author: Moore, C. J. Grant, J.

text:
    WIERMAN v. BAY CITY-MICHIGAN SUGAR CO.
    1. Contracts — Crops—Sugar Beets — Title to Crop.
    A contract between a beet sugar company and an individual, by the terms of which the latter agreed to grow, on rented land, a crop of beets-from seed furnished by the company, examined, and held, that by its terms the title to the crop vested in the company as soon as it began to grow.
    2. Principal and Agent — Authority oe Agent — Evidence-Agent’s Declarations.
    Circumstances attending the harvesting and shipment of a crop of beets by the agent of a sugar company examined, and held, that there was no evidence to go to the jury as to the agent’s authority to bind the company to pay debts contracted by the grower of'the beets, the agent’s declarations not being admissible.
    3. Same — Admissibility.
    The declarations of an alleged agent respecting his authority are admissible only after his authority has been shown.
    4. Same — Apparent Power.
    The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent.
    5. Novation — Elements—Release oe Original Debtor.
    Novation exists only where there is an extinguishment of the original debt, the creation of another, and the assent of the three parties to the new contract.
    6. Same — Evidence.
    What was said and done at the time a novation is claimed to have been effected governs the rights of the parties, and subsequent statements of the creditor that he looked to the new debtor and not to the original are incompetent.
    7. Contracts — Consideration—Forbearance.
    Forbearance to bring attachment by one having no grounds therefor is no consideration for a promise by the owner of the property threatened to pay the debt of a third person.
    8. Principal and Agent — Authority oe Agent — Evidence.
    Evidence that defendant, through its agent, paid other claims similar to that of plaintiff, is not admissible either to show the agent’s authority or to raise an inference that an agreement was made by defendant’s agent to pay plaintiff’s claim.
    Moore, C. J., and Blair, J., dissenting.
    Error to Bay; Shepard, J.
    Submitted January 6, 1905.
    (Docket No. 35.)
    Decided December 30, 1905.
    Assumpsit by Frank Wierman against the Bay City-Michigan Sugar Company for work and labor done and for rent. There was judgment for plaintiff, and defendant brings error.
    Reversed.

      Simonson, Gillett & Clark, for appellant.

      D. L. Johnson, for appellee.
   Moore, C. J.

The claims on which plaintiff sues grow out of the raising of a crop of beets by one James Wierman, plaintiff’s brother. There are three claims — one for labor of plaintiff, and two for rent of land owned, respectively, by David Gary and George Hinbaugh, both assigned to plaintiff for purpose of suit. In February, 1902, James Wierman entered into an arrangement with the defendant company for the raising of 51 acres of beets, executing a contract in two parts, which read, so far as is material to this issue:

“1. Said first party agrees to plant the seed furnished by said second party; that he will sow 15 pounds to the acre; that he will plant, cultivate, and harvest the beets raised by him under this contract, as he shall be from time to time directed by said second party, during the month of December or later. Beets to be delivered after the 1st of November must be pitted by first party. In harvesting said beets said first party will cut off the tops clean and square at the base thereof, so that no part of the stem, where leaves have grown, shall be left thereon. All seed furnished for planting beets under this contract shall be paid for at the rate of 15 cents per pound at Bay City, and the amount for the same and any advances made by said second party to said first party shall be deducted from the first payment due for beets. In delivering beets, said first party will exercise due care to prevent stones, dirt, or other refuse to become mixed with the beets delivered either in wagons or cars.
“2. It is mutually agreed that the title to said crop of beets to be grown from seed furnished by said second party, and on the lands above described, shall vest in second party as soon as the crop begins to grow; but the amount to be paid to said first party shall be based solely upon the quantity of beets actually delivered in accordance with the terms of this contract. This provision is inserted in this contract for the express purpose of preventing any other person, persons, or companies from acquiring any interest in the title or right to the possession of said beets.
“8. It is further agreed that beets purchased under this contract shall be delivered to said second party’s beet sheds in Essexville, and shall be paid for as follows: Beets testing 12 i , October delivery, $4 per ton; November delivery, $4.50 per ton; December or later delivery, $5 per ton — and 33-J- cents per ton for each 11- more or less, for beets containing a greater or less amount of sugar. Payable on the 1.5th day of the month for beets delivered the previous month. * * *
“6. In case second party’s factory shall be destroyed by fire, or otherwise injured to prevent receiving beets, in such an event all beets not delivered shall be properly cared for by first party and delivered as ordered by second party; such extra necessary expense of pitting and delivery to be borne by second party.
“ 7. No additions or alterations made by agents will be binding upon the second party.
“ J. P. Wierman, Farmer.
“Bay City Sugar Company,
“W. L. Churchill, Agent.
(i p >5
“February 26, 1902.
“Bat City Sugar Company.
Gentlemen: I this day enter into a contract with your company to raise forty-six (46) acres of sugar beets, as per the terms of your blue contract. In entering into this contract I represent to you that I have sufficient means to prepare the land and plant same; also that the land that I have rented to be planted to beets that the rent will be paid by me after the crop is taken off, and the owners of the land will look to me and not to the crop for the rent. In consideration of the above, the Bay City Sugar Company agrees to advance me sufficient money to thin, cultivate, and harvest the crop, and all moneys received from the Bay City Sugar Company I agree shall be used for the above purpose.
“ J. P. Wierman.
“Accepted: Bay City Sugar Company.”

It does not appear from the record that either of these papers was ever recorded. In April following Mr. Wierman made a verbal lease with Gary for some land upon which to grow beets he had contracted to grow, and also a verbal lease from Hinbaugh of land to be used for the same purpose, and agreed with them the rent should be paid out of the first beets shipped, and upon the trial testified he so informed the company. He also testified that when the contracts were drawn the company knew he had no money with which to pay rent. The record does not show Gary and Hinbaugh knew the details of the contract between the company and Wierman. Wierman planted the land and hired his brother — plaintiff in this case — to work in the fields with his team. The sugar company made considerable advances to Wierman. Some time late in October or early in November the defendant company sent Mr. Penny to Breckenridge to look after its interests. The claims of the parties as to what then occurred appear in part in a portion of the charge of the court to the jury, and, as this charge is also the subject of criticism, we quote from it:

“ It is claimed that, after the defendant company took possession of the beets and went on to harvest them, they sent a man up there to attend to that work for them, and the plaintiff in this case claims that he himself, and the man Hinbaugh and the man Gary, went to this man, who was harvesting the beets for the company, and told him that they must have their pay for getting out these beets, and if they did not they were going to stop the delivery of the beets, and this agent told them to let the beets go on down to the factory and they should be paid. He would see that they had their pay, and the company would pay them. Now, if this man Penny had authority ?,nd was the agent of the company, had the authority to go up there and bind the company for past indebtedness, such as is claimed in this case, for existing indebtedness to the extent of a trifle over $400, if in the management of the business he was authorized by the company to incur that indebtedness and to bind them to pay the same to clear up any claim that might exist against these beets after they had obtained possession of them as stated, if he had authority so to do, and if it was agreed between James Wierman and -these men and this company through a lawfully authorized agent, the three of them all agreeing that they should pay that amount of indebtedness, it might be a valid agreement between the parties.
‘ ‘ First. There must be an agreement on the part of the defendant, the sugar company, through an authorized agent, an agent having authority to undertake to pay the bill or the account of these parties.
Second. There must be an agreement or understanding between those parties, having these claims against James Wierman, that the sugar company should pay, and an understanding that James Wierman should be released from, the claims, and the sugar company be solely liable to the parties; the parties looking to it solely and releasing the man James Wierman. If they did not release and intend to release Wierman from his obligation, and only accept the sugar company to pay his debts, the debt that Wierman owed them, but to become security to make payment of it, that would be void under the statute of frauds, because it is not in writing, and because any undertaking to pay the debt of another will be void unless it is in writing and signed by the party charged. In other words, if it was an agreement to pay the debt of Wierman, it would be a promise to answer and to pay them the debt of Wierman, and that would be void unless it was in writing and signed by the sugar company or their lawful agent. The claim is made on the part of the plaintiff that it was not an undertaking to pay the debt or to secure the payments to these parties who together make the plaintiff, but that it was an undertaking to pay the debt, and that they then and there according to the terms of the arrangement released James Wierman from the debt, because, if the debt was still existing and outstanding, it would not be a novation or attornment, as it is called in law. Now, did these parties make the arrangement that they claim with the agent of the company, he having authority to pay that debt, and did they release James Wierman, and was it and is it their purpose not to look to him, whatever the result of this case may be ? Second. Did this defendant, through its agent there, Mr. Penny, undertake to pay those men this bill, regardless of whether there was any funds or any surplus out of which to pay after the beets had been taken in ? It appears that when the beets were actually taken in there was a shortage of over $400. _ Such were the conditions of the year that the man James W ierman gave up the contract, gave up the beets, and let them take charge of them, and he gave his time so far as he might in getting them in, but did not take any general charge of the matter, but he left them to take care of them as best they might. Out of it there was that loss as is claimed upon the part of the defense, and there was a loss on the other side too as is apparent there. The agency of Mr. Penny to make any such arrangements as is claimed, if it was made, is denied by the sugar company’s secretary, who had sole charge, evidently, of all the negotiations and transaction; and it is claimed that Mr. Penny, who went up there, simply had authority to go up there and harvest these beets, and not to incur any existing obligations, and that he did not incur any existing obligations whatever of any kind, that he did not intend or propose, and had no thought or idea of binding this company to the extent of those claims to the amount claimed here for anybody. The secretary of the company testified that he had no power to do any such thing as that, that he never conferred -upon him or upon any of the agents any such power. He could only submit proposed expenditures, proposed action on his part, to the company in regard to what he should do, and act under their approval or direction, and when they approved and directed they would send him the money to carry it out; that they never gave any such authority, or heard of it, or knew of any such claim as is made in this case,- or authorized it.
“That is the issue, gentlemen. You have heard the testimony as to what Mr. Penny assumed to do. Mr. Penny testified that he had no power to do that and that he did not undertake to do it; that as far as he went was when the beets were shipped out to the factory and when the account was made up with James Wierman, why, whatever money there was surplus he would pay that-upon their account with James Wierman’s consent, and that is as far as he undertook to go. You have heard the testimony and all the testimony on both sides, and it is a question for you, gentlemen of the jury, under the testimony in the case, as to the action of Mr. Penny, as to his power or authority. Did he have authority to bind the company in the way it is claimed upon the part of the plaintiff ? If he had, the company would be liable; if he had not, there would be no liability in this case.
“The burden of proof is on the plaintiff, as you have heard me say in many cases this term. When he brings this case into court, he must establish his case by a preponderance of evidence in order to entitle him to recover. If he fails to do so, he fails to recover in the case.
“If you find that, after the agreement relied on by plaintiff is claimed to have been made, the debts owing by James Wierman to plaintiff and his assignors were not canceled or extinguished, but remained in force against him, the plaintiff cannot recover.
“If you find that James Wierman still owes to plaintiff or his assignors the amounts in controversy, and will be liable for them if plaintiff fails to recover in this action, then plaintiff cannot recover.
‘ ‘ If you find that an agreement such as is claimed was made merely as security for the debts of James Wierman, and not as absolute' payment, then plaintiff cannot recover.
“ The defendant would not be liable to plaintiff on an agreement with James Wierman to pay his debts, unless the latter’s creditors were parties to the same agreement.
“Defendant would not be liable on any verbal agreement with the creditors of James Wierman to pay his debts, unless the defendant Wierman and the creditors in question all joined in the agreement and also Wierman’s liability was absolutely extinguished and defendant’s liability substituted for it.
“ If the plaintiff and his assignors had no legal lien on the crop of beets raised by James Wierman, and the defendant had a prior title, then based upon the grounds of lien there would be no consideration for the promised claim to have been made, and the plaintiff could not recover upon the ground of lien.
“The agreement relied upon, alleged to have been made by Penny as agent for the defendant, the plaintiff cannot recover unless you find that this agent was authorized to make such an agreement and that it was in the scope of his authority.”

Most of the important assignments of error hinge iipon the portion of the charge quoted and the questions related thereto. It is insisted by counsel for appellant:

(1) That the written instruments gave the ownership of the crop to the defendant. Jones on Chattel Mortgages, § 140.

(2) That no alterations or additions made by an agent could bind the company.

(3) That Mr. Penny had no authority to make the arrangement referred to by the witnesses and the judge in* his charge.

(4) That what Mr. Penny said as to his authority was incompetent under Bond v. Railroad Co., 62 Mich. 643, and other cases cited.

(5) That all testimony as to any agreement between Mr. Penny and the plaintiff and his assignors was incompetent.

(6) That a verdict should have been directed for the defendant.

1. Did the written instrument give the ownership of the crop to the defendant ? A question much like this was presented in Lingle v. Owosso Sugar Co., 139 Mich. 203, which the court found it unnecessary to decide. In this case, because of the finding of the jury in relation to the contract which the company made through Mr. Penny with the plaintiff and his assignors, we deem it unnecessary to decide this question.

2, 3, 4, 5, and 6 may be discussed together. Could the company be bound by any alteration or addition made to the contract by an agent ? It is clear a corporation can accomplish nothing, except by the agency of men who are authorized to act for it. The defendant company was organized to make sugar from beets, a crop not generally grown, and for which there is no general market. To make sugar the defendant must have the beets. To get them it must grow them or contract to have them grown. Mr. Penny was the agent of the company for some purposes. He has been in its employ since December, 1901. His place of operation was out of town in any section of the country where the company sent him. We quote from his testimony:

“ I went down there to get out beets shipped in from the contractors. We had a great acreage in that year. It was later than the 1st of November. I was sent there to get the beets into the factory as soon as possible, because they expected to close about the 1st of January, as usual. I also looked after the beets supposed to have been grown by Mr. Thistle. I also went there to see about the beets grown by Mr. Wierman, as well as 200 or 300 others.- I went there with no instructions in regard to Mr. Wierman’s beets, particularly, any more than the others. I was to assist and get the beets into the factory as soon as possible. * * * I went to superintend the getting in of the beets, which I did. I also superintended the getting in of the beets of Mr. Sensabaugh. There was nothing said between me and Mr. Wierman about my taking charge of the beets for the company. It was not necessary to say anything. He was doing nothing to it. I went there to get the beets in. He did practically nothing. I had instructions from the company to get Wierman’s beets in. I received, while I was there, some moneys from the company with which to get in these beets. I cannot remember how much. I cannot tell whether it was one or two checks. It was whatever was necessary to take in the beets, to pay for the labor. I paid for all the labor that was incurred after I went there. I paid for none that was incurred before that I know of. If any bill was brought in that was paid, it was smuggled in. * * * We had possibly 10 or 15 people working for us at that time on Wierman’s beets. We paid them whenever they presented their bills. Some of them would quit, and when they came in would bring the bills, and if I hadn’t money I couldn’t pay them off two or three times until there was enough to get a check from the company, then I telephoned the company how much money was necessary to pay for those bills, and they sent the check. When the bills were receipted, we remitted them to them. I think I just sent down for checks twice. I sent down for a specific amount each time, corresponding with some bills which I had to pay. That check will tell you that. I did not say I was paying off about every night. Some of them were leaving every day, and if there was a few of them left today, and a few tomorrow, I would keep them until there was enough to make it an object. I would not send for a small check. Some of them had only a few days’ pay coming to them. Mr. Sensabaugh paid part of these bills in my presence. He was better acquainted with the people, and he could identify the parties, and I made use of him in that way. He did not have the money deposited in his name. We had one or two instances where women wanted their money right away. They came in at night, and I had no money, and Mr. Sensabaugh made a check to pay them, and I reimbursed him as soon as the check came.”

It is true this witness denies %he had authority to pledge the credit of the company. He denies that he had authority to make the contract testified to by the witnesses. The witnesses for the plaintiff said he assumed to have authority and made a contract. He denies he made any such contract. The secretary of the company says of Mr. Penny:

“At the time he went to Breckenridge in the fall of 1902 his instructions were to go up there and get the beets in from contractors. That was as far as his authority extended to get the beets in. ”

His testimony' discloses that at this time the company had made large advances to Wierman. He testified Penny had no authority to pledge the credit of the company. He testified:

“ In this instance and in some instances where he had taken charge of the beets he paid those labor claims himself, as he did in this case. I was aware of that. * * * We would take his word up to $100 or $150, and ask him to send in receipts for money, showing where it was paid out.”

It is clear from the testimony of defendant’s witnesses that Mr. Penny went to Breckenridge for the purpose, among other things, of taking possession of this crop and getting it to the factory, and that he was authorized to do so by the officers of the company. The written contract contemplated the beets should be harvested and delivered by Mr. Wierman as directed by the company. It makes no suggestion of any expectation or right on the part of the company to take possession of the crop, harvest it, and deliver it. What, then, was the situation when Mr. Penny went to Breckenridge ? Mr. James Wierman had a crop of more than 40 acres of beets, which he had put in under a written contract upon land leased after the written contract was made, with the rent to be paid out of the first shipment. Into this crop he had put all the advances made by the defendant, considerable of his own time and trouble, and $60 of his own money, and the labor of his brother and his team. He was entitled to any balance from the proceeds of the crop after defendant had been paid the price of the seed and its advances. It was then getting to be late in the fall. The company had in the crop the price of the seed and several hundred dollars in advances. It sent Mr. Penny to Breckenridge as its agent to get in the crop. He says he was instructed by the company to get the beets in. It is apparent that if he were to take charge of the crop, hire men and teams to do so, paying them therefor, and delivering the beets to the factory, that he was doing something which by the terms of the written contract he was not authorized to do. His testimony and that of the secretary of the company, as well as the testimony of plaintiff’s witnesses, discloses he did these things. It is true he and the secretary say he had no authority to pledge the credit of the company, but he did this daily by hiring men and teams to harvest and draw the crop and engaging cars for the transporting of the beets. It is difficult to see how the officers of the company expected Mr. Penny to go to Breckenridge to do what he was sent to do without their also expecting he would add to and alter the terms of the written contract. It is evident some arrangement was made by Mr. Penny when he took control of the crop for the company. He and the witnesses do not agree as to what that arrangement was.' Mr. James Wierman says the arrangement was that the company would pay the claims against the crop and take it.

“ The conditions were that they would pay the claims that were against them. They paid some for work which had been done before; that I had incurred. Mr. Penny and Mr. Sensabaugh together paid those claims. I handed them the amount of all those claims. They were aware of the amount of Frank Wierman’s, Hinbaugh’s, and Gary’s claims. I don’t know of my own knowledge of the arrangement between these parties and Mr. Penny, only just as I have overheard some of it. I heard it promised that they would get their pay if they would let the beets go to the factory. That was done by Penny and Sensabaugh both. They were both present. Those parties allowed the beets to go, and they were shipped to the company.
Q. Has Mr. Gary, or Hinbaugh, or Mr. Wierman, your brother, ever made claim to you for their money ?
“A. They did not.”

Mr. Sensabaugh, who was sent to Breckenridge with ■ Mr. Penny, and who helped hire men and teams, and who paid out a good share of the money for the defendant, in the presence and under the direction of Mr. Penny, testified:

“We talked over the matter in regard to what had been done and the work that had been done on the beets. Men had pulled beets, and topped beets, and such work as that, and they wanted their pay; and we asked Mr. Wierman to make an itemized statement of their account. That was what had been accomplished before the company took charge. He made those statements. They were to Mr. Penny and me. * * * I knew of Mr. Penny pledging the credit of the company in agreeing to pay Mr. Wierman these other bills. Outside of that I never knew of his doing so. I never did outside of that which is involved in this case. I raised a crop of beets that year myself. * * *
The Court: What arrangements, if any, did Mr. Penny make with those parties or Mr. Wierman about the payment of these claims ?
“A. Mr. Wierman was going to attach the beets. He came to me and Mr. Penny, and he was going to attach the beets, and Mr. Penny told Mr. Wierman to let the beets go, and when the matter was settled up after the beets were in, so that Mr. James Wierman’s account could be balanced up, he would get his money. I don’t think Frank Wierman took any action. I don’t know of his attaching the beets. All these beets were loaded on cars.”

Mr. Hinbaugh, one of the men whose land had been leased, testified to having heard of the arrangement made between Mr. Penny and Wierman, and sought an interview with the former.

“I told him the understanding Mr. Penny and Mr. Wierman had, and I wanted to know what about the pay for my beets. I expected to get the money to pay my taxes, and I wanted it out of those beets, and I was to have my pay out of the first shipment of beets, and he said: ‘There will be no trouble. You will have the money to pay your taxes. As soon as the beets are in, you will get your pay.’
“Q. You understand he promised it on behalf of the company ?
“A. Yes, he did. * * * Certainly, I knew nothing about Mr. Penny at that time. I was holding the company responsible for my beets.
Q. Did you at that time, or have you at any time since — that is, at the time this promise was made to you— held Mr. Wierman for this amount ?
“A. No, sir; I hold the Bay City Sugar Company.”

Mr. Prank Wierman testified:

Q. What did Mr. Penny say'to you ?
A. He said that the company had taken charge of this crop with the understanding that they should pay those claims, and that for me not to make any trouble about moving the crop, and the company would see that I got my pay, they would pay me. I said: ‘ I want to know that I am going to get my pay. My team has worked hard with the understanding that I should have my pay when the beets were harvested.’ And he says: ‘You rest there. You will get your pay. The company will pay you.’ And he says: ‘We want to receive those beets in, and the sooner they are in the sooner you will get your pay.’ I says: ‘ If that is the case, all right. What I want to know is that I am going to get my pay for the work.’ I worked further for Mr. Penny.
Q. What was your understanding about your pay that was coming to you when you went to work for Mr. Penny ?
“A. My understanding was that I was to go along and get those beets in, and the sooner we got them in the sooner I would get my pay, and he called me to make out my bill of work' done previous to that, and that he would take it in and bring it back with him, and I made out my bill and gave it to him.”

He testified that from then on he looked to the company, and not to his brother, for his pay. He then quit working for his brother, and with his team worked for the company until the crop was harvested.

Mr. Gary, who leased some of the land, testified that he had heard of the arrangement between the company .and Wierman.

“ I did not attach the beets that year. I bad a conversation about attaching. I was going over to Breckenridge to attach the beets. They were on the ground most of them. ■ There was one or two loads I guess in the car. I saw Mr. Penny at that time. He said: ‘ Don’t attach the beets. They want them immediately, and as soon as Bay City gets the beets they would pay me.’ I did not attach the beets. I refrained from .attaching them because of this promise.
Q. Did you look to the sugar company then for your .pay?
“A. I did. * * *”

On the cross-examination he testified:

‘ ‘ Mr. Penny came down, I think, along about the 1st or middle of November. I could not remember how many times I talked with Mr. Penny about it. More than a dozen times I spoke to him about that same thing. I think the first time was when I came over and was going to stop the beets. Then the conversation began. I made the bargain that if he would live up to his agreement I would not stop the beets, and then I was going to stop the beets. I was going over to stop the beets, and he said: ‘If you will not stop the beets, and they send them down there, he would pay me — the company would pay me— right up. ’ He thought he had about three loads in the car. He says: ‘ Let them go, and when I go down with the beets I will bring a check back.’ I think Mr. Sensabaugh and James Wierman were there. Sensabaugh said: ‘Yes, let them go, and the company will see that you will have your pay. The company is going to pay for these things, the whole thing, pay up everything against the crop.’ They all said the same thing. Jim says: ‘ Yes, let them go. The company will see that you have your pay.’ So I thought, if the company was good, that was all I wanted.”

It is true Mr. Penny denies all this testimony; but that presents a question of fact for the jury, if the testimony was competent, as we think it was. We also think the jury were justified in saying it created a liability upon the part of the company. Mr. Penny was sent to Breckenridge' to do a thing which necessarily involved changes in the written contract. It is conceded he was clothed with the power of hiring men and teams and the taking over of the crop. He was clothed with the necessary power to do this. He did do it, and in order to do it the jury found he made the contract sworn to by the witnesses for the plaintiff. His apparent power could not be limited by secret instructions, so as to preclude those who dealt with him, while apparently clothed with all necessary power to carry out the object he was set to do, from recovering. As the result of his agreement his company was allowed to take the entire crop at once, without any attempt on the part of the other creditors to enforce their claims. The company has obtained the results of what it claims was the unauthorized act of its agent, and seeks to avoid the liability created thereby. This it cannot do. See Busch v. Wilcox, 82 Mich. 315.

We have examined the other assignments of error, but deem it unnecessary to discuss them.

Judgment should be affirmed.

Blair, J., concurred with Moore, C. J.

Grant, J.

The contract between J. P. Wierman and defendant is given in full in my Brother Moore’s opinion. The record presents four questions:

(1) Did Mr. Penny, the defendant’s agent, have authority to alter or change the terms of that contract ?

(2) Even if Mr. Penny had such authority, was a contract of novation actually made between the plaintiff, his assignor, and the defendant ?

(3) Was it competent for the creditors of J. P. Wierman, the plaintiff and his assignors, to testify that they looked to the defendant and not to Wierman for their pay?

(4) Was it competent for the plaintiff to show that defendant had paid other claims similar to his ?

1. By the terms of the agreement the title to the crop became vested in the company as soon as it began to grow. Hinbaugh and Gary, who rented parcels of their land to J. P. Wierman on which to raise beets, entered into contracts with the beet sugar company in terms the same as that of Mr. Wierman. They gave up their contracts and rented their land tp Mr. Wierman. They were therefore fully cognizant of the defendant’s rights under the contract. The plaintiff knew that his brother had a contract with defendant, but testified he was not conversant with its terms. Plaintiff testified:

“I didn’t have any interest in the crop, merely that I was to get my pay when the beets were harvested.”

He had no lien or claim of any kind upon the beets. He worked as a laborer for his brother. The plaintiff and both of his assignors testified that they knew nothing about Mr. Penny’s authority, except what he told them. Under the contract between J. P. Wierman and defendant it was under no obligation to pay the rent or to pay plaintiff for services rendered his brother. The plaintiff’s claim is that he and his assignors made a contract by which the defendant agreed to pay plaintiff for his past labor and his assignors for the rent. As stated by the learned circuit judge:

“The defendant complied fully with its contract, advanced the seed, advanced money, and when all the beets ■ were harvested and delivered it was behind $400.”

The judge stated also:

“ The year was a disastrous one for the beet business; that Mr. Wierman had very little money of his own; that he put only a small amount into the business (about $60, paid to plaintiff); that in November it was seen that Mr. Wierman was not going to get out any beets, and that the defendant took possession with Mr. Wierman’s consent, as it had a right to do, under the contract.”

The contract expressly prohibited Mr. Penny from making additions or alterations therein. Such a provision is reasonable and wise, and dictated by common experience and a proper regard for the interests of the corporation and its stockholders. No prudent business man would do otherwise. The provision was clearly understood by J. P. Wierman and plaintiff’s assignors. Mr. Penny was sent out, clothed with no other authority than to see that the beets of the numerous parties who had contracted to furnish them were shipped at the proper time. Plaintiff and his assignors are chargeable with knowledge that Mr. Penny must have had express authority or one necessarily implied or apparent to contract for his principal that it should pay the debts- of another. Penny had no such authority. It is due to him to say that he expressly denies making any such agreement.

The beets contracted to be raised by Mr. Wierman were shipped to all appearances to defendant’s factory the same as other beets were shipped. There was nothing to indicate to defendant, through its proper officers, that Penny had agreed to pay the debts of J. P. Wierman. It did know that Penny was getting in the beets and it was furnishing the money to pay the expense as was contemplated by the contract. Under these circumstances I think there was no evidence to be submitted to the jury as to the authority of Mr. Penny either to alter the original contract or to make a new one. Before Mr. Penny’s statements were admissible his authority should have been shown. With his statements out of the record there is nothing tending to show authority. Hatch v. Squires, 11 Mich. 185; Wells v. Martin, 32 Mich. 478; Danaher v. Garlock, 33 Mich. 295; Bond v. Railroad Co., 62 Mich. 643; Three Rivers Nat. Bank v. Gilchrist, 83 Mich. 253; Davis v. Kneale, 97 Mich. 72; Gore v. Assurance Co., 119 Mich. 136; Nephew v. Railroad Co., 128 Mich. 599. The apparent power of an agent is to be determined by the acts of the principal, and not by the acts of the agent. 1 Am. & Eng. Enc. Law (2d Ed.), p. 990, and note; Mechanics' Bank v. Railroad Co., 13 N. Y. 599. No act of the principal in this case appears upon this record to show that it clothed its agent with authority to pledge its liability to pay the debts of third persons. The question here is one of original authority. There is no evidence of ratification.

3. The second and third questions may be treated together. Novation exists only where there is an extinguishment of the original debt, the creation of another, and the assent of the three parties to the new contract. 21 Am. & Eng. Enc. Law (2d Ed.), p. 666; Dean v. Ellis, 108 Mich. 240. The contract of novation is' to be determined by the written document when in writing, and by the declarations of the parties when resting in parol. The creditor cannot create such a contract by his subsequent statements that he looked to the new debtor, and not to the original. This would be to admit in evidence the creditor’s secret understanding. What was said and done at the time must determine whether there'was a contract of novation. The testimony, therefore, of these parties that they looked to the defendant, and not to Mr. J. P. Wierman, was incompetent. Plaintiff testified:

“I and my brother and Mr. Penny never had any agreement where we three were all together. What my brother and Mr. Penny said to each other I do not know. I did not give him [my brother] a receipt of any kind for his bill. I did. not discharge him in any way from his bill.”

Mr. Hinbaugh, after testifying that his arrangement with Mr. J. P. Wierman was that he was to have his pay out of the first shipment of ’beets, stated his conversation with Mr. Penny as follows:

‘ ‘ I told him that the way the understanding Mr. Penny and Mr. Wierman had, and I wanted to know what about the pay for my beets. I expected to get the money to pay my taxes, and I wanted it out of those beets, and I was to have pay out of the first shipment of beets, and he said: ‘There will be no trouble. You will have the money to pay your taxes. As soon as the beets are in you will get your pay. ’ ”

On cross-examination he testified:

‘ ‘ I never had any agreement with Mr. Penny in the presence of James Wierman.”

Mr. Gary testified:

Q. Did you from that time and have you since relieved Mr. Wierman from that claim ?
“A. No, sir.
Q. What did you answer ?
“A. No, sir.
Q. Did you get my question ?
“A. Yes; I did. * * * I did not then give Mr. Wierman a receipt in full. I did not say anything that would indicate that I would receipt in full for his bill at that time, nor at any other time, * * * AsfarasMr. James Wierman is concerned, the account stands the way it did.”

We think that the conversations did not justify the finding that there was a contract of novation. Nothing was said by either of the claimants, by which it can be legitimately inferred that they had released or intended to release Mr. J. P. Wierman from his obligation. There being no novation, there was no consideration for the promise, alleged to have been made by Mr. Penny, that the defendant would pay the claimants if they would make no trouble. Neither of the parties had any lien or ground for attachment, so far as this record shows; and threats and forbearance to bring attachment suits under such circumstances would not be a sufficient consideration for the promise. Rood v. Jones, 1 Doug. (Mich.) 188; Holland v. Hoyt, 14 Mich. 238; Taylor v. Weeks, 129 Mich. 233. Only one of the claimants, however (Mr. Gary), testified that he made any promise not to attach the beets if his claim were paid.

3. Plaintiff was permitted, under objection and exception, to testify that “the company through its agent paid other claims similar to his.” The precise question arose in Davis v. Kneale, supra. It was there held, speaking through my Brother Hooker, that evidence of the making of similar agreements was inadmissible, either to show the agent’s authority or to raise an inference that the agreement in controversy was made.

The judgment is reversed, and a new trial ordered.

Hooker, Ostrander, and McAlvay, JJ., concurred with Grant, J. Montgomery, J., concurred on the second ground stated.

Carpenter, J., took no part in the decision.


source: Caselaw Access Project

author: Blair, J.

license: Public Domain

text:
    SPARROW v. E. BEMENT & SONS.
    1. Corporations — Reorganization—Fraud Against Stockholders.
    Where a sale of the entire property of a corporation to a new corporation composed of the directors of the old one and organized to take over its assets was in fact fraudulent as to a minority stockholder of the old corporation, the fact that the transfer of assets was accomplished through the agency of valid mortgages, regularly enforced, is immaterial.
    2. Same — Directors—Fiduciary Relation.
    The directors of a corporation are not entitled to make a profit for themselves as promoters at the expense of the minority stockholders by organizing a new corporation and without further investment taking over the assets of the old one by foreclosing trust mortgages given to one of themselves.
    3. Same — Rights or Preferred Stockholders.
    Where, after a reorganization and transfer of assets of a corporation, a preferred stockholder is given to understand that his stock is recognized as still existing and he is notified that he is still a stockholder and entitled to participate in the meetings of the company, the two corporations are identical as far as that stockholder's rights are concerned, and any attempt thereafter to deprive him of his stock amounts to a legal fraud.
    4. Same — Stockholder’s Rights — Enforcement—Parties.
    Where a stockholder files a bill to enforce his rights against a new corporation, formed to take over the assets of the corporation in which complainant was a stockholder, the stockholders of the new corporation, against whom no relief is. sought, are not necessary parties.
    5. Appeal — Errors Reviewable — Necessity of Objections Below. '

    The objection that stockholders in a corporation are necessary-parties to a suit against the corporation should be raised upon the hearing below, and will not be sustained on being raised for the first time in this court, where, since the decree below, the corporation has been dissolved and its property placed in the hands of a receiver.
    Appeal from Ingham; Smith (Clement), J., presiding.
    Submitted October 3, 1905.
    (Docket No. 1.)
    Decided December 30, 1905.
    Bill by Edward W. Sparrow against E. Bement & Sons and E. Bement’s Sons to set aside a transfer of corporate assets. Prom a decree for complainant, defendants appeal.
    Modified.

      Rollin H. Person, for complainant.

      Cahill & Wood, for defendants.
   Blair, J.

The defendant corporation, E. Bement & Sons, hereafter called the “old company,” was organized in 1887, and carried on its business of manufacturing agricultural implements, bobsleds, and stoves from that time until October 11, 1897, when it ceased to do business, and thenceforth its business has been carried on by the defendant corporation, E. Bement’s Sons, hereafter called the “new company.” The officers of the old company during its entire life were A. O. Bement, president, G. W. Bement, secretary and treasurer, C. A. Gower, vice president, and C. E. Bement, superintendent. Mr. A. O. Bement was the general financial manager, and H. S. Bartholomew was sales manager. The gentlemen named, together with Mr. Molitor, for a part of the time, Comprised the directors of the company during the period mentioned. The capital stock of the old company was divided into 35,000 shares of common and 15,000 shares of preferred, of the par value of $10 per share. Of the common stock, A. 0. Bement held 11,534 shares; G. W. Bement, 10,532; Clarence E. Bement, 5,265; C. A. Gower, 5,265; H. S. Bartholomew, 674; and Mr. Molitor, 1,709. Of the preferred stock, 2,900 shares were issued, of which the complainant held 650 shares; The Lansing State Savings Bank, 500 shares; Mr. Thoman, 300 shares; Charles La Dow, 500 shares. J. S. Johnson, of New York City, L. S. Wilcox, of Detroit, and a Mr. Burky, of Grand Rapids, were the other holders of preferred stock, but in what proportions the record does not disclose.

On the 16th day of May, 1896, the old company, being unable to meet its obligations as they matured, executed two sets of mortgages — one real estate and’ one chattel mortgage, covering the property of the company, to its attorney, Edward Cahill, in trust, to secure payment to the home creditors of the sum of $150,000; and one real estate and one chattel mortgage, covering the same property, to its president, A. O. .Bement, in trust for and securing the payment of about $200,000 to the outside creditors. The mortgages to Bement were expressly made subject to the mortgages to Cahill. The mortgages to Cahill were accepted by all of the creditors secured thereby, and the mortgages to Bement were accepted by nineteen-twentieths of the creditors secured thereby. The acceptances of the mortgages to Bement were evidenced by agreements with the several creditors, containing, among others, the following covenants:

“That * * * will accept and receive in full payment, satisfaction and discharge of * * * indebtedness against E. Bement & Sons, the bonds of E. Bement & Sons, its successors and assigns, for fifty per cent, of the face value of * * * indebtedness against E. Bement & Sons, which bonds shall be of the same issue as those issued to the holders of the first mortgage indebtedness, and are to bear interest at six per cent, from Oct. 1, 1897, payable quarterly, which said bonds shall be payable, five per cent, the first year, five per cent, the second year, five per cent, the third year, ten per cent, the fourth year, and the balance the fifth year. Said bonds shall be secured by mortgages covering all of the real and personal estate of the said E. Bement & Sons, now covered by the mortgages to Edward Cahill and Arthur O. Bement, trustees, and all substituted or after-acquired property; said existing mortgages to be canceled. * * *
“For the remaining fifty per cent, of its claim, to receive the full paid stock of E. Bement & Sons or of such corporation as may hereafter he organized as the successor of E. Bement & Sons, if such reorganization shall be deemed advisable. The amount of the stock to be issued in any such corporation, including the stock already issued or owned by any of the present stockholders of E. Bement & Sons, shall not exceed the total net bona fide assets of E. Bement & Sons, and in no case to exceed the sum of five hundred thousand dollars. * * *
“ The said E. Bement & Sons, for themselves, their successors and assigns, do hereby covenant and agree to and with the said part * * * of the second part, with all reasonable dispatch and without fraud or delay to bring about an adjustment and funding of their indebtedness upon the plan hereinbefore set forth, as near as may be, and that they will, on or before the 1st day of October, 1897, or within such reasonable time thereafter as due diligence upon th9ir part will permit, execute, or cause to be executed, bonds in an amount not exceeding one hundred and sixty thousand dollars secured by mortgages upon the real and personal property now or hereafter to be owned by E. Bement & Sons, their successors or assigns, conditioned for the payment of the indebtedness hereinbefore referred to, to the amount of the said one hundred and sixty thousand dollars, at the time and in the manner hereinbefore provided, together with interest thereon at six per cent, payable quarterly from said first day of October, 1897, and will deliver to said part * * * of the second part such amount of said bonds as shall be sufficient to pay fifty per cent, of the face value of its claim.
“And they do further covenant and agree, for themselves, their successors or assigns, to execute or cause to be executed and delivered to said part * * * of the second part full paid stock in the corporation of E. Bement & Sons or of any corporation which shall be organized as its successors, in an amount equal to fifty per cent; of the face value of * * * claim against E. Bement & Sons not paid in bonds as above provided.
In case any considerable number of the holders of indebtedness secured by the trust mortgages to Arthur O. Bement shall refuse to accept the settlement herein proposed, or to participate on that basis in the security to be given upon the readjustment of said indebtedness, and if it shall in consequence become necessary, for the holders of the indebtedness secured by the mortgages to Edward Cahill, trustee, to foreclose or otherwise enforce such mortgages, then it is agreed that upon a sale of such property or any of it under such foreclosure proceedings, the same shall, in the absence of other higher bidders, be bid in by a committee to be appointed by the circuit judge of Ingham county, if he will consent to act, and if not, then to be appointed or elected by a majority in interest of the creditors secured by said mortgages to Edward Cahill, trustee, and such creditors secured by the mortgages to Arthur O. Bement, trustee, as shall have accepted of the settlement herein proposed, in the interest of all such creditors, to be by said committee conveyed to E. B&ment' & Sons, their successors, or assigns, within three months from such sale, upon the execution and delivery to such committee of trust mortgages covering all of said property and conditioned for the payment of all such indebtedness now secured by the mortgages to Edward Cahill, trustee, and that secured by the mortgages to Arthur O. Bement, for which settlement shall have been made as herein provided, at the time and in the manner herein specified, after the execution thereof, provided said mortgages shall not exceed the sum of one hundred and sixty thousand dollars.
After the stock herein provided for shall have been issued to the creditors of E. Bement & Sons, the balance of the authorized full paid stock of such corporation, whether E. Bement & Sons, or of its successors to be hereafter organized, shall be divided among the present stockholders of E. Bement & Sons, pro rata according to their present holdings.”

It having become certain that several of the creditors would not accept the mortgages, and one of them threatening a levy and sale subject to the mortgages, Mr. A. O. Bement, with the approval of the other directors, on October 4, 1897, took possession of the personal property under his chattel mortgage, and posted notices of sale for the 11th of October ensuing. On the 9th of October, the new company of E. Bement’s Sons was organized for the purpose of bidding in the property at the sale. The stockholders of the new company were as follows: A. 0. Bement, Cornelius A. Gower, Clarence E. Bement, G.. Willis Bemént, H. S. Bartholomew, Edwin J. Bement, son of A. 0., Howard Bement, son of G. W., Charles A. Gower, son of Cornelius A., and Carrie A. Bement, wife of Clarence E. Bement. On the same day, the following officers were elected: A. 0. Bement, president; Cornelius A. Gower, vice president; G. W. Bement, secretary and treasurer; C. E. Bement, superintendent. All of the stockholders were elected directors, except Carrie A. Bement. The capital stock of the corporation was fixed by the articles at $20,000, with a recital that 10 per cent, had been paid in cash. In fact, no part of the capital stock had been paid in, in cash or otherwise. On the day fixed for the sale, the property was bid in by Clarence E. Bement for the new company for $100, as was contemplated when it was organized. On the same day the old and the new companies entered into the following agreement:

“ This agreement, made and entered into this 11th day of October, 1897, between E. Bement & Sons, a corporation of Lansing, Michigan, party of the first part, and E. Bement’s Sons, also a corporation of Lansing, Michigan, party of the second part—
“ Witnesseth: The party of the first part, for and in consideration of the sum of five dollars, to it in hand paid, the receipt whereof is hereby confessed and acknowleged, and of the covenants and agreements hereinafter contained, does hereby agree to sell and convey and by these presents does sell and convey, to the party of the second part, all of its real and personal property wherever situate, and more particularly described in the inventory of said property, made by E. Bement & Sons, in July, 1897, and to which, for greater certainty the parties hereto refer: subject, however, to the mortgages upon said property given on May 16, 1896, to Edward Cahill, trustee, and to Arthur O. Bement, trustee, in the order named, and subject, also, to three real estate mortgages on said property given as part of the purchase price.
“ The said party of the first part further agrees within thirty days from this date to execute, acknowledge and deliver such proper and legal conveyances of the property herein described as will convey to the party of the second part a good and sufficient title to said property, real and personal, free and clear of all liens, mortgages or other incumbrances except as hereinbefore stated.
And the party of the second part, in consideration of the foregoing agreement, hereby agrees to purchase, and by these presents does purchase, from the party of the first part, the property described and in addition to the sum of five dollars by them in hand paid to the said party of the first part, the said party of the second part further agrees, as follows:
“That it will in good faith and without delay carry out and perform all the contracts made by the said party of the first part with its creditors who are secured under the said mortgages given to Edward Cahill, trustee, and Arthur O. Bement, trustee, which contracts provide for the issuing of bonds secured by trust mortgage upon all the property of said E. Bement & Sons, payable: Five per eent. in one year, five per cent, in two years, five per cent, in three years, ten per cent, in four years, and the balance in five years, with interest at six per cent., payable quarterly; that certain of said creditors are to receive said bonds for the entire amount of their indebtedness, and certain other of said creditors are to receive bonds for fifty per cent, of their indebtedness, and stock in the corporation of E. Bement & Sons, or any reorganization of said corporation, for the remaining fifty per cent, of their said indebtedness, and which agreements also provide as to certain of said creditors they shall receive stock in said corporation for the full amount of their indebtedness, and the said party of the second part agrees to carry out all such agreements in good faith to the full intent and purpose for which the same were made by the said E. Bement & Sons, and they further hereby agree to assume and pay the reasonable and lawful fees of the trustees named in said mortgages of May 16, 1896, and all reasonable and lawful counsel and attorney fees for which E. Bement & Sons are now liable, to assume and perform all contracts entered into by E. Bement & Sons, and pay all indebtedness incurred since May 16, 1896, in the same manner and to the same extent that the said E. Bement & Sons would be liable to perform and pay if this agreement had not been made.
That it will cause the capital stock of the corporation of E. Bement’s Sons to he increased to the sum of five hundred thousand dollars ($500,000) and will issue to each of the present stockholders of E. Bement & Sons stock in the corporation of E. Bement’’s Sons to an amount equal to their present holdings in the corporation of E. Bement & Sons, or such pro rata share thereof as shall remain after the stock due to creditors of E. Bement & Sons shall have been duly issued as herein-before provided.
“ In witness whereof, the parties, by their several boards of directors, have caused these presents to be executed by their several presidents and secretaries the day and year first above mentioned.
“ E. Bement & Sons,
“By A. 0. Bement, President,
“And G. W. Bement, Secretary.
“ E. Bement’s Sons,
“By A. O. Bement, President,
“And G. W. Bement, Secretary.”

A. O. Bement took possession of the personal property under his chattel mortgage, and after the sale turned it over to the new company, and from that time on the business went on in the name of the new company. There was no change in the working organization at all. The same officers, superintendent, managers, and employés went right on • that had been there, in substance, before. It was intended that the agreement of October 11th should be a transfer of the whole property to the new company under certain conditions. On the 15th of October, for a nominal consideration of five dollars, the old company executed to the new company a quitclaim deed of all of its real estate, having discovered, as claimed by the mutual president, that the old company could not carry out the condition of the agreement to convey an unincumbered title, except as to the mortgages, within 30 days. This discovery was made through consultation with the attorneys for the levying creditors immediately after the execution of the agreement of October 11th. Mr. A. O. Bement testified:

“It was my intention to see to it that every creditor should get his pay in full, and that all the stockholders of E. Bement & Sons should have common stock for their holdings."
Q. Did you expect to do that as a legal duty, or simply as a gratuity ?
“A. I intended to do that so there could not be any man say that we hadn’t treated every man fairly, not as a legal proposition. I considered it a moral duty.
Q. Was that the view taken by the board of directors of E. Bement’s Sons ?
“A. I don’t know as I really sounded them on that subject, but they seemed willing to carry out that agreement.
Q. Did you consider it your legal duty to carry out the agreement of October 11th so far as the creditors were concerned ?
“A. We did, yes, sir. Legal duty? No, I didn’t consider that that agreement as an agreement was legally binding upon the new company; but I did consider, and insisted upon it, that the agreement should be carried out, whether it was legal or not.
Q. At the time you made it, on October 11th, you had intended it for a valid binding contract ?
“A. Yes, sir; if the other portion of the agreement had been carried out, we would have considered it a binding and legal obligation.
Q. And because they could not get rid of the seven or nine thousand dollars of levying creditors you considered yourself excused from carrying it out ?
“A. We considered ourselves legally excused; yes, sir.
Q. And you still kept the property that you got by the agreement ?
“A. Well, we didn’t get all we contracted for, nor we didn’t get the property as we had contracted. We kept what we got.”

At the time of these transactions the complainant was in Europe, and did not return to the United States until April, 1898'.

On the 11th of February, 1898, A. O. Bement, without consulting or notifying the creditors, began the foreclosure of his real estate mortgage, which resulted in a decree for sale of the property December 30, 1899. On July 8, 1900, sale was had, and the property was bid in for the new company by a bid of $101,000. No money was paid or expected to be paid on this bid; the plan being to issue bonds and'stock, according, to the agreement of the old company with the creditors. The complainant’s solicitors, however, receipted for the $101,000 bid, and, on July 31, 1900, a commissioner’s deed was executed to the new company. On the 38th day of February, 1898, the directors of the new company filed the following notice with the Secretary of State:

“To the Secretary of State of the State of Michigan :
‘ ‘ Please take notice that the corporation known as E. Bement & Sons, of Lansing, Michigan, has sold at private sale its property and franchises, except so far as the same may be necessary for the closing up of its business, to E. Bement’s Sons.
“ This notice is given by order of the board of directors of said E. Bement & Sons this 38th day of February, 1898.
“ C. A. Gower,
“ G. W. Bement,
“ EL S. Bartholomew,
“Howard E. Bement,
“Clarence E. Bement.
Received for record February 38th, 1898.”

On the 30th of February, 1901, the capital stock of the new company was increased to $500,000, of which $50,000 was preferred stock. On the 7th day of August, 1901, the directors again increased the capital stock to $1,350,000, of which $500,000 was preferred stock. Since the filing of the bill in this suit, the preferred stock has been increased to $750,000. Up to the time of filing the bill, the sales of preferred stock amounted to $383,100. At the time of the hearing, the sales amounted to $600,000. With the ■proceeds of this preferred stock, the mortgages were paid .and discharged. After the foreclosure of the Bement mortgage, the new company settled with all of the holders of preferred stock in the old company, except complainant. To some they issued common stock in the new company, and to others preferred stock.

On December 8, 1899, complainant wrote to the new ■company, as follows:

Dear Sirs: Will you kindly advise me if you are ready to resume payment oMnterest on the preferred stock policy held by me, or at what timé it is expected you will be.”

To this letter A. O. Bement replied, on stationery having the business heading of “ E. Bement & Sons,” as follows:

“Lansing, Mich., Dec. 21st, 1899.
“ E. W. Sparrow,
‘ ‘ City.
“Dear Sir: At the present time, it is impossible to tell at what time the dividends will be resumed upon your stock.
“Yours truly,
“A. O. Bement.”

As to this correspondence, Mr. Bement testified as follows:

Q. At that time, did you recognize any legal value to that stock ?
“A. I don’t think we did.
Q. Why did you reply to him in that way ?
“A. I didn’t think it was necessary to get into any controversy at that time.
Q. Why avoid it at that time in particular ?
“A. Well, I had about all the controversies on hand I cared for.
Q. Well, then you expected there would be a controversy when you told him squarely that his stock drew no more dividends ?
“A. I imagined from the tone of his communication he was figuring on dividends on his preferred stock which I had no idea he would ever receive.
“ Q. Then why didn’t you say so to him ?
“A. Because, as I said before, I didn’t think it was necessary.”

On the 2d of August, 1901, the following notice was mailed to complainant:

“Lansing, Mich., Aug. 2, 1901.
“ E. W. Sparrow,
“ City.
Dear Sir: In accordance with article 13 of the bylaws, you are hereby notified that there will be a meeting of the stockholders of E. Bement’s Sons, in the office of the company, at 4 p. m., on Wednesday, August 7th, to take into consideration the proposition to increase the capital stock.
“ The notice of the meeting on Monday, August 4th, was in error and this is to take its place.
“ Yours truly,
[Signed] “ E. Bement’s Sons,
“By A. O. Bement,
“ President.”

Eventually the new company refused to recognize any legal interest of complainant in the stock or property of the company, and he filed his bill of complaint against it and the old company in the circuit court for Ingham county, in chancery, praying—

“That E. Bement & Sons and E. Bement’s Sons be made defendants to this bill, and required to answer the same.
“ That the property and assets so transferred to E. Bement’s Sons be decreed a trust fund for the payment to your orator of the par value of his preferred stock as of the time E. Bement & Sons ceased to do business, and of all dividends then accrued and unpaid, with interest.
“ That the defendants be decreed to make such payments to your orator.
“ Or, if such relief shall not be granted:
“That said defendant E. Bement’s Sons be decreed to issue to your orator preferred stock in such corporation— E. Bement’s Sons — of the same amounts, kind, and character as that now held by him, your orator hereby offering to surrender his stock in E. Bement & Sons.
“That defendants pay to your orator dividends upon such stock, or upon the stock he now holds, from the date of the last dividend so received by him as aforesaid.”

Upon hearing in open court, decree was entered in favor of complainant—

“That the said E. Bement’s Sons'pay to complainant, within 60 days from the date of this decree, the said sum of $9,620, together with further interest upon the said principal of $6,500 at the rate of 6 per cent, per annum from the said 15th day of March, 1904, to the date of such payment; provided, however, that in lieu of such payment, and in full satisfaction thereof, the said E. Bement’s Sons may, at its option, pay to the said complainant* within said 60 days from the date of this decree, the sum of $3,120, the same being accrued dividends and interest as aforesaid, up to March 15, 1904, with interest thereon from said March 15, 1904, to date of payment, at xate of six per cent., and issue and deliver to complainant, within said 60 days, 650 shares of the preferred stock of said E. Bement’s Sons, of the par value of $6,500, to be issued in accordance with the statute and the existing bylaws of said E. Bement’s Sons, bearing cumulative dividends from the 15th day of March, 1904, at the rate of 6 per cent, payable quarterly, and subject to redemption at par, on or before May 31, 1914.”

From this decree defendant E. Bement’s Sons appeal to this court.

Counsel for complainant contends that the sale of its property by the old company to the new was void as to him because:

“ The interest of the two companies was adverse; one being vendor, the other purchaser. By this agreement the same individuals represented both partiés, and in one capacity contracted with themselves in another capacity. As directors of the new company, they were the beneficiaries, and no one representing the old company was left to protect its interests.
* ‘ The agreement was void for want of parties. As said in Miner v. Ice Co., 93 Mich. 97, 109, 110 (17 L. R. A. 412):
“ ‘All the authorities agree that it is essential that a majority of the quorum of a board of directors shall be disinterested in respect to the matters voted upon.’”

Counsel for defendant concede—

‘ ‘ That the new company, organized as this company was, could not ordinarily buy the assets of the old company at private sale without making itself liable to account to the creditors and minority stockholders of the old company for the fair value of the assets at the time of the sale. This is the doctrine of the Supreme Court of this State in Smith v. Smith, Sturgeon & Co., 125 Mich. 234, and by the United States circuit court in Ervin v. Navigation Co., 27 Fed. 625. Butin our view those cases have no application to this case, because we depend, not upon a private sale, but upon the fact that the new company was the ptirchaser at judicial sales of this property, which were lawfully made, and that the new company had the same right to purchase as any one else.”

It is conceded that the mortgage foreclosure by the trustee Bement was regular, so far as the formal requirements of the law are concerned, and that, so far as the records are concerned, the new company acquired a valid title under the commissioner’s deed. But the title will not protect defendant, if it was fraudulently acquired as to complainant. Sweet v. Converse, 88 Mich. 1.

“It does not alter the fraudulent character of the arrangement that the end was accomplished through the agency of valid mortgages regularly enforced.” Goddard v. Importing Co., 9 Colo. App. 306.

Fishel v. Goddard, 30 Colo. 147. As said in Ervin v. Navigation Co., 27 Fed. 625:

“Although the minority of stockholders cannot complain merely because the majority have dissolved the corporation and sold its property, they may justly complain because the majority, while occupying a fiduciary relation towards the minority, have exercised their powers in a way to buy the property for themselves and exclude the minority from a fair participation in the fruits of the sale-.”

In Smith v. Smith, Sturgeon & Co., 125 Mich. 234, it was said, conceding that it was within' the power of the board of directors of the corporation to sell all of its assets, in payment of its debts:

“ If that be conceded, the fact remains that the directors have no right to profit out of such sale. The testimony shows that while all the other stockholders lost their investments, Sturgeon and Dorr saved theirs; for they obtained without cost the same number of shares in the new corporation admittedly worth par that they had in the old,’’etc.

In Miner v. Ice Co., 93 Mich. 97, 116 (17 L. R. A. 412), it was said:

“The law requires of the majority the utmost good faith in the control and management of the corporation as to the minority. It is of the essence of this trust that it shall be so managed as to produce for each stockholder the best possible return for his investment.”

See, also, Wilson v. Æolian Co., 64 App. Div. 337; Morawetz on Private Corporations (2d Ed.), §§ 516, 527, 528, 617; Goodin v. Canal Co., 18 Ohio St. 169.

The circumstances of this case are somewhat unusual. The new company was formed, confessedly, because the old company was unable to raise a few thousand dollars to settle with a few of the creditors, for the purpose of having the mortgages against itself foreclosed, bidding in the property at the foreclosure sale, and thereby cutting off the recalcitrant creditors and the holders of its preferred stock, and “in making this purchase of the business and assuming the responsibilities and obligations of the old business, there was a profit to the promoters of that business, if they succeeded in carrying the enterprise through successfully.” The “promoters” were the directors of the old company. The fact that the wife of one and the sons of others were presented with stock in the new company did not change the situation. The old officers and directors managed the new company precisely as they had the old. The old company had no money with which to pay a small fraction of its indebtedness, but was compelled to call upon its employés to help it out by buying in certain of the claims at 75 cents on the dollar. The new company had nothing except what it got from the old company. It is apparent from the record that the new company never contemplated bidding against others in competition for the property, but that it intended to so control the situation between the old and the new companies ás to get the property without the payment of a dollar for it, and, in the process of acquiring it, to shut out the creditors, who refused to accept the mortgages, and the preferred stockholders of the old company. It was enabled to do this by the president and the financial manager of both companies being the person who held the trust mortgages, and the other officers and a majority of the board of directors being the self-same persons. The creditors were never consulted as to any of the proceedings to foreclose either the chattel or the real estate mortgages, but only the trustee’s fellow directors. It was contemplated by the original agreement with the creditors that a reorganization might be advisable, and that it might be necessary to foreclose the Cahill mortgages and bid in the property for the benefit of “ E. Bement & Sons, their successors or assigns,” and, after the issuance of the stock provided for in the agreement, the balance, whether of “E. Bement & Sons or of its successors, to be hereafter organized, shall be divided among the present stockholders of E. Bement & Sons pro i-ata, according to their present holdings.”

The interests of the preferred stockholders were, apparently, intended to be protected. Afterwards the directors seem to have concluded that it was to the interest of the ‘ ‘ promoters ” of the new company to shut them out. There was no one to oppose this interest on behalf of the preferred stockholders, since the directors and officers of the old company, whose duty it was to protect the interests of the preferred stockholders, were the very persons who would profit by excluding their interests. Having given complainant to understand that his preferred stock was recognized by the company as still existing, and having notified him that he was still a stockholder and entitled to participate in the meetings of the company, it must be held that, to all practical intents and purposes, in the view of a court of equity, the two companies were identical so far as the rights of complainant are concerned, and that the attempt to deprive him of his stock, after creating such belief, was a legal fraud upon him. Contracts, under such circumstances, are a solemn farce, and can only be sustained by judicial jugglery. The undisputed testimony shows that the directors of the new company, a majority of whom were the directors of the old company, intended to cut off complainant’s rights, and the president of the new company, as well as of the old, substantially admits that as such president he intentionally induced complainant to believe that the new company recognized his preferred stock as an existing interest in that company, in order to prevent him from taking any steps to enforce his rights in the courts until, as holder of the trust mortgage, the president could sell the property to himself and the other directors of the old company.

We do not regard the case of Armour v. E. Bement's Sons, 123 Fed. 56, as in conflict with this opinion. That was an action at law, and the court held that under the pleadings and proofs the companies must be considered to be distinct, saying, however, that—

“Sometimes peculiar circumstances arise in the succession of corporate organizations in which the powers of a court of equity may be properly invoked to work out the rights of parties. In such cases, if justice requires it, the court will look beyond matters of form, and treat the corporation as an association of individuals, and, on bringing the parties before it, may administer equitable rights, as the nature of the case may require. But a court of law which recognizes a corporation only as a distinct entity and must proceed upon strictly legal methods, has not the means, and is not, therefore, the proper forum in which to investigate and adjudge such matters.”

The court expressly declined to consider the question whether there was any fraud in the acquisition of the property of the old company, for the reason assigned that—

“ The question whether there was any fraud in the transfer from the one corporation to the other which affected the validity of such transfer, has no relevancy to the question whether the new corporation is liable to pay the debts of the old, however important it might be in a suit prosecuted for the purpose of subjecting the assets transferred to the payment of the debts of creditors.”

The new company, through its president, having practically represented to complainant that it would recognize his stock, and having given him notice of its meetings, which were only consistent with the view that they did recognize such stock, it would be inequitable to permit the company to escape liability on the plea that it intended to defraud him through the forms of law. A court of law may not be able to deal with such a situation from the necessity of adhering to the rigid rules and forms which govern its proceedings, but a court of equity will disregard forms and deal with substances.

We think, therefore, that the court below was right in holding that, on the merits, the complainant was entitled to a decree, and we do not think it was necessary to make the stockholders in the new company parties to the suit.. No relief is sought against the stockholders personally,, and in such cases it is not usually necessary to join them as parties. 4 Thompson on Corporations, § 4583. Furthermore, if this objection were a good one, it should have been raised, at least, upon the hearing below, where, if held good, an amendment would have been granted. Holcomb v. Mosher, 50 Mich. 252. But, so far as the record discloses, this objection is raised for the first time in the brief of appellants in this court. Since the decree below, the new company has been dissolved, and its property is now in the hands of a receiver. Under such circumstances, we do not think this contention ought to prevail, even if well founded, if made opportunely.

The assets of the old company which were acquired by the new company were, for use in its business, of considerably greater value than the amount of its liabilities; but it is clear that, if the property had been sold on the mortgages in the usual way to outsiders, it would not have-paid the creditors, and complainant’s stock would have been a total loss. All that complainant can justly complain of is that he has been deprived of his stock and the share of the profits which it would have brought to him. It would, manifestly, be inequitable to prefer complainant over the other preferred stockholders who have paid cash for their stock, the same as he did.

A decree may be entered in favor of complainant for the value of 650 shares of preferred stock in the new company, as of the date of the decree in the court below, and for such dividends as the preferred stock may have act-. ually been paid since the formation of said new company.

Moore, C. J., and Carpenter, McAlvat, and Hooker, JJ., concurred.