LeZontier v. Shock, Docket No. 23581

• Decision Date: 20 September 1977
• Docket Number: Docket No. 23581
• Citation: 78 Mich.App. 324,260 N.W.2d 85
• Parties: Phillippe P. LeZONTIER, Plaintiff-Appellant, v. Lawrence SHOCK, Clifford Shock, and Shock Brothers, Inc., a Michigan Corporation, Defendants-Appellees. 78 Mich.App. 324, 260 N.W.2d 85
• Court: Court of Appeal of Michigan — District of US

Page 85

260 N.W.2d 85

Phillippe P. LeZONTIER, Plaintiff-Appellant, v. Lawrence SHOCK, Clifford Shock, and Shock Brothers, Inc., a

Michigan Corporation, Defendants-Appellees.

Docket No. 23581.

78 Mich.App. 324, 260 N.W.2d 85

Court of Appeals of Michigan.

Sept. 20, 1977.

Released for Publication Dec. 8, 1977.

[78 MICHAPP 326] Gillis & LaRose by Philip A. Gillis, Detroit, for plaintiff-appellant.

Dietrich, Tucker, Cassavaugh, Fogelson, Perkins & Barbour by James A. Tucker, Detroit, for defendants-appellees.

Before RILEY, P. J., and BASHARA and MAHINSKE, ^* JJ.

[78 MICHAPP 327] BASHARA, Judge.

Plaintiff brings this appeal seeking review of the trial court's verdict of no cause of action. Plaintiff sought recovery for breach of an oral construction contract and the imposition of a constructive trust upon certain real property. Defendants allegedly used, as part of the purchase price, money paid to them by the plaintiff as the subscription price for stock in a corporation to be formed by defendants. As to plaintiff's interest in the land, he asserted an alternative theory of recovery. He claimed that since the corporation was never formed by defendants, the plaintiff, defendants, and other stock subscribers became partners. He alleged that the land was a partnership asset.

The trial court's verdict, denying plaintiff any recovery, was based upon the application of the statute of frauds. M.C.L.A. §§ 566.106 and 566.132(a); M.S.A. §§ 26.906 and 26.922(a).

At trial the evidence adduced tended to show that at some time prior to March, 1968, the plaintiff and individual defendants had discussions about embarking upon a business of producing wood chips. Apparently, the parties contemplated that the business would be conducted in a corporate form and that the individual defendants ¹ would be the promoters.

The parties agreed on a suitable parcel of real estate upon which to construct the wood processing facility. In March, 1968, plaintiff paid $10,000 to the defendants as a subscription price for stock in the corporation yet to be formed. That money, with plaintiff's knowledge and acquiescence, was used with the money of other subscribers to make [78 MICHAPP 328] the down payment on the real estate. Plaintiff also knew that the defendants were named as the sole vendees in the land contract.

Contemporaneously with the acquisition of the real property, the litigants entered into an oral contract for the construction by plaintiff of the building in which the business would be housed. Plaintiff's testimony alleged the contract price to be $53,850. Defendants' testimony contended the contract price was set at $48,000. Further conflict in the parties' testimony revolved around the scope of the contract's performance; that is, the items deleted from the plaintiff's contract responsibilities, but shown on the building plans and specifications, and additional-cost items actually installed by plaintiff.

Notably, however, the litigants' testimony was in agreement that an oral construction contract was formed and that no time for performance was included in its terms. Nor was any evidence adduced that the contract could not be performed within one year from the date of its making.

Prior to completion of the building and before the formation of the corporate entity, the fledgling business enterprise was beset by a fatal development; its sole customer left Detroit. Plaintiff thereafter ceased construction, allegedly on the order of defendant Lawrence Shock. Plaintiff also learned that a portion of the realty, inessential to the business, was sold by the defendants. Subsequently, plaintiff resumed construction of the building, allegedly at the request of defendant Lawrence Shock. However, sometime prior to the completion of construction, the defendants assumed occupancy of the building for their own use and, by changing the doorlocks, prohibited plaintiff from gaining access.

[78 MICHAPP 329] Plaintiff alleges that the trial court erred in denying the enforceability of the oral construction contract. It is plaintiff's contention that the statute of frauds is inapplicable since nothing in the contract established that performance was not to be completed within one year from its making.

Plaintiff also asserts that the trial court erred in denying him an interest in the real property acquired by defendants. Both a partnership theory and a constructive trust basis of recovery are advanced by plaintiff, contending that the partnership resulted from failure to form the corporation and a constructive trust is available to rectivy defendants' breach of fiduciary duty.

Essentially plaintiff's suit involves two causes of action, each raising independent issues. The breach of contract claim presents the issue of whether an oral construction contract comes within the statute of frauds where the parties admit the existence of the contract, but no time of performance is established either by the contract terms or the evidence produced. Plaintiff's action to establish his interest in the real property raises the question of appropriate relief where a corporation is contemplated and not formed, but the money paid by the subscribers is used to purchase realty.

Addressing the breach of contract issue first, we conclude that the oral construction contract is not within the statute of frauds. ² Numerous cases have construed the pertinent text of that statute, but Epstean v. Mintz, 226 Mich. 660, 198 N.W. 225 (1924), exemplifies its proper application.

In Epstean the Supreme Court held that if by [78 MICHAPP 330] any possibility an oral contract is capable of being performed within one year it is not within the statute of frauds. That Court also concluded that an oral contract is not within the statute even if the parties thereto intended or thought it probable that performance would extend beyond a one-year duration and, in fact, the performance did so extend. An earlier case, Barton v. Gray, 57 Mich. 622, 24 N.W. 638 (1885), reached the same result, holding that the Statute applies only to those contracts which by their terms are not to be performed within one year from the date of their making. Accord, Caplis v. Monroe, 228 Mich. 586, 200 N.W. 123 (1924).

At trial, the testimony of the litigants was in agreement that no time of performance was stipulated in the contract terms. Further, no evidence was adduced upon which the trial judge could find that the contract at the time of its making could not be performed within one year. Accordingly, we disagree with the trial judge's finding of fact on that facet of the case. ³ 1963 GCR 517.1, Mazur v. Blendea, 74 Mich.App. 467, 253 N.W.2d 801 (1977). The mere fact that performance of the contract, for whatever reason, extended beyond one year's duration is insufficient to establish that by its terms it was not to be performed within one year from the date of its making.

Our decision that the oral construction contract does not come within the statute of frauds, and therefore is enforceable, does not, however, relieve the plaintiff of his burden of establishing by a preponderance of evidence the basis for his recovery. Trial testimony by the litigants has established a range of $53,850 to $48,000 in which the [78 MICHAPP 331] contract price may be found as a fact by the trial judge. Thus, some basis for recovery is available, providing plaintiff establishes the existence of a breach and the amount of the contract price earned by his performance. Other evidence as to the reasonable value of the contract performance may be considered by the trial judge in ascertaining the contract price.

This Court has held that where an express verbal contract exists, as it appears to in this case, quantum meruit is inapplicable as a theory of recovery, being founded upon a contract implied in law. Cascade Electric Co. v. Rice, 70 Mich.App. 420, 245 N.W.2d 774 (1976). However, if the trial court finds that changes in the contract performance were authorized without a price being stipulated, quantum meruit may be used to formulate any recovery due the aggrieved party. Jarosz v. Caesar Realty, Inc., 53 Mich.App. 402, 220 N.W.2d 191 (1974), lv. den., 392 Mich. 811 (1974).

Since we have concluded that the oral construction contract is enforceable, it is also necessary that we briefly indicate against whom it is to be enforced. Although recent authority has not addressed this point, the applicable principle may be found in Carmody v. Powers, 60 Mich. 26, 26 N.W. 801 (1886). There, the Court held that an agreement with individuals concerning acquisition of the stock of a corporation they were to form is necessarily a personal contract, the corporate entity not being in existence at the time of contracting. Similarly, in the case under review, no corporate entity existed at the time the litigants entered into the contract. However, it was the apparent intent of the parties that the contract was to be binding at the time of its making and the plaintiff commenced performance thereunder. It [78 MICHAPP 332] follows that since the corporation never came into being the contract was personal. The trial judge should make a factual determination as to who is bound by its terms.

We further hold that the statute of frauds ⁴ is not a bar to recovery by the plaintiff as to the $10,000 paid for stock in the corporation to be formed. Some interest in the land acquired in part through the use of that money may be created as necessary to facilitate recovery. However, we reject the plaintiff's contention that failure to form the corporation ipso facto created a partnership among the...