*1
205
Naimish
v. Wardlow.
during
entered
the court
pendency
ders
to the plaintiffs.”
cause
vacated. Costs
entered in
circuit court is
The decree
affirmed.
have
on appeal.
costs
Plaintiffs
J.,
C.
Smith, Black,
Ed-
Dethmers,
Kelly,
JJ., concurred.
wards, Kavanagh,
Souris,
FOUNDRIES,
&
IRON STEEL
DETROIT GRAY
INC., v. MARTIN.
Corporations
Officers—Directors—Improper
Conduct —Lim-
—
1.
of Actions.
itation
against
by corporation
defendants
for ac-
of action
Cause
stock,
damages,
upon
based
al-
counting, cancellation
former directors and officers
leged improper action
its
by fraudulently diverting
they
themselves
in that
enriched
corporation’s
opportunities
businéss
to themselves
funds,
facilities,
personnel,
using
plant, equipment,
its
years
6
of time
was barred
failure to eommenee suit within
contrary
corpora-
to the
the directors are claimed to have acted
years
discovery (CL
2
tion act or within
the date
450.47).
§
Duty
Fiduciary
2. -Same —Director—Breach
—Limitation
Actions.
injured by
A
a director
defrauded or otherwise
fiduciary
corporate
duties
victim must sue
who owes
to his
years
discovery
wrong
or at
within
of its
least within
years
(CL 1948,
of its occurrence or forever bear the loss
450.47).
Corporations—Directors—Statutes.
3. Limitation
of Actions —
general corporation
The limitation
act
corporation against
the stat-
its director for conduct below
References
in Headnotes
Points
Jur,
Corporations
13 Am
[1-4]
§§
against
Statute of limitations
in stockholder’s derivative
suit
directors or officers.
tions which utory standard whichever delinquency, either OLS 1956, from time §§ negligent would *2 609.13, 609.20). requiring that must be otherwise discovery sooner, apply to actions or fraud it or 6 alters (CL 1948, commenced periods from date of the of limita- 450.47; within 4. Same — Action using ing tors 450.47). Corporations'—Action to themselves barred, whereby they based on plant, equipment, alleged improper where action was commenced more alleged improper enriched corporation’s Asainst Officers. themselves facilities, n business took by fraudulently funds, of place officers opportunities and than (CL and personnel, divert- direc- 1948, and Appeal Wayne; (Chester P.), O’Hara J. (Docket June Submitted No. Calendar 48,492.) January No. Decided 9, 1961. Gray Inc., Foundries, &Iron
‘Bill Detroit Steel Hugh against Michigan corporation, Martin, sub- appeal sequently deceased, continued on and Hugh Hugh Martin, estate, Martin, executor Jr., individually & Bank Trust and with Detroit Jr., Company will of W. under the Louis as cotrustees Colby, P. Howard Bernard Cos- Schimmel, deceased, accounting, for cancellation .of stock tello, and others corpo- damages, holdings misuse result Plaintiff Bill on motion. rate assets. dismissed appeals. Affirmed. Grayson counsel), (Fred Walher, R. oi
Weiner & n plaintiff. for Tolleson, for defendants
Barhier, MacFarlane & capacities, fiduciary individually his Martin, Company, Bank & and others. Trust Detroit Youngjohn, Colby. for M. defendant Chris BarJcey, Arthur F. defendant Costello. v. Martin. Detroit engaged the manufac- Plaintiff J. Kelly, castings gray in- turing iron the automotive plain- February dustry, certain of 6, 1929, on Alloy the Detroit formed and directors tiff’s officers castings. Company to manufacture steel Steel portion Company Alloy leased a Steel Detroit monthly premises plaintiff’s aat rental $500. plaintiff sought a loan from the Decon- In 1942 Corporation informed, Finance and was struction plaintiff obtaining loan, would as have to condition Alloy acquire the Detroit Steel assets acquiring' complied by Company. all of Plaintiff capital outstanding stock the issued shares Alloy Company December of 1942. Steel (September, 1958) Approximately 16 later in the circuit court filed its bill of Wayne seeking accounting, county cancella- of tion of certain damages.
shares of stock, appellees motions to dismiss, Defendants filed *3 plaintiff, argument, oral on December and, after right given file an the to amended bill 1958, was complaint. com- Plaintiff filed amended bill of such plaint also, on December amendment 31,1958,and, July to this amended bill filed on argument Plaintiff in final and brief aban- its (CL 1948, the directors’ statute doned so-called §21.47]) Supp §450.47 [Stat Ann 1959 Cum upon action common-law fraud and con- based its spiracy. by a
The bill of was dismissed decree judge, by O’Hara, Hon. P. circuit on entered October Chester appeal duly 12, 1959. filed Claim plaintiff. by Michigan general corporation 47 of the
Section (CL Supp [Stat Ann act 1959 Cum 21.47]) reads: every corporation,
“The each affairs, of the business, them, management the corporation, the selec- property and control of tion, supervision its committees corporation, the agents officers and shall the the dili- vigilance, attention and exercise give skill, men prudent use gence, care similar circumstances. like or “Action the may brought by a officer, shareholder, or or or through by director, or receiver or trustee or creditor, bankruptcy, State, by attorney general behalf 1 more of delinquent or of, or violation or directors,'officers, agents for above or perform, prescribed failure duties the cor- prescribed act, duties any by whereby injured been or will be or poration damaged, has wasted, or lost, or or transferred property them, enjoin or to or proposed, or more of set unlawful transfer of the completed, corporate aside one thereof. property knowing purpose preclude in no or affect way any shall foregoing or creditor individual shareholder or any director, officer, have person against any other them any any duty or violation owed agent creditor, or shareholder, of them such director or directors shall be other No person. delinquency under this section held liable of such delinquency, date after delinquency time from the when such thereof, one whichever complaining discovered occur.” shall sooner in this the trial
The record sustains court’s appeal in part which opinion, reads carefully prepared follows: an al- cause of action
“Plaintiff’s
is based
entered
into
Messrs.
leged conspiracy
Hugh
*4
Wvatt,
H.
Martin,
Schimmel, Harry
Louis W.
February
Erdman
Matthew Finn about
Charles
the then directors
as
they,
claims
Martin.
corpora-
plaintiff, caused to be formed another
of
Alloy
Company,
as Detroit
Steel
where-
tion known
in
they
sole
directors;
the
stockholders and
were
having
they
formed this
entered
plaintiff
corpora-
and the
into a
between
new
lease
the
all of
facilities,
latter leased
the
tion, wherein
plaintiff
plant, equipment,
cetera, of
et
for the
castings
for the
manufacture
steel
sum of $500
plaintiff
making only
per month. At that time
was
castings.
gray
lease was
iron
renewed
This
time
time until
Plaintiff claims that this
inadequate
money
amount
consideration
lessee,
that which was leased and used
that
adequate
rental would have been a sum be-
year
per
tween
No
$15,000
$25,000
or more.
claim
indi-
made
contract
these
is
they
corpora-
vidual
tions
tions
control
directors, but
did
both
during
period
misrepresenta-
this
No
of time.
only
alleged
bill,
and the
basis
this
alleged
cetera,
is the
of these facilities,
use
et
** *
paying adequate
without
therefor.
consideration
interesting
plaintiff alleges
“It
is
note that
paragraphs
through
merger
14 that a
occurred
Alloy
between this
and Detroit
Com-
Steel
pany
tion
aas
result of the insistence of the Reconstruc-
Corporation
merger
perfected
Finance
governmental
as a condition for a
loan.
Since
merger
only
date of that
in 1942 there
has been
corporation. Plaintiff’s claims that these defendants
conspired
perfecting
merger
and others
allegations,
not borne out
own
and under
Michigan,
law of
CL
found
21.52),
§ Ann
where there
consolidation
merger
corporations,
agreement
the entire
must
approved by
be submitted to and
the shareholders
of each
involved and
out-
2/3
standing capital
approve
adoption
stock must
agreement.
necessarily
It
follows that
ex-
change
plain-
stock
the basis of
shares
1-1/4
capital
Alloy
tiff’s
stock for 1 share of Detroit
Company’s
Steel
stock
to all
stock-
known
*5
shortly
approved
them, and
and was
holders
thereafter,
Nobody
was issued.
this stock
in
nothing
complained,
was
and
taken,
action was
no
in
was started
case
all from
until this
done at
September, 1958.
conspirators
alleged
only
original
1 is
“Of the
Hugh
Ap
namely,
Martin. *
herein,
a defendant
Colby
attorney
parently
formation
the
as
Howard
acted
shortly after
of the new
and
incorporation
thereof, he became
stockholder
defendant,
not a
and
therein.
Erdman is
Charles
argument
he has made his
on
that
it
peace
stated
was
Wyatt
plaintiff.
Schimmel,
Messrs.
with the
in
Mr.
and Finn are dead. Mr. Schimmel died
Wyatt
in 1932. The
died in
and Mr. Finn died
many years, and,
of all 3 have
closed
estates
of
been
presented against the es
no claim
course,
any
Mr.
created
trust
tate
of which
&
claimed that
corporation,
of them.
Schimmel
Hugh
Bank
Martin,
and The Detroit
Jr.,
Company
present
It
trustees.
Trust
the new
shares of
28,000
received
he
which
trust,
into this
and
which went
exchanged
at
35,000
were
the time of the
Martin has a
shares
merger.
trust,
Clara
Under
Hugh Martin, Jr.,
interest,
life
and
The
are the remaindermen.
and
Martin Pioch
Lois
only
of this
1933. Neither
arises out
interest of these various defendants
being
in
death
came into
at his
trust,
which
Hugh
bank,
nor the
nor
Martin, Jr.,
part
trust,
those named in the
ever took
complained
except
proceedings
the ac
hap
exchange The defendant Costello
tive
stock.
Colby,
partner
pened
Howard
a law
to be
guesses
plaintiff surmises and
fact,
that
based
through
maybe
the stock
he was a shareholder
allega
partner,
Colby.
holding
Howard
his
George
only.
Gibbs
tion on information
belief
Arthur
served, never
and Fred O’Donnell were
stipulation.
has been dismissed
Pfleiderer
ease, ante,
[*]
This defendant
206.—Reportes.
died
after the
appeal
was taken.
See statement
Martin.
definitely alleges
paragraph
“Plaintiff
4, as
originally
amended,
from time to
this lease
and as renewed
Alloy
time
made
with Detroit
Steel
Company,
prem-
used the leased
property. Throughout
ises and
plaintiff
bill,
amended,
as
original incorporators
refers
these
as
promoters
company
of that
and as stockholders and
thereof,
directors
also makes
constant reference
plain-
them
other
defendants
*6
capacities occupied by
tiff,
to the dual
refers
alleged conspirators,
up
only
and sets
no facts, but
couple
pleader
of
of
conclusions
which disclose
parties
or
individual
combined act of these
which constitute
either
fraud
actual or constructive,
except
pertains
allegations
as it
to the
in connection
arising
they
with, and
what
did
from,
of
directors
plaintiff. Practically every paragraph makes refer-
plaintiff
ence to their actions
of
as directors
and/or
* * *
company.
of
directors
the new
o,fplaintiff
“In view of those assertions
as to its
position, this court is constrained to hold with the
complaint
that
defendants
bill of
not
this
does
set
forth
cause of action
these defendants.
Certainly, they
perfect right
had a
to
another
form
**
*
operate
Only
and to
it.
their
open
ques-
plaintiff
actions as
to
tion,
anything,
brings
squarely
if
them
general corporation
47].”
[section
within the
act
agrees
This Court
with the trial court that
if
defendants are
to
liable
action would
upon
(Stat
§
have to be
based
Ann
CL
450.47
Supp 21.47).
§
plain
1959 Cum
Under this section
tiff would be barred within 6
after 1942.*
charge
conspiracy
A
of
not
itself
is
sufficient.
alleged
agree
Facts must be
which constitute an
accomplish
to
ment
an
end,
unlawful
a lawful
People
end
unlawful
T enerowicz,
means.
v.
266
Antwerp,
276;
Mich
Van
v.
There meeting this test. (CLS § [Stat 1956, The concealment statute 27.612]) applicable, Supp § Ann 1959 Cum is properly trial court stated: and the concealment has fraudulent held “Our Court prevent employment planned in- artifice, means quiry acquirement investigation, escape hinder and mislead or right disclosing ac- of information that the acts relied must tion; further, De Haan character fraudulent. affirmative Kull, 323Mich Winter, 293; Mich Buchanan v. v. 447; 332 Mich International 381; Levin, Draws v. Wood, Mich 8. Union UAW-AFL people nothing inter- “There show entire didn’t know this ested merger in 1942, at situation, the time of least at matter well known and, course, the entire plaintiff at from 1929 on. all the directors of Under CL times Supp Ann 1948, 450.47 1959 Cum given 21.47) express authority shareholders, bring many No- the action. others to creditors, and bring any lapse body until a of some saw fit to lapse years' lease and first *7 pos- companies. merger fact The after the management sibly active those are now the .who corporation this situation didn’t know about this is consequence.” no A exist this between contract can State valid corporations having dis- directors, common paragraph 1956, 450.13, closed CLS provides Supp 21.13), which Ann Cum any corporation any di- no made contract of group or with other rector such be a of which such director shall association corporation of which the other member with and no con- director member or director be corporations having tract between common 1931] Detroit v. Martin. respective
shall be invalid because of such facts alone. Goodspeed Goodspeed,
In
“This statute considers directors as fiduciaries and management ‘in trustees the of the business, affairs, property and supervision selection, control of its committees and of agents corporation,’ officers and its purpose prevent sleeping rights, tois on known awaiting over a mismanagement an accumulation of acts period many years asking then readjust corporate to court review affairs. [*] “The statute [*] [*] merely puts in concrete form the doctrine of laches.” dismissing
The decree of the lower court the ap- amended bill of affirmed. Costs pellees. J., J., C. Dethmers, Carr, concurred with J.
Kelly, (concurring). principal question J. Souris, presented by May corporation case is: sue a profits former director to recover made him at corporation’s expense acts which constitute fraudulent periods provided
expiration of the of limitation Michigan general corporation for in section 47 of act?* Gray plain Iron Foundries, Inc., & Steel applies only herein,
*8 tiff contends section seeking fiduciary obliga suits enforce director’s allegedly forth in the that it tions set section and apply having purpose bar does suits their [*] CL § (Stat Ann 1959 Cum Supp § 21.47). Michigan rights against defend
enforcement of common-law happen The latter also to be directors. who ants subject general the are contends, suits, 6-year the ex of limitations* and statute† statute up tending period 2to the of limitations n case of fraudulent concealment. by a di- defendants, effect, in
We told fraudulently diverting by rector can to himself his himself enrich opportunities corporation’s business using plant, equipment, and facilities, funds, and its any liability personnel, poration cor- be free from the keep manage he therefor if can control that it cannot him for the so sue at plunder. the We are told least this is general corporation meaning
the section of the provides:
act, which every corporation, 47. The directors “Sec.. management them, the of the business, each affairs, property corporation, of the supervision and control of its commit- selection, the tees corpora- agents the of the officers vigi- give the attention and exercise the tion, shall prudent diligence, men skill, care and lance, similar circumstances. use in like or by brought “Action through shareholder, or a or director, officer, or bankruptcy, or or trustee or receiver creditor, general attorney on behalf of State, delinquent more di- 1 or agents, of, violation or or officers, or rectors, prescribed perform, the duties above failure whereby prescribed cor- act, duties injured damaged, poration or or or will be been has to 1 property wasted, or transferred lost, enjoin proposed, or set or to them, more corporate completed, unlawful transfer aside purpose knowing property thereof. to one [*] † CLS CLS 609.13 609.20 (Stat Ann 1959 Cum Ann Cum Supp Supp 27.612). 27.605). *9 215 v. Martin. preclude foregoing way any in shall no or affect any or individual shareholder or creditor person may against any other or have director, officer, agent duty by for violation of owed them any of shareholder, creditor, or other them to such person. No director be held or directors shall any delinquency liable under this section delinquency, 2 is dis- from the or after date such delinquency from the time when such by complaining thereof, covered sooner one whichever shall occur.” only applies
Plaintiff contends that section 47
negligent
part
on
careless failure
of director
give
vigilance,
“the attention and exercise the
diligence,
prudent
care and
in
skill,
men use
like or similar circumstances.” Plaintiff concludes
language
from the
use
such
that it .establishes
“liability
‘ordinary neglect’
fraud where
despoiling
of the
is deliberate
in
and'
citing
Muskegon
Dykema
Ring
tentional,”
Piston
Company,
opinion
Mich
129. This
Court’s
Dylcema
opinion
relied
its earlier
in Martin v.
Hardy,
quoted
offered of its claim that a director sued his in a ca pacity capacity, involving distinct and not his his a director. as, duties With contention there dispute. Hicks, In defendant no
can be charged with of a who violation director bank duty relating statutory specific to the extension of (to father) legal limit his excess credit banking proofs applicable law. The fixed representations made false that defendant showed them to discount and to induce to fellow directors belonging father. The to his renew various notes repre- acted this Court held he trial court and director, not as a father, of his sentative and, the transactions there involved *10 to reference upon alleged of a breach stat- therefore, suit based opin- fiduciary duty utory not lie. The Court’s would suggested a a declaration under broader ion by might the facts dis- established action cause of plaintiff suggestion upon and it is this closed facts between the relies. The distinction at bar case in Hicks and those is that in Hicks here involved accomplish nothing to his as a director did (cid:127)defendant misrep- (he made the same could have unlawful act bank), stranger whereas a to the as resentations n defendants by plain- alleged it bar, in the case at is complaint, as used their offices bill tiff’s amended powers directors their as and exercised directors plain- self-aggrandizement accomplish their ' (cid:127) expense. corporation’s tiff by plain Michigan case is relied other One support under the issue contention tiff Kopp Koppitz-M Inc., elchers, In consideration. promotor-of who a a Mich itz, sued director,‘was a later became promoter. by'him a The as committed for frauds applicable because defend 47 not held section Court being for committed before he frauds ant was sued support for no a case offers director. became This apply plaintiff’s theory 47 does section against by corporation for mis- its directors suits v. Martin. involving performance as of their duties directors. theory plain- difficulty plaintiff’s paragraph of section the first assumes that tiff damages statutory aris- cause creates negligence,” “ordinary ing tinguished as dis- from a director’s from what describe would right caused of action to redress loss common-law a fraud. In this deliberate intentional director’s plaintiff mistaken. j prescribes Section 47 standard which a di- performance his rector’s It duties is be measured. puts statutory language quot- what Court, Thompson- ing and Morawetz, said in Martin v. Hardy, supra. is the This standard. Conduct below negligent subjects this standard, wilful, whether liability greater-than a director to no nor less statutory pro- than he risked before enactment of the concluding language vision. The ing of section 47 limit- against actions conduct below specified standard to 6 from the date delin- quency discovery, or 2 from the time of its radically “whichever shall sooner occur,” alters periods of apply limitations which would otherwise negligent actions directors either for con- *11 (Stat § duct or fraud. CLS 609.13 Ann 1959 Supp § 27.605), Cum § and CLS 1956, Supp 27.612). § Ann 1959 Cum legislature’s purpose The doing in so clear. Perhaps qualified it believed that for Michi-
gan corporations they could not be found unless could be corpo- assured that their their challenged rations’ years affairs could not be after 2 following parties disclosure to or, interested years event, after 6 from occurrence. Plaintiff quite correctly notes that the result is that a injured defrauded otherwise fiduciary director, who owes duties to his cor- 362 218 years
porate within 2 of its dis- victim, must sue wrong covery or within 6 its occur- or forever occurs, hear the whichever sooner rence, loss. or other- if the is defrauded But, by stranger, may injured within it sue wise after wrong regardless discovery when it oc- explanation proffered our curred. Unless legislature’s purpose anomaly another correct, anomaly exists, the the here but it is created law powerless legislature which this Court is correct. plaintiff’s chancellor dismissed amended hill
The prior defendants’ motions filed an- ap- of swer. Order of dismissal affirmed. Costs pellees. con- JJ., Black, Kavanagh,
Smith, Edwards, with Souris, curred J. v. TUCKER.
DALENKO Preponderance Nonjury Appeal Evi- Cases — Error — 1. dence. testimony great eare must examine the Supreme Court ground jury sought on the ease is a non reversal o£ when appellant in favor of the elearly preponderated the evidence judge in con- trial committed error claimed and it is [1945]). contrary (Court Rule No cluding to the § Appendix—Pleadings—Testimony— Nonjury Cases — Same — Transcript. Rules — Court nonjury real-estate purchasers* aetion Appeal farm '£2] [1] Am Am Jur, Appeal Jur, Appeal References Error Error Points 895. 740. in Headnotes