Court Opinion

ID: 9699986
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:02:59.861563+00
Date Added: 2024-06-11T18:21:02.132855
License: Public Domain

Souris, J.
(concurring). The principal question presented by this case is: May a corporation sue a former director to recover profits made by him at the corporation’s expense by acts which constitute fraudulent conduct against the corporation after the expiration of the periods of limitation provided for in section 47 of the Michigan general corporation act?*
Detroit Gray Iron & Steel Foundries, Inc., plaintiff herein, contends that section 47 applies only to suits seeking to enforce a director’s fiduciary obligations allegedly set forth in the section and that it does not apply to bar suits having for their purpose *214enforcement of common-law rights against defendants who happen also to be directors. The latter suits, plaintiff contends, are subject to the general 6-year statute of limitations* and the statute† extending the period of limitations up to 2 years in the case of fraudulent concealment. ■
We are told by defendants, in effect, that a director can enrich himself by fraudulently diverting to himself his corporation’s business opportunities and using its plant, equipment, facilities, funds, and personnel, and be free from any liability to the corporation therefor if he can manage to keep control of the corporation so that it cannot sue him for at least 6 years after the plunder. We are told that this is the meaning of section 47 of the Michigan general corporation act, which provides:
“Sec.. 47. 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 *215foregoing 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.”
Plaintiff contends that section 47 applies only to negligent or careless failure on the part of a director to give “the attention and exercise the vigilance, diligence, care and skill, that prudent men use in like or similar circumstances.” Plaintiff concludes from the use of such language that it .establishes “liability for ‘ordinary neglect’ not fraud where the despoiling of the corporation is deliberate and' intentional,” citing Dykema v. Muskegon Piston Ring Company, 348 Mich 129. This Court’s opinion in Dylcema relied upon its earlier opinion in Martin v. Hardy, 251 Mich 413, in which the Court quoted 2 Thompson on Corporations (3d ed), § 1376, and 1 Morawetz on Private Corporation (2d ed), § 552, in determining the general rule by which “to measure the degree of care and diligence required of directors of a corporation.” Neither Dykema nor Martin hold that section 47 was limited only to negligent acts of directors, as distinguished from intentionally tortious or fraudulent conduct by them. Indeed, Martin was decided 1 year before passage of the present Michigan general corporation act.
Hicks v. Steel, 142 Mich 292 (4 LRA NS 279), is offered by plaintiff in support of its claim that a director may be sued by his corporation in a capacity distinct from his capacity, and not involving his duties as, a director. With this contention there *216can be no dispute. In Hicks, the defendant was a bank director who was charged with violation of a specific statutory duty relating to the extension of credit (to his father) in excess of the legal limit fixed by the applicable banking law. The proofs showed that defendant made false representations to fellow directors to induce them to discount and renew various notes belonging to his father. The trial court and this Court held he acted as a representative of his father, not as a director, with reference to the transactions there involved and, therefore, suit based upon an alleged breach of a statutory fiduciary duty would not lie. The Court’s opinion suggested that under a broader declaration a cause of action might be established by the facts disclosed and it is upon this suggestion plaintiff in the case at bar relies. The distinction between the facts in Hicks and those here involved is that in Hicks the •defendant did nothing as a director to accomplish his unlawful act (he could have made the same misrepresentations as a stranger to the bank), whereas the ■defendants in the case at bar, it is alleged by plaintiff’s amended bill of complaint, used their offices as directors and exercised their powers as directors to accomplish their self-aggrandizement of the plaintiff corporation’s expense. ' •
One other Michigan case is relied upon by plaintiff in support of its contention on the issue under consideration. In Koppitz-Melchers, Inc., v. Koppitz, 315 Mich 582, a promotor-of a corporation, who later became a director,‘was sued by the corporation for frauds committed by'him as a promoter. The Court held section 47 not applicable because defendant was being sued for frauds committed before he became a director. This case offers no support for plaintiff’s theory that section 47 does not apply to suits by a corporation against its directors for mis*217conduct involving the performance of their duties as directors.
The difficulty with plaintiff’s theory is that plaintiff assumes that the first paragraph of section 47 creates a statutory cause of action for damages arising from a director’s “ordinary negligence,” as distinguished from what plaintiff would describe as a common-law right of action to redress loss caused by a director’s deliberate and intentional fraud. In this plaintiff is mistaken. j
Section 47 prescribes the standard by which a director’s performance of his duties is to be measured. It puts in statutory language what this Court, quoting Thompson- and Morawetz, said in Martin v. Hardy, supra. This is the standard. Conduct below this standard, whether negligent or wilful, subjects a director to liability no greater-than nor any less than he risked before enactment of the statutory provision. The concluding language of section 47 limiting actions against directors for conduct below the standard specified to 6 years from the date of delinquency or 2 years from the time of its discovery, “whichever shall sooner occur,” radically alters the periods of limitations which would otherwise apply to actions against directors either for negligent conduct or fraud. CLS 1956, § 609.13 (Stat Ann 1959 Cum Supp § 27.605), and CLS 1956, § 609.20 (Stat Ann 1959 Cum Supp § 27.612).
The legislature’s purpose in so doing is not clear. Perhaps it believed that qualified directors for Michigan corporations could not be found unless they could be assured that their conduct of their corporations’ affairs could not be challenged after 2 years following disclosure to interested parties or, in any event, after 6 years from occurrence. Plaintiff quite correctly notes that the result is that a corporation defrauded or otherwise injured by a director, who owes fiduciary duties to his cor*218porate victim, must sue within 2 years of its discovery of the wrong or within 6 years of its occurrence, whichever sooner occurs, or forever hear the loss. But, if the corporation is defrauded or otherwise injured by a stranger, it may sue within 2 years after discovery of the wrong regardless when it occurred. Unless our proffered explanation of the legislature’s purpose is correct, another anomaly of the law here exists, but it is an anomaly created by the legislature which this Court is powerless to correct.
The chancellor dismissed plaintiff’s amended hill of complaint on defendants’ motions filed prior to answer. Order of dismissal affirmed. Costs to appellees.
Smith, Black, Edwards, and Kavanagh, JJ., concurred with Souris, J.

 CL 1948, § 450.47 (Stat Ann 1959 Cum Supp § 21.47).

 CLS 1956, 609.13 (Stat Ann 1959 Cum Supp § 27.605).

 CLS 1956, 609.20 (Stat Ann 1959 Cum Supp § 27.612).