances it would appear complainants have a right to attack the personal decree even if it incidentally results in bringing into the hands of the personal representatives of Mr. Garrison assets for creditors. * * * It must be held that the bill is properly filed.
“Certainly a bill may be filed by complainants on the theory that by her conduct Mrs. Nolan has estopped herself frorn taking the Woodward avenue property to their prejudice. In the argument in support of their claim of fraud and collusion counsel lose sight of the force of the opinion of the Supreme Court in the case of Nolan v. Garrison. Doubtless the decree may, in the proper forum, be impeached but the sufficiency of the evidence offered to take the dealings between mother and son out of the statute of frauds if not found fraudulent is not open to question here. The legal conclusions arrived at by the Supreme Court in that case I think must stand until reversed by the court itself. •
“It may be well to consider what manner of man John W. Garrison was. His mother’s testimony (printed record, pages 84 and 35) does not place him in an enviable light:
‘“His habits were bad but he always was promising. His habits were bad — he would drink sometimes and have a spree and he was immoral. I knew it and I got him out of a good many scrapes since he was 18 years old; this continued until he was paralyzed. He would come to me when he was in a scrape to ask me to help him out and I always did. I gave him money and he would promise not to do it again, but he has kept right on.’
“'The testimony of both physicians examined in the case was that he had paresis. To contradict this there is no evidence and the suspicion is irresistible that his death came as the wages of sin, to use the expression of Paul.
“Counsel claim that he furnished the consideration for the purchase of the Woodward avenue lots and for the buildings he erected thereon, but of this there is no evidence. This contention is based upon the improbability of Mrs. Nolan’s having sufficient money to make this investment. If there is evidence in this case that John W. Garrison received any considerable sum from his father’s estate, I mean by way of personal property, it is not referred to in the briefs of counsel in such manner as to enable the- court to declare what it is and a cursory examination of the file has not disclosed it. He received the rents and profits of the property in the Governor & Judges plan but those were not large if his letters are entitled to credence. That he kept any money from the time of his father’s death to the date of the purchase of these lots, if he received any, would seem improbable. The presumption of the continuance would hardly seem to apply. It is not shown that he earned any considerable sum and his letters show it to have been somewhat of a struggle to keep his family in the style to which he was accustomed. All things considered, it seems to me highly improbable that he and not Mrs. Nolan paid for these lots. This becomes of large importance in consideration of the expressions in his letters and in furnishing a motive for his reference to the property as his mother’s.
“It is urged that no defense is made in good faith by the defendants in this case (Nolan v. Garrison, supra. The counsel are not directly attacked. The record in this respect is absolutely devoid of any testimony which can support this hypothesis; not a thing is pointed out that counsel for the defendants could have proved and failed to prove. It should be borne in mind that they had the benefit of such information as John W. Garrison could give them and that while he might not be trusted with the business he might have some memory of the past. In the absence of a scintilla of evidence that anything was omitted that should have been done by Mr. McNamara and Mr. Geer, and after a careful consideration of the briefs and the record nothing but the fact that opportunity and interest on the part of their clients might prompt such action on the part of counsel can be found to substantiate this claim.
“There is no merit in the claim that Mrs. Nolan’s testimony was inadmissible. The-Supreme Court decided against Mr. Geer’s contention and no authority can be found to bring by judicial construction an incompetent within section 10212, 3 Compiled Laws of 1897, as amended (3 Comp. Laws'1915, § 12553), and place Mr. Garrison in the eyes of the law as one deceased. There may be good reasons for enacting such a law but up to the present time the legislature has not seen fit to exercise its power in this way.
“It is urged that the failure to attach in the deposition the original letters of John W. Garrison to his mother is evidence of fraud. These were all the writ-¡ ten evidence of the trust relations and it is not surprising that counsel saw fit to keep them in his safekeeping; they were part of the record in the case and had counsel desired he could have compelled production of those on this hearing for examination, but I do not recall any such motion. If there existed any internal evidence of forgery or other fraud, counsel might have insisted upon bringing them before the court. In case the court found against the quitclaim deed, without these letters Mrs. Nolan’s case must have failed. There is no need of reading from Judge McAlvay’S decision as to the quitclaim deed. The evidence on which it is based is sufficient to permit this court to find it was executed and delivered and later, destroyed or lost by John W. Garrison, and I am satisfied that this is the truth. Mrs. Nolan, at the time of giving her testimony in the case of Nolan v. Garrison, was 79 years of age and upwards, and if her testimony is not as clear as it might have been and if it be not wholly consistent with the testimony given thereafter, it is small wonder. It is not to be denied that the effect of the decree sought to be impeached will be to deprive complainants of their debt, if not wholly, to a very large extent.
“It would seem that when those who were interested in John W. Garrison, aside from his wife, appreciated his condition and the condition of his affairs, they procured the appointment of a guardian. Mrs. Nolan was not here nor is there any evidence of her knowledge or participation. She came to Detroit to look after her own interests and if her testimony is worthy of credence, well she might. Her son owed her a large amount; he had placed a mortgage on her property of $14,000; $1,053.50 had been paid for interest out of money of right hers and Mr. Garrison had collected large sums of rent. I cannot follow counsel when they assert that the balance found due is fraudulently excessive. It is not clearly pointed out wherein it is wrong. The Supreme Court has held and I am bound by that, that the evidence as offered was sufficient to establish the debt, and I am satisfied of the correctness of the same.
“Of course in a case like the present where the decree cuts off the right of the creditor for the benefit of the mother, it may be and is naturally open to suspicion but a careful consideration of the evidence leads to the conclusion that Mrs. Nolan has a meritorious case and that the decree cannot be impeached on the ground that it is the result of a fraudulent conspiracy between the parties. Nor does the giving of a deed to Mr. Garrison by Mrs. Nolan and the failure of Mrs. Nolan to record the subsequent quitclaim, deed to her, give complainants a right to have recourse to the Woodward Ave. property because they extended credit on the face of his ownership. I think the law of Michigan is set out in the case of Campbell v. Remaly, 112 Mich. 214. Here a wife for several years failed to record a deed of land from her husband in whom the title appeared of record. While the deed was unrecorded the husband obtained credit from the complainant by representing that he was the owner of this land. Complainants’bill in aid of execution was dismissed, the court 'holding there was no evidence that there was any . agreement or common purpose of the husband and wife to withhold the deed from record to enable him to 'Obtain a false credit, and that his false claims, of ownership were not brought home to the wife and are not binding upon her. It seems to me that case is parallel to this. I have found no evidence which would tend to show a guilty participation on the part of Mrs. Nolan. So far as the evidence shows Mr. Garrison was not engaged in any business which would require the extension of the credit and if I recall aright the consideration of the debt to Spitzley Bros, it was an extension of his credit to John Rivard. I may be in error in that regard but I think that was the purpose, so that the language of this decision is peculiarly apt in the present case.
“As the counsel justly say, whether the fact that the alleged perpetration of fraud, viz.: the appearance of the title of record in the person who makes the fraudulent representation results from the conveyance by the real owner or the neglect of the real owner to record the deed to herself is immaterial, in either case it is her conduct that makes the fraud possible.
“Now the decisions are conclusive that in order to assert a fraud on the part of the owner of the real title the owner of that title must participate in the fraud. Now, if Mrs. Nolan had been no relation to Mr. Garrison and had procured a judgment which was not questioned and had levied her execution upon the property known as the Military Reservation and had bid it in and now held it under her sheriff’s deed no one for a moment would have considered that complainants could have maintained a bill against her. Under these circumstances where there was a deficiency of assets the representative of the deceased might have recovered the land if the deed was a nullity or the prices she paid for the land if the sale was valid, though the execution irregular. There would be no necessity for appealing to the equitable side of the court and I cannot conceive how it should be com sidered under those circumstances that equity had jurisdiction. Yet this is precisely the position here; complainants have no standing except through the allegations of fraud and as these are unproven in my view of the case, their case must fall and the bill must be dismissed.
“As far as the Trust Co. is concerned I have forgotten the testimony as to the accounting; it seems to me that the probate court was the proper forum for that in any event, but if the counsel have reached a conclusion between themselves as to exactly what amount of property was held that belonged to John W. Garrison at the time of his death, why I am perfectly willing, if it is agreeable to counsel, that that should be embodied in the decree. I am not going to take testimony on that so far as that subject is concerned. I will refer it to a master if I have jurisdiction to consider it, of which I have very much doubt, because I think the probate court, as I say, is the proper forum for that. I dismiss the bill and allow the probate court to take that up. In any case it is not a large amount. It is a comparatively slight amount."

We find it unnecessary to pass upon the point first decided in the foregoing opinion. Upon the question of the jurisdiction of equity plaintiffs cite: Rynearson v. Turner, 52 Mich. 7; Murdoch v. Walls, 121 Mich. 164; Kellogg v. Beeson, 58 Mich. 340; McFarlan v. McFarlan, 155 Mich. 652; and In re Sloman’s Estate, 186 Mich. 434. On the other hand it is pointed out by defendants that the statute, 3 Comp. Laws 1915, §§ 13859, 13860, distinctly negatives the right of the plaintiffs to maintain this suit in their own names. It is urged that as judgment creditors having no lien they are not entitled to maintain their bill, citing Farrell Foundry & Machine Co. v. National Bank, 93 Mich. 582, and Beith v. Porter, 119 Mich. 365.

After an exhaustive examination of this very voluminous record, we are well satisfied that a decision of the case may very well rest upon the second point, to wit: That there is no evidence upon which the court might properly conclude that the decree in the case of Nolan v. Garrison, 151 Mich. 138, which was affirmed by this court, was obtained by fraud and collusion.

The decree dismissing the bill is affirmed, with costs.

Ostrander, C. J., and Bird, Moore, Steere, Brooke, Fellows, and Stone, JJ., concurred.


author: Ostrander, C. J.

text:
    LA BELLE v. VILLAGE OF GROSSE POINTE SHORES.
    1. Master and Servant — Workmen’s Compensation Act — Municipal Corporations — “Official.”
    An official of an incorporated village, within the meaning of the workmen’s compensation act, means one who holds a village office, an official place or position in the village created for him either by general or local legislation.
    2. Same.
    Where plaintiff was, by resolution of the council of an incorporated village, appointed “as a regular officer,” his duties being general in character, and in addition to acting as policeman he was janitor of the town hall, and did other village work, but neither the charter nor ordinance of the village created a police force or provided for a policeman, the finding of the industrial accident board that plaintiff was not an officer of the village but a mere employee, within the meaning of the workmen’s compensation act, iield, correct.
    Certiorari to Industrial Accident Board.
    Submitted January 25, 1918.
    (Docket No. 71.)
    Decided June 3, 1918.
    See notes in L. R. A. 1916A, 23; L. R. A. 1917D, 80.

      Albert La Belle presented his claim for compensation against the village of Grosse Pointe Shores for injuries received in defendant’s employ. From an order awarding compensation, defendant and the Employers’ Liability Assurance Corporation, Limited, insurer, bring certiorari.
    Affirmed.

      Angelí, Bodrmn & Turner and C. G. Dyer, for appellants.

      Frank N. Renaud, for appellee.
   Ostrander, C. J.

Arbitration of claimant’s demand for compensation was waived and' his right to compensation was immediately submitted to the industrial accident board upon stipulated facts and including a copy of the village charter.

The village of Grosse Pointe Shores, Wayne county, is incorporated under Act No. 278 of the Public Acts of 1909 (1 Comp. Laws 1915, § 2843 et seq.). It is provided in the act, among other things, that—

“Each village charter as hereafter adopted or amended shall provide: * * * (/) For the public peace and health, and for the safety of persons and property.”

And, section 24, that each village may in its charter provide:

“(c) For the establishment of any department that it may deem necessary for the general welfare of the village and * * * (l) For the enforcement of all such local, police, sanitary and other regulations as are not in conflict with the general law.”'

Section 1 of chapter 26 of the village charter reads:

“The council shall have power to enact such ordinances and establish and enforce such regulations as they shall deem necessary to conserve the public peace and health and to provide for the safety of persons and property, to appoint such agents or officers or boards from their own members, or otherwise, as, in its discretion, it may deem necessary to carry out such ordinances and regulations.”

It does not appear whether the council enacted any ordinance or ordinances under these provisions of the charter, but does appear that on August 3, 1914, Albert La Belle, the claimant, was by resolution of the council, upon the recommendation of the president, appointed “as a regular officer with full pay of seventy-five ($75.00) dollars per month from August 1,1914.”

He did not take an oath of office. It is provided in the village charter:

“Every officer elected, or appointed, in the village, before entering upon the duties of his office, and within the time prescribed for filing his official oath, shall file with the village clerk such bond or security, as may be required by law, or by any ordinance, or resolution of the council, and with such sureties as shall be approved by the council conditioned for the due performance of the duties of his office, except that the bond or security given by the clerk shall be deposited with the treasurer.”

He was subject to dismissal by the council at any time at its pleasure; The village has a limited population and La Belle, in addition to acting as a policeman or police officer, was janitor of the town hall and did some other village work, all, it is inferred, for the salary fixed in the said resolution of the council. On June 9, 1915, while riding his motorcycle on the Lake Shore road, he was struck by an automobile and injured, he at the time “acting in his capacity as a policeman.”

The village had insured itself against any obligation arising on account of the workmen’s compensation law with the Employers’ Liability Assurance Corporation, Limited, and had filed with the industrial accident board a certificate stating that—

“The locations and character of the business operations covered by said insurance are as follows:
“Marshal,
“Highway Commissioner & Clerk,
“Road Making.”
“The employment of said Albert La Baile was described in the policy as ‘Marshal.’ ”

The only question presented to the board, and the only question presented here, is whether La Belle, when he was injured, was an officer or was a mere general servant of the corporation. The industrial accident board found as a fact that La Belle was not an officer of the village but a mere employee, that he was not an officer within the legal meaning of the word, and that his employment was that of a mere caretaker, janitor, man of all work, a general employee and that he was injured while acting as a general servant of the village.

The workmen’s compensation act, section 7, pt. 1 (2 Comp. Laws 1915, § 5429), says:

“The term ‘employee’ as used in this act shall be construed to mean:
“1. Every person in. the service of the State, or of any county, city, township, incorporated village or school district therein, under any appointment, or contract of hire, express or implied, oral or written, except any official of the State, or of any county, city, township, incorporated village or school district therein.”

It is unfortunate that the legislature, in the workmen’s compensation law, did not define the term “official of the State, or of any county, city, township, incorporated village or school district therein.”

In Blynn v. City of Pontiac, 185 Mich. 35, we held that the claimant, a policeman of the city, was not an employee of the city and was a public officer. It appeared in that case that under power conferred in the charter an ordinance had been passed, in and by which a police force was established and the salaries of regular policemen fixed. By the terms of the charter warrants for apprehending violators of ordinances were to be directed to the chief of police or to any police officer of the city or county of Oakland. In McNally v. City of Saginaw, 197 Mich. 106, it was held that when the city charter specifically designates captains as officers of the fire department and the ordinances vest them, in certain circumstances, with command at fires and authority over the property, conduct and service of citizens, they are city officials within the meaning of the workmen’s compensation act.

But what is a “regular officer” in a village, the charter and ordinances of which neither of them create a police force, provide for policemen or police officers, but the charter of which does provide for the appointment of “agents, or officers, or boards” to carry out ordinances and regulations? It is elementary that there must be an office before there can be an officer. In a city having an established police force the meaning of the word policeman is well enough understood as applying to a member of the force. Commonly, there is no such officer, or office, in a township, and need be none in a small incorporated village. An official of an incorporated village, within the meaning of the workmen’s compensation act, means one who holds a village office, an official place or position in the village created for him either by general or local legislation. Usually, when an office is created, the duties of the office are stated and the powers with which the holder of the office is invested, although by usage or common knowledge such duties and powers may perhaps be implied in aid of the legislation. In this respect, the term general officer, found in the resolution of the village council, cannot be certainly aided by any implications. In this case the action of the village in securing indemnity for itself does not furnish reason for holding claimant to have been, and to have been considered, a village official within the meaning of the law.

The- award will not be disturbed.

Bird, Moore, Steere, Brooke, Fellows, Stone, and Kuhn, JJ., concurred.


text:
    McGUIRE v. McGUIRE.
    Divorce — Conditional Decree — Modification—Custody of Minor Child.
    Where the decree in divorce proceedings awarded the custody of a minor daughter to the wife on certain conditions, on petition of the husband for a modification of the decree and awarding the custody of the child to him, the finding of the court below that the conditions had been complied with, held, not to be clear that judicial discretion was abused or that the best interest of the child was disregarded.
    Appeal from Oakland; Smith, J.
    Submitted January 30, 1918.
    (Docket No. 133.)
    Decided June 3, 1918.
    Bill by John J. McGuire against Bessie D. McGuire for a divorce: On petition of plaintiff for a modification-of the decree. From an order denying the petition, plaintiff appeals.
    Affirmed.

      Peter B. Bromley, for plaintiff.
   Ostrander, C. J.

Petitioner, plaintiff in the divorce' suit, was granted a divorce from respondent, defendant in the divorce suit, January 14, 1915. Her wrongdoing, charged in the bill, was adultery committed with a man named in the bill. There were two children of the marriage, a boy and a girl. Although finding her guilt proven, the court awarded the custody of the boy to the father and of the girl to the mother, saying, however,

“But unless she either marries Mr. James and provides a home for the child, or breaks off her associations with him, within a reasonable time, then it would seem as if the court should also give the custody of the daughter to the father.”

The petition was filed herein January 7, 1916, and it sets up that the divorced wife has neither married, nor ended her associations with, North James, and further that the daughter Virginia has not been properly cared for by the mother, and prays for a modification of the decree or for a further decree awarding custody of the daughter to the petitioner, her father. The answer of the divorced wife denies the allegations that she has not married nor broken off her association with North James, the man in the case. There was a hearing, proofs being taken in open court, and a finding was made that both parties have remarried since the divorce was granted, that “the girl must either live with a stepfather or else with a stepmother,” and that the girl ought not to be taken away from her mother. The finding that respondent is married means, upon the proofs, that she is married to North James. This finding is based upon testimony that a ceremony of marriage was celebrated by the parties February 23, 1916, which was after the petition herein was filed. It was celebrated on the day of entering a decree in the Wayne county circuit court, in chancery, divorcing said North James and his wife.

For various reasons it was claimed by petitioner at the hearing in the court below that the decree of divorce just referred to was void because the court never had jurisdiction of the divorce case. However, in the brief for the father, appellant, the validity of the decree of divorce is not attacked and the right to relief is predicated upon the showing that the mother, respondent here, shows no particular affection for the child, has not taken proper care of her, and that the interest of the child was not considered by the learned trial judge. The trial judge who heard the divorce case of McGuire v. McGuire made the order in this proceeding. As has been stated, he originally awarded the custody of the daughter to the mother upon condition. There was no appeal from the divorce decree. He saw, and perhaps knew and knows, the parties. The condition imposed upon the mother he concludes has been complied with and declines to change his former ruling. It is not clear that in doing this judicial discretion was abused or that the best interest of the child was disregarded.

The order appealed from is affirmed, with costs to appellee.

Bird, Moore, Steere, Brooke, Fellows, Stone, and Kuhn, JJ., concurred.