Industrial Coordinators, Inc. v. Artco, Inc.

• Citation: 115 N.W.2d 123,366 Mich. 313
• Decision Date: 17 May 1962
• Docket Number: No. 46,46
• Parties: INDUSTRIAL COORDINATORS, INC., a Michigan corporation, Plaintiff and Appellee, v. ARTCO, INC., a Michigan corporation, Defendant and Appellant.
• Court: Michigan Supreme Court

Page 123

115 N.W.2d 123

366 Mich. 313

INDUSTRIAL COORDINATORS, INC., a Michigan corporation, Plaintiff and Appellee, v. ARTCO, INC., a Michigan corporation, Defendant and Appellant.

No. 46.

Supreme Court of Michigan.

May 17, 1962.

Sugar & Schwartz, by A. Albert Sugar, Detroit, for defendant and appellant.

Lungerhausen & Stair, Mount Clemens, for plaintiff and appellee.

Before the Entire Bench.

ADAMS, Justice.

June 7, 1960, plaintiff filed its suit. On the same day, writs of garnishment were issued. Fifty thousand dollars is now being held by the State Bank of Fraser, garnishee defendant, until further order of the court.

On May 15, 1960, pursuant to C.L.S.1956, § 450.82 (Stat.Ann.1961 Cum.Supp. § 21.82), plaintiff was required to file its 1960 annual report with the corporation and securities commissioner. Plaintiff failed to file. However, the report was filed and the fees paid on June 20, 1960.

On June 22, 1960, defendant moved to make more definite and certain the bill of particulars or to strike the declaration. Demand for jury trial was made. On June 27th, plaintiff applied for discovery proceedings. On July 11th, orders granting discovery and requiring the plaintiff to make more definite and certain were entered.

On July 11, 1960, the corporation and securities commissioner issued a certificate in which he set forth the failure of the plaintiff to file its 1960 report and that the corporation was in default on June 7, 1960. Though the certificate of the corporation and securities commissioner was made on July 11, 1960, it did not become a part of these proceedings until January 25, 1961.

In the meantime, on October 12, 1960, a motion for judgment on the pleadings was filed by defendant's attorneys. It was answered, heard, and denied.

On November 4, 1960, an affidavit and answer to the order for discovery were filed by H. J. Guenther, purchasing agent for the Ford Motor Company, setting forth that during the period when the defendant purportedly had a contract for services with the plaintiff, the Ford Motor Company issued purchase orders to the defendant in the total sum of $1,342,156.45, and that, as to some, at least, of said purchase orders, the defendant 'probably would not have been invited to bid on except for the efforts of plaintiff.'

On January 25, 1961, for the first time, by motion to dismiss the defense was raised that the plaintiff had no capacity to sue on June 7, 1960. The motion was denied and this appeal followed.

C.L.1948, § 450.87 (Stat.Ann. § 21.87) grants to Michigan corporations a 10-day grace period in which to file annual reports after which penalties are imposed for failure to comply. The penalties are:

(a) Its powers shall be suspended thereafter, until it shall file such report.

(b) 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.

Defendant's motion to dismiss is premised on the first penalty. Defendant contends that from May 25, 1960 (the end of the grace period) until June 20, 1960, the right to institute suit in any court in this State was suspended, that commencement of the suit was a nugatory act, and that any subsequent correction of the default cannot vitalize such an act. Plaintiff claims there was substantial compliance with the law, and that the defendant has waived its defense because it was not raised until after the default had been corrected.

The contrast between penalty (a) and penalty (b) is significant. The statute flatly states that a contract entered into during the period of default cannot be enforced by the corporation in any court in the State of michigan. This is a specific, punitive provision. See Irvine & Meier v. Wienner, 212 Mich. 199, 180 N. W. 492; Detroit United Fruit Auction Co. V Kroger Grocery & Baking Co., 227 Mich. 412, 198 N.W. 947; and Dawn Constuction Co. v. Paris Home Builders, Inc., 360 Mich. 281, 103 N.W.2d 410. But while penalty (b) deals with a single act of a corporation--entering into a contract--penalty (a) is an all inclusive reference to the powers of a corporation.

The powers of a corporation are many--the power to sue and to be sued; the power to deed real estate; the power to carry on a business, et cetera. Furthermore, corporate activity consists of a flow of many acts, some beginning, some ending, and some in process at a given instant. A corporation hires, fires, manufactures, trades, sells, and engages in corporate activities until such time as the suspension is invoked. In this connection, Turner v. Western Hydro-Electro Co., 241 Mich. 6, 216 N.W. 476, is of interest for holding that the failure to pay fees does not cancel the charter even though the statute under consideration in that case declared the charter to be 'absolutely void.' The Court said that such a provision is not self-executing and that a judicial inquiry would be required in order to forfeit the corporate charter.

The problem of suspension is discussed in Reuter, Hubb & Spoke Co. v. Hicks, 181 Mich. 250, 148 N.W. 339. The case dealt with the liability of directors of a corporation that...