Court Opinion

ID: 9699985
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:02:59.856332+00
Date Added: 2024-06-11T18:21:02.130237
License: Public Domain

*207Kelly, J.
Plaintiff was engaged in the manufacturing of gray iron castings for the automotive industry, and on February 6, 1929, certain of plaintiff’s officers and directors formed the Detroit Alloy Steel Company to manufacture steel castings. The Detroit Alloy Steel Company leased a portion of plaintiff’s premises at a monthly rental of $500.
In 1942 plaintiff sought a loan from the Deconstruction Finance Corporation and was informed, as a condition to obtaining the loan, plaintiff would have to acquire the assets of the Detroit Alloy Steel Company. Plaintiff complied by acquiring' all of the issued and outstanding shares of capital stock of Detroit Alloy Steel Company on December 31, 1942.
Approximately 16 years later (September, 1958) plaintiff filed its bill of complaint in the circuit court of Wayne county seeking an accounting, cancellation of certain shares of stock, and damages.
Defendants and appellees filed motions to dismiss, and, after oral argument, plaintiff, on December 1, 1958, was given the right to file an amended bill of complaint. Plaintiff filed such amended bill of complaint on December 31,1958, and, also, an amendment to this amended bill was filed on July 2, 1959.
Plaintiff in its final argument and brief abandoned the so-called directors’ statute (CL 1948, §450.47 [Stat Ann 1959 Cum Supp §21.47]) and based its action upon common-law fraud and conspiracy.
The bill of complaint was dismissed by a decree entered by Hon. Chester P. O’Hara, circuit judge, on October 12, 1959. Claim of appeal was duly filed by plaintiff.
Section 47 of the Michigan general corporation act (CL 1948, § 450.47 [Stat Ann 1959 Cum Supp § 21.47]) reads:
*208“The directors of every corporation, and each of them, in the management of the business, affairs, and property of the corporation, and in the selection, supervision and control of its committees and of the officers and agents of the corporation, shall give the attention and exercise the vigilance, diligence, care and skill, that prudent men use in like or similar circumstances.
“Action may be brought by the corporation, through or by a director, officer, or shareholder, or a creditor, or receiver or trustee in bankruptcy, or by the attorney general of the State, on behalf of the corporation against 1 or more of the delinquent directors,'officers, or agents for the violation of, or failure to perform, the duties above prescribed or any duties prescribed by this act, whereby the corporation has been or will be injured or damaged, or its property lost, or wasted, or transferred to 1 or more of them, or to enjoin a proposed, or set aside a completed, unlawful transfer of the corporate property to one knowing the purpose thereof. The foregoing shall in no way preclude or affect any action any individual shareholder or creditor or other person may have against any director, officer, or agent for any violation of any duty owed by them or any of them to such shareholder, creditor, or other person. No director or directors shall be held liable for any delinquency under this section after 6 years from the date of such delinquency, or after 2 years from the time when such delinquency is discovered by one complaining thereof, whichever shall sooner occur.”
The record in this appeal sustains the trial court’s carefully prepared opinion, which reads in part as follows:
“Plaintiff’s cause of action is based upon an alleged conspiracy entered into by Messrs. Hugh Martin, Louis W. Schimmel, Harry H. Wvatt, Charles Erdman and Matthew Finn about February 6, 1929, and claims that they, as the then directors *209of plaintiff, caused to be formed another corporation known as Detroit Alloy Steel Company, wherein they were the sole stockholders and directors; and having formed this corporation, they entered into a lease between plaintiff and the new corporation, wherein the latter leased all of the facilities, plant, equipment, et cetera, of plaintiff for the manufacture of steel castings for the sum of $500 per month. At that time plaintiff was making only gray iron castings. This lease was renewed from time to time until 1942. Plaintiff claims that this amount of money was inadequate consideration for that which was leased and used by the lessee, and that an adequate rental would have been a sum between $15,000 and $25,000 per year or more. No claim is made of any contract with any of these individual directors, but they did control both corporations during this period of time. No misrepresentations are alleged in the bill, and the only basis for this action is the alleged use of these facilities, et cetera, without paying adequate consideration therefor. * * *
“It is interesting to note that plaintiff alleges in paragraphs 10 through 14 that a merger occurred between this plaintiff and Detroit Alloy Steel Company as a result of the insistence of the Reconstruction Finance Corporation that a merger be perfected as a condition for a governmental loan. Since the date of that merger in 1942 there has been only 1 corporation. Plaintiff’s claims that these defendants and others conspired in perfecting this merger is not borne out by its own allegations, and under the law of Michigan, as found in CL 1948, § 450.52 (Stat Ann § 21.52), where there is a consolidation or merger of corporations, the entire agreement must be submitted to and approved by the shareholders of each corporation involved and 2/3 of the outstanding capital stock must approve the adoption of the agreement. It necessarily follows that the exchange of stock on the basis of 1-1/4 shares of plaintiff’s capital stock for 1 share of Detroit Alloy Steel Company’s stock was known to all the stock*210holders and was approved by them, and shortly thereafter, in 1942, this stock was issued. Nobody complained, no action was taken, and nothing was done at all from 1929 until this case was started in September, 1958.
“Of the original alleged conspirators only 1 is a defendant herein, namely, Hugh Martin.  Apparently Howard Colby acted as attorney in the formation of the new corporation, and shortly after the incorporation thereof, he became a stockholder therein. Charles Erdman is not a defendant, and it was stated on the argument that he has made his peace with the plaintiff. Messrs. Schimmel, Wyatt and Finn are dead. Mr. Schimmel died in 1933, Mr. Wyatt died in 1934, and Mr. Finn died in 1932. The estates of all 3 have been closed for many years, and, of course, no claim was presented against the estate of any of them. Mr. Schimmel created a trust of which Hugh Martin, Jr., and The Detroit Bank & Trust Company are the present trustees. It is claimed that he received 28,000 shares of the new corporation, which went into this trust, and which were exchanged for 35,000 shares of plaintiff at the time of the merger. Under this trust, Clara Martin has a life interest, and Hugh Martin, Jr., and Lois Martin Pioch are the remaindermen. The only interest of these various defendants arises out of this trust, which came into being at his death in 1933. Neither Hugh Martin, Jr., nor the bank, nor those named in the trust, ever took any part in any of the proceedings complained of except in the active exchange of stock. The defendant Costello happened to be a law partner of Howard Colby, and based upon that fact, plaintiff surmises and guesses that maybe he was a shareholder through the stock holding of his partner, Howard Colby. The allegation is on information and belief only. George Gibbs and Fred O’Donnell were never served, and Arthur Pfleiderer has been dismissed on stipulation.
*211“Plaintiff definitely alleges in paragraph 4, as amended, that this lease originally and as renewed from time to time was made with Detroit Alloy Steel Company, and that corporation used the leased premises and property. Throughout the bill, as amended, plaintiff refers to these original incorporators as promoters of that company and as stockholders and directors thereof, and also makes constant reference to them and other defendants as directors of plaintiff, refers to the dual capacities occupied by the alleged conspirators, and sets up no facts, but only a couple of conclusions of the pleader which disclose any individual or combined act of these parties which constitute fraud either actual or constructive, except as it pertains to the allegations in connection with, and arising from, what they did as directors of plaintiff. Practically every paragraph makes reference to their actions as directors of plaintiff and/or directors of the new company. * * *
“In view of those assertions o,f plaintiff as to its position, this court is constrained to hold with the defendants that this bill of complaint does not set forth any cause of action against these defendants. Certainly, they had a perfect right to form another corporation and to operate it. * * * Only their actions as directors of the plaintiff are open to question, if anything, and that brings them squarely within the general corporation act [section 47].”
This Court agrees with the trial court that if defendants are liable to plaintiff the action would have to be based upon CL 1948, § 450.47 (Stat Ann 1959 Cum Supp § 21.47). Under this section plaintiff would be barred within 6 years after 1942. 
A charge of conspiracy is not of itself sufficient. Facts must be alleged which constitute an agreement to accomplish an unlawful end, or a lawful end by unlawful means. People v. Tenerowicz, 266 Mich 276; MacGriff v. Van Antwerp, 327 Mich 200.
*212There were no facts set forth in plaintiffs bill of complaint meeting this test.
The concealment statute (CLS 1956, § 609.20 [Stat Ann 1959 Cum Supp § 27.612]) is not applicable, and the trial court properly stated:
“Our Court has held that fraudulent concealment means employment of artifice, planned to prevent inquiry or escape investigation, and mislead or hinder acquirement of information disclosing a right of action; further, that the acts relied upon must be of an affirmative character and fraudulent. De Haan v. Winter, 258 Mich 293; Buchanan v. Kull, 323 Mich 381; Draws v. Levin, 332 Mich 447; International Union UAW-AFL v. Wood, 337 Mich 8.
“There is nothing to show that the people interested in this corporation didn’t know of this entire situation, at least at the time of the merger in 1942, and, of course, the entire matter was well known to the directors of plaintiff at all times from 1929 on. Under CL 1948, § 450.47 (Stat Ann 1959 Cum Supp § 21.47) express authority is given to shareholders, creditors, and many others to bring the action. Nobody saw fit to bring any action until a lapse of some 29 years after the first lease and a lapse of 16 years' after the merger of 2 companies. The fact that possibly those .who are now in the active management of this corporation didn’t know about this situation is of no consequence.”
A valid contract can exist in this State between corporations having common directors, as is disclosed by CLS 1956, § 450.13, paragraph 5 (Stat Ann 1959 Cum Supp § 21.13), which provides that no contract of any corporation made with any director of such corporation or with any other group or association of which such director shall be a member or with any other corporation of which the director may be a member or director and no contract between corporations having common directors *213shall be invalid because of such respective facts alone.
In Goodspeed v. Goodspeed, 273 Mich 87, 89, 90, our Court construed the directors’ statute above referred to, and stated:
“This statute considers directors as fiduciaries and trustees ‘in the management of the business, affairs, and property of the corporation, and in the selection, supervision and control of its committees and of the officers and agents of the corporation,’ and its purpose is to prevent sleeping on known rights, awaiting an accumulation of acts of mismanagement over a period of many years and of then asking the court to review and readjust the corporate affairs. * * *
“The statute merely puts in concrete form the doctrine of laches.”
The decree of the lower court dismissing the amended bill of complaint is affirmed. Costs to appellees.
Dethmers, C. J., and Carr, J., concurred with Kelly, J.