$43. Duration. Where there is no constitutional or statutory limitation, the corporate duration may be perpetual100. By constitution, all private corporations organized under Michigan statutes, except for railroad, canal, insurance, cemetery, or non-commercial purposes101 are restricted to an existence of thirty years. Renewals, not exceeding thirty years each, are permitted by constitution102 and are enabled by statute103. §44. Incorporators. The persons joining in the organization at its inception are variously designated as "charter members," "corporators," and "incorporators." These terms are used interchangeably. The articles being a contract between the subscribers and the corporation, it follows that the corporators must be persons capable of making a valid contract. That they are so will be presumed in the absence of a showing to the contrary. When the statute provides that any specified number of "persons" may join in making articles of association, it refers to natural persons104. Where a sufficient number of natural persons have joined, it may be immaterial that the articles have been signed by firms and corporations also105. $45. Preparation of Other Instruments. Concerning the preparation of by-laws and corporate records, 100. Green v. Graves, 1 Doug. (Mich.) 351-357. 101. Beecher's Annotated Mich. Const. 1908, Art. XII, Sec. 3. 102. Beecher's An. Mich. Const. 1908, Art. XII, Sec. 3, provides that "The legislature may provide by general laws, applicable to any corporation, for one or more extensions of the term of such corporation, while such term is running, not exceeding thirty years for such extension, on consent of not less than two-thirds of the capital stock of the corporation; and by like general laws for the corporate reorganization for a further period, not exceeding thirty years, of such corporations whose terms have expired by limitation, on the consent of not less than four-fifths of the capital stock." This provision is but a re-enactment of Article XV, Sec. 10, Const. 1850, as amended in 1899. Were it not for this provision the legislature would have been powerless to authorize renewal of corporate existence beyond an aggregate term of thirty years. Mason v. Perkins, 73 Mich. 303; Seneca Mining Co. v. Osmun, 82 Mich. 573. 103. Act No. 328 of Public Acts of 1905. 104. Marshall's Corp. p. 73; Hochgraef v. Milward, 38 Mich. 469-473. 105. Under a statute requiring not less than five subscribers to the articles of association, several co-partnerships and corporations, in addition to the required number of natural persons, joined as something will be said elsewhere106. Conveyances to the corporation, will, of course, be drawn as though running to a natural person, except that, instead of using words of inheritance in the usual places, the words "successors and assigns" will be substituted107. $46. Transfers to the Corporation. Deeds and bills of sale running to a corporation about to be organized, may be executed in advance, and will not be, on that account, defective, if duly delivered at the time of, or after, organization108. The fact that the corporate life is limited does not prevent the corporation from taking title in fee199. Creditors cannot complain of the fact that a debtor transfers all of his property to a corporation in exchange for shares of its stock. The shares are subject to levy and sale, hence the creditors are presumptively uninjured110. 847. The Prospectus. The prospectus should contain a clear, candid, accurate and complete statement of the scope and plan of the proposed corporation111. For expression of matters of opinion, given as such, and not stated as facts, no one is liable, even though the opinion is relied upon and proves erroneous to the detriment of those who have accepted it as correct112. But when an incorporators. Objection was raised on this account. In disposing of the question, Justice Grant said: "It is doubtful if any of the irregularities were fatal to the organization of a corporation de jure, but we do not deem it necessary to decide that question."-Kalamazoo v. Power Co., 124 Mich. 82. 106. See Sec. 468. 107. Delhi School District v. Everett, 52 Mich. 314-317. 108. Cook's Corp. Sec. 694. 109. Delhi School District v. Everett, 52 Mich. 314. 110. Pault v. Billings-Drew Co., 127 Mich. 11-12; Scripps v. Crawford, 123 Mich. 173. sel will do well to announce in advance that the prospectus is to be signed by some or all of the responsible parties interested in the promotion. If the parties are acting in good faith, there will be no objection to this, as it clearly adds force to the instrument. If the parties are not acting in good faith, it is well that counsel be early advised of this fact, so that withdrawal from further service may be made. 112. Getchell v. Dusenbury, 145 Mich. 197; Dieterle v. Ann Arbor Paint & Enamel Co., 143 Mich. 416-423; Hasse v. Freud, 119 Mich. 358-360; French v. Ryan, 104 Mich. 111. For the purpose of secur- 625-630. In the case last cited, it ing conservatism in, and definite was held that representations as responsibility for, the statements to the probable future earnings of contained in the prospectus, coun- a going concern, made by one hav opinion is stated as an established fact, liability may arise if the statement is acted upon and occasions damage by its untruth113. Just where the liability will fall must depend upon the circumstances of the case. It is well established in Michigan, that fraudulent intent is not necessary to render a false representation actionable. The fact that the representation was false, and that the complaining party has rightfully relied upon it to his injury is sufficient to establish the liability114. An omission to state material facts may amount to a fraud115. The prospectus is not a part of the contract between the corporation and subscriber to its stock. The contract is embodied in the charter, by-laws, subscription, and stock certificates. But false statements contained in a prospectus, when relied upon, may be received as evidence of fraud118. In the absence of clear ratification, the corporation incurs no liability on account of preorganization frauds perpetrated by its promoters by means of the prospectus, or otherwise. Mere retention of benefits does not amount to ratification of the fraud117. Ur til organized, a ing superior knowledge, and with design to deceive, amount to fraud, if relied upon. 113. In Martin v. Veana Food Co., 153 Mich. 282-291, Justice Ostrander said: "Undoubtedly, one may, without legal liability for results, permit another, for a consideration, to share his hopes, however adroitly the statement of his hopes may be phrased. He may not, by actual misstatement and without liability, induce the belief that the venture is without other risk than the usual risk of an established and prosperous business. The claim of plaintiff is that defendants represented as actual that which they hoped might become actual; that he paid his money, relying upon the representations. We are of opinion that it cannot be said, as matter of law, that plaintiff is entitled to no relief. 114. In Holcomb v. Noble, 69 Mich. 396-399, Justice Campbell made the following statement: "If there was in fact a misrepresentation, though made innocently, and its deceptive influence was effec tive, the consequences to the plaintiff being as serious as though it had preceded from a vicious purpose, he would have a right of action for the damages caused thereby, either at law or in equity." See also Christian v. Michgan Debenture Co., 134 Mich. 171178. 115. A secret royalty contract, undisclosed to stockholders by the promoters, was set aside. Fred Macy Co. v. Macey, 152 Mich. 164; 143 Mich. 138. "Fraud may be consummated by suppression of facts and of the truth, as well as by open false assertions. Fraudulent concealment is a matter of equitable jurisdiction as well as fraudulent assertion." Further, "The jurisdiction of the court of chancery in this State to try cases and grant relief from the consequences of fraud is as old as the jurisprudence of the State."-Justice Grant in Fred Macey Co. v. Macey, 143 Mich. 138-150-153. 116. Peterson v. Building, etc., Association, 124 Mich. 573. 117. Wright v. St. Louis Sugar Co., 146 Mich. 555; St. John's Mig. corporation can have no agent118. In the absence of estoppels, the promoters may be held liable for their own frauds119. §48. Promoters. Promoters occupy a fiduciary relation toward the company and its stockholders, and will not be permitted to exact or retain the benefits of secret, unconscionable advantages 120. Upon discovery of the fact that promoters have obtained a secret profit upon property purchased by them for the corporation, they may be compelled to disgorge121. Sometimes allowances are made to them, out of such profits, for actual expenses incurred by them, of which the company has had the benefit. But where the promoters themselves have represented that there would be no allowance for promotion expenses, such allowance will not be made122. Where a preorganization subscription has Co. v. Munger, 106 Mich. 90, 29 118. St. John's Mfg. Co. v..Munger, 106 Mich. 90-95. 119. Cuba Colony Co. v. Kirby, 149 Mich. 453; St. Johns Mfg. Co. v. Munger, 106 Mich. 90-95, Halsey Fire Engine Co. v. Donovan, 57 Mich. 318-321. In Christian V. Michigan Debenture Co., 134 Mich. 171, it was held that where a promoter places his individual property in the hands of a corporation for the purpose of strengthening the credit, or enhancing the attractiveness of the concern, such property will be treated as a trust fund for the benefit of those who have acted upon the strength of the representation that the property belonged to the corporation. "In 120. Fred Macey Co. v. Macey, 152 Mich. 164; 143 Mich. 138. those cases where the scheme of organization gives the promoters a power of selecting the directors who are to represent the company in the proposed purchase (of property for corporate purposes) they are bound to select competent and trustworthy persons who will act honestly in the interest of the stockholders. A purchase made from the promoters under these circumstances will not bind the company, unless it was a fair and honest bargain." Justice Brown in Dickerman v. Northern Trust Co., 176 U. S. 181, 44 L. ed. 423 435. 121. Cuban Colony Co. v. Kirby, 149 Mich. 453-458. 122. Cuban Colony Co. v. Kirby, (Id). In this case promoters had arranged for the purchase of certain lands in Cuba at $40,000. To enable themselves to make a secret profit of $20,000, they caused the contract of purchase to be made out naming $60,000 as the purchase price. A limited partnership association was then formed under the laws of Michigan with a captial stock of $65,000. Of this, $45,000 was paid up in cash by bona fide subscribers, and $20,000 was subscribed and paid up by transfer to the association of the Cuban contract, upon which the promoters represented $20,000 had been paid. The truth was that nothing had been paid, and when this was discovered, a bill in chancery was successfully maintained by the association for can been obtained by a promoter by means of fraudulent representations, acceptance of the subscription by the corporation does not amount to an adoption of the promoter's wrongful act. In the absence of affirmative proof that the preorganization representations and promises of the promoters have been ratified by the corporation with full knowledge of the circumstances, the promoter's fraud can not be successfully urged for the purpose of defeating subscription liability123. As a general rule, the promoters alone are liable upon preorganization contracts. Where, however, the obvious intent of both parties was that the corporation, and not the promoter should be bound, the courts will make this intent operative. Thus, where a corporation is organized for the express purpose of taking over a contract obtained for its benefit prior to organization, with actual or constructive notice to the opposite party that such is the case, the corporation is bound by acceptance of the contract, and the promoters are without individual liability, the intent of all parties having been to bind the proposed corporation124. Contracts promising promoters donations, or bonuses, contingent upon the organization of a corporation, are valid. When the condition has been performed such contracts may be enforced. The promise to pay is supported by the work done in reliance upon the promise125. When a bonus has been promised to a promoter as an inducement to the organization of a corporation, there is no legal reason why he may not use such bonus. in making payment for stock subscribed by him126. cellation of the secret profit shares in the hands of the promoters. Some of the shares had been pledged to a bona fide holder, and as to these, the association was given the right to pay the debts secured, cancel the pledged stock and recover from the promoters the amount so paid by the association to the pledgee. 123. Rapid Hook & Eye Co. v. De Ruyter, 117 Mich. 547; St. John's Mfg. Co. v. Munger, 106 Mich. 90. 124. Esper v. Miller, 131 Mich. 334. 125. Stevens v. Corbitt, 33 Mich. 457-460; Underwood v. Waldron, 12 Mich. 90; Comstock v. Howd, 15 Mich. 242. 126. McDermott v. Squier, 124 Mich. 523. For discussion of a promoter's contract, see Locke v. Wilson, 135 Mich. 593. That a municipal corporation can not, directly or indirectly, bind its credit for the promotion of a private enterprise, see Thomas v. City of Port Huron, 27 Mich. 320. |