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.]