Jerry Davidson, Inc. v. Michigan National Bank

220 N.W.2d 714, 54 Mich. App. 228, 1974 Mich. App. LEXIS 1223

• Court: Michigan Court of Appeals
• Decided: June 27, 1974
• Docket: Docket No. 18258
• Status: Published

Opinion

Quinn, P. J.

In the course of litigation between Jerry Davidson, Inc. (hereinafter plaintiff) and Michigan National Bank (hereinafter defendant), a receiver was appointed for plaintiff on September 11, 1970. October 12, 1972, plaintiff filed a petition for sanction by the court of a compromise arrangement with its creditors. October 31, 1972, the trial court entered an order approving the compromise arrangement over the objections of Coburn Leasing Company, Inc. (hereinafter Coburn). November 20, 1972, Coburn moved for a rehearing on this order. No hearing having been held on this motion, on May 23, 1973, it was noticed for hearing on June 4, 1973. The motion was denied by order of June 10,1973. Coburn appeals.

In a separate action by Coburn against plaintiff, Coburn garnisheed General Motors and reached $54,625.22 owed by General Motors to plaintiff, and General Motors paid this sum into court. By consent order this sum was transferred to Burton Abstract & Title Company in escrow, Burton being the escrow agent for other funds being accumulated for consummation of the compromise arrangement. Without Coburn’s consent and by order of March 23, 1973, the trial court authorized and instructed Burton to deposit the funds held in escrow in two interest-bearing accounts. The effect of this order was to commingle the money received from General Motors as the result of the garnishment with other monies. Coburn’s motion to set aside the order of March 23, 1973 was denied by an order of June 10,1973 and Coburn appeals.

Of the many questions involved in the litigation between these parties, the only questions before this Court on this appeal are the validity of the order of the trial court approving the compromise arrangement with creditors and the order directing the escrow agent to deposit the funds held in escrow in two interest-bearing accounts. Neither plaintiff nor defendant have filed briefs.

Plaintiff’s articles of incorporation contain the provisions set forth in 1948 CL 450.4(3); MSA 21.4(3),¹ presently MCLA 450.1204-450.1205; MSA 21.200(204)-21.200(205). The petition for sanction by the court of a compromise arrangement with creditors and the order approving the compromise arrangement are authorized by this statute. However, the order approving the compromise arrangement in this case contained the following:

"9. That all creditors affected by the plan of arrangement and said compromise proposal as is set forth in the petition filed in this cause, together with their agents, attorneys and representatives shall be and they hereby are restrained and enjoined permanently from continuing or commencing any legal or other proceedings, or from taking any other steps or actions to enforce or obtain payment of their claims against Jerry Davidson, Inc. with respect to the indebtedness due them, under the penalty of this court.”

The practical effect of this language is to discharge plaintiff’s obligations to Coburn. This the trial court was not authorized to do. The Federal bankruptcy act² has preempted the field, International Shoe Company v Pinkus, 278 US 261, 265; 49 S Ct 108, 110; 73 L Ed 318, 321 (1929). If the statute involved authorizes a trial court to make such an order, the order is not enforceable, International Shoe, supra. That language is stricken from thé order approving the compromise arrangement.

Coburn questions the authority of plaintiff corporation to petition for sanction by the court of a compromise arrangement with creditors on the basis that the corporate charter had been forfeited by operation of law. It is not necessary to write to this point. Under 1948 CL 450.4(3), a creditor or a stockholder may petition for the sanction. The petition in this case was signed by Jerome A. Davidson as president of the corporation and as an individual. He is a creditor and stockholder of the corporation.

Coburn also contests the order appealed from because the receiver failed to file an inventory, have an appraisal and audit, and to list the claims of creditors. The argument here is that the consents of creditors were ineffective because they were based on inadequate information. A consenting creditor could advance this argument legitimately. Coburn cannot; it never consented.

The remaining issues raised as to the validity of the order approving the compromise arrangement do not merit discussion.

With respect to the order of March 23, 1973 directing the escrow agent to deposit the funds in two interest bearing accounts, we find that Co-burn’s rights to the funds paid into court by General Motors are amply protected by the order dated February 8, 1973.

Paragraph No. 9 of the order of the trial court dated October 31, 1972 and approving the compromise arrangement with creditors is stricken from that order. Otherwise, the trial court is affirmed. Coburn may have costs.

All concurred.

1 3. The articles may also contain the following provision: Whenever a compromise or arrangement or any plan of reorganization of this corporation is proposed between this corporation and its creditors or any class of them and/or between this corporation and its shareholders or any class of them, any court of equity jurisdiction within the state of Michigan, may on the application of this corporation or of any creditor or any shareholder thereof, or on the application of any receiver or receivers appointed for this corporation, order a meeting of the creditors or class of creditors, and/or of the shareholders or class of shareholders, as the case may be, to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as said court directs. If a majority in number representing 3/4 in value of the creditors or class of creditors, and/or of the shareholders or class of shareholders, as the case may be, to be affected by the proposed compromise or arrangement or reorganization, agree to any compromise or arrangement or to any reorganization of this corporation as a consequence of such compromise or arrangement, said compromise or arrangement and said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the shareholders or class of shareholders, as the case may be, and also on this corporation.

Whenever the foregoing provision is included in the original articles of any corporation, all persons who become creditors and/or shareholders thereof, shall be deemed to have become creditors and/ or shareholders subject in all respects to said provision, and the same shall be absolutely binding upon them; and whenever the said provision is inserted in the articles of any corporation, by an amendment of such articles, all persons who become creditors and/or shareholders of such corporation after such amendment becomes legally effective, shall be deemed to have become such creditors and/or shareholders, subject in all respects to the said provisions, and the same shall be absolutely binding upon them. Any court of equity jurisdiction within this state, shall have power to administer and enforce the said provision and to restrain, pendente lite, all actions and proceedings against any such corporation with respect to which the court so restraining shall have begun the administration and/or enforcement of said provision and to appoint a temporary receiver or receivers for such corporation and to grant to such receiver or receivers such powers as shall be deemed proper.

2 11 USCA 1 et seq.