Adams v. Edward M. Burke Homes, Inc.

• Decision Date: 02 December 1968
• Docket Number: Docket No. 1930,No. 1,1
• Citation: 166 N.W.2d 34,14 Mich.App. 578
• Parties: Sylvester ADAMS, Jr. and Louise Adams, Plaintiffs-Appellants, v. EDWARD M. BURKE HOMES, INC., a Michigan corporation, Edward M. Burke, Jr., Francis E. Griffin, and Carl S. Green, jointly and severally, Defendants-Appellees
• Court: Court of Appeal of Michigan — District of US

Page 34

166 N.W.2d 34

14 Mich.App. 578

Sylvester ADAMS, Jr. and Louise Adams, Plaintiffs-Appellants, v. EDWARD M. BURKE HOMES, INC., a Michigan corporation, Edward

M. Burke, Jr., Francis E. Griffin, and Carl S.

Green, jointly and severally,

Defendants-Appellees.

Docket No. 1930.

Court of Appeals of Michigan, Division No. 1.

Dec. 2, 1968.

Released for Publication March 27, 1969.

Keith, Conyers & Anderson, Detroit, for appellant.

William L. Colden, Detroit, for Griffin.

Harold L. White, Detroit, for Edward M. Burke Homes, Inc.

Before LEVIN, P.J., and GILLIS and QUINN, JJ.

QUINN, Judge.

Plaintiffs brought an action in common pleas court of Detroit to recover from defendants the amount of a deposit plaintiffs made on a contract with the corporate defendant, which was not fulfilled by the corporation. In count 1 of their declaration, plaintiffs sought recovery of $3,000 on the theory that the contract was void and unenforceable. In count 2, they sought recovery of $2,800. The latter figure mistakenly represented the deposit less $300 stipulated damages provided for in the contract. The individual defendants were joined under the provisions of C.L.1948, § 450.87 (Stat.Ann.1963 Rev. § 21.87). Plaintiffs appeal from a judgment of no cause of action in favor of all defendants.

Plaintiffs contracted with the corporate defendant for the construction of a home on land to be acquired from them by the builder. At the time of the contract, the powers of the corporate defendant were suspended for failure to file its annual report and pay fees as required by section 450.87, Supra. Eventually, plaintiffs purchased property and had another builder construct their home. The corporate defendant claimed at trial and claims here that it expended more than $3,000 for the benefit of plaintiffs and pursuant to contract prior to the time plaintiffs started acting for themselves. The trial judge made no finding on this point, and the record before us is such that we are unable to make such a finding.

Section 450.87, Supra, provides:

'(1) If any corporation neglects or refuses to make and file the reports and/or pay any fees required by this act within the time herein specified, and shall continue in default for (ten) 10 days thereafter, unless the secretary of state shall for good cause shown extend the time for the filing of such report or the payment of such fee, as the case may be, as provided in section (ninety-one) 91 of this act, and (2) if such corporation shall continue in default for (ten) 10 days after the expiration of such extension, its corporate powers shall be suspended thereafter, until it shall file such report, and it shall not maintain any action or suit in any court of this state upon any contract entered into during the time of such default; but nothing herein contained shall prevent the enforcement of such contract against the corporation by the other party thereto, and during the period of such suspension such corporation may exercise the power of disposing of and conveying its property and may settle and close its business. Any officer or officers of such corporation so in default who has neglected or refused to join in making of such report and/or pay such fee shall be liable for all debts of such corporation contracted during the period of such neglect or refusal.'

The contract was unenforceable by the corporation so long as it was in default. Industrial Coordinators, Inc. v. Artco, Inc. (1962), 366 Mich. 313, 115 N.W.2d 123. The corporate defendant is still in default and plaintiffs do not seek to enforce the contract, but by this action they rescinded. Among other things, rescission involves a restoration of the Status quo, Wall v. Zynda (1938), 283 Mich. 260 278 N.W. 66, and as to both parties. Kundel v. Portz (1942), 301 Mich. 195, 210, 3 N.W.2d 61. The insufficiency of the record prevents us from determining what is Status quo in this case, but the corporate defendant shall be entitled to retain that part of the $3,000 which represents expenditures pursuant to the contract and which are of no further value to that defendant.

There is sufficient evidence in the record to support a finding that the failure to file the report was due to the neglect of the officers at the time. Except for defendant Griffin, such a finding supports the liability of the individual defendants under the statute, Supra, if what is involved here is a debt contracted during the period of neglect.

In Lockhart v. Van Alstyne (1875), 31 Mich. 76, 78, 'debt' is defined as follows:

'Liabilities of a company which may give causes of action against it and result in judgments are not within the statute unless they constitute present debts. A debt is that which one person is bound to pay to another, either presently or at some future period; something which may be the subject of a suit as a debt, and not something to which the party may be entitled as damages in consequence of a failure to perform a duty or keep an engagement.'

This supports our holding that involved here is a debt contracted during the period of neglect.

The trial judge dismissed the case as to defendant Griffin before he rendered an opinion on the principal issues in the case. That determination is supported by the record. Mr. Griffin had tendered his resignation as secretary of the corporation but not as a director before he departed in 1957 for a 5 year assignment in Africa. Although the record does not indicate that Griffin resigned as a director, directors have no personal liability under the statute, Supra.

The contention of the corporate defendant and defendant Burke that this action is barred by the 2 year statute of limitations found in C.L.1948, § 450.90 (Stat.Ann.1963 Rev. § 21.90) is not properly before us. Rule 9, § 4, common pleas court, requires that such an affirmative defense be plainly set forth in the defendant's answer. This defense was first raised below during final argument and the trial court did not rule on it.

Reversed and remanded for a determination of the amount the corporate defendant should be required to repay to plaintiffs and for a determination of the personal liability of the individual defendants, except Griffin. Plaintiffs may recover costs.

LEVIN, Judge (concurring).

Plaintiffs Sylvester Adams, Jr. and Louise Adams, his wfie, seek a money judgment against Edward M. Burke Homes, Inc., a Michigan corporation, and the individual defendants. Plaintiffs assert that Burke Homes' alleged indebtedness to the plaintiffs was a debt contracted during the period Burke Homes was in default in filing its 1962 and subsequent annual reports and that under section 87 of the Michigan general corporation act (C.L.1948 § 450.87 (Stat.Ann.1963 Rev. § 21.87)) the individual defendants, who are claimed to have been officers and directors of Burke Homes during such period of delinquency, are personally liable to pay such indebtedness.

I.

The facts

Before any default in filing annual reports, the plaintiffs and Burke Homes commenced negotiations with a view to Burke Homes acquiring 3 particular vacant lots and constructing a residence for the plaintiffs on them. Before a written agreement was entered into between the parties, and before Burke homes was in default, the plaintiffs paid Burke Homes a deposit of $1,000.

After the corporation's powers were suspended by reason of default in filing the 1962 annual report due May 15, 1962, ¹ the parties signed 3 separate written agreements. The first agreement was dated July 3, 1962, and stated a price of $35,500. $3,000 down, the remaining $2,000 of the down payment to be paid upon receipt of mortgage commitment. Before the $2,000 was paid, a seconc written agreement was signed by the parties, dated July 9, 1962, this time at a price of $33,340, $8,840 down. Thereafter the $2,000 additional deposit money was paid by the plaintiffs to Burke Homes. The third written agreement, dated January 21, 1963, restated the $33,340 price, but increased the down payment to $10,640.

The plaintiffs became dissatisfied with Burke Homes' failure to commence construction and engaged legal counsel. On May 14, 1963, Burke Homes wrote the plaintiffs 'pursuant to the request' of plaintiffs' counsel to explain the disposition that Burke Homes had made of the $3,000 deposit paid by the plaintiffs. The letter stated that $2,700 had been expended for 'deeds to lots.' $400 for plans and specifications and that an additional $83.50 had been spent on title and financing applications. The letter offered to proceed with construction.

On July 3, 1963, the plaintiffs purchased the 3 lots on which their house was to be built from the titleholder for $2,592.21 and caused a house to be constructed on the lots for $26,000 under the supervision of Burke Homes' former building superintendent. The house so constructed was built from plans other than the ones prepared by Burke Homes. It was a smaller house than the one Burke Homes had agreed to build for the plaintiffs.

The declaration

Plaintiffs' declaration contained 2 counts. Count I sought recovery of $3,000 on the theory that the July 3, 1963 contract was 'void and unenforceable' by reason of Burke homes' failure to have filed its 1962 annual report. Count II asserted that Burke Homes Breached a provision in the July 3, 1962 contract which stated that, in the event the plaintiffs failed 'to obtain financing or for any other reason' failed to fulfill the contract, $300 'shall be forfeited' to Burke Homes to cover certain described expenses and the balance of the $3,000 down payment refunded.

Although plaintiffs pleaded only the July 3, 1962 agreement, at trial all 3 agreements were received in evidence without objection. Both the July 9, 1962 and January 21, 1963 agreements contained a provision requiring completion of construction within 6 months after receipt of a mortgage commitment, and also provided: 'If construction is not completed as herein set forth, purchaser...