(186 N.W.) In Cannon v. Phoenix Insurance Co., 110 Ga. 563, 35 S. E. 775, 78 Am. St. Rep. 124; it is stated as follows: cause the damage complained of. The story employed, as from the effects of smoke or heat of the fire in brief is that plaintiff arose at evolved thereby or escaping therefrom from 5 o'clock in the morning and lit the burners any cause, whether intentional or accidental. of his oil stove in the kitchen for the pur- In order to bring such consequences within the pose of heating a boiler full of water which risk, there must be actual ignition outside of had been set there on the night before. The by the insured, and these, as a consequence of the agencies employed, not purposely caused ultimate purpose was to heat the water for such ignition, dehors the agencies." use in the family washing to be done that morning. Having lit the burners with a match, the plaintiff went back to bed and fell asleep. One hour later he was awakened, by the smoke and soot which filled his house. He immediately repaired to the kitchen and found that the flames from his burners ex-ing, except in the stove where it was intended tended nearly to the top of the boiler and were emitting in great quantities the smoke and soot complained of. He removed the cause of the smoke and soot by turning out the wicks in the burners. He testified, "I went over there and turned them out." The following statement by the trial court is a fair summary of the record: "There was no fire except that under the boiler, as he tells it. The only thing that was necessary to extinguish the fire was to turn down the burner. The burner was turned down, and the fire under the stove went out; smoke disappeared. There is no evidence here that there was any leak, that there was any fire in the pan, or that that tank had ignited. The only evidence here is that the burner that was started was turned up too high, or became overloaded, which caused more fire and flame than was reasonably and necessarily intended when it was lighted. It is a matter of common knowledge with those who use the oil stoves that they will smoke if they are not particularly watched and cared for, and I cannot see any theory upon which the plaintiff can recover in this case. There was no leaking oil; no ignition of the tank; nothing necessary to put it out but to turn down the burner and it went out." Nothing is claimed for any damage done by flame or heat except as the same produced the smoke and soot. The defendant denied all liability for the loss on the ground that there was no fire within the contemplation of the policy. It is not essential to the plaintiff's right of recovery that he should show that he had suffered loss by the actual burning of any part of his property, but it is essential that it should appear that the smoke and soot from which he suffered resulted from a "hostile" fire rather than from a "friendly" one. Ordinarily a fire in a stove or furnace and subject to control in such place is a "friendly" fire, and damage for smoke and soot therefrom is not within the contemplation of an insurance policy. The rule in such cases is stated in Wood on Insurance, § 103, as follows: "Where fire is employed as an agent, either for the ordinary purpose of heating the building, for the purposes of manufacture, or as an instrument of art, the insurer is not liable for the consequences thereof, so long as the fire itself is confined within the limit of the agencies "It does not appear from the proofs of loss that there was any fire in or about the build to be built. This fire did not spread from where it was built and intended to remain. It was, therefore, all the time during the alleged injury and damage to the goods, what is termed in the books as a 'friendly' and not a 'hostile' fire. It is true there is sound authority for the proposition that an insured can recover loss occasioned by smoke, soot, etc., thrown out by a fire; but we think in these cases it will be found that such matter causing injury was the product of a 'hostile' fire. If a fire should break out from where it is intended to be and become a hostile element by igniting property, although it might not actually burn the property insured, yet if it caused injury thereto by smoke or heat, or other direct means, damages would be recoverable." The plaintiff relies upon the Wisconsin case of O'Connor v. Queen Insurance Co., 140 Wis. 388, 122 N. W. 1038, 25 L. R. A. (N. S.) 501, 133 Am. St. Rep. 1081, 17 Ann. Cas. 1118, wherein recovery was allowed. The fire in that case was described by the court as follows: "The heat was so intense as to char and injure furniture, and the great volumes of smoke and soot greatly injured the furnishings and personal property of the plaintiff. It does not appear from the evidence that there was any ignition outside the furnace, although the fire was so intense as to overheat the chimney The evidence shows the chimney was so hot it and flues, and char furniture in the rooms. seemed as though it was on fire, that the fire was burning fiercely in the furnace, around the mopboards was burned, and the mopboards blistered, the wall paper charred and burned, and the chimney cracked from the excessive heat. This fire was extraordinary and unusual, unsuitable for the purpose intended, and in a measure uncontrollable, besides being inherently dangerous because of the unsuit able material used." Reliance is also had upon the case of Collins v. Delaware Insurance Co., 9 Pa. Super. Ct. 576. The fire was described by the court as follows: "The plaintiff's goods were not burned but were damaged by smoke and soot; but it is well settled that a policy against 'direct loss or damage by fire' may cover loss other than by actual burning, such as by water used to extinguish the fire, and by smoke from the fire. If, however, the fire itself be not insured against, as it ordinarily is not when it is kept within the place that is fitted and intended for it, there is no liability for such consequences as the escaping of smoke or gas. We cannot do better than to adopt the illustrations used in a well considered Massachusetts case. If a stove should be cracked and spoiled by a fire kindled in it to warm the house, or if a fire in a fireplace should crack the mantel, or scorch valuable furniture left too near it, or injure property by its smoke which the chimney failed to carry off, or if a lamp should throw off soot or smoke in such quantities as to cause damage to property, in every such case, it may be conceded, if the fire burned nothing but that which was intended to be burned for a useful purpose in connection with the occupation of the house, and if it did not pass beyond the limits assigned to it, the insurance company would not be liable." It appears also in that case that the fire had melted off a cap of the container and was burning from the inside thereof. From the foregoing it will be seen that close questions may arise over the dividing line between a "hostile" and a "friendly" fire. In the case before us we think it cannot be said that the evidence was sufficient to justify a finding of a "hostile" fire within the contemplation of the policy. It was manifestly a case where the wick had been turned too high, from which cause smoke and soot was inevitable from the beginning, and which was at all times subject to control by merely turning back the wick. The only burning or charring of any kind done by the flame was upon the wick. So far as appears, all the smoke and soot came from the wick. We feel compelled to hold, therefore, that the trial court properly sustained the motion for a directed verdict. Affirmed. STEVENS, C. J., and ARTHUR and FAVILLE, JJ., concur. time assert that it had a lien on the stock for money advanced to the stockholder. Petition for mandamus by Peter Harnau against the Muskegon Knitting Mills and others. Writ granted. Argued before FELLOWS, C. J., and STEERE, MOORE, WIEST, STONE, CLARK, BIRD, and SHARPE, JJ. Turner & Turner, of Muskegon, for plaintiff. Robert E. Bunker, of Ann Arbor, for defendants. FELLOWS, C. J. This proceeding is instituted for the purpose of effectuating the decree of this court in Harnau v. Haight, 209 Mich. 604, 177 N. W. 281. The present defendant Muskegon Knitting Mills was an active party defendant in that case. The other present defendants are its officers. It will be noted from an examination of that case that the bill there filed partook of the nature of a creditor's bill, a bill in aid of execution and for discovery. We there decided that Mr. Haight had transferred to his wife, Grace C. Haight, certain common stock of the corporation for the purpose of defrauding Mr. Harnau, and that it was done to prevent the collection of his judgment, and in the opinion it was stated: "The transfer of all the common stock is set aside and the stock will be returned to Mr. Haight and will be placed in the name of Louis P. Haight upon the books of the corporation. Upon that being done an alias execution may be issued upon plaintiff's judgment and levied upon such stock in accordance with the statute.' The opinion in that case was filed April 10, 1920. A motion for a rehearing was made, but was denied on June 17th, and on August 6th following a decree was finally settled and filed in accordance with the opinion, directing that the stock of the Muskegon Knitting Mills be placed in the name of Louis HARNAU v. MUSKEGON KNITTING MILLS P. Haight, that an alias execution issue on et al. (No. 486.) (Supreme Court of Michigan. Feb. 8, 1922.) Judgment 713(2)—Corporation held estopped to assert for first time, after sale under execution on decree impounding corporate stock, that it had a lien thereon. In an action against stockholder of a corporation, in which the corporation was made a party and decree was entered impounding the entire assets of the corporation to satisfy plaintiff's judgment, and it was determined on appeal from the decree that it was not warranted in law and only the stock fraudulently transferred was impounded to satisfy plaintiff's judgment, the corporation could not, after a sale of such stock under execution and purchase thereof by the plaintiff, for the first Ju plaintiff's judgment, and that the stock be levied on and sold to satisfy the same. risdiction was retained of the proper parties to effectuate the decree. We declined, on the settlement of the decree, to make it broad enough to permit creditors of Haight other than plaintiff to levy on the stock. By a petition filed in this court September 11, 1920, it was made to appear that on June 22d, and before the decree was settled in this court, the attorney for the defendants had caused the stock to be transferred on the books of the corporation to Louis P. Haight and an execution had been levied thereon to satisfy a judgment against Haight held by one William Van Sluyter; that an execution (186 N.W.) In Free v. Beatley, 95 Mich. 426, 54 N. W. 910, it was said: sale had been had, the stock bid in and again, We think not. It appears from the present record that in the Haight bankruptcy proceedings a trustee was appointed, and upon his application a temporary restraining order was made by the referee restraining plaintiff from proceeding to collect his judgment in accordance with the decree of this court. Upon a full hearing, however, the referee in a well-considered opinion set aside the restraining order. Thereupon, and in accordance with the decree of this court, the stock was sold on execution sale to the plaintiff. for the amount of his judgment. We do not understand the regularity of the execution sale is in any way questioned. The officers of the Muskegon Knitting Mills refused to issue a certificate of stock in plaintiff's name, and he applies for mandamus to compel such action. In answer to the order to show cause defendants assert that the Muskegon Knitting Mills has a lien which it claims attached to the stock prior to the filing of the bill; that it was for money advanced and loaned to Mr. Haight; and for that reason it insists that it should not be required to issue the stock. So far as the proceedings in this court are concerned, this is the first time such lien is asserted. An examination of the former opinions of this court above referred to will show that by the decree of the circuit court the entire assets of the Muskegon Knitting Mills were impounded to satisfy the plaintiff's judgment. We concluded on the appeal from such decree that it was not warranted in law; that it was too broad; but we reached the conclusion that the plaintiff was not without remedy and impounded the stock fraudulently transferred by Haight to his wife to satisfy his judgment. At no time in that proceeding did the Muskegon Knitting Mills assert any lien on this stock. May it now, after plaintiff has proceeded in strict accordance with the decree of this court entered in a case in which it was a party, assert for the first time that the decree shall not be given force and effect because it has a lien upon this stock antedating the filing of the bill? "She was made a party to the former suit. If she claimed any interest in the land it was then her duty to assert it, and have that interest determined. The sole object in making her a party was to ascertain her rights therein, if she claimed any. The court expressly determined and decreed that the land was a part of the firm assets. Free, the purchaser, therefore had the right to assume that she neither claimed nor had any interest in the property, except that arising from partnership relations. Even had she then been possessed of any right of dower independent of the partnership, she must be held estopped from now asserting it, because she did not assert it when she had the opportunity to do so." In State of Michigan v. Sparrow, 89 Mich. 263, 50 N. W. 1088, it was said by Mr. Justice Grant, speaking for the majority of the court: "As to the lands involved in the case of Sparrow v. Commissioner of State Land Office, 56 Mich. 567, these questions are res judicata. The right of Sparrow to the lands described in his petition was then in dispute. The state could not sever its defenses, and, after being defeated upon the ground it then chose, maintain a proceeding in equity to set aside the patents issued under that decision, upon the ground that it had another defense, which it omitted to make in that suit." In the recent case of Security Investment Co. v. Meister, 214 Mich. 337, 183 N. W. 183, it was said: "Defendant for over six months was in default in his payments; regular proceedings were had under the statute before the circuit court commissioner, and judgment of restitution was rendered by him, and the amount then due was fixed; the time given defendant under the statute after judgment in which to redeem expired without payment of the amount so fixed; there is no accident, fraud, or mistake alleged. Under these circumstances, the judgment rendered in a case where the commissioner had jurisdiction is a finality, and neither it nor the evidence upon which it is based may be reviewed by a court of equity." The Muskegon Knitting Mills was a party to the suit and was bound by the decree. If it had a lien upon this stock which it claimed was superior to the rights of plaintiff, it should have been there asserted. Not having been there asserted, it may not assert it when steps are taken to enforce the decree. We need not determine the rights of the Muskegon Knitting Mills against Mr. Haight, or whether it might have a lien on stock standing in his wife's name for money What we do determine is advanced to him. that any rights it may have to a lien on the stock are subordinate to the rights decreed to the plaintiff in a suit in which it was a party. The writ will issue as prayed. BROOKS v. BUYS et al. (No. 63, June Term, 1921.) (Supreme Court of Michigan. Feb. 8, 1922.) 6. Bankruptcy 250(1) Dealings between original incorporators and purchasers held not to prevent trustee in bankruptcy from recovering payment for stock issued. Where the articles of association of a corporation and accompanying affidavit of the I. Corporations -Have existence inde-incorporators represented that real estate had pendent and separate from that of members. In contemplation of law, a corporation is a legal person having an existence wholly distinct and separate from that of its members. 2. Corporations 60-Capital stock is the property of corporation and is a trust fund for corporation and creditors. The capital stock of a corporation is the property of the corporation, and constitutes a trust fund for the benefit of the corporation and its creditors. Per Wiest, J., Fellows, C. J., and Stone and Steere, JJ.) 3. Corporations 222-Creditors have right to rely on representations of record as to money or property paid in for stock. Creditors of a corporation have a right to rely in extending credit on the public record of corporate organization and action, including representations therein of the amount of the capital stock and the money or property paid in for stock. (Per Wiest, J., Fellows, C. J., and Stone and Steere, JJ.) 4. Bankruptcy 250(1)—When property for which stock issued was not transferred to corporation, trustee in bankruptcy held entitled to proceeds of sale thereof. Where the articles of association of a corporation stated that $15,000 had been paid on the stock in property therein described consisting of real and personal property, and the incorporators' affidavit attached thereto stated that such property had been actually transferred to the corporation, but no conveyance was ever made, there was a constructive fraud, and the corporation's trustee in bankruptcy was entitled to recover from the original stockholders the value they agreed to pay and never had paid, and hence was entitled to the proceeds of a sale of such real estate when less than the value stated in the articles and accompanying affidavit. (Per Wiest, J., Fellows, C. J., and Stone and Steere, JJ.) 5. Corporations 244(1)-Stockholders falling to convey property for which stock issued liable to creditors becoming such after transfer of their stock. been transferred to the corporation for stock issued to the incorporators, but no conveyance was ever made, and the incorporators subsequently sold their stock and contracted to convey the real estate to the purchasers of the stock, such dealings held not to cut off the right of a trustee in bankruptcy of the corporation to recover payment for the stock so taken by the original incorporators. (Per Wiest, J., Fellows, C. J., and Stone and Steere, JJ.) 7. Corporations 262(3)-Stockholders held not entitled to deny legal organization of corporation when sued for amount they should have paid for stock. Where stockholders never conveyed to a corporation real estate for which stock was issued by them, and thereafter sold the stock and contracted to convey the real estate to the buyers of their stock, they could not, when sued for the amount which they should have paid for their stock, claim the corporation was never legally organized because one of the incorporators was a minor. (Per Wiest, J., Fellows, C. J., and Stone and Steere, JJ.) 8. Corporations 99(2) Real estate for which stock issued held to belong equitably to corporation. Where the articles of association and accompanying affidavit of the incorporators showed stock had been taken by them in consideration of real estate which they failed to convey to the corporation, the real estate belonged equitably to the corporation. (Per Clark, Bird, Sharpe, and Moore, JJ.) 9. Corporations 222-Stockholders selling real estate equitably belonging to corporation held to have made a distribution of capital assets. Where stockholders failed to convey to the corporation real estate for which stock was issued to them, and thereafter sold their stock for its book value less the real estate, and contracted to sell the real estate to the buyers of their stock without any conveyance to them from the corporation or resolution authorizing a conveyance, they thereby took the property from the corporation, and their action amountWhile stockholders are liable on unpaid ed to a dividend or distribution of capital assubscription calls only for debts contracted sets. (Per Clark, Bird, Sharpe, and Moore, while they were stockholders, original stockholders and incorporators who take their stock for property agreed to be conveyed and who do not convey it, but falsely certify that they have, and thereby make public record of the amount of capital stock actually paid in by them, cannot invoke such rule to avoid their liability to creditors becoming such after the transfer of their stock without actual notice. (Per Wiest, J., Fellows, C. J., and Stone and Steere, JJ.) JJ.) 10. Corporations 273-Distribution of assets for which stockholders were liable held only of amount withdrawn from corporation less amount paid creditors. Where stockholders who had failed to convey to the corporation real estate for which their stock was issued sold the stock for its book value less the real estate, and contracted to sell the real estate to the buyers of their II. Corporations (186 N.W.) stock, and pledged the contract to secure a description of which, with the valuation at loan, the proceeds of which were used to pay which each item is taken is as follows, viz.: existing creditors, the dividend or distribution "The real estate known as lots Nos. two (2) of capital assets for which they were liable and three (3) of block No. eleven (11) of the amounted only to the value of the real estate village of Moline, Allegan county, Mich., toless the amount paid to creditors. (Per Clark, gether with the flour mill and buildings on said Bird, Sharpe, and Moore, JJ.) premises and machinery attached to said property of the value of eleven thousand six hundred nineteen dollars; also the entire stock of flour, feed, hay, grain, fuel, and building material not on said premises, together with the personal property and fixtures used in connection with said business and formerly owned by George Vander Meer and John Buys, copartners, all of which said personal property, stock in trade, and fixtures is of the value of three thousand three hundred eighty-one dollars." 222-Distribution of capital assets held a constructive fraud on subsequent creditors. Where stockholders who had never conveyed to the corporation real estate for which stock was issued sold their stock for its book value less the real estate, and contracted to sell the real estate to the buyers of their stock, thereby making a dividend or distribution of capital assets, such withdrawal of capital, though in good faith, amounted to a construc The incorporation was under the provi tive fraud on subsequent creditors. (Persions of Act No. 232, Public Acts, 1903 Clark, Bird, Sharpe, and Moore, JJ.) 12. Bankruptcy 250 (1)-Incorporators sued for value of land for which stock issued held entitled to credit for amount paid creditors. Where stockholders failed to convey to the corporation real estate for which stock was issued to them, and subsequently in selling the stock contracted to sell the real estate to the buyers, though they were liable to the corporation's trustee in bankruptcy for the value they agreed to pay for their stock and had never paid, they were entitled to credit thereon for an amount paid by them to existing creditors at the time of the sale of the stock. (Per Fellows, C. J., and Steere, J.) Appeal from Circuit Court, Allegan County, in Chancery; Orion S. Cross, Judge. Suit by Walter H. Brooks, trustee of the Moline Milling Company, bankrupt, against John Buys and others. From a decree in favor of plaintiff, certain defendants appeal. Modified and affirmed. Argued before FELLOWS, C. J., and WIEST, STONE, CLARK, BIRD, SHARPE, MOORE, and STEERE, JJ. Elvin Swarthout, of Grand Rapids, for ap pellants. Fred P. Geib, of Grand Rapids, for appel lee. WIEST, J. Defendants George Vander Meer and John Buys, as copartners, owned a mill and certain personal property in connection therewith, and in April, 1915, they, together with Sybrand Vander Meer, organized the Moline Milling Company, a corporation. In the articles of association, duly executed and filed, they set the capital stock at $20,000, of which $15,000 was subscribed by them, and alleged that: "The amount of said stock actually paid in at the date hereof is the sum of fifteen thousand dollars, of which amount fifteen thousand dollars has been paid in property, an itemized (chapter 175, C. L. 1915). This statute required that the amount of capital stock subscribed should be set forth and should not be less than 50 per cent, of the authorized capital stock; also that the amount of capital stock paid in at the time of executing the articles, and, where payment was made in property, an itemized description of the property with the valuation at which it was taken, should be given. The three incorporators made and attached to the articles of association an affidavit in which they stated that: "They know the property described in article 7 of such articles of association and taken in payment for capital stock, and that the same has been actually transferred to such corporation, and further say that said property is of the actual value of $15,000." No conveyance of the real estate was ever made by them to the corporation, but the corporation used the same, and in the annual reports filed listed it as the property of the corporation. They conducted the business of the corporation until April, 1918, when they sold their holdings therein to George, Roelof, Frances, and James Weurd them their certificates or shares of stock assigned in blank, and received two notes signed by the purchasers, one for $5,000 and the other for $4,098.81. The certificates of stock so assigned in blank were marked as canceled by the new secretary in April, 1918, and new certificates issued for 300 shares each to the Weurdings and Mr. Luidens. At the same time George Vander Meer and Mr. Buys entered into a land contract for the sale of the above-mentioned real estate together with the machinery and equipment attached and used in connection with the buildings to the Weurdings and Mr. Luidens at a price of $13,000. This land contract was not recorded until January 6, 1920. ing, and John Luidens, and turned over to The creditors of the corporation up to the time of such sale were paid in full by the For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes |