De Polo v. Greig

• Decision Date: 18 February 1954
• Docket Number: No. 40,40
• Citation: 338 Mich. 703,62 N.W.2d 441
• Parties: , Blue Sky L. Rep. P 70,226 DE POLO et al. v. GREIG.
• Court: Michigan Supreme Court

Page 441

62 N.W.2d 441

338 Mich. 703, Blue Sky L. Rep. P 70,226

DE POLO et al. v. GREIG.

No. 40.

Supreme Court of Michigan.

Feb. 18, 1954.

Fildew, DeGree & Fleming, Detroit, for appellants.

Armstrong, Essery, Helm & Marshall, Detroit, for William R. Greig.

Before the Entire Bench.

BUTZEL, Chief Justice.

Bruno and Katherine DePolo brought suit against William R. Greig to recover the sum of $40,000, the purchase price of 40,000 shares of common stock of the Spline & Gear Machine Company, Inc., a Michigan corporation. The stock had never been validated for sale under the Blue Sky Law, P.A.1923, No. 220, as amended, C.L.1948, § 451.101 et seq.; Stat.Ann. § 19.741 et seq. Defendant was the president and agent of the corporation in making such sale and as such would be jointly and severally liable under the statute, C.L.1948, § 451.120, Stat.Ann. § 19.760.

Mr. DePolo was associated with a successful concern that manufactured screw machine products, bolts and nuts. He drew a large salary from this concern and, over a period of 20 years, had invested a considerable amount in the stock market. He became interested in Mr. Greig, the defendant, and the Spline & Gear Machine Company, Inc., through a mutual friend and decided to make an original investment of $20,000 in the stock of that corporation. He admitted that he was told and knew that the corporate statement showed a deficit of $37,000 but he nevertheless was willing to invest in the corporation. DePolo also admitted that he was introduced to a member of the firm of accountants that prepared the corporation's accounts and that he had the opportunity to discuss the corporation's financial condition. At the time of the purchase he was told that the stock had never been validated. Testimony in behalf of the defendant showed that DePolo did not care to have the stock validated and that the attorney for the corporation expressed doubts as to whether the stock would be accepted for filing by the Michigan Corporation and Securities Commission because of the large deficit. Whether it would have been accepted for filing for limited purposes is not before us. The corporation's attorney told DePolo that in order to avoid the severe penalty under the statute he would have to sign a waiver that was prepared and which stated, in substance, that the stock had not been accepted for filing by the Michigan Corporation and Securities Commission and was not exempt from the Michigan Blue Sky Law, and that DePolo, having knowledge of such facts, had refused the voluntary offer of the officers of the corporation to take back the shares and to accept a refund of the full amount of the purchase price; and, further, that he waived all rights and benefits that he might otherwise have been entitled to under section 20 of the Michigan Blue Sky Law, C.L.1948, § 451.120; Stat.Ann. § 19.760, with respect to sales in violation thereof and that he released the corporation and its officers of any and all liability in connection therewith. DePolo not only signed the instrument but also swore to it before a notary public. The sale was made on or about the 26th of December, 1947. When the stock was issued in DePolo's name he asked that his wife's name be added to the stock certificate as a joint owner. About two weeks later DePolo bought, as a joint owner with his wife, an additional $20,000 worth of the shares and executed a similar waiver of purchaser's rights under the Blue Sky Law. The stock in all cost him $40,000. He and defendant became friends; he joined the golf club of which defendant was a member; he paid his own membership fee but the corporation paid the tax on the fee as well as from $700 to $900 for his expenses at the club. The corporation also paid the cost of sending plaintiffs' children to a summer camp.

Plaintiff testified that he was never active in the corporation and went there about once a month but there is testimony that he visited the place at least once a week. Some six months after he purchased the stock he was elected director and vicepresident. He claims that he did nothing in that capacity. Evidently the directors' meetings were informal, the corporation being one with a limited number of stockholders. Notwithstanding DePolo's testimony to the contrary, it appears that he did often counsel with defendant and others in regard to orders, methods of manufacturing, production costs and labor. He was more than a passive stockholder who had made an investment without participating in the management in any way. He claims that he did receive regular reports but this is denied. He was never refused access to the financial reports that were available. We find no evidence of fraud in inducing the purchase of the stock or thereafter. The corporation did make some profit for a short period after DePolo became interested but there were further losses and particularly so on a contract made with Montgomery Ward & Company, where there was a loss of over $100,000 on the order. This was more than the corporation could stand and it went into bankruptcy. DePolo resigned from the corporation as director and vice-president in March, 1949. When the corporation was in difficulties he and his wife tendered back the stock and demanded refund of the purchase price, which was refused.

DePolo and his wife brought suit in the Wayne County circuit court on July 5, 1949, against the corporation and Greig as defendants. On October 13, 1949, plaintiff filed a claim for $40,000 against the corporation in the United States District Court for the Eastern District of Michigan, Southern Division, in the bankruptcy matter that was pending. Evidently, as appears from the opinion of the referee in bankruptcy, the identical claims under the Blue Sky Law, including the question of whether plaintiff was agent of his wife, were presented and carefully considered by both the referee and the district judge who in a written opinion affirmed the referee's ruling disallowing plaintiffs' claim. On January 5, 1951, plaintiffs moved to strike defendant's answer to their amended declaration in regard to the reference to the pending bankruptcy proceedings wherein the corporation asked for a plan of arrangement under chapter XI of the Federal Bankruptcy Act, 11 U.S.C.A. § 701 et seq. The motion set forth that such plan had been withdrawn; that the corporation had been adjudicated a bankrupt and that there had been a stipulation and order discontinuing the case against the corporation in the circuit court. The circuit judge granted such motion but gave defendant 10 days in which to file a new answer. Six months later, after there had been a motion to dismiss on the part of defendant on answer filed therein, the court permitted defendant to amend his answer to show the proceedings in the United States District Court and permitting the defense of res judicata which applied to the controversy in the instant case. We find no error in permitting such amendment as theretofore there had not been a final judgment in the United States District Court. The judge did not abuse his discretion.

It is claimed, in the first place, that the waiver signed by DePolo is of no force and effect; that it was a method of vitiating and emasculating the force of the Blue Sky Law, supra, and that if it were of any legal effect it could be resorted to by everyone to avoid the provisions of the Blue Sky Law. We realize the force of this argument but there is testimony that DePolo agreed that no steps be taken to validate the issuance of the stock and, further, with the knowledge that the stock had not been validted, he made a second purchase within 14 days after the first purchase. We believe that the signing of the instruments when considered with his subsequent conduct establishes an estoppel. See Schrier v. B. & B. Oil Co., 311 Mich. 118, 18 N.W.2d 392, and Moore v. Manufacturers Sales Co., 335 Mich. 606, 56 N.W.2d 397. DePolo was not merely a purchaser of stock but he took an active interest in the corporation even though he did not participate to the degree that the purchasers of stock did in the Schrier and Moore cases, supra. He waited until after the huge loss had been incurred on the Montgomery Ward contract and then first offered to surrender his stock and demanded his money back.

It is claimed, however, that even if DePolo's actions would estop him, they would not bind Mrs. DePolo whose name at DePolo's request had been entered on the stock certificates as a joint owner. According to her own testimony he was her agent at all times and was acting as her agent with her full authority and she is estopped by the acts of her agent.

Even if, however, there were any doubt about the question of estoppel, there is a further reason why plaintiffs cannot recover and on which the trial judge largely based his decision. Plaintiffs presented their claims in the bankruptcy court. From an...