author: Moore, C. J. Montgomery, J.

text:
    CAMPAU v. DETROIT DRIVING CLUB. MORAN v. CAMPAU.
    1. Insolvent Corporations — Receivers—Judgments—Execution Sales — Res Judicata.
    Complainants and intervening petitioners were directors of defendant club, of which C. was president and manager. Complainants obtained two judgments against the club, on one of which execution was issued, levies and sales of its property had, and execution returned satisfied; on the other, execution was issued and returned unsatisfied, a judgment creditors’ bill filed, bill confessed, and C. appointed receiver. The People’s Savings Bank, a junior judgment creditor with levy, assigned its judgment to intervening petitioners, who obtained an order setting aside the execution sales, and declaring them illegal and void, because, at the time they were made, the property was in the hands of the receiver. Subsequently, intervening petitioners filed a bill in equity charging C. with fraudulently procuring his appointment as receiver, and with misconduct in managing the affairs of the club, and praying that the first-mentioned judgment, the execution, levies, and sales thereunder, and the appointment of the receiver be declared void as against petitioners’ judgment. Held, that, as the receiver had performed duties and acted in various matters by authority of the court, and the validity of his appointment had been recognized in some phases of the controversy, it must stand; and that, in view of the litigation had, the proceedings up to and including the levies made under complainants’ execution could not be questioned.
    2. Corporations — Notes to Directors — Validity.
    The fact that a demand note, given by a corporation to certain of its directors, was authorized at a meeting at which the payees constituted a majority of the quorum of the directors present, does not render it illegal, it appearing that it was for a debt then past due, on which suit might at once have been brought.
    3. Execution — Return—Discharge—Setting Aside Sale — Priority of Liens.
    Where an execution sale is set aside on petition in equity for want of authority in the sheriff to make it, the property being at the time in the hands of a receiver, the sheriff’s return of the execution as satisfied will not be held to have discharged the levy, so as to make a later levy in favor of the petitioner a prior lien.
    4. Principal and Surety — Payment—Security—Rights of Co-sureties — Co-ordinate Liens.
    Where three of the five sureties on a money bond paid their proportion of the obligation, and received the note of the principal debtor therefor, on which they subsequently obtained judgment, and levied an execution on the property of the debtor; and the principal creditor afterwards obtained a judgment against the debtor for the balance of the debt, levied an execution on the same property, and then assigned the judgment to the remaining sureties, — held, that the relation of co-sureties was not terminated by such payment, but that, under the rule that security obtained by one co-surety inures to the benefit of all, the respective levies should be treated as co-ordinate liens. Per Montgomery and Hooker, JJ., affirming the decision of the lower court (Carpenter, J.); Moore, C. J., and Grant, J., to the contrary.

      5. Equity Jurisdiction — Receivers—Garnishment.
    Where thé court, through a receiver, has possession of the lands of an insolvent debtor, and of the rents and profits thereof, and jurisdiction of the parties interested, it can adjust the rights of the respective parties, and the rents and profits cannot be garnished by creditors. Cohnen v. Sweenie, 105 Mich. 643, distinguished.
    6. Same — Accounting.
    Until the receiver files his account of the rents and profits, the court cannot decide what shall be done with them.
    Appeals from Wayne; Carpenter, J.
    Submitted April 23, 1903.
    (Docket Nos. 38, 39, 40.)
    Decided February 2, 1904.
    Creditors’ bill by Daniel J. Campau, Francis F. Palms, and George M. Vail against the Detroit Driving Club, in which Fred T. Moran and Worthy L. Churchill intervened by petition. Also, bill by said Moran and Churchill against all of the other parties above named, together with the People’s Savings Bank, attacking the validity of the proceedings in the first suit, and the claims of the complainants therein. From a decree in the first suit determining the relative rights of the parties, and a decree dismissing the bill in the second suit, all parties, except the driving club, appealed. Moran and Churchill also undertook to appeal from a decision of Judge Donovan in supplementary proceedings in the first suit. Last-mentioned appeal dismissed; other decrees affirmed in substance.
    Moran and Churchill also petitioned the Supreme Court for leave to garnish the receiver.
    Petition denied.

      Moore & Moore (Otto Kirchner, of counsel), for Campau, Palms, and Vail.

      Fred A. Baker, for Moran and Churchill.

      Keena & Lightner, for People’s Savings Bank, and of counsel for Moran and Churchill.

       Rehearing denied June 18, 1904.

   Moore, C. J.

The three cases relate to the same litigation, and were heard as one case, though a question is raised, which will be referred to later, whether the last-named case is properly here.

Some phases of this litigation have been before this court before in People’s Savings Bank v. Campau, 124 Mich. 106 (82 N. W. 803), Moran v. Wayne Circuit Judge, 125 Mich. 6 (83 N. W. 1004), and Campau v. Detroit Driving Club, 130 Mich. 417 (90 N. W. 49). A reference to the opinions filed therein will aid in understanding the issues before us, and will make it unnecessary to make so full a statement of facts as would otherwise be required.

The bond referred to in People’s Savings Bank v. Campau, supra, was signed by Messrs. Campau, Palms, Vail, Moran, and Churchill as sureties. The $18,366 judgment mentioned in Campau v. Detroit Driving Club, supra, represents the proportion of said bond paid by the first three of the above-named sureties, for which a demand note was given to them by the driving club, which note was sued upon and put into judgment. The $14,170 judgment obtained by the bank was for the balance of the debt to secure the payment of which said bond was given, and was assigned by the bank to the other two sureties.

In January, 1901, Messrs. Moran and Churchill filed a bill in chancery against Messrs. Campau, Palms, and Vail and the driving club, in which was recited a history of the transaction from the point of view of the complainants, and charging Mr. Campau, both before and after his appointment as receiver, with mismanagement, and with a purpose to obtain an unjust advantage over the complainants, and praying that the judgment in favor of Campau, Palms, and Vail, and the execution, levy, and sale thereunder, might be set aside, and that the judgment creditors’ proceeding be held void, and the appointment of Campau as receiver be set aside, and also praying for other relief. The case was put at issue, and a hearing had before Judge Carpenter, who dismissed the bill of •complaint, “but without prejudice to the rights of the complainants in the original bill to file a new bill of complaint, if they shall be so advised, asking for their pro rata share of the purchase price of the property sold under the execution, or, if the sale is set aside, to the pro rata share of the rights acquired by the execution levy, as mentioned and referred to in the bill of complaint filed herein.” From that decree an appeal is taken.

In the case of Campau v. Detroit Driving Club, 130 Mich. 417 (90 N. W. 49), Justice Long, speaking for the court, wrote, among other things, as follows:

“The only object of this petition is to obtain a decree ■declaring the execution sales illegal and void because they were made when the property was in the hands of the court by its receiver. Incidental to this relief, the petition prays that direction may be given to the receiver to sell the real and personal property of the corporation free and clear of all liens and incumbrances, and distribution made of the proceeds among the secured and unsecured creditors. This second intervening petition is based upon a fact which occurred after the first petition was filed, viz., the execution sales of March 29 and April 3, 1900. ' Thus it appears that the only object of the second intervening petition is to obtain a decree declaring the sales void. The denial of the first petition is no bar to the filing of the second intervening petition.
“It appears from the record that the execution levy held by the petitioners under the assignment from the People’s Savings Bank was subsequent to the one held by the complainants, and it was prior to the appointment of the receiver on the judgment creditors’ bill. Under our statutes relative to execution sales, the petitioners had a right to redeem from the prior sale at any time within 15 months from the day the sale was made. Section 9185, 3 Comp. Laws. If the prior sale was illegal and void, the petitioners could not safely redeem from it. The complain.ants would get their money, — some $19,000, — but the petitioners would not get title to the property; so that it is apparent that the second intervening petitioners are pursuing the only safe course open to them to preserve their rights.”

An order reading in part as follows was entered in the ■case:

“That the execution sales made on the 29th day of March, 1900, and the 3d day of April, 1900, of the personal property and real estate of the Detroit Driving Club, by the sheriff of the county of Wayne, under and by virtue of an execution issued by the circuit court for the county of Wayne on a judgment rendered on the 30th day of March, 1899, in favor of Daniel J. Campau, Francis F. Palms, and George M. Vail, and against the Detroit Driving Club, for $18,366 damages and costs, be, and the same are hereby, set aside, and the said sales are hereby declared and decreed to be illegal and void.
“ And it is further ordered, adjudged, and decreed that Daniel J. Campau, as the receiver in this cause, be, and he is hereby, ordered to resume possession of said real and personal property, and to continue in possession thereof until the further order of the circuit court for the county of Wayne.
“And it is further ordered, adjudged, and decreed that this cause be, and the same is hereby, remanded to the circuit court for the county of Wayne, with directions to cause said real estate to be sold by a circuit court commissioner for the county of Wayne, subject to the first mortgage thereon, to the highest bidder for cash; * * * and that the said personal property be sold as a unit to the highest bidder for cash; that, out of the proceeds of such sales, the commissioner shall first pay the costs and expenses of the sale, including his commissions, and the balance of said proceeds to be paid into the circuit court for the county of Wayne, in chancery. * * *
“It is further ordered, adjudged, and decreed that the said real and personal property be sold free and clear of all liens and incumbrances whatever, except the first mortgage on said real estate, and that the proceeds of such sale, when paid into court, shall be distributed, subject to the expenses of the receivership, among the secured and unsecured creditors of the Detroit Driving Club, according to their respective rights and priorities.
“It is further ordered, adjudged, and decreed that the necessary proceedings be taken in the circuit court for the . county of Wayne to ascertain and determine the liens and incumbrances of every name and nature upon said real and personal property other than the first mortgage on said real estate, and that the rights and priorities of the several claimants be ascertained and determined according to the rules and practice of the court, and that the court shall defer a sale of said real and personal property until the rights and priorities of the several claimants have been ■established and determined by the court.”

After the case was remanded, it was referred to a circuit court commissioner, who made the following findings :

“1. I find that the Union Trust Company of Detroit, Michigan, as trustee for the bondholders, has a first lien upon the real estate of said Detroit Driving Club to secure bonds to the amount of $75,000, bearing interest at the rate of 6 per cent, per annum, payable semi-annually on the 1st day of July and January of each year. The principal sum of said mortgage will not mature until the 1st day of July, 1904. All the interest on said mortgage which became due and payable thereon up to and including the 1st ■day of July, 1902, has been paid, and there is now due on ■said mortgage the sum of $75,000, with interest thereon at the rate of 6 per cent, per annum, payable semi-annually, from the 1st day of July, 1902.
“2. I find that the said Daniel J. Campau has a second lien upon said real estate for interest upon said first mortgage paid by him either personally or as receiver, and for amounts paid by him for taxes and insurance upon said real estate, for the sum of $17,546.04.
“3. I find that Daniel J. Campau has a mortgage upon said land, given to secure a debt of $55,000, with interest due semi-annually at the rate of 5 per cent, per annum, which was owing by said Detroit Driving Club to said Campau, all of which debt is now due; that said mortgage is a third lien upon said property, and the total amount due thereon is $65,355.48.
“4. I find that Daniel J. Campau, as receiver appointed in the above-entitled cause, had expended $2,152.34 in repairs on said property under and by virtue of an order authorizing him to do so, and there is now due said receiver for said repairs the said sum, and that said receiver has a fourth lien upon said real estate for the amount of the repairs so made upon said premises.
“5. I find that, at the time the receiver was appointed, there were two judgment levies upon the real estate of the Detroit Driving Club; that one of these levies was under an execution issued to the sheriff of the county of Wayne upon a judgment rendered by the circuit court for the ■county of Wayne upon the 31st day of January, 1899, in favor of Daniel J. Campau, Francis F. Palms, and George M. Vail, and against the Detroit Driving Club, for $18,366 damages and $22 costs, and under which judgment and. execution the sheriff of the county of Wayne made a levy upon the race track and grounds of the Detroit Driving-Club on the 4th day of April, 1899; that the other execution levy existing on said real estate at the time the receiver was appointed was a levy made upon the 16th of November, 1899, under an execution issued to the sheriff of the county of Wayne on a judgment rendered by the circuit court for the county of Wayne in favor of the People’s Savings Bank and against the Detroit Driving Club for $14,170 and $38.10 costs, which judgment and levy has-been assigned by said People’s Savings Bank to Fred T. Moran and Worthy L. Churchill, the intervening petitioners in this cause; that the said two execution levies should be considered equal in priority, the same as if said executions had been simultaneously levied; * * * that said Fred T. Moran and Worthy L. Churchill, as the assignees of said judgment in favor of the People’s Savings Bank, and the said Daniel J. Campau, Francis F. Palms, and George M. Vail, as the plaintiffs in the said judgment in their favor, have a fifth lien on said real estate for the amount of said judgments, viz., $37,808.31. * * *
“I find that said lienholders are entitled to priority in. the amounts for rents, profits, etc., derived from said real, estate since the appointment of said receiver, and in the-personal property belonging to said defendant, as follows::
“6. Daniel J. Campau, as receiver, is entitled to-$2,152.34, being the amount expended by him in repairs on said property under and by virtue of the order of this-court.
“7. I find that Daniel J. Campau is entitled to the sum of $2,250, being the amount paid by him for interest due on the first mortgage July 1, 1902, under the order of this court.
“8. I find that Daniel J. Campau, Francis F. Palms,. George M. Vail, Fred T. Moran, and Worthy L. Churchill' are entitled to the sum of $37,808.31, being the amount of judgments held by said parties against said defendant.
“9. I find that Daniel J. Campau, personally and as receiver, is entitled to the sum of $25,651.52, being the amounts paid by him as interest on the first mortgage, taxes, and insurance, and interest due on the second mortgage.”

Exceptions were taken by both parties to these, findings, and a hearing was had before Judge Carpenter; who'made an order “that all of the exceptions to said commissioner’s report be, and the same are hereby, overruled, with this qualification: That, so far as said commissioner’s report undertakes to pass upon and determine the liens and incumbrances upon the rents and profits of the real estate of the Detroit Driving Club since the appointment of the receiver, the court holds that the disposition to be made of the rents and profits was not within the scope of the order of reference, and in that respect said report is not confirmed;” that the issue joined on the third intervening petition, and the disposition to be made of the rents and profits, be reserved from the decree for future adjudication; and referred the same to the Hon. Joseph W, Donovan, circuit judge, for that purpose. An appeal was taken to this court from this decree by both parties.

Later a hearing was had before Judge Donovan, who held, among other things, as follows:

“While the club property is worth some $200,000, and it owes about the same amount, a large part of it is in mortgages on real estate, and not over $10,000 in personal property, aside from the rents and earnings of the races during the past three seasons, and there is no valid- reason shown why one creditor has a better right to the rent and income than another, except, perhaps, to keep up the taxes, the interest and insurance, and preserve the property and its good will as a going concern, which I find to be very important, as it now ranks very high among the driving clubs of the country. This rank should not be destroyed, but carefully preserved. To do this, two races— a running and a trotting — have been allowed for this season.
‘ ‘ A decree will, therefore, direct the receiver to report early on property acquired through rent and income, to he deposited in People’s Savings Bank at interest, two-fifths5 for the benefit of the two complainants and three-fifths for the three defendants, after actual legal expenses and reasonable charges for a receiver, and after a hearing on a court order.”

No formal decree has ever been entered based upon this decision, but an attempted appeal has been taken by Messrs. Moran and Churchill.

The first question presented is whether an attack can now be made upon the judgment creditors’ proceedings up to and including the appointment of the receiver. The receiver was appointed by the court, and has been authorized upon his petition to borrow money to pay interest, taxes, and insurance, and to hold several race meetings. He has done what he was authorized to do, and this court in Moran v. Wayne Circuit Judge, 125 Mich. 6 (83 N. W. 1004), refused to interfere. We think, too, the decision in Campau v. Detroit Driving Club, 130 Mich. 417 (90 N. W. 49), could not have been reached except upon the theory that the appointment of Mr. Campau as receiver was valid and must stand.

The next question for consideration is, What shall be done with the $10,343 judgment obtained by Messrs. Campau, Palms, and "Vail? They were creditors of the Detroit Driving Club, but not as co-sureties, with Messrs. Moran and Churchill. We agree with Judge Carpenter that Mr. Campau and his associates were common creditors with the People’s Savings Bank and with Messrs. Moran and Churchill, each of whom had a right, if, by diligence, he could do so, to secure satisfaction of his claim. See American Exchange Nat. Bank v. Ward, 111 Fed. 782, 49 C. C. A. 611, 55 L. R. A. 356.

The next question requiring attention is whether one execution levy shall have priority over the other, and, if so, which one. It is the claim of the counsel for Moran and Churchill that, inasmuch as Campau, Palms, and Vail were a majority of the quorum of the directors present when the resolution was adopted to execute to such of the sureties as paid their share of the debt due the bank a demand note or notes, the adoption of said resolution, the giving of the notes, and the judgment thereon are illegal, and, as a result thereof, the judgment assigned to Moran and Churchill should have priority over the levy made in favor of Campau, Palms, and Vail. This claim would have more merit were it not for the fact that the demand note was given fora debt then past due, which might have been sued at once. See American Exchange Nat. Bank v. Ward, 111 Fed. 782, 49 C. C. A. 611, 55 L. R. A. 356. In view o'f the litigation heretofore had, and the disposition made thereof, we do not think the proceedings up to and including the levy made under the Campau, Palms, and Vail execution can now be questioned.

It is further claimed that “when the sheriff sold the real and personal property of the Detroit Driving Club on the execution in favor of Campau, Palms, and Vail, and returned the execution wholly paid and satisfied, the execution became functus officio, and the plaintiffs therein can only sue out a new execution under section 10341, or sections 9210-9212, 3 Comp. Laws; that section 9212 expressly provides that such new execution shall not affect any title, incumbrance, or levy which shall have accrued before the levy under the new execution.” We have examined the statute and the cases cited by counsel, and think they do not apply to a case like the present. When the receiver was appointed, there was a valid levy under the Campau, Palms, and Vail execution. Without obtaining leave of court, after the receiver had entered upon the discharge of his duties, the sheriff sold the property under this levy, a deed was made, and the execution returned satisfied by the sheriff. Upon a proceeding instituted by Moran and Churchill, that sale and the deed were set aside by this court as void, because in contempt of court. See Campau v. Detroit Driving Club, 130 Mich. 417 (90 N. W. 49). If the sale and deed were void for want of authority upon the part of the sheriff to make them, was not the return of the officer equally void for want of sufficient authority to make it ? It is not in accordance with our idea of logic or our sense of justice to say that, in an equity proceeding upon the application of Moran and Churchill, a sale made to satisfy an execution, and the deed issued thereunder, for which nothing was paid in fact except the return made by the officer, shall be held to be void at their instance, and at the same time the return of the officer shall be held valid enough to discharge the execution levy, and make a later levy made in their favor a first lien. If Moran and Churchill are placed in the position they were before the void sale, they ought not to complain.

It is the claim of Campau, Vail, and Palms that, as'the levy under their execution was made first, it should have priority. It is their claim that, when they paid their pro rata share of the bond upon which they and Moran and Churchill were sureties, they immediately became creditors of the driving club for the amount so paid, and were entitled to do what they have done to secure the collection of the amount so paid. It is said that in this connection it is important to remember that the People’s Savings Bank still has an interest in the judgment assigned to Moran and Churchill. It is the contention of Keena & Lightner, in the brief they have filed, that, inasmuch as all of these parties were sureties on the bond, they all must share in any security or other assets of the principal debtor. In support of their contention counsel say:

“The application of the maxim, ‘Equality is equity,’ leads to this conclusion. The general effect of this maxim and its large application in equity is shown in 1 Pom. Eq. Jur. (2d Ed.) §§ 405-412. We quote the following, which is especially pertinent to the rights of co-sureties:
“‘Finally, the most important doctrine, perhaps, which results from the principle, “Equality is equity,” is that of contribution among joint debtors, co-sureties, co-contractors, and all others upon whom the same pecuniary obligation arising from contract, express or implied, rests. This doctrine is evidently based upon the notion that the burden in all such cases should be equally borne by all the persons upon whom it is imposed, and its necessary effect is to equalize that burden whenever one of che parties has, in pursuance of his mere legal liability, paid or been compelled to pay the whole amount, or any amount greater than his proportionate share. No more just doctrine is found in the entire range of equity, and, although it is now a familiar rule of the law, it should not be forgotten that its conception and origin are wholly due to the creative • functions of the chancellor.’ ”

They also cite a number of cases; among others Union Nat. Bank v. Rich, 106 Mich. 319 (64 N. W. 339), and Freud v. Ruhl, 126 Mich. 129 (85 N. W. 463).

There is no doubt the rule as to co-sureties is as stated by counsel, but is that rule applicable to the facts as shown here ? In 1 Brandt, Suretyship (2d Ed.), § 273, it is said:

After the debt of the principal is paid by several sureties in equal proportions, the equities between them as co-sureties cease, and each becomes an independent creditor of the principal for the amount paid by him. In such case, if one afterwards receives indemnity from the principal, the others are entitled to no part thereof.”

In Sheldon, Subrogation, at section 148, the law is stated thus:

“Though whatever payment one surety may receive from the principal must, in general, inure to the benefit of all, yet, where payment of the debt for which all were liable has been made by one, and the claim against each for contribution has become fixed, each may, on his separate account, look to the principal for the reimbursement of his own share.”

In Moore v. Isley, 22 N. C. 372, one of the sureties paid his share and thereafter acquired security. His former co-surety filed a bill to compel him to contribute, but the supreme court said:

“ While the relation of joint sureties exists, funds received by one are to be applied for the common benefit of all; but, after that connection has been severed, each of the sureties has his distinct and several claim to prosecute because of what he has paid for his principal, and the others have no right to demand participation in what his diligence may enable him to procure while thus prosecuting this several claim.”

In the case of Harrison v. Phillips, 46 Mo. 520, the court said:

“We will, then, first inquire whether, if one of several sureties, after the settlement and liquidation of the claim and the payment of his proportionate share, shall, upon his own motion, and without the aid or co-operation of his co-sureties, procure, by attachment or otherwise, a reimbursement out of the property of the principal, he is bound to share such reimbursement with the co-sureties.
“After the default is satisfied by the payment by each surety of his proportionate share, it is well settled that their claims upon the principal become thereby several, and not joint, ones. Gould v. Gould, 8 Cow. 168. After the debt is thus paid, each surety becomes an independent creditor, and stands in the same relation to the principal and to his co-sureties as any other independent creditor would stand in to a common debtor and other creditors if their equities were equal. It is not pretended that in the latter case, if the creditor should succeed in collecting his debt, the other creditors would have any claim whatever upon the fund; and, if not, upon what principle can co-sureties, whose claim has thus become several, demand an interest in what one of them may be able to collect of his debtor ?

“Upon this subject the supreme court of New Hampshire uses the following language:

‘“It is a well-settled general rule that the demands of sureties against the principal for money paid by, them severally are in their nature several, and that they cannot join in a suit against the principal. Brand v. Boulcott, 3 Bos. & P. 235; Pearson v. Parker, 3 N. H. 366. On what ground, then, can a surety claim any portion of what a co-surety has received in satisfaction of his separate claim ? We think there is no. ground on which such a claim can be sustained.’ Messer v. Swan, 4 N. H. 488.”

To the same effect is Gould v. Fuller, 18 Me. 364. Our attention has not been called to any case to the contrary.

In the case before us, Campau, Yail, and Palms, three of the sureties, paid their share of the bond, and after-wards obtained their judgment and made the levy. Moran and Churchill did not pay their share of the bond. The creditor, the People’s Savings Bank, sued, and obtained a judgment, which judgment was assigned to Moran and Churchill, who now stand in the place of the bank. Under the authorities which we have quoted, it seems clear that, instead of the two judgments being coordinated, the one obtained by Campau, Yail, and Palms must have priority over the other.

Moran and Churchill have filed a petition for leave to garnishee the rents and profits in the hands of the receiver* In support of this petition, counsel says:

“ If this court should reach the conclusions:
“ (1) That the execution levy in favor of Campau, Palms, and Yail has not been discharged and satisfied of record by the return of the execution satisfied, and the priority of the levy in favor of the People’s Savings Bank thereby established, under the statute on the subject, and—
“ (2) That it is competent by judgment creditor’s bill to reach the rents and profits of.real estate in a case where the title stands in the name of the judgment debtor, and is subject to execution, and this is known to the judgment creditor, on the theory that such rents and profits are equitable assets, notwithstanding the statute reserving the possession and the rents and profits to the judgment debtor pending the expiration of the period of redemption,— _ -
_ “Yet the question would still remain in this case whether the execution levy, the judgment creditors’ bill, and the transfer to the receiver thereunder are not fraudulent and void as against the People’s Savings Bank and Moran and Churchill, as creditors of the Detroit Driving Club.”

We think this question is foreclosed by the proceedings in this court heretofore decided; but, if it is not, we think it follows, from the discussion and conclusions we have reached as to the priorities of the levies, that the proceedings resulting in the appointment of the receiver and the transfer of the property to him are not void as against the People’s Savings Bank and Moran and Churchill, as creditors of the driving club. In Cohnen v. Sweenie, 105 Mich. 643 (63 N. W. 641), it was held a receiver might be garnished; but in that case his return showed he had collected sufficient to pay the debts in the proceeding in which he was appointed receiver, and the expenses of the receivership, and had a surplus in his hands, — a very different case from the one at bar. The court, through the receiver, has possession of the land and of the rents and profits, and jurisdiction of the parties interested. There is no good reason why the rights of the respective parties should not be adjusted without the intervention of some other court, and the petition should be denied. See Hall v. Nester, 122 Mich. 141 (80 N. W. 982); Tremper v. Brooks, 40 Mich. 333 (29 Am. Rep. 534); Smith v. McNamara, 15 Hun, 447.

The last question calling for consideration is that of rents and profits. As before stated, Judge Carpenter held that no authority was given to the circut court commissioner to pass upon that question, and referred that feature of the case to Judge Donovan. It does not appear from any of the records that the receiver has .as yet ever submitted to the court his account, nor does the status of the account appear. It is true that in the case of Moran and Churchill v. Campau et al., — in which the relief asked was that the judgment in favor of Campau, Palms, and Vail, and the execution and levy thereunder, and the appointment of the receiver should be held void as to complainants, and that the net proceeds of the race meeting of 1900 be applied to the payment of Moran and Churchill, — Mr. Campau testified as to what he had received as a result of the race meeting of 1900, and what he had paid out, and claimed it left a net profit of $701.94; but it also appeared in the same connection that his account as receiver had never been presented or passed upon by the court in the cause in which he was appointed as receiver. Other race meetings have been authorized and held. What expenses have been incurred and what returns have been received do not anywhere appear. No account of the receiver showing receipts and disbursements has as yet been filed. As before stated, no decree has been signed by Judge Donovan. Until the receiver files his account of the rents and profits, we cannot decide what shall be done with them. This he should proceed to do at as early a day as is practicable.

Decrees should be prepared in accordance with this opinion.

Grant, J., concurred with Moore, C. J.

Montgomery, J.

I agree with the opinion of Mr. Justice Moore, except in so far as it holds that Campau, Palms, and Vail have occupied a position which entitles them in equity to claim priority of right under their levy as against their co-sureties. The general rule undoubtedly is that one co-surety who receives security from the principal debtor, whether it be given to indemnify him solely or to indemnify himself and co-surety as well, is bound, as between himself and his co-surety, to account for such security. 1 Brandt, Suretyship (2d Ed.), § 268. This equity continues so long as the relation of principal and surety subsists. It is contended, however, that this equity does not obtain in this case, for the reason that the complainants elected to sever their relation of co-sureties, paid their proportion of the principal debt, and secured themselves by an immediate attachment of the property of the principal debtor. It will be readily seen that, if any such exception be ingrafted upon the general rule, it will furnish to the surety who acts at once upon the maturity of the debt the opportunity to overreach his co-surety by paying his proportion of the obligation and seizing the property of the principal debtor, which constitutes in equity the primary fund for the payment of the debt.

It is true that, where the sureties discharge their principal’s debt by paying the same in equal proportions, all the former sureties become creditors of the principal debtor, and the rule that the law protects the vigilant applies from thence on. 1 Brandt, Suretyship (2d Ed.), § 2?3. There are cases, also, which hold that, where one surety pays and discharges the entire obligation, he then becomes a creditor of his co-surety for his proportion of the obligation, and of the principal debtor for the remainder, and the property or money realized from the principal debtor is not to be treated as received for the common benefit of both sureties, where the payment is made by the principal debtor for the sole benefit of the paying surety. Such a case is Gould v. Fuller, 18 Me. 364. Of this case the learned authors of White & Tudor’s Leading Oases in Equity say:

“This seems to be carrying too far the exception to a settled and salutary principle of equity. If the principal has given securities to' one surety, the latter cannot, in chancery, recover contribution from his co-surety, without accounting for the property, and either showing how much he received upon it, and making a ratable allowance of the proceeds, or showing that he could not, by reasonable diligence, realize from it,” — citing Goodloe v. Clay, 6 B. Mon. 236, and other cases.

The case of Gould v. Fuller is an extension of the rule that, where the relation of co-surety has been severed by agreement, or by payment of the principal’s debt by the two sureties in just proportions, the relation of co-surety no longer exists. Moore v. Isley, 22 N. C. 374, and the other cases cited by Mr. Justice Moore. And in the main case it was said that the payment of the entire debt by one co-surety terminated the relation of co-sureties, and thereupon the rule permitting one co-surety to contract for his several indemnity was applied. Whether this holding can be sustained on principle, or whether it be subject to the criticism quoted from White & Tudor, the case does not go the length of ruling this case, where the entire debt wag not paid. The relation of co-sureties was distinctly terminated; and we see no reason in equity for extending the rule which shall enable one co-surety to overreach his co-surety, or for ingrafting upon the general rule an exception which shall have this effect.

Hooker, J., concurred with Montgomery, J. Carpenter, J., did not sit.


source: Caselaw Access Project

author: Hooker, J.

license: Public Domain

text:
    LOCKE v. WILSON.
    1. Employment — Special Contract — Preventing Performance —Recovery.
    Where plaintiff was employed by defendants, copartners, to promote and organize a corporation to take over and operate defendants’ brewery plant, and his compensation was fixed by special contract, which was unperformed, no recovery could be had upon the common counts for services rendered in his unsuccessful efforts, except upon the theory that defendants wrongfully prevented the performance of the contract.
    2. Same — Compensation—Condition—Parol Evidence.
    The compensation having been fixed by correspondence, and being conditioned upon plaintiff’s securing $28,000 in bona fide subscriptions to stock, it excluded the right of plaintiff to show by parol that one of the defendants agreed to take any balance of the $28,000 which plaintiff should be unable to place elsewhere, and it was error to submit to the jury the question whether defendant’s refusal tó dp so prevented the performance of the contract.
    8. Same — Stock Subscriptions — Representations to Purchaser.
    In his efforts to secure subscriptions to stock, plaintiff represented to a prospective purchaser that the brewery was making a profit of $1.50 per barrel, claiming that defendant W., who principally negotiated with him, so stated, but said purchaser was truthfully informed by W. that the profit was only 50 cents a barrel. Held, that, conceding plaintiff’s representation to have been made in good faith, in the absence of evidence that but for its falsity the subscription would have been obtained, it could not be said that defendants prevented the performance of the contract.
    4. Same — Instituting Litigation — Adverse Influence.
    On a day towards the close of the negotiations, when the prospective purchaser had met with the parties to further consider the matter, defendant W. filed a bill against his copartner for an accounting, which was claimed by plaintiff to have adversely influenced the purchaser, who subsequently decided not to take stock. Held, that W. was under no obligation to refrain from bringing such suit.

      Error to Ionia; Davis, J.
    Submitted October 20, 1903.
    (Docket No. 48.)
    Decided February 16, 1904.

      Assumpsit by Charles P. Locke against William D. Wilson and Nicholas Biewer for services rendered. From a judgment for plaintiff, defendant Wilson brings error. Reversed.

      O. C. Lungerhausen and George E. & M. A. Nichols, for appellant.

      Morse & Locke, E. G. Miller, and R. A. Hawley, for appellee.
   Hooker, J.

The plaintiff, as agent for other parties, sold a brewery for $12,500 to the defendant Wilson, who spent about $3,000 in betterments. He knew little about breweries, but arranged a copartnership with Biewer, his codefendant, who was a practical brewer, to take a half interest and manage the business. Biewer put $2,000 into the business, and owed Wilson for the remainder of the cost of his interest. Biewer’s management was not satisfactory to Wilson, and he employed the plaintiff to aid him in making a, readjustment that should enable him to get out of the business without loss. The scheme devised by them was to form a corporation to take the plant, and the plaintiff wrote to defendant Wilson suggesting it. This resulted in an interview at Ionia, at which the subject was talked over, when it was proposed that a corporation be formed through the efforts of the plaintiff, in the organization of which Wilson was to take $5,000 of stock, Biewer $5,000, and Courtright, a friend of Wilson or Biewer, $2,000. It was also suggested that $500 be given to one Schmoltz, whom it was proposed to employ as a traveling salesman. In this talk it was suggested that it would be well to interest local saloonkeepers as stockholders, and thereby secure their patronage for the brewery, and Locke and Wilson, and perhaps Biewer, went to see some of them on that occasion, and talked the matter up with them. Some talk had been had between plaintiff and Biewer as to the compensation to be received by the plaintiff for organizing the company, and Biewer had expressed a willingness to let him have $3,000 of stock for his services, provided that the same should be satisfactory to Wilson; and, in anticipation of the conference at Ionia, the plaintiff and Biewer made a list of the property, and Biewer fixed values upon the items, which the plaintiff put down, thereby making a sort of inventory of the prop: erty, and this was present at the interview at Ionia, and was seen by Wilson, and perhaps shown to the saloon-keepers approached, as hereinbefore stated.

Before leaving Ionia, Dr. Wilson’s agent, Lungerhausen, explicitly stated that they would not agree upon anything that day, but that, after he and Wilson should have talked the subject over, he would write the plaintiff, and this he did. It is manifest that he undertook to have an explicit understanding as to the obligation that Wilson was incurring, as will be seen from the two letters following:

“Mt. Clemens, Mich., Sept. 36, 1900.
“ Charles P. Locke,
“Ionia, Mich.
“Dear Sir: On our way home the doctor and I went over the matter of forming the stock company carefully, and we came to this conclusion: If you secure subscribers for $38,000, and the company is actually organized and the stock subscribed for paid up, you may have for your compensation the other $3,000 worth of stock. This is to include payment in full for services of every kind and nature, time, and all expenses incurred by you in the forming and completing of the stock company. The doctor will stand by his subscription, and Courtrighf will stand by his also. What the doctor told you about giving $500 worth of stock in order to secure a certain party as a stockholder also goes. This would leave $37,500 bona fide subscriptions. In case, however, you fail to secure the stock required to form this company as herein provided, you are to receive nothing for your time, services, or for expenses. This proposition is good for 30 days from date. If the company is not formed within that time, everything is declared off. If this is satisfactory, kindly advise me promptly. In conclusion I would say that I sincerely hope you will be successful in the undertaking. I will cheerfully render you such assistance in the matter as I can. Yours truly,
“O. C. Lungerhausen.”
“Ionia, Mich., Sept. 29, 1900.
“O. C. Lungerhausen, Esq.,
“Mt. Clemens, Mich.
Dear Sir: Your favor for Dr. Wilson is at hand. I have been out of the city considerably, Lyons, Muir, Portland, Pewamo, and St. Johns, and I get considerable encouragement. However, I have to go to each place at least twice to do business. . I think the time limit ought to be to November 1st. If I cannot do the business up in that time I would be willing to quit. Otherwise the terms of your agreement are satisfactory. I think I will get $3,000 out of Portland. I shall be out all next week. -I have got Schmoltz tied up, and they are helping me what, they can in a quiet way. I have been out with Schmoltz, three days. Yours respectfully,
“ Charles P. Locke.”

No corporation was ever formed, although the matter was under negotiation until January, 1901, when it failed. Thereupon the plaintiff brought an action against Biewer and Wilson, and recovered a verdict for $700 as compensation for his efforts, and the defendant Wilson has brought error.

Plaintiff’s brief states that this recovery was upon the common counts, so we need not concern ourselves with the special counts of the declaration. Furthermore, as it is not claimed that-the contract was fully performed, the recovery must have been upon the theory that defendants wrongfully prevented its performance, thereby entitling plaintiff to collect pay for the services rendered in his futile efforts. The plaintiff’s claims in this regard we understand to be as follows: He failed to get subscribers to the amount required because (1) the representation that he made to one De Conick that the brewery was making a profit of $1.50 a barrel on beer was contradicted by Wilson, who said in De Conick’s presence that it could be made to earn 50 cents a barrel; (2) Wilson began a suit against Biewer on an occasion when De Conick had met with the parties to close up the matter, thereby causing De Conick to refuse to take stock, as he had promised to do; (3) that, after the plaintiff had obtained $22,600 in bona fide subscriptions, the defendant Wilson refused to subscribe the remainder, of the stock. To maintain this claim, plaintiff’s counsel take the position that the letters do not constitute the entire contract, alleging (1) that they have in view the preceding talk, which was thereby given effect, in which they say that Wilson agreed to take all stock that the plaintiff could not place elsewhere; (2) that Mr. Wilson misrepresented the value of the property and its earning power at the time, thereby authorizing plaintiff to make false representations, upon learning which De Conick refused to subscribe.

Defendant’s counsel assign error upon the refusal of the court to "direct a verdict for the defendant.

The two letters, upon which the minds of the parties evidently met, did not contain a stipulation that this company should be organized to take over the brewery, or that its owners should transfer it to the company. All of this was left to be supplied by oral testimony, and such was competent for the purpose.

We think, however, that the writings are conclusive upon some things. The plaintiff’s compensation was fixed thereby, and it was conditional upon his securing $28,000 in bona fide subscriptions, of which Dr. Wilson would take $5,000, Biewer $5,000, and Courtright $2,000. It excludes the right to- claim that Wilson agreed to take any balance of the $28,000 which plaintiff should be unable to place elsewhere. It was therefore error to submit the case to the jury upon such a theory.

The plaintiff’s next claim is that in some way the defendants are liable to him upon the ground that they are responsible for De Conick’s failui’e to buy, and this seems to rest upon the theory that plaintiff had succeeded in interesting him upon the representation that the brewery , was making a profit of $1.50 a barrel on the beer made, and that the defendant Wilson informed him (De Conick) that this was not true, and also that Wilson commenced suit against Biewer, which two facts caused De Conick to' refuse to take stock, which he would otherwise have done.

On the 1st of November the time fixed by the contract expired. Plaintiff saw Dr. Wilson, and an arrangement was made whereby the plaintiff was given more time. On November l?'th plaintiff wrote that he had $22,600 subscribed, and wanted more time, and on the 18th he wrote again that he “felt confident he could bring the list up to $25,000, and asked Wilson if he would like the balance of the stock and complete the organization.” Mr. Lungerhausen replied on the 23d of November that Dr. Wilson would give a little more time, but did not want Lungerhausen to take any more stock. On the «same day plaintiff wrote Wilson that he had one Koppitz, of Detroit, interested, and wanted to know how much time he (plaintiff) could have. On the next day Lungerhausen wrote plaintiff that Dr. Wilson did not care to fix a particular time, but that he would give to December 5th, and possibly more time, if any progress was made. On December 4th plaintiff wrote Wilson that he was in communication with one De Conick, who wanted as much or more stock than was left; in fact, wanted a controlling interest. Lungerhausen replied that if De Conick could be interested it would be a good thing for all concerned, and that plaintiff might sell him any stock he wanted, “but that Wilson insisted that the matter be closed up within a few days. ” Soon after, plaintiff saw De Conick, and reported to Wilson that De Conick proposed that he would take any amount of stock, up to $16,000, upon condition that he should be manager with a salary of $4,000; and on December 12th he wrote that De Conick would be in Ionia on the following Tuesday or Wednesday, and he (Locke) thought the matter could be closed up at that time, but this meeting was canceled. On December 22d Lungerhausen wrote plaintiff that he would be in Ionia on December 27th, and on the 24th he wrote again, saying that Wilson had instructed him to say that unless the stock company was completed that week the deal would be off. On the 27th all of the parties were at Ionia, considerable talk was had, and upon the same day Wilson, who thought Biewer had defrauded him as to the earnings of the brewery, filed a bill for accounting. On January 1, 1901, the plaintiff wrote to Lungerhausen that De Conick agreed to let him know that week whether he would take an interest in the brewery, that he (Locke) had talked to Wilson about it, and that Wilson said the matter was in Lungerhausen’s hands, and that, if De Conick did not take it, he did not hope to get another man. Lungerhausen replied that he could give no further time, but gave him a conditional extension until Saturday of that week, i. e., January 5th. Before that time expired, De Conick decided not to take the stock.

The plaintiff’s evidence shows that he never had a promise from De Conick to take stock. At most, he said he would like to do so if it suited him upon looking it over. He did look it over, and found some repairs and changes necessary. Moreover, if he had bought upon the statement that the brewery was earning $1.50 per barrel net, he would have been deceived. If this plaintiff really believed his representation to be true when made, it would have been his duty to correct this representation in case he should ascertain his mistake. Whether Wilson knew that such a representation had been made does not appear, but it is shown that he did not make such a claim to De Conick, and plaintiff asserts that he informed De Conick of the truth about it, as he ought to have done.

If plaintiff bases his claim upon the ground that the defendant should have kept still, and permitted the deception to bear its fruit, the position is untenable. We understand that he does not, but claims that he was justified in making the representation by the statement of Dr. Wilson, and did his work in reliance upon it, and therefore is entitled to pay. Biewer testified that Wilson told Locke so. The circumstances under which he said it are not given, and we cannot say from the record whether there was any deception intended, or whether Locke was actually deceived, and made his representation in good faith. But it takes more than proof of deception to make out this case. Before the plaintiff is entitled to recover, it must appear that but for the falsity of the representation De Conick would have taken the stock. This is not proved, nor is there evidence from which it can be inferred. The most that can be said is that he considered the offer of stock, and said he would take some if he could be manager at $4,000 a year, provided that he should be satisfied when he looked over the situation. The $4,000 condition was not contemplated by the contract. De Conick did look over the plant, and found it not to his liking, and the matter went no further. Wilson was under no obligation to refrain from suing Biewer.

The judgment is reversed, and a new trial ordered.

The other Justices concurred.


author: Montgomery, J.

text:
    JACOB v. WESTERN UNION TELEGRAPH CO.
    1. Telegraph Message — Blank Form — Conditions.
    Where plaintiff delivered to defendant company a message for transmission, written on a blank form used by another company, on the face of which appeared the words, “Send the following message, without repeating, subject to the terms and conditions printed on the back hereof, which are hereby agreed to,” and defendant transmitted the message, plaintiff was bound by the conditions. Birkett v. Telegraph Co., 103 Mich. 361, followed.
    3. Same — Notice to Operator — Special Contract.
    Evidence that plaintiff, on delivering a telegram to a messenger who had come for it, stated that he wished it to be at its destination by a certain hour, and that the messenger so notifled the operator who transmitted it, is insufficient to establish a special contract to deliver the telegram within the time specified,— particularly where the 'printed conditions on the telegraph blank were coupled with a provision that they could not be varied by any employé of the company. Rudell v. Transit Co., 117 Mich. 568, distinguished.
    3. Same — Delay—Damages.
    On delivery of a telegram to defendant’s operator at Detroit to be transmitted to New York without repeating, but with a request that it be at its destination by a certain hour, the operator sent the message to Buffalo, to be there repeated to New York, and the message was delayed at Buffalo by reason of a severe storm which had prevailed throughout New York State and interrupted defendant’s wires, but of which the operator at Detroit was ignorant. Held, that, in the absence of instructions to repeat the message, defendant, through its agent in Buffalo, was not charged with knowledge of its urgency, so as to render it liable to the sender for damages sustained by reason of the delay.
    Error to Wayne; Brooke, J.
    Submitted May 13,-1903.
    (Docket No. 63.)
    Decided February 16, 1904.
    Case by Abram Jacob against the Western Union Telegraph Company for delay in transmitting a message. From a judgment for defendant on verdict directed by the court, plaintiff brings error.
    Affirmed.

      Bowen, Douglas, Whiting & Murfin, for appellant.

      C. A. Kent, for appellee.
   Montgomery, J.

On the 10th oí September, 1900, plaintiff wrote a broker in New York to buy him a car of lemons. On the 12th of the same month plaintiff desired to reduce this order, and so sent by defendant a telegram to buy only 60 boxes. This telegram was delivered in Detroit at a quarter before 8 or a quarter before 9 in the morning. The telegram was sent to the office of defendant by a messenger boy, who gave notice that plaintiff wished the message to be in New York by 11 a. m. The message was sent without delay to Buffalo, but was there delayed by a storm which interrupted communication with New York, so that it was not received in New York until after the time mentioned, and until the broker had bought the car load according to the letter of the 10th. The operator in Detroit knew nothing of this storm. There was a loss on these lemons, for which suit is brought. The telegram was on one of the usual telegraph blanks. The court left the case to the jury, and a verdict was returned for plaintiff. Defendant moved that the verdict be set aside and a verdict entered for defendant, under a stipulation that this might be done if the court changed his opinion. The court directed a verdict to be entered for defendant. There are several assignments of error, but all depend on the question whether or not the case was properly taken from the jury.

The verdict was rightly directed, unless the plaintiff can maintain one of three contentions: First. It is said that the plaintiff was not bound by the conditions printed upon the back of the telegram sent, as the blank used was a Postal telegraph blank, and the regulations did not purport to be regulations of the defendant company. Second. It is said that there was a special contract to deliver the message in New York at 11 o’clock. Third. It is claimed that there was gross negligence in failing to notify the plaintiff that the wires were down east of Buffalo, so that the plaintiff might have sent his message by a different route. We pursue the order adopted by plaintiff’s counsel •in considering the questions raised.

Upon the face of the telegram sent appeared the following:

“ Send the following message, without repeating, subject to the terms and conditions printed on the back hereof, which are hereby agreed to.”

It is immaterial by whom these regulations were made. It is clear that they were agreed to. To say that they were' not is in effect to say that no request was made to defendant company to send this telegram at all, because it was written on a blank of the Postal Company. The rights of the respective parties must therefore be determined by the rule laid down in Birkett v. Telegraph Co., 103 Mich. 361 (61 N. W. 645, 33 L. R. A. 404, 50 Am. St. Rep. 374).

As to the plaintiff’s contention that there was a . special contract, we think that, if we leave aside any question of authority of the agent to enter into such a contract as claimed, the evidence fails to establish a contract. What was said by plaintiff to the messenger, and by him repeated to the operator, was that the telegram must be in New York by 11 o’clock; but it is a far stretch to say that this was more than notice of a desire for promptness, when it appears that, as a part of the same contract, no employe is authorized to vary the company’s regulations. The circuit judge was clearly right in holding that the case is to be distinguished from Rudell v. Transit Co., 117 Mich. 568 (76 N. W. 380, 44 L. R. A. 415).

The third contention is so well answered by the opinion of the circuit judge that we adopt his reasoning:

“It appears that, during the night preceding the morning in question, a severe storm had prevailed throughout New York State, and that, as a consequence of said storm, many wires of the defendant company were interrupted. It does not appear, however, that, at the time the message was received by the operator in Detroit for transmission to New York, the operator had any personal knowledge of the difficulty, unless it can be said that he was chargeable with said knowledge by reason of the fact that, when he attempted it, he was unable to secure immediate through connection with New York City. His testimony is that he did not know of the difficulty east of Buffalo, and that, while he usually sent messages direct to New York, it was nevertheless an ordinary method of transmission that he adopted when he sent the message to Buffalo, to be there repeated to New York. No knowledge that the message was delayed in Buffalo seems to have reached the operator in Detroit, and, in the absence of instructions to repeat the message, it seems to me that the company, through its agent in Buffalo, was not charged with any knowledge of its urgency, such as would make it liable for damages by reason of tbe delay. The case in this regard is almost a parallel one with the case of Birkett v. Telegraph Co., 103 Mich. 361 (61 N. W. 645, 33 L. R. A. 404, 50 Am. St. Rep. 374). In that case our Supreme Court held that the negligence of the operator in Dearborn was not such gross negligence as would entitle the plaintiff to recover, and that the fact that the plaintiff had. not requested the message to be repeated relieved the operator in Detroit from the necessity of notifying the plaintiff of the fact that Dear-born could not be reached by him. The case of Fleischner v. Cable Co., 55 Fed. 738, is authority for the charging of the defendant company with gross negligence where its operator receives a message for transmission, well knowing at the time that its lines are down, and not knowing how long a time will intervene before they will be put in condition, there being at the same time a known method of transmission which was in order.”

The judgment is affirmed.

Moore, C. J., Grant and Hooker, JJ., concurred. Carpenter, J., did not sit.


author: Carpenter, J.

text:
    WINEMAN v. FISHER.
    1. Corporations —Labor Debts — Stockholders’ Liability— Declaration.
    In a suit commenced in justice’s court against defendant as a stockholder in a corporation, plaintiff declared in an action of assumpsit on the common counts, and specially on a certain justice’s judgment in favor of plaintiff and against the corporation for a labor debt, and alleged that recovery was sought under 3 Comp. Laws, § 7065, making stockholders of a corporation personally liable for labor performed for the corporation. Held, that, under the liberal rules of practice in justice’s court, the declaration was sufficient.
    3. Same — Motion for New Trial — Objections—Appeal.
    Where, in an action against a stockholder of a corporation for a labor debt, the court directed a verdict for defendant on the ground that his liability had terminated by a discharge in bankruptcy, an objection that there was no evidence that plaintiff had performed labor for the corporation, raised for the first time in opposition to plaintiff’s motion for new trial, should not be considered, either on the disposition of the motion or on appeal from the court’s order denying the same.
    3. Same — Evidence—Judgment and Execution.
    On the trial of such action, a judgment against the corporation, reciting that it was for labor performed, and an execution issued thereon, returned unsatisfied, were admissible in evidence, as against an objection that defendant, as a stockholder, was not bound thereby; and such objection was insufficient to warrant the after contention that there was no competent evidence that the claim against the corporation was for labor.
    4. Bankruptcy — Discharge—Liability—Burden op Proop.
    A discharge in bankruptcy does not, by the terms of the act, release the bankrupt from claims omitted from the schedule, unless the creditor had knowledge or notice of the bankruptcy proceedings; and the burden of proving such knowledge or notice rests upon the bankrupt.
    Error to Wayne; Brooke, J.
    Submitted November 5, 1903.
    (Docket No. 95.)
    Decided February 16, 1904.

      Assumpsit by Hugo A. Wineman against Frank E. Fisher to enforce defendant’s liability for a labor debt of a corporation in which he was a stockholder. From a judgment for defendant on verdict directed by the court, • plaintiff brings error.
    Reversed.

      William Stacey, for appellant.

      George W. Bates, for appellee.
   Carpenter, J.

Plaintiff brought this suit in justice court. His declaration was “in an action of assumpsit on all the common counts, and specially on a certain judgment rendered by Justice Stein, one of the justices for the city of Detroit, on the 3d day of July, A. D. 1899, in favor of said plaintiff * * * and against the Fisher Electrical Manufacturing Company, on a labor debt, for the sum of $251.16, and interest since the date of said judgment. Recovery is sought in this case under section 7065, 2 Comp. Laws 1897, which makes stockholders of a corporation personally liable for labor performed for the corporation.” The plea was the general issue, with notice that defendant would rely upon a discharge in bankruptcy. The trial in the justice court resulted in a judgment for plaintiff.. The case was appealed' to the circuit. On the trial in that court plaintiff offered in evidence the judgment referred to, which contained this recital:

“ That the entire amount of said judgment is for labor performed by the plaintiff for the defendant prior to the 15th day of February, 1898, and that the same is a preferred claim, under Act No. 91 of the Public Acts of 1887, against the estate of the defendant.”

He also offered in evidence an execution returned unsatisfied. These were objected to on the ground that defendant, as a stockholder, is not bound by any judgment against the original debtor. This objection was overruled, and the judgment and execution admitted in evidence.

Defendant introduced in evidence a discharge in bankruptcy, dated July 12, 1899. By its terms defendant was “ dischai’ged from all debts and claims which are made provable by said acts against his estate, and which existed on the 17th day of May, A. D. 1899, * * * excepting such debts as are by law excepted from the operation of a dischargé in bankruptcy.” The schedule of liabilities in the bankruptcy proceedings did not include plaintiff’s claim.

The court directed a verdict for the defendant upon the ground that the discharge in bankruptcy put an end to his liability. Leave was reserved at the same time to enter a verdict for the plaintiff if, on a motion for a new trial, the court should become convinced that such a direction was proper. In opposition to a motion for a new trial, defendant was permitted to urge that the verdict was properly directed, not only because of the discharge in bankruptcy, but because the declaration did not set forth a cause of action, and also because there was no evidence that plaintiff had performed labor for the Fisher Electrical Manufacturing Company; and the court for these reasons, as well as for the reason that the discharge constituted a defense, denied the motion.

We think, under the liberal rules governing practice in justice court, the declaration was sufficient. See Hartford v. Holmes, 3 Mich. 460; Cicotte v. Morse, 8 Mich. 427. It clearly apprised defendant of the claim asserted against him, and was not open to objection under the decisions of Tilden v. Young, 39 Mich. 58, and Chicago, etc., R. Co. v. Sturgis, 44 Mich. 538 (7 N. W. 213).

We do not think that the objection that there was no evidence that plaintiff had performed labor for the Fisher Electrical Manufacturing Company should have been considered by the circuit judge on the motion for a new trial, nor that it should be considered by this court. Assuming that the recital that “the entire amount of said judgment is for labor performed ” has no effect as evidence, because the statute which authorized it was unconstitutional (see Fisher v. Wineman, 125 Mich. 642 [84 N. W. 1111, 52 L. R. A. 192]), this objection should have been made before the trial court directed a verdict. That objection was not made. The objection that the judgment and execution were inadmissible in evidence because defendant, as a stockholder, was not bound thereby, was properly overruled, — for the judgment was clearly admissible in evidence, — and did not raise the question now under consideration. In directing a verdict for the defendant on the ground that the proceedings in bankruptcy terminated his liability for the claim in suit, the court assumed that there was evidence of such liability. To permit defendant to shift his defense after he obtained a verdict on this assumption would be manifestly unjust and unfair to plaintiff. Had the objection now under consideration been made before verdict, it is by no means certain that the court would not have permitted plaintiff to answer it by introducing additional testimony. In any event, plaintiff could then have avoided the effect of a final adjudication by submitting to a nonsuit.

The important question in the case is whether the debt for which suit was brought was discharged by the bankruptcy proceeding. Section 17 of the national bankruptcy law reads:

“A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as * * * have not been duly scheduled in time for proof and allowance, with the name of the creditor, if known to the bankrupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy.” Act July 1, 1898, chap. 541, 30 Stat. 550.

It is apparent from this language — and it is so held; see Tyrrel v. Hammerstein, 6 Am. Bankr. R. 430, 67 N. Y. Supp. 717 — that the discharge does not release the bankrupt from claims omitted from the schedule, unless the creditor has notice or knowledge of the bankruptcy proceedings. There was no evidence in this case that plaintiff had such notice or knowledge. It is contended by the defendant that plaintiff was bound to prove that he did not have it. We think the burden of proving that plaintiff had such notice or knowledge rested upon defendant. See Potter’s Dwarris, Stat. & Const, p. 119; Sedgwick, Stat. Constr. (2d Ed.) p. 93; 1 Chitty, Crim. Law, p. 283.

The judgment of the court below must therefore be reversed, and a new trial granted.

The other Justices concurred.


author: Moore, C. J.

text:
    McGRAW v. UNION TRUST CO.
    1. Banks — Insolvency—Breach of Lease — Claims—Allowance.
    Where the premises leased by a bank as a banking house for a term of years are, before the expiration of the term, vacated because of the insolvency of the bank and the appointment of a receiver, the lessors are entitled to have their claim for damages, arising from the breach of covenant, allowed by the receiver as a claim against the bank’s estate.
    2. Same — Demand Note — Set-off.
    Where, on the insolvency of a bank, the lessors of its banking house are indebted to it on a demand note, they are not entitled to have their full claim for damages, arising from a breach of covenant in the lease, set off against the claim of the bank on its note.
    3. Same — Departments of Bank.
    Where a bank conducted a savings and a commercial department in its banking house, which it held under a lease, a claim for damages for breach of the lease on the bank’s insolvency is chargeable pro rata against the assets of each department.
    Appeals from Wayne; Donovan, J.
    Submitted November 17, 1903.
    (Docket Nos. 56, 57.)
    Decided February 16, 1904.
    Petitions by Homer McGraw and Hoyt Post, as executors and trustees of the last will and testament of Thomas McGraw, deceased, against the Union Trust Company, as receiver of the City Savings Bank of Detroit, for the. allowance of certain claims against the insolvent’s estate. From decrees disallowing the claims, petitioners appeal.
    Reversed.

      Wilkinson, Post & Oxtoby, for petitioners.

      Bowen, Douglas, Whiting & Murfin, for respondent.
   Moore, C. J.

The petitioners have two claims against the respondent growing out of tbe same transaction, which may be considered together. The following statement of facts is necessary to an understanding of the questions involved :

The City Savings Bank failed on February 10, 1902. It occupied banking quarters in a building known as the “McGraw Building.” Its lease provided for a term of five years from May 1, 1899, at a yearly rental of $3,000, payable in monthly installments of $250, due at the end of each month. The Union Trust Company, as its receiver, continued to occupy the banking office until March 31, 1902, up to which time the pro rata rent was paid. The keys, although tendered, were not delivered to the McGraw estate until an agreement was entered into July 8, 1902, by which it was provided that, without prejudice to the rights of either party, the receiver was to deliver up the keys, and the petitioners were to occupy the premises for the purpose of cleaning up and obtaining a tenant thereof, and re-renting the premises. No tenant was found until January 22, 1903, when the National Peat Fuel Company leased the premises on a weekly basis of $40 per week. This company occupied the premises for four weeks, paying in all $160 as rent. On February 11, 1903, the premises were rented to Alex. Y. Malcomson for a coal office for a term of four years and two months from March 1, 1903, being the balance of the term of the City Savings Bank lease and an additional term of three years, he agreeing to pay for the balance of the City Savings Bank term at the rate of $2,000 per annum in monthly installments of $166.67. As the City Savings Bank would have paid for this 14 months at the rate of $250 per month, there would thus be a deficiency of $1,166.67 during the period of the Malcomson lease. The petitioners filed claims for the difference between what was to be paid by the bank and what in fact will be received.

At the time of the failure of the bank, it held a demand note of the petitioners, given on April 8, 1901, for $3,000, upon which interest had been paid to January 2, 1902. The petition asked to have the note and rent offset against each other. The petition also asked that the claim for rent be given priority, and, in case set-off was refused, that the rent be paid out of the assets of the savings and commercial departments in proportion to the amount of deposits in each of said departments when the bank failed. Objection was made to the petitioners’ claims on the ground that their claim was contingent, and as such not provable against the assets of the bank in the hands of the receiver. The total claim of the McGraw estate included in the two petitions, and disallowed by the court, is the sum of $3,840.

The first question is, Should the claim of petitioners be allowed ? It is the claim of respondent that rent which became due after the appointment of the receiver does not •constitute a claim, within the meaning of the general banking act; citing cases. It contends that a rent service is not a debt, and a covenant to pay it is not a covenant to pay a debt, but is a security for the performance of a collateral act. It is the claim of petitioners (and we quote from brief of counsel):

“The claim of the petitioners, as presented, shows an absolute and not a contingent liability, and constitutes a proper claim against the assets of the City Savings Bank in the hands of the receiver. Their claim is for damages sustained through the insolvency of the bank and for its breach of covenant, and not for rent to be paid by the receiver as administration expenses. * * *
“ The rule appears to be that a receiver may elect whether he will take over and assume, or discard and disavow, outstanding leases of the insolvent party. The receiver will naturally, take over leased premises which are profitable, and will also seek to surrender leases unprofitable to the tenant, but profitable to the landlord. For this reason the lessor is allowed to himself re-rent the premises, and, if there is a deficiency arising out of such re-renting, such amount is a provable claim. The rent maturing within the period for proving claims may also be proved up. The claim of the McGraw estate is made up of both such items. With the exception of the time from February 10 to April 1, 1902, during which the reeeiver itself occupied the banking office, and paid pro rata, the office remained vacant until January, 1903, when the National Peat Fuel Company occupied it for four weeks, and after March 1, 1903, and for the remaining 14 months of the bank’s lease, Mr. Malcomson leased the premises at a net loss to the McG-raw estate of $83.33 per month. There is nothing contingent about the claim of the petitioners. Their claim is absolute. The rent accruing down to March 1, 1903, is absolute and fixed, and the loss for the remaining 14 months became fixed and absolute when the Malcomson lease was entered into.”

An examination of the authorities cited shows a lack of harmony in the decisions.

The banking law (section 6145, 2 Comp. Laws) provides that the banking commissioner, upon the appointment of a receiver, shall give notice by advertisement “calling on all persons who may have claims against such bank to present the. same to said receiver, and make legal proof thereof.” Section 6146 provides:

‘ ‘ From time to time, under the direction of the commissioner of the banking department, the receiver shall make ratable dividends of the moneys realized or collected by him on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction, and the remainder of the proceeds, if any, after the costs and expenses of such proceedings and all debts and obligations of the bank are satisfied, shall be paid over to the stockholders of such bank, or their legal representatives, in proportion to the stock by them respectively held.”

The bank had the right to make the lease when it did, and had it continued in business and abandoned the premises, and the lessor, in accordance with the terms of the lease, had re-entered and relet the premises at a loss, there could be no question but the lessor would have a remedy over against the bank. The following cases — and we think they are in accord with the weight of authorities— recognize the same right in the lessor where the premises are vacated because of the insolvency of the corporation and the appointment of a receiver: People v. St. Nich olas Bank, 151 N. Y. 592 (45 N. E. 1129); Reading Iron Works, 150 Pa. St. 369 (24 Atl. 617); People v. National Trust Co., 82 N. Y. 283. See, also, Chemical Nat. Bank v. Deposit Co., 156 Ill. 522 (41 N. E. 225); Bolles v. Drug & Chemical Co., 53 N. J. Eq. 614 (32 Atl. 1061).

The next question is, Are petitioners entitled to have their full claim offset against the claim of the City Savings Bank against them on the demand note for $3,000 ? It is the claim of the petitioners that the breach of the covenants of the lease occurred because of the insolvency of the bank, and occurred upon the day it failed, thereby giving the petitioners a claim for damages, though the amount thereof did not become liquidated until the Malcomson lease was made, in February, 1903, and that the claim so arising may be offset against the claim of the bank'; citing Thompson v. Union Trust Co., 130 Mich. 508 (90 N. W. 294). On the other hand, it is insisted this case does not sustain the petitioners’ right of set-off, and that Mechanics’ Bank v. Stone, 115 Mich. 648 (74 N. W. 204), Koegel v. Michigan Trust Co., 117 Mich. 542 (76 N. W. 74), and Henderson v. Michigan Trust Co., 123 Mich. 688 (82 N. W. 510), are conclusive against petitioners’ contention.

In Thompson v. Union Trust Co., supra, it was said:

“Counsel for appellant contend that these deposits are not subject to set-off, because not mutual credits; that they are not mutual, because, at the time the bank suspended, the debt owing from petitioner to the insolvent bank was not due; that such set-off would affect the rights of other creditors, and would give petitioner a preference over them.”

It was held that the deposit of Thompson was due without demand when the bank became insolvent; that the receiver stood in the place of the bank; that, as Thompson might waive the time of credit, which was for his benefit, he might avail himself of his right of set-off. It will readily be seen that the cases are easily distinguishable. We do not think the right of set-off can be exercised here.

The remaining question is, What department of the bank should pay the claim ? Counsel are in substantial accord upon the proposition that if the claim is to be allowed at all, and may not be set off against the claim of the bank, it should he paid proportionally out of the assets of both departments of the bank. As these departments were-both conducted by the bank, it is only right they should bear the liability pro rata growing out of making the lease.

The decrees are reversed, and one will be entered here in accordance with this opinion.

The other Justices concurred.