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Bankruptcy Cases in the News: Federal and State Exemptions

Bankruptcy Cases in the News

Federal and State Exemptions

     Under the Bankruptcy Court, a debtor may elected between two sets of exemptions in a Chapter 7 case, the Federal exemptions, or (in Michigan) the Michigan exemptions. Generally, the Federal exemptions give the greatest coverage of property to the debtor. Exempt property is property that the debtor gets to keep from creditors and the trustee, which forms the basis of his or her fresh start going forward.

     In certain interesting circumstances, however, the Michigan exemptions are more favorable to the Chapter 7 debtor and should be elected. For instance, under the Federal exemptions, exemptions about $42,000.00 in home equity can be exempted by a married couple. However, if the home is jointly owned as entireties property (husband and wife) either may file individually a bankruptcy and exempt their entire equity, no matter how great, from all individual creditors.

     That is because the historical purposes of the state law favors protecting an innocent spouse from the debts of his or her spouse to preserve their primary residence. This concepts has been explored and defined in several published court decisions. For instance, see: In re: Trickett, 14 Br 85 (Bank W.D. Michigan) 1981; and, In re: Grosslight, 757 F2d 773 (6th Cir. 1985).

     One of the keys to this relief is the absence of joint indebtedness. So, if the non-filing debtor is jointly responsible on some of the incurred debt, the trustee may argue that it should be allowed to administer the estate (sell the martital home) to the extent of the joint obligations. Still, this type of harsh relief must be examined on a case-by-case basis as noted by Judge McIvor in In re: Edwin Harlin, 325 BR 184, 189 (Bank E.D. Mich) 2005:

“As a general rule, courts have been very reluctant to apply 11 USC §363 (h) to allow the sale of entireties property owned by the debtor, and a non-debtor spouse. The case law is well summarized in Collier on Bankruptcy as follows: Disputes over the applicability of a section (h) to tenancies by the entireties have created the largest number of reported cases under section, perhaps because of the unique nature of the ownership interest, the variations among the states as to the nature of the interest and the rather draconian remedy that section 363(h) gives the trustee, contrary to the deep historical roots of the form of title, which is supposed to protect each spouse from the unilateral action of the other… Thus, although generally speaking property held by the debtor as tenant by entirety is subject to sale under section 363(h), courts have erected various obstacles to such sale.”

     This suggests, of course, that married couples should strongly consider never co-signing for the other and avoid all joint debt. Also, they might consider making sure to concentrate payments to reduce and eliminate joint debt as a priority over individual debt, in the ordinary of their payments.

     If you or a loved one are considering whether bankruptcy relief would be helpful for you, please make sure to consult a qualified debt relief agency/attorney. Guy Vining is available for a no-charge initial bankruptcy consultation and would be pleased to meet with you.

Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Bankruptcy Cases in the News: 11 USC § 522: The Residence Exemption

Bankruptcy Cases in the News

11 USC § 522: Residence Exemption

    This past August has had a bumper crop of interesting cases. In re Demeter, Case no.: 12-44593 local Bankruptcy Court Judge, (Easter District of Michigan) Thomas J. Tucker, decided a very interesting and helpful case to individual debtors. In this case, he was called upon to decide because of a trustee’s objection to the debtor’s exemptions whether a second home could qualify as a residence under the federal exemption, giving this debtor couple, up to $53,250.00 in exempt property or whether the exemption could only be applied to a so-called “primary” residence. Although, this other home was in foreclosure and had no equity, whatsoever.

 

In the end, Judge Tucker over ruled the trustee’s objection because the statute did not have a requirement that the residence exemption had to apply to a “primary” residence. In the blog which follows, we will look at some of the rules of statutory construction, employed by Judge Tucker. For our purposes here it is sufficient to say that Judge Tucker found that the debtors did have a significant connection with both houses, used both year round and never rented out. In addition, he reasoned that because 11 USC § 522 (d)(1)(d) did not use the word “primary” that he would not read it into the statute, as the statute only spoke of “real property…that the debtor uses as a residence…”

 

Also, in reaching his decision the Judge noted that his construction of the statute was also consistent with major purposes of the Bankruptcy Court. In doing so, the Court noted:

 

    “Under the Bankruptcy Code, there is an overriding federal interest in providing Debtors with “a fresh start.” See, e.g., In re W.R. Grace & Co., No. 11-199, 2012 WL 2130991, at *72 (D. Del. June 11, 2012)(listing a “fresh start” for a debtor as one of the important countervailing federal interests that could override state contract law); In re Buckley, 404 B.R. 877, 887 (Bankr. S.D. Ohio 2009)(citations and internal quotation marks omitted)(stating that “the overriding goal of the Bankruptcy Code [is] to provide a “fresh start” for the debtor”); In re Spears, 308 B.R. 793, 825 (Bankr. W.D. Mich. 2004) rev’d on other grounds, 313 B.R. 212 (W.D. Mich. 2004)(“Providing an individual debtor with a “fresh start” is a fundamental objective of the Bankruptcy Code.”) By providing debtors with the right to exempt certain property from the claims of creditors so that debtors have basic necessities to begin again, the exemption scheme under § 522 (d) is crucial to, and an integral part of a debtor’s “fresh start.” Schwab v. Reilly, 130 S. Ct. 2652, 2667 (2010)(“We agree that ‘exemption in bankruptcy cases are part and parcel of the fundamental bankruptcy concept of a “fresh start.”); Spears, 308 B.R. at 825 (“Congress enacted the exemption scheme set forth in Section 522 in order to provide an individual debtor with the fresh start it contemplated.”); 4 Collier on Bankruptcy ¶522.01[5], at 522-14 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2012) (“A fundamental component of an individual debtor’s fresh start in bankruptcy is the debtor’s ability to set aside certain property as exempt form the claims of creditors.”).

 

This determination is therefore good news for debtors looking to get their fresh start and retain as much property as is provided by the federal exemption. As Judge Tucker stated in Demeter: “Thus, §522(d)(1) permits a debtor to exempt a residence that is not the principal residence. And this interpretation is consistent with the requirement that bankruptcy courts must construe exemption liberally in favor of the debtor.”

 

If you have any questions about bankruptcy law or exemption planning please feel free to call bankruptcy attorney Guy Vining of the Vining Law Group. All initial telephone conference and office meetings are free of charge.


[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Bankruptcy Cases in the News

Bankruptcy Cases in the News

The 6th Circuit Court of Appeals issued an important and very interesting case recently in White v. Wyndham Vacation Ownership, Inc., 617 F3d. 472 (2010). This Court is the Court of Appeals for a great number of Midwestern Bankruptcy Courts, including the State of Michigan. The White case shows the importance of full disclosure of all assets in a consumer bankruptcy case. As we have discussed in the past blog postings, failure to make full disclosure can result in the dismissal of a case, attorney fees and in some instances, criminal charges.

The White case dealt with an interesting additional concept called “judicial estoppel.” Here is what happened. When Mrs. White signed and filed her bankruptcy petition she forgot to list as a possible asset of a lawsuit against her former employer, Wyndham. Apparently, the reason she had financial problems was because she had been discharged under circumstances which were suspicious of employment discrimination. A potential lawsuit is an asset.

Neither in her plan, nor in her schedules did she disclose to the Bankruptcy Court or her creditors that she had a significant cause of action for employment discrimination against her former employer, Wyndham. After her plan was approved and before she filed suit against Wyndham, she made some attempts to modify her bankruptcy schedules regarding the employment claim. Still, the U.S. District Court dismissed her lawsuit for discrimination, at her former employer’s request, based upon judicial estoppel and the 6th Circuit affirmed the dismissal. The 6th Circuit discussed in the opinion the doctrine of judicial estoppel:

    In the bankruptcy context, this court has previously noted that “judicial estoppel” bars a party from (1) asserting a position that is contrary to one that a party has asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary position either as a preliminary matter or as part of a final disposition. [Citations omitted.] Id. At 476.

The White court noted that the doctrine was “utilized in order to preserve the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship.” Id. The Court further noted that it is the debtor’s absolute duty to disclose all assets to the Bankruptcy Court pursuant to various statutes in the Bankruptcy Code. Further, that based upon the purposes of bankruptcy:

  “[W]hen a bankruptcy court – which must protect the interest of all creditors – approves a payment from the bankruptcy estate on the basis of a party’s assertion of a given position that in our view is sufficient ‘judicial acceptance’ to estop the party from later advancing an inconsistent position.” [Citations omitted.]. Id. At 479.

The omission to list property or the true value assets is viewed as very significant when compared to the purpose of bankruptcy law. The White court specifically noted:

    “[T]he disclosure obligations of consumer debtors are at the very core of the bankruptcy process and meeting these obligations is part of the price that debtors pay in receiving the bankruptcy discharge. [Citations Omitted.] Viewed against the backdrop of the bankruptcy system and the ends it seeks to achieve, the importance of the disclosure duty can not be over emphasized. Id. At 480.

 
Dismissal of a significant claim was a drastic remedy. However, it was a remedy necessary to protect the bankruptcy court system. Had Mrs. White disclosed the Trustee might have brought the claim and any settlement or judgment could have been used to pay her creditors which would have got her out of her plan sooner, helping her and her creditors. When you and your bankruptcy lawyer file a petition for bankruptcy, yours assets (subject to proper exemptions) are no longer yours. The trustee has a right to bring those cases for the benefit of all administrative claimants and creditors. If all these folks get paid and there is money left over, the debtor will receive the balance.

The importance of the disclosure duty can not be over emphasized. Be sure to disclose all potential claims with your bankruptcy attorney. Otherwise, you will jeopardize your fresh start.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in the city of Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Bankruptcy Cases in the News

Bankruptcy Cases in the News

Judge Thomas Tucker of the U.S. Bankruptcy Court for the Eastern District of Michigan recently issued an interesting and important decision in the Mehlhose case (11-64190), the lengthy opinion discusses, among other things, the inherent power of the Bankruptcy Court to sanction (punish) debtors who do not play by the rules and make dishonest disclosures. In this case the Court determined that the husband-wife debtors had significantly under reported their income and filed their case in bad faith otherwise. Specifically, Judge Tucker determined that the debtors “lied under oath” concerning their income and filed a case that could not serve a legitimate purpose as they had or should have known that their particular debts were non-dischargeable. Consequently, it was determined that the case was filed in bad faith and merely for delay. The Court set up an evidentiary hearing that the debtors did not appear to testify and explain their actions. Judge Tucker noted that a Bankruptcy Court has both the inherent and the statutory authority to sanction misconduct:

In John Richards Home Bldg. Co., L.L.C. v. Adell (In re John Richards Homes Bldg. Co., L.L.C.), 404 B.R. 220, 226-27 (E.D. Mich. 2009), the court discusses the scope of a bankruptcy court’s inherent power to issue sanctions as follows:

    Bankruptcy Courts, like all courts, have an inherent power to issue sanctions, as explained by the Untied States Supreme Court in the Chambers case. See Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L. Ed. 2d 27 (1991) (“Courts of justice are universally acknowledged to be vested, by their creation with power to impose silence, respect, and decorum, in their presence, and submissions to their lawful mandates.” (Quoting Anderson v. Dunn, 19 U.S. 204, 6 Wheat. 204, 227, 5 L.Ed. 242 (1821)). The Sixth Circuit Court of Appeals has similarly stated that “[b]ankruptcy courts, like Article III courts, enjoy inherent power to sanction parties for improper conduct.Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F. 3d 472, 477 (6th Cir. 1996). … [T]he inherent power to issue sanctions is not limited to only those instances where a party violates a court order. “The federal courts’ inherent power to protect the orderly administration of justice and to maintain the authority and dignity of the court extends to a full range of litigation abuses.Mitan v. Int’l Fid. Ins. Co., 23 Fed. Appx. 292, 298 (6th Cir. 2001) (ruling that a court can award sanctions “when bad faith occurs”).

In addition to a bankruptcy court’s inherent authority to sanction misconduct, 11 U.S.C. § 105(a) provides a bankruptcy court with statutory authority to do so. It provides:

(a)The court may issue any order, process, or judgment that is necessary;or appropriate to carry out the provisions of this title. No provisions of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

In the end, the Court noted that sanctions would well include attorney fees. Debtors were sanctions by having their case dismissed, being ordered to pay reasonable attorney fees and costs and having been barred from refilling for 2 years. In filing your case, make sure to make complete and honest disclosures of debts, assets and income to the court, trustee and your creditors.

That is the trade-off. To obtain a discharge and a fresh start, the debtor must make an honest and full disclosure. Do not jeopardize your life or liberty and fresh start.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in the city of Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Top Ten Bankruptcy Mistakes: Failure to Cooperate

TOP TEN BANKRUPTCY MISTAKES

 

#8

Failure to Cooperate

Under the Bankruptcy Code the debtor has significant duties to cooperate with the Trustee. At 11 USC 521 the Bankruptcy Code requires the debtor’s cooperation in assisting the appointed Trustee. The actual duties are set forth very broadly in 11 USC 704 and includes the debtor’s duties to assist the Trustee in litigation.

The debtor must also assist in turning over all books and records to the Trustee. The duty to assist further  extends to attending and cooperating at the Meeting of Creditors required by required by 11 USC 341. The scope of the examination is also quite broad and includes: “The acts, conduct, or property or to the financial condition and liabilities of the debtor, or to any matter which may affect the administration of the debtor’s estate, or the debtor’s right to a discharge.” Bankruptcy Rule 2004(b).

Under local practices in Michigan the Trustee may file a Motion to Dismiss for Failure to Attend the 341 Hearing. In addition, the Trustee or creditors may request more extensive hearings and examinations.

These matters are infrequent. However, it is important for the debtor to understand his or her responsibilities. A failure to meet them could result in a dismissal of their case for failure to cooperate. As always, bankruptcy is a matter of equity and fair treatment. A debtor expecting to receive equity must do equity in return.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Top Ten Bankruptcy Mistakes: Transfers to Friends

TOP TEN BANKRUPTCY MISTAKES

 

#6
Transfers to Friends

In keeping with the Bankruptcy Code’s theme of statutory fairness a Trustee in bankruptcy can avoid fraudulent transfers made by a debtor within one year of when the bankruptcy case is commenced. Therefore, the debtor may not transfer for nothing at all or for less than reasonably equivalent or fair value, his property.

These situations generally arise in two contexts. In the first situation a debtor sometimes tries to keep property out of the reach of his creditors or the Trustee and make a transfer before filing the case. The second situation usually arises in the context of business bankruptcies where the transfer renders the debtor unable to pay bills or with unusually small working capital.

In either situation one can see how such transfers are unfair to other creditors who have advanced money in good faith. Thus, 11 USC 548 allows the Trustee go after and recover such transfers, if they are made within the actual fraudulent intent to hinder, delay or defraud creditors; or, are made with constructive or imputed fraudulent intent while the debtor is in financial distress.

In addition, in states like Michigan, which have their own Fraudulent Conveyance Act (MCL 566.11) the Trustee may use the state statute too as a recovery vehicle pursuant to 11 USC 544(b), if unsecured creditors of the debtor could have used the provision for recovery under state law.

Transfers that are unwound or recovered then benefit all administrative claims and creditors of the estate.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Top Ten Bankruptcy Mistakes: Payments to Friends

TOP TEN BANKRUPTCY MISTAKES

 

#5
Payments to Friends

As discussed in other postings, the Bankruptcy Code is a type of statutory equity. The concept of equity is basically to do what is right and fair to all of the interested parties to a proceeding in bankruptcy. The Bankruptcy Code has several enforcement mechanisms to make sure that everyone is treated fairly.

One of these mechanisms is the power afforded to the Trustee to set aside unfair payments or transfers. When a bankruptcy case is filed all of your property becomes a part of the bankruptcy estate. 11 USC 541. The estate is appointed a Trustee by the Court. It is the duty of the Trustee to investigate the financial affairs of each debtor and to represent the estate for the best interests of all creditors.

To operate effectively the Trustee is given certain tools under the Bankruptcy Code. Among these is the power to go after and recover from third-parties preferential transfers that the debtor made before the bankruptcy. Specifically, 11 USC 547(b) allows the Trustee to recover property for the benefit of the bankruptcy estate and all creditors from a creditor who received a payment, or amount of a past indebtedness, when the debtor was insolvent, within 90 days before the filing, which allowed that creditor to receive more than it would have received as a distribution from the estate.

Thus, the money received by a creditor, out of turn or in preference, to others can be ordered turned over to the Trustee by the Judge. This is done so that all administrative and creditor claims are treated fairly.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Business Litigation: Oppression of Minority Shareholders

BUSINESS LITIGATION CASES

BUSINESS TORT CASES

Minority Shareholder Oppression

 

Business Litigation: Oppression of Minority Shareholders

In years past, minority shareholders were frequently abused by majority shareholders with impunity. That is to say that the rights of minority shareholders were greatly constrained and limited. As a consequence their shareholder equity could be held up and used to benefit the majority shareholders who would take excessive salaries and benefits and other privileges not enjoyed by the minority shareholders. There were a few cases, which were the exception for instances forcing a corporation to pay a shareholder dividend.

In 1989 the legislature, however, enacted MCL 450.1489 with the purpose of providing minority shareholders a cause of action to complain in court against directors or those in control of the corporation. The statute provides a variety of relief which may be awarded to an aggrieved minority shareholder who is able to prove that the acts against him are: illegal, fraudulent or willfully unfair and oppressive. Oppression has been defined elsewhere to mean acts which are done under the color of authority which can be unnecessarily burdensome or severe or which weighs heavily.

This redress for wrongs against a minority shareholder gives such a minority shareholder, meaningful tools to level the playing filed. Among the remedies available the judge, upon a proper case, can even order a buy-out at a fair value so that the minority shareholders can get out and not be constantly victimized.

 

[Guy Vining, an attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the local communities and the tri-county area. If you or a family member of friend would like a no-obligation no cost consultation, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Business Tort Cases: Receivership and Cancellation of Shares

BUSINESS LITIGATION CASES

BUSINESS TORT CASES

RECEIVERSHIP AND CANCELLATION OF SHARES

 

    In a case a few years ago, VLG was able to successfully prosecute an action in behalf of one shareholder against his fellow shareholder-brother. This case was somewhat typical of a closely held corporation in that the brothers acquired the business from their parents and for sometime were successful and cooperative in running the company. Many of the formalities of the corporation had been over looked for years, however.

When personal disputes arose there were employment terminations, alleged personal injury and financial misconduct. In addition, the defendant’s wife commenced arguing that she was also a shareholder. It was alleged that the brothers were no longer 50/50 shareholders but each held 1/3 with defendant’s wife holding an additional 1/3.

After discovery of the basic facts and based upon this information VLG brought a motion for the appointment of a receiver. The motion was granted by the trial judge. A receiver can be appointed by the Court to conclude the sale and wind up the affairs of a business. MCLA 600. 2926, provides:

“Circuit court judges in the exercise of their equitable powers,
may appoint receivers in all cases pending where appointment
is allowed by law. This authority may be exercised in vacation,
in chambers and during sessions of the court… Subject to
limitations in law or imposed by the court, the receiver shall be
charged with all of the estate, real and personal debts of the
debtor or the trustee for the benefit of the debtor, creditors and the others interested.”

 

Black’s Law Dictionary (7th ed.) defines “receivers” as “[a] disinterested person appointed by the court, for a corporation or other person, for the protection or collection of a property that is the subject of diverse claims”. A receiver is an officer of the court who protects and preserves property on behalf of the parties to a lawsuit. 65 Am Jur2d, Receivers, § 1, p.351.
A Circuit Court’s decision whether to appoint a receiver is reviewed under an abuse of discretion standard. Jail Inmate v. Wayne County Executive, 178 Mich App 64, 651 (1981). Receivership is a harsh remedy and the Court should therefore consider less intrusive measures. Band v. Livonia Associates, 176 Mich App 95, 104 (1989). Extreme business stalemate and/or business misconduct must be usually demonstrated for the appointment of a receiver.
In addition, the trial court ultimately cancelled the stock which Plaintiff’s sister-in-law allegedly held. In her deposition the sister-in-law testified that she had provided services in exchange for the stock for years. The testimony also showed, however, that she had been paid for each and every service which she had earlier rendered. The trial ruled that she did not have any shares because they were not properly issued and because she had not paid any separate consideration for them. There can not be a legally binding commitment without separate consideration. As noted by legal scholars, to support a present contract or transaction, “past consideration is not consideration.” Contracts, Calamari & Perillo, 3rd Edition 1973, § 54, p 106.
Since plaintiff’s sister-in-law had been paid for her work she was not entitled to anything extra. In the regard, VLG cited the trial court to an interesting out-of-state case, Kelsoe v. International Wood Products, Inc., 588 So. 2d 877 [Alabama] (1991), there was a similar fact pattern to this case (out of state cases are not binding Michigan Courts, but sometimes can be persuasive). There an employee alleged an agreement to receive shares of stock from her employer because of years of good and faithful service. However, the Alabama Supreme Court affirmed a directed verdict in favor of the employer, holding:

It is a well-settled general rule that consideration is an
essential element of, and is necessary to the enforceability or
validity of, a contract. 17A Am Jur 2d Contracts § 117 (1991).
It is generally stated that in order to constitute consideration for a promise, there must be an act, a forbearance,
a detriment, or a destruction of a legal right, or a
return promise, bargained for and given in exchange for the promise. [citation omitted].

The undisputed evidence here shows that International Wood’s
promise to issue the stock to Kelsoe was gratuitous in nature
and was prompted only by Kelsoe’s past favorable job
performance. As such, International Wood’s promise was without consideration and created no
legally enforceable contract right. [citation omitted].

In the end, the business was sold, creditors paid and VLG’s client received a distribution of 50% of the returning proceeds. The sister-in-laws’s alleged shares were cancelled.

 

[Guy Vining, an attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the local communities and the tri-county area. If you or a family member of friend would like a no-obligation no cost consultation, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]